P & P Data Systems Inc. v. M.N.R., docket 98-204-UI

Date: 19990412

Dockets: 98-204-UI; 98-29-CPP

BETWEEN:

P. & P. DATA SYSTEMS INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for judgment

MacLatchy, D.J.T.C.C.

[1] These appeals were heard in Toronto, Ontario, on February 18, 1999.

[2] These appeals arise from a decision of the Minister of National Revenue (the "Minister") that Unemployment Insurance and Canada Pension Plan premiums were payable by the Appellant in respect of Timothy Lasebnik (the "Worker").

[3] The Appellant was assessed for failure to remit Unemployment Insurance premiums and Canada Pension Plan contributions in respect of the said Worker.

[4] The failure to remit the amounts of such contributions is in accordance with the assessments recited in each of the Replies to the Notices of Appeal and particularly in paragraph 5 of each Reply.

[5] The Appellant is a corporation in the business of research and development and sales and service of software for the medical profession and medical clinics and the sales and service of such products, owned, operated and controlled by Albert Pinhas and his wife Miriam Pinhas.

[6] The Worker was engaged by the Appellant to sell its products in Ontario pursuant to written contracts entered into by the parties from time to time.

[7] The Worker operated for a period of time under the name TL Medical Consultants Inc., and then latterly, under his own name.

[8] Pursuant to the written contracts, some of which were entered as Exhibits, the Worker was paid commissions on sales of the Appellant's products in an exclusive sales territory including Hamilton, Oakville-Burlington, through Niagara Falls and Fort Erie and up to Brantford. A minimum annual sales revenue was required to be achieved each year to maintain the exclusivity. The Worker could also sell in Metropolitan Toronto or any other location where support could be provided by the Appellant. The Worker was required to report on a monthly basis along with his expense reports. The price list of the products was supplied by the Appellant to the Worker which was to be kept current. The Worker could sell the products at any price over the recommended sale price and he would benefit by receipt of higher earnings by commission; however, if the price was lower than recommended then the Appellant's approval was required. The Appellant provided a car allowance to the Worker that varied, from time to time, of $400 to $500 per month. The Worker was encouraged by the Appellant to open an office in his personal residence and agreed to pay for a separate telephone connection to be used as the Appellant's business line in the territory; the telephone was to be answered in the name of the Appellant. The Appellant also provided the Worker with a computer, fax machine, printer, cellular phone and telephone calling card and answering machine, as well as office stationery and business cards in the Appellant's business name. The Appellant included the Worker under its dental and health plans at no cost to the Worker.

[9] Albert Pinhas was the Appellant's contact with the Worker and clearly gave evidence in support of a relationship, other than that of employer/employee, between the Appellant and the Worker. He claimed the Appellant had no control over the Worker, whatsoever, as to his hours of employment or the method and style of his selling the Appellant's products. He claimed supervision was minimal and the reporting required could not be enforced effectively. Although the Worker was to be paid only commissions on sales, the Appellant did, for a number of months, provide the Worker with a monthly guarantee of $1,500 to be applied against his commission income. This was requested by the Worker for his own reasons, not germane to this hearing. Albert Pinhas was strongly of the opinion that the Worker was an independent contractor.

[10] The Worker's evidence was equally positive that he was nothing but an employee. He was in constant, almost daily, contact with the Appellant through Albert Pinhas or his son, both of whom were his immediate supervisors. His work was closely monitored by his supervisor through lists of doctors and institutions given to him by the Appellant whom he should contact and report results. Frequently, he was accompanied on his calls by either or both Albert Pinhas and his son Moishe. When the Worker commenced his engagement with the Appellant, he invoiced the Appellant without collecting G.S.T. and it was only after advice by his accountant concerning this method of billing that he latterly registered and collected G.S.T. on each invoice. The invoice method of billing was asked for by the Appellant and provided the Company with an up to date record of business written by the Worker. The Worker was a conscientious individual who was sales oriented and addicted to his work. He worked all hours to accomplish sales for the Appellant would only take holidays when he felt his sales would not suffer. He enjoyed the life style that his excellent commission income could provide.

[11] The facts given in evidence must now be weighed and applied to the four-fold test recommended by the case law as in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025.

Control

[12] Mr. Albert Pinhas claims he really had no control over the hours spent by the Worker on the Appellant's business. The Worker indicated he was closely monitored by daily contact with the Appellant, by his method of invoicing and by the contracts submitted to and accepted by the Appellant. Although the Appellant required monthly reports, the Appellant claimed they were not provided but yet it could have enforced that requirement by reason of their agreement with the Worker. The Appellant chose not to do that. It was clear, on the evidence, that, for whatever reason, the Appellant had control but did not exert it to its fullest extent. This Court believes the Worker and his dedication to his work was respected by the Appellant and their relationship might have been disrupted by the exercise of too much control. The Appellant paid for car allowance, all telephone costs and dental and health benefits for the Worker. The Appellant provided the price lists for its product and required a confidentiality agreement to be executed by the Worker. The Appellant could require that certain calls be made by providing lengthy lists of contacts to the Worker. The regular hours of the Worker were not monitored but the telephone line at the Workers' residence had to be answered in the name of the Appellant from 9:00a.m. to 5:00p.m. daily except weekends. Control was indicative of a relationship of employer and its employee.

Tools

[13] The Appellant encouraged strongly that the Worker use his residence as his office and provided the office with all the necessary equipment to be in full operation. Any and all tools required by the Worker to carry out his endeavour as a sales representative were provided by the Appellant with the exception of an automobile but in lieu thereof the Appellant gave a reasonably generous car allowance. The question of ownership of tools is conclusively in favour of an employer/employee relationship.

Chance of profit and risk of loss

[14] This heading is not as clear as it might be because the Worker could profit from his volume of sales made so long as he controlled his expenses. To some extent, he could make a profit or suffer a loss as a result of his own labours.

[15] The Worker had no financial interest in the Appellant's company and would not share in its profits or suffer its losses except to the extent of his being a part of a successful venture or without a job should the venture fail.

Integration

[16] There is little doubt that an effective sales force was part and parcel of the business of the Appellant. Its products had to come to attention of prospective clients and this was done through a sophisticated sales force. Most of the sales representatives were declared by the Appellant to be employees and a copy of their agreement was filed as an Exhibit. It included more extensive terms and conditions than the agreement entered into by this Worker but that was the choice of the Appellant for whatever reason. Memos to its sales representatives included the name of this Worker and the Appellant held out this Worker to its clients as a "Regional Manager". The Worker, at all times, believed he was an employee and was bullied into collecting his commissions by way of invoice and expense accounts. It was the route of least resistance. Complaints were fielded by the Worker but were referred to the Appellant for solution and follow-up. The Worker sold the product but left the installation of it and the training of the client to the Appellant. The Worker was expected to attend for training in the use of new products and expected to attend seminars and trade shows where the Appellant's products would be exhibited to the public at large.

[17] This test indicates to this Court that the business was that of the Appellant but that the Worker was an intimate and integrated part of that business. The Appellant called the Worker an independent contractor but by its actions and its relationship as evidenced at this hearing the Appellant treated the Worker as a sales employee. The contract that was created between the parties was a contract of service and not for services.

[18] On application of these tests, the relationship between the Appellant and the Worker was that of employer and employee and the Worker's engagement was insurable employment under both the Unemployment Insurance Act and the Canada Pension Plan.

[19] The appeals are dismissed and the determinations and the assessments made by the Minister are confirmed.

Signed at Toronto, Ontario, this 12th day of April 1999.

"W.E. MacLatchy"

D.J.T.C.C.