Citation: 2014 TCC 14
Date: 20140114
Docket: 2013-2864(EI),
2013-2863(CPP)
BETWEEN:
PAUL E. MALLON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
C. Miller J.
[1]
Mr. Mallon has worked
for Honeycomb Worldwide Inc. ("Honeycomb") since July 2011 as what I
would describe as a commissioned salesperson, with the title of Director or
Vice-President of Business Development. The Government maintains that from July
5, 2011 to October 3, 2012, Mr. Mallon was an employee of Honeycomb and thus in
insurable and pensionable employment for purposes of the Employment
Insurance Act (the "EIA") and Canada Pension Plan
(the "CPP"). Mr. Mallon maintains he was an independent
contractor: the age old issue – which is it?
[2]
I heard two witnesses:
Mr. Mallon and the CEO of Honeycomb, Mr. John Hughes. Unlike many
cases dealing with this issue, here, Mr. Hughes, representing the Payor and Mr.
Mallon, the independent contractor or employee, told the same story. Their
description of the work, of the arrangement and the contract was identical.
This was indeed refreshing.
[3]
Honeycomb is in the
digital media events business. It provides internet seminars or webinars in the
biotech industry. To be successful the business needs both an audience and
sponsors. It was Mr. Mallon’s job to find sponsors, who would pay Honeycomb to
sponsor a webinar and thus get its business in front of potential biotech
customers.
[4]
Mr. Mallon, prior to
joining Honeycomb, was employed at the Toronto Board of Trade, but as his
arrangement was coming to an end, he responded to a Craig’s List advertisement
regarding a position with Honeycomb. Honeycomb needed someone to create new
business, and after some meetings between Mr. Hughes and Mr. Mallon, in
which Mr. Mallon expressed a desire to be an independent contractor, an
agreement, the Contracting Services Agreement, was reached. According to Mr.
Mallon, he used the Board of Trade’s contract, with some minor modifications,
in his new position.
[5]
Mr. Mallon’s job was to
sell sponsorships. In 2011, only he and Mr. Hughes were handling that
aspect of the business. Since then, others have been hired who also do sales,
all but one of whom is in an employment arrangement. The other individual who
started as an independent contractor changed to employee status when this
became an issue with the Government. Only Mr. Mallon has pursued this issue.
[6]
All sales people were
compensated in a similar fashion; that is, a base salary, in Mr. Mallon’s case
of $2,000 per month, plus commissions as set out in Schedule A to the
Contracting Services Agreement. Schedule A stipulates:
Effective
July 5, 2011, commissions will be paid by Honeycomb to the contractor on all
sponsorship sales obtained by the contractor as follows:
·
From July 5 to September 6, 2011 at a rate of
20% of the price of the sponsorship.
·
Thereafter the commissions will be at a rate of
10% on the initial $15,000.00 in total sales for a month and 15% on sales over
$15,000.00 for a month.
Commissions
will be paid on the last day of the month, only upon monies received in each
month.
[7]
When Mr. Mallon first
started, Mr. Hughes spent a couple of hours filling him in on Honeycomb’s
business, but felt that Mr. Mallon was experienced enough in sales that little
further training was required. Mr. Mallon conducted the work from Honeycomb’s
office relying on computers and phone provided by Honeycomb. Most customers
were in Europe or the United States so there were no in-person sales pitches.
The office had normal business hours of 8:30 a.m. to 5:30 p.m. and Mr.
Mallon adhered mainly to those hours though would often work on Saturdays.
[8]
Mr. Mallon testified
there were no formal performance reviews nor formal vacation times, and as a
courtesy he would advise Mr. Hughes if he was going to be away for a few days.
Mr. Mallon would consult with Mr. Hughes when negotiating rates with customers.
Mr. Mallon provided no invoices to Honeycomb nor did he charge Goods and
Services Tax ("GST"). He never hired anyone to replace him. If there
was a concern with a potential client he would deal with it, though if there
was a concern with an existing client Mr. Hughes might get involved. Mr. Mallon
acknowledged that Mr. Hughes was ultimately the face of Honeycomb.
[9]
Mr. Mallon stated he
had no business expenses and the reason he wanted independent contractor status
was simply to be independent with the ability to terminate the arrangement on
short notice.
[10]
Mr. Hughes described
the industry as competitive, and that it was common to have sales people in
independent contractor arrangements, so he thought he would do the same when
Mr. Mallon asked, though the rest of the sales force at Honeycomb were
employees. Mr. Hughes questioned how the Toronto Board of Trade might be able
enter such arrangement, yet he, as a small business, was being challenged.
[11]
This case highlights
what is often at the root of these employee versus independent contractor
cases, and that is that the involved parties believe they can choose to opt in
or out of Employment Insurance ("EI"). If a worker wants independent
contractor status, then with a stroke of a pen the worker has it,
notwithstanding all other workers in similar positions are treated as employees,
and notwithstanding the true nature of the working arrangement. This is not a
criticism, as oftimes the working arrangement is sufficiently informal that the
line between employment and independent contractor is fuzzy, and it might
indeed require little tweaking to fall off either side of the fence.
[12]
This case also
highlights the danger in placing too much reliance on intention in determining
the appropriate relationship. The recent Federal Court of Appeal case of 1392644
Ontario Inc. (c.o.b. Connor Homes) v Canada has attempted to place the factor of
intention in the appropriate determinative hierarchy. The court stated:
37. … the determination of whether a particular
relationship is one of employee or of independent contractor cannot simply be
left to be decided at the sole subjective discretion of the parties.
Consequently, the legal status of independent contractor or of employee is not
determined solely on the basis of the parties declaration as to their intent.
That determination must also be grounded in a verifiable objective reality.
…
39. Under the first step, the
subjective intent of each party to the relationship must be ascertained. This
can be determined either by the written contractual relationship the parties
have entered into or by the actual behaviour of each party, such as invoices
for services rendered, registration for GST purposes and income tax filings as
an independent contractor.
40. The second step is to
ascertain whether an objective reality sustains the subjective intent of the
parties. As noted by Sharlow J.A. in TBT Personnel Services Inc. v. Canada, 2011 FCA 256 (CanLII), 2011 FCA 256, 422 N.R. 366 at para. 9, “it is also
necessary to consider the Wiebe Door factors to determine whether the facts are consistent with
the parties’ expressed intention.” In other words, the subjective intent of the
parties cannot trump the reality of the relationship as ascertained through
objective facts. In this second step, the parties intent as well as the terms
of the contract may also be taken into account since they colors the
relationship. As noted in Royal Winnipeg Ballet at para. 64, the relevant factors must be considered “in
the light of” the parties’ intent. However, that being stated, the second step
is an analysis of the pertinent facts for the purpose of determining whether
the test set out in Wiebe Door and Sagaz has been in fact met, i.e whether the legal effect of the relationship the parties
have established is one of independent contractor or of employer-employee.
41. The central question at
issue remains whether the person who has been engaged to perform the services
is, in actual fact, performing them as a person in business on his own account.
As stated in both Wiebe Door and Sagaz, in making this
determination no particular factor is dominant and there is no set formula. The
factors to consider will thus vary with the circumstances. Nevertheless, the
specific factors discussed in Wiebe Door and Sagaz will usually be relevant, such as the level of control over
the worker’s activities, whether the worker provides his own equipment, hires
his helpers, manages and assumes financial risks, and has an opportunity of
profit in the performance of his tasks.
[13]
I read these guidelines
in conjunction with the following comments from the Federal Court of Appeal in
the Royal Winnipeg Ballet v Canada case:
I emphasize again, that his does not mean
that the parties’ declaration as to the legal character of their contract is
determinative. Nor does it mean that the parties’ statements as to what they
intended to do must result in a finding that their intention has been realized. To paraphrase Desjardins J.A. (from
paragraph 71 of the lead judgment in Wolf), if it is established that the terms
of the contract, considered in the appropriate factual context, do not reflect
the legal relationship that the parties profess to have intended, then their
stated intention will be disregarded. (emphasis added).
[14]
So, stated intention
can be "disregarded": "legal status of independent contractor or
of employee is not determined solely on the basis of the parties declaration as
to their intent". With respect, turning what was, prior to the Royal
Winnipeg Ballet case, a one-step approach into a two-step approach,
requiring the second step to be an analysis through the "prism" of
intention appears to place too great an emphasis on the factor of intention,
that can so readily be manipulated with no regard for the true status of the
working relationship, but more to the effect of avoiding source deductions. I
am bound to follow the Federal Court of Appeal’s approach, and I will, as
clearly in this case the actions of Mr. Mallon (no invoices, no business
expenses, no GST) and the actions of Honeycomb (treating all other
workers in similar positions as employees) do not support an intention expressed
by words only in the Contracting Services Agreement that an independent
contractor relationship was intended. It is unnecessary therefore to enter the
second step of the analysis suggested by the Federal Court of Appeal through an
independent contractor prism. What is necessary is to review those traditional
factors to answer the simple question – whose business is it?
[15]
I would suggest, with
respect, the two step approach is backwards. First, determine the true nature
of the working arrangement, through the traditional analysis, and as Justice
Noel acknowledged in Wolf v The Queen, if the answer is not definitive, consider
the mutual intention. Or perhaps look to intention as just one of the
traditional factors such as control, ownership of tools, chance of profit and
risk of loss, limiting the analysis to one step. It has always troubled me that
this factor received no mention in the Supreme Court of Canada leading case on
this issue (1671122 Ontario Ltd. v Sagaz Industries Canada Inc.,) yet we
now must analyze through the intention prism. As judges we attempt to set tests
not just to provide useful guidance for our own analysis, but to provide a
helpful roadmap to taxpayers or, in this case, employers and workers. When
determining the status of a working arrangement the message must be that the
courts will look foremost to the actions and behaviour that define the
relationship and determine whose business it is. Indeed, action and behaviour
will determine intention, not the other way round. Mr. Mallon’s intention to be
an independent contractor meant, to him, an ability to terminate the contract
with little notice. Clearly this is not a differentiating factor in the
analysis and weakens any value to be put on stated intention. I proceed with
caution when factoring intention into the analysis.
[16]
I find in this case
there is only one business and that is the business of Honeycomb. Mr. Mallon is
not in business on his own account. I will review the relevant factors in
leading me to that conclusion.
i) Control
[17]
It is always difficult
in informal arrangements to identify elements that suggest control or lack
thereof. Mr. Mallon worked in the same office as Mr. Hughes, to the point
Mr. Hughes suggested Mr. Mallon might learn the business by osmosis. Certainly
there was no formal performance review, but equally certain was Mr. Hughes’
constant presence. Mr. Mallon abided by Honeycomb’s office hours. He agreed
only he could provide the services – no replacements. The agreement itself
indicated the working arrangement was for an "unfixed term", during
which Mr. Mallon was "free to provide services to other
organizations", while also agreeing to exercise "his full attention
in performing the services" listed in the agreement. He could not provide
services elsewhere if it interfered with his work for Honeycomb.
[18]
The clients Mr. Mallon
approached were Honeycomb clients, ultimate control of contracts and managing
such clients resting with Mr. Hughes.
[19]
Neither was this a completely
hands off arrangement nor an overbearing management control arrangement. Mr.
Mallon worked closely with Mr. Hughes in a small office, an office for which
Mr. Hughes was in charge. I find the control factor does not point
determinatively one way or the other.
ii) Ownership of equipment
[20]
All equipment, and
given the nature of the business, this means office equipment, was supplied by
Honeycomb to Mr. Mallon: this is an indication of employment.
iii) Chance of profit
[21]
Mr. Mallon was not paid
on a full commission basis. He had a guaranteed $2,000 a month with commissions
owing at certain sales targets. He was not the only worker at Honeycomb with
such an arrangement. All others had employment status. A commission does
suggest the harder and more successfully one works at sales, the greater the
income. Being paid only on a commission basis would argue more in favour of an
independent contractor arrangement; the guaranteed monthly income, however,
mitigates against such a finding. Further, the sale of sponsorships would be
limited by a factor outside Mr. Mallon’s control, being the capability of Honeycomb
to provide the webinars. What this suggests is that Mr. Mallon, unlike an
independent contractor, may not have had sky’s the limit possibilities for
earning profit. This points out to me that there was really just the one
business, and that was the one being carried on by Honeycomb. This factor
favours a finding of employment.
iv) Risk of loss
[22]
Simply put, there was
none for Mr. Mallon. He acknowledged he had no business expenses. He incurred
no costs for insurance, interest on loans, travel expenses. Honeycomb bore all
expenses. Mr. Mallon had a guaranteed monthly income. This all suggests to me
Mr. Mallon faced no risk and was in an employment arrangement.
v) Any other relevant factors
[23]
Mr. Mallon had no
capital investment as such in his own business.
[24]
On balance, the traditional
tests point to an employment arrangement between Mr. Mallon and Honeycomb.
Mr. Hughes asked why can the Toronto Board of Trade get away with independent
contractor arrangements. Unfortunately, I do not have all the circumstances of
the arrangements between the Board of Trade and its workers to answer that
question. These are very fact specific determinations not susceptible to making
broad generalizations that might address his concerns.
[25]
The Appeals are
dismissed.
Signed at Ottawa, Canada, this 14th day of January 2014.
"Campbell J. Miller"
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