Summit Gourmet Foods Inc. v. M.N.R., docket 97-470-UI

Date: 19971121

Docket: 97-470-UI

BETWEEN:

SUMMIT GOURMET FOODS INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

FREEMAN WALTERS,

Intervenor.

___________________________________________________________________

Counsel for the Appellant: Paul Harasen

Counsel for the Respondent: Marvin Luther

For the Intervenor: The Intervenor himself

____________________________________________________________________

Reasons for Judgment

(Delivered orally from the Bench in Regina, Saskatchewan, on October 24, 1997)

Mogan, J.T.C.C.

[1] This is an appeal arising under the provisions of the Employment Insurance Act. The issue is whether the Intervenor, Freeman Walters (Freeman) was employed in insurable employment by the Appellant, Summit Gourmet Foods Inc., in a certain period which ran from 1994 to 1996 or whether he was an independent contractor.

[2] The Appellant carries on business as a supplier to pizza restaurants. It manufactures the components for the making of pizzas, such as the combination of cheeses, sliced meat products and other raw materials that go into a pizza. The Appellant also prepares for sale a “completed pizza” which can be frozen and popped into the oven, without requiring any work by the consumer. This is an extensive business operated out of Saskatchewan. The Appellant has customers in Manitoba, Saskatchewan, Alberta and British Columbia. The product has to be delivered from Regina to the other three provinces and also throughout the province of Saskatchewan.

[3] Eric Bauer (Eric) owns 50% of the shares of the Appellant. Barbara Petrisor (Barbara) and Vern Petrisor (Vern) (husband and wife) own the other 50%. The three shareholders participate in the management and operation of the Appellant’s business. It is a small organization with only three or four employees engaged in the actual manufacturing process. Barbara is the bookkeeper who, with another person, runs the office. Vern is in charge of purchasing the supplies and supervising the manufacturing process. Eric manages the accounts; he has connection with the customers including maintenance of customer satisfaction and ensuring that the product is delivered.

[4] In early 1994, Freeman began to work for the Appellant in the capacity of a driver. Approximately 10 years earlier, he and Eric had worked with a similar organization, driving and delivering pizza product, so that Eric and Freeman knew each other. Thereafter, Eric and the Petrisors came to establish the Appellant company and, in 1994, Freeman came to them looking for work as a driver.

[5] Exhibit A-1 is a hand-written sheet of paper which was signed by Freeman and Eric. It was sometimes referred to as an agreement but it may not be an enforceable agreement in law. I am satisfied, however, that it set down the basic terms of compensation at three different periods in the overall relationship between Freeman and the Appellant. When Freeman started to work for the Appellant in the spring of 1994, the idea was that Freeman would be paid $450 for each trip to Alberta, $600 for each trip to British Columbia and $450 for each trip to Manitoba, plus a 5% commission on his sales for each trip in any province. The amounts were negotiated on the basis that Freeman would be gone for a week on each trip delivering product for the Appellant; and he would be paid this set amount from which he would have to buy his own food. To the extent that he was required to stay in hotels or motels, he brought back the invoices from the motels and the Appellant reimbursed him for those costs. The 5% commission was based on Freeman’s ability to sell product for the Appellant. There is a conflict of evidence with respect to the commission and I shall refer to it briefly.

[6] The Appellant had established customers in all four of the western provinces. When the truck left on Monday morning, it would have designated product for designated customers in a particular province. Over and above the designated product, there was surplus product which was available for sale either to the established customers if they needed more than they had actually ordered, or to new customers which might be developed in the course of the trip. The idea of the 5% commission was that Freeman could earn this commission on any sales of extra product to customers other than the established customers. In other words, he could not make a commission on the sale of extra product if it was sold to an established customer who needed more than the customer had thought when the order was put in. That is the theory put forward by Eric and Vern on the one side. Freeman, testified, however, that he never was paid a commission. He stated: “All I was paid was $50 for every new customer I developed, but the customers I developed were customers of the Appellant. They were not my customers and I did not make a 5% commission on sales to new customers that I developed. I received $50 for each new customer.”

[7] From the evidence, it is difficult to determine how commission was paid. Exhibit R-11 appears to list Freeman’s trips out of Regina from June 1994 to April 1996. It shows the date he left on a trip, the date he returned, the province he made the trip to, the number of kilometres, the number of days and the number of hours and also, the amount of pay. Looking at this exhibit, it seems generally to match the specific amounts per trip identified in Exhibit A-1. There are round amounts like $525, $550, $675, $450. They seem to tie in with the targeted amounts in Exhibit A-1 so that, if he was paid either commissions or $50 amounts for customers, those extra amounts do not seem to be reflected in Exhibit R-11. That is the basis on which I reconcile the conflict.

[8] I am inclined to think that if Freeman had not had the opportunity to earn a 5% commission, it would not have been so clearly set out in Exhibit A-1. Also, at the bottom of Exhibit A-1, there appears to be a newly negotiated agreement as of January 1, 1996. The amounts per trip are increased and there is a notation after the increased amounts which says “as above”, indicating the 5% commission continued to be available. I am satisfied, however, that a commission was not earned very often. Freeman stated in evidence: “How could I earn a commission when I was working 15 hours a day?” He did put in long hours but looking again at Exhibit R-11, it appears that he did not work 15 hours per day because there are a number of trips such as January 3, 1995 when he was gone five days for 65.5 hours. That would be approximately 13 hours per day. Also, on January 30, 1995, he was gone on a four-day trip to Alberta and put in 49.5 hours which is approximately 12.5 hours per day. He is of course working more than an eight-hour day but, given the kind of work he was doing, I do not consider a 12-hour day extraordinary when a person is away from home on a specific assignment, doing a round trip to a distant province. There is no point working an eight-hour day and spending evenings sitting around with idle time. A 12-hour day for that kind of work, I would think, is a normal kind of day.

[9] The principal area of conflict is whether Freeman would be an independent contractor or an employee. Barbara testified and said that she had a conversation with Freeman in which he said that he had wanted to be self-employed and that, in fact, he was a self-employed person. She further added that he did not want source deductions; he was responsible for his own deductions and paid his own income tax at the end of the year. When Freeman testified, however, he denied that such a conversation took place with Barbara, and he stated that he wanted to be an employee.

[10] On balance, I am inclined to believe Barbara that that conversation did take place for two or three reasons. First, Freeman had regarded himself as self-employed when doing similar work for a prior employer, which employment was confirmed by Exhibit R-10 which is the letter written in 1996 by Freeman to Revenue Canada wherein he said “When I worked for Gourmet Pizza, I was self-employed”. That letter was written in June 1996 after his engagement with the Appellant had been terminated. I believe he was viewing it from a different point of view because he wanted to be regarded as an employee at that time. He acknowledged in that letter, however, that he worked for Gourmet Pizza as self-employed and I am inclined to think that when he began working for the Appellant, he thought of himself as a self-employed person. Second, he filed income tax returns during his years of service with the Appellant showing himself to be an independent contractor and not an employee. Therefore, I believe that the above conversation with Barbara did take place and that is one of the reasons why there were no source deductions in the payments made by the Appellant to Freeman throughout the period of approximately two years when he provided services to the Appellant from the spring of 1994 to the spring of 1996.

[11] Although I believe the above conversation with regard to self-employment took place, it is still not conclusive as to what the relationship was between the Appellant and Freeman. There is an abundance of law which states that the relationship between two parties is not what they say it is. They may call themselves a lessor and a lessee with respect to a building but the real substance of their relationship may indicate that they are vendor and purchaser. Therefore, although I believe the above conversation took place, I am more concerned with the real substance of what was going on between the Appellant and Freeman in terms of the tests laid down by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. I shall briefly apply the tests contained in Wiebe Door and which are accepted by counsel in this case because they both referred me to those tests. The tests are control, ownership of tools, chance of profit or risk of loss and integration.

[12] On control, I regard that test as marginally favouring employment and not independent contractor even though counsel for the Appellant stressed that Freeman was not told the way to do his work. I accept that. On the other hand, he was assigned trips; he could arrange the order of delivery and the date but they had to be delivered within a week, and he had to call in to the Appellant’s office each morning. This was brought out in Freeman’s testimony. He said: “Every person operating a truck has to report in, and I specifically did. I had to call in every morning to say where I was going so that they would know where I would be that day, and whether there were additional orders that had come in from customers which I might have to fill out of the extra product I was carrying”. There was an opportunity for the Appellant to call evidence in reply to contradict that bald statement by Freeman but it failed to do so. On a common sense basis, I believe the statement.

[13] Eric described a freezer truck which Freeman used costing between $70,000 and $80,000. When a company sends a person out in its truck of that value, it wants to know not only where the truck is day-by-day but also, when there are established customers to be serviced, it wants to know in a timely manner whether the customers are being serviced because they are the lifeline of a business. I cannot believe that a person in Freeman’s position would not be required to report in daily on where he went and what he had serviced and whether there were fresh orders.

[13] The fact that Freeman could arrange the order in which he would service these customers, or that he could arrange the time when he started on a trip does give him some freedom from control but, on balance, I would say that although he was not under the hand of the Appellant, they knew on a daily basis where he was, what he was doing and what customers he had serviced. Therefore, on the test of control, I find that there is more of an indication of the type of control one finds in employment than the simple direction which is given to an independent contractor.

[14] With regard to the test of ownership of tools, it is very strongly in favour of employment and not an independent contractor. The only relevant tools for this kind of work were the truck and the dolly, both of which were owned by the Appellant. Counsel for the Appellant brought to my attention a similar case in Saskatchewan, where Mr. Justice Kyle of the Court of Queen’s Bench said:

... To draw a parallel between the ownership of tools in the case of a tradesman and the hotel and equipment therein in a case such as this appears to be stretching the logic of the Montreal Locomotive case beyond reason.

I would agree with that statement. I think that an $80,000 truck was never in the minds of those learned Judges half a century ago who laid down these early tests and talked about ownership of tools. In my view, they were talking about tradesmen’s tools like a carpenter’s hammer and saw. The fact is, however, that in a more sophisticated society, this truck was the only vehicle through which the service was performed. The driver’s licence that was held by Freeman was a pre-qualification to his engagement with the Appellant; and he could not be engaged if he did not have a driver’s licence. I do not regard his driver’s licence as a tool. I look at the only thing that Freeman used to perform the services and it was a very expensive and sophisticated piece of equipment. Therefore, the test of ownership of tools favours employment.

[15] On the chance of profit and risk of loss, I find that also favours employment because there was virtually no risk of loss. There was a chance of compensation because all Freeman had to do was complete the round trip and he would receive the amount that had been settled between himself and the Appellant in Exhibit A-1. Compensation in this context is not profit. Counsel for the Appellant argued that it was possible for Freeman to incur a loss because, on the surplus product that he carried, he could say: “I will buy some of that and resell it for profit on my own”. If he had committed to that kind of arrangement, he could buy the product at the point of departure on the trip; let us say 10 cases of completed pizza, and take a chance on selling them either on this trip, and make money by the trading in pizza product. That opportunity may have been available to him, but I draw the inference that the extra product was not there just for the trading and commercial activities of the driver. It was also there as backup product for the needs of established customers who might, in the course of the trip, decide that they needed more than the order destined for them at the time of departure of the truck.

[16] Also, I am reinforced by the evidence of Freeman which was not contradicted that he never took that opportunity. He stated: “I never traded in the product. I did not buy it and sell it. I was too busy delivering the designated product to engage in this”. He did admit under cross-examination, however, that the product for sale was available to him, and I believe that it was, but the availability of it, in my view, does not detract from the overall compensation which did not permit a risk of loss. It was a specific compensation for completing the round trip and there was not an entrepreneurial aspect of making a profit or suffering a loss. The availability of buying the product was not an integral part of the engagement of Freeman. It was incidental to his engagement as a person experienced in handling a truck of this kind to pick up the product and deliver it to designated locations.

[16] On the integration test of whether Freeman’s service to the Appellant was indispensable to the business, I believe that if he withdrew his services, the Appellant’s business would have gone on. It was evident that Eric was experienced in this area and could, on short notice, take over the services of Freeman. I also assume there were any number of persons with driving qualifications who, with minimum instruction, could have taken the place of Freeman.

[17] On balance, therefore, I have to conclude that this was employment and not the case of an independent contractor. The reasons I have given are running strongly that way and, even though I find against Freeman on a matter of credibility with respect to whether a conversation took place between himself and Barbara about the employment, I am not influenced by that conversation. I am more influenced by what really happened. The appeal is dismissed.

"M.A. Mogan"

J.T.C.C.

Ottawa, Canada,

November 24, 1997.