Drummond v. M.N.R., docket 96-35-CPP

Date: 19980424

Dockets: 96-862-UI; 96-35-CPP; 96-918-UI; 96-38-CPP

BETWEEN:

DEBORAH DRUMMOND,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

CALVIN KLEIN COSMETICS (CANADA)

A DIVISION OF U L CANADA INC.,

Intervener,

AND

CALVIN KLEIN COSMETICS (CANADA)

A DIVISION OF U L CANADA INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

JANICE TAIT,

BETTY DUTKO,

JOCELYNE GALARNEAU TESTA,

Interveners.

Reasons for Judgment

Cuddihy, D.J.T.C.C.

[1] These appeals were heard on common evidence on February 19 and 20 and March 30 and 31, 1998, in Toronto, Ontario, in the circumstances described in volume 2 of the transcript at pages 475 to 490.

I- The appeals

[2] These are appeals from assessments dated June 23 and 24, 1994, whereby the Minister of National Revenue (the "Minister") assessed Calvin Klein Cosmetics (Canada) a Division of U L Canada Inc., (the "Payor") for failure to remit unemployment insurance premiums and Canada Pension Plan contributions and related interest for the 1992 and 1993 taxation years as a result of the Minister having determined that Deborah Drummond and several hundred others referred to as "contract demonstrators" or "spritzers" (the "Workers") were employed under a contract of service with the Payor and thus engaged in insurable and pensionable employment within the meaning of the Unemployment Insurance Act and the Canada Pension Plan. The decision of the Respondent dated February 21, 1996, on the reconsideration was that the assessments be confirmed.

II- The Facts

[3] In rendering his decision the Minister relied on the facts and reasons outlined in his Replies to the Notices of Appeal in paragraphs 5 of appeals no. 96-862(UI) and no. 96-35(CPP) and paragraphs 6 of appeals no. 96-918(UI) and no. 96-38(CPP). For the purpose of these appeals, it will only be necessary to recite the facts of one of the said Replies as follows:

Deborah Drummond 96-862(UI)

"(a) the Payor is an importer and distributor of fine fragrances and related products;

(b) the Payor's line of products are sold principally to major department stores (the "Stores");

(c) the Payor hires demonstrators, also referred to as "spritzers", to promote their line of products in the Stores (the "Workers");

(d) the Appellant was employed by the Payor as a contract demonstrator or "spritzer" during the 1992 taxation year;

(e) the Workers, including the Appellant, distribute product samples from the Payor's line of products and/or scented cards to encourage the Store's customers to purchase the Payor's line of products;

(f) the Workers are used at times of peak promotional activity (ie: Christmas, Mother's day, etc.);

(g) the dates, time and locations of the demonstrations are set by the Payor;

(h) the Workers are personally required to perform their services and cannot engage the services of a helper or replacement;

(i) the Workers are required to demonstrate exclusively the Payor's line of products at the Stores;

(j) the Payor provides training sessions on their line of products to the Workers;

(k) the manager of the Store's cosmetic counter monitors the Workers' performance;

(l) the Payor exerts control over the Workers;

(m) the Workers are not required to provide any of the necessary facilities, equipment or products used in promoting and demonstrating the Payor's line of product at the Stores locations;

(n) the Workers were paid by the Payor for the actual hours worked at an hourly rate ranging between $8.00 to $13.00 in the 1992 and 1993 taxation years;

(o) the Workers had no risk of loss and no opportunity for profit in carrying out their duties from the sales of the Payor's products;

(p) the tasks which the Workers perform constitute an integral part of the Payor's business;

(q) the Appellant was employed by the Payor pursuant to a contract of service in the 1992 taxation year;

(r) the Payor failed to remit unemployment insurance premiums with respect to the contract demonstrators referred also as "spritzers", referred to herein as the Workers."

[4] The Worker, Deborah Drummond, now known under the name of Deborah Drummond McNulty in appeals no. 96-862(UI) and no. 96-35(CPP), admitted the allegations in subparagraphs (a), (c) and (m). The allegations in subparagraph (b), (e), (f) and (o) were admitted with further explanations to be given at the hearing. The allegations in subparagraphs (d), (g) to (l), (n) and (p) to (r) were denied.

[5] The Payor, through its counsel, admitted the allegations in subparagraphs (a) and (m). The allegations in subparagraphs (b), (e) and (f) were admitted with further explanations to be given at the hearing. The allegations in subparagraphs (c), (d), (g) to (l), (n) to (r) were denied.

[6] The Intervenors, Janice Tait, Betty Dutka and Jocelyne Galarneau Testa, in appeals no. 96-918(UI) and 96-38(CPP) did not appear and were not represented.

Brief summary of testimonial evidence

[7] The description of how the Worker began as a contract demonstrator and what were her conditions of work, was given by the Worker.

[8] In 1990, the Worker was a permanent employee of Canadian Airlines International (CAI). She was a flight attendant. She learned through her sister of the possibility of working as a "contract demonstrator" for the Payor. On November 8, 1990, she met for lunch with the territory manager of the Payor, Michele Gilbert. It was at this meeting that her working conditions were discussed and agreed to, by both parties. At this meeting a written contract was signed (Exhibit A-1) and reproduced at length herein as follows:

"The undersigned, self-employed, independent contractor offers her/his services as a demonstrator of products, upon the following terms and conditions:

1. The Demonstrator will attend at such place or places as you may direct, but otherwise will receive instructions from and adhere to the requirements of the store or outlet at which the Demonstrator will perform her/his services.

2. The fee chargeable will be at the rate of $11 per hour/day and will be payable upon your receipt from the Manager of the outlet of a confirmation that the services were satisfactorily performed and the time put in as required.

3. The Demonstrator reserves the rights to accept or reject any engagement offered to the Demonstrator.

4. The Demonstrator acknowledges that the fee payable under this contract is the only compensation to which the Demonstrator is entitled.

The Demonstrator understands and agrees that sole responsibility for payment of all income taxes, unemployment insurance, Canada Pension Plan, Workmen’s Compensation or any other taxes or benefits rests with her/him.

Dated This 08 day of November, 1990

D.Drummond

(DEMONSTRATOR)

ADDRESS INFORMATION - PLEASE PRINT CLEARLY

NAME: Deborah Drummond

ADDRESS:1391 Roylen Road

ACCEPTED BY: PROVINCE:Oakville, Ont. POSTAL CODE:L6H 1V5

M. GILBERT PHONE:(416) 845-5052"

[9] Deborah Drummond McNulty was heard in support of her appeal. George Grabowski, the Appeals Officer, was heard on behalf of the Respondent. Exhibits A-1, I-1 to I-4 and R-1 to R-6 were filed in the Court record.

[10] The Payor is an importer and distributor of fine fragrances and related products. In this case, the Payor’s line of products was refereed to as "Calvin Klein". These products are sold to major department stores where they are resold to consumers at retail display counters. The Payor does not have retail stores of its own where these products may be bought directly by consumers.

[11] The services of the contract demonstrator (the Worker in this case), were that she was to attend at various shopping malls into or near major department retail stores therein, where Calvin Klein products were available to consumers. These retail stores were unrelated to the Payor.

[12] The duties of the Worker, at the stores, consisted of her decision to stand in the flow of traffic at an appropriate place in order to engage in a conversation with prospective customers and, if successful, invite them to take an interest in the Payor’s fragrance in the hope that her intervention might result in a sale of a Calvin Klein product.

[13] The Worker was supplied by the Territory Manager of the Payor with a monthly listing of the department stores and the dates of the month where sales and/or promotions of Calvin Klein products were going to take place.

[14] The hours or the number of days of work were not determined in advance. The Worker was given a number of variable hours that she could work according to her own schedule. At first, in November of 1990 and throughout the year 1991, the Worker, being a full-time flight attendant, gave priority to that job and scheduled her hours as a contract demonstrator accordingly.

[15] In January of 1992, the Worker was laid off temporarily from her full-time job and placed by her employer (CAI) on a four-year recall eligibility list. The Worker could be recalled to work at any time as a flight attendant over the next four years.

[16] The foreseeable availability of the Worker led her to meet with the new Territory Manager of the Payor, Sandi Nixon in order to work more hours than previous years. She was then given verbally, on a monthly basis, a lump of hours far more than she could carry out herself. She could thus decide on the number of hours she would work, what stores or malls she would attend and give the other available hours to other contract demonstrators.

[17] Throughout these periods of 1991, 1992, and up until February 22, 1993, the Worker was paid for her services at an hourly rate of $11 which eventually increased to $14. Her type of services did not change and the contract (Exhibit A-1) remained in force.

[18] The Worker submitted her account for services rendered by producing for the Payor a document (Exhibit R-2) entitled "Demonstrator Sales Report". This document revealed the day, the date and the hours worked. The tally of sales was not always filled in. What was important was that the days and number of hours be initialed by the Fragrance Manager of the store. The evidence however indicated that any other permanent employee of the stores could initial the document and that it was specifically for the hours worked that the invoice was initialed. The Worker received no commission for any sales that may have been produced by her work at the stores. She was not permitted to accept payment from any customers for any products sold in the stores. The "Demonstrator Sales Report" (Exhibit R-2) was forwarded to the Payor and a cheque for payment was issued to the Worker.

[19] The Worker, while attending at the store, wore the clothes of her choice. It is accepted that she wore a small pin with the inscription "Calvin Klein". This identified her to the store employees and the customers that she was a representative of some sort of "Calvin Klein" and distinguished her from other competitors. She stated that she was not required to wear it.

[20] The Worker stated that she was not supervised while working at the stores. She did not have to report to anyone in general or particular. If she did not show up at a store, she would indicate the information "out of courtesy" on the Demonstration Sales Report. She determined what shopping centres she would attend and the number of hours she would spend at any given place. She could also decide to change areas within a Mall or go to another Mall, depending on customer traffic flow. She could also choose stores closer to her home as opposed to those further away. She said that she did not think it would have been honest for her to pay someone to take her place at a lesser rate and invoice the Payor at the agreed rate. She never worked on a Sunday, the days and the hours of actual work were determined by herself. The Worker said that she had the flexibility to accept or reject any work offered to her. The evidence also indicated that she could act as a Contract Demonstrator for the Payor’s competitors and that in fact she had done so but added that she advised the Territory Manager of the Payor.

[21] The Worker received no vacation pay. She actually took seven weeks of vacation at her expense and required no permission from the Payor. She received no overtime pay. She worked out of her own home. She paid her own Canada Pension Plan contributions. She received no reimbursements or allowances for any other expenses related to her work.

[22] She filed her personal income tax returns stating the self-employed earnings together with expenses incurred as a result of such employment (Exhibit I-2).

[23] On February 22, 1993 the Worker became a full-time employee of the Payor. The Worker explained this transition, how she was hired and paid and what conditions were then in application. She was hired in the accounts receivable department of the Payor. She was covered for all the Payor’s benefits. The Payor deducted from her pay the premiums and contributions for unemployment insurance and Canadian Pension Plan respectively. She was expected to work five days a week at regular office hours. She also filled out a tax form for income tax purposes and was paid on a regular basis.

[24] George Grabowski, the Appeals Officer, explained that on May 8, 1995, he mailed questionnaires to a sampling group of 45 workers and that 17 workers replied. No questionnaire was sent to Deborah Drummond, the Worker in this case. He received from the Payor a completed questionnaire (Exhibit R-5) on June 9, 1995. He spoke to Sandy Nixon, the Territory Manager of the Payor by telephone on August 9, 1995. He also spoke over the telephone with a cosmetic manager of the Eaton store in Hamilton, Ontario. The witness at the request of the Court filed his report as Exhibit R-6. This report is dated November 22, 1995 and was signed by the Chief of Appeals on February 15, 1996. He concluded in particular from pages 10 to 12, that the "contract demonstrators" in this case were hired under a contract of service.

[25] This witness was also cross-examined, re-examined and suggested a series of questions arising from the facts given before the Court by the Worker Deborah Drummond McNulty. Both parties canvassed thoroughly the issues to be resolved. He maintained his opinion as to his ruling.

III- The law and analysis

[26] i) Definitions from the Unemployment Insurance Act

"employment" means the act of employing or the state of being employed."

"Insurable employment"

[27] Subsection 3(1) of the Unemployment Insurance Act reads in part as follows:

"3(1) Insurable employment is employment that is not included in excepted employment and is

(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise;

[...]"

[28] Canada Pension Plan, R.S.C. 1985, Chap. C-8

"2. (1) In this Act,

"employee" includes an officer;

"employer" means a person liable to pay salary, wages or other remuneration for services performed in employment, and in relation to an officer includes the person from whom the officer receives his remuneration;

"employment" means the performance of services under an express or implied contract of service or apprenticeship, and includes the tenure of an office;

...

6. (1) Pensionable employment is

(a) employment in Canada that is not excepted employment;"

[29] In order to determine the existence of a true contract of service I refer to the following excerpts from Wiebe Door Services Ltd v. M.N.R., 87 DTC 5025, where Justice MacGuigan, F.C.A. at pages 5027 to 5030 stated:

"[Control test]

The question of whether a contract is one of service, in which case it indicates a master-servant or employment relationship, or for services, in which case the relationship is between independent contractors, has arisen most often in the law of torts, as surveyed recently by Professor Joseph Eliot Magnet, Vicarious Liability and the Professional Employee (1978-79), 6 C.C.L.T. 208, or in labour law, as recently summarized by Professor Michael Bendel, The Dependent Contractor: An Unnecessary and Flawed Development in Canadian Labour Law (1982), 32 U.T.L.J. 374.

The traditional common-law criterion of the employment relationship has been the control test, as set down by Baron Bramwell in R. v. Walker (1858), 27 L.J.M.C. 207, 208:

It seems to me that the difference between the relations of master and servant and of principal and agent is this: A principal has the right to direct what the agent has to do; but a master has not only that right, but also the right to say how it is to be done.

That this test is still fundamental is indicated by the adoption by the Supreme Court of Canada in Hôpital Notre-Dame de l'Espérance and Theoret v. Laurent et al., [1978] 1 S.C.R. 605, 613, of the following statement: "the essential criterion of employer-employee relations is the right to give orders and instructions to the employee regarding the manner in which to carry out his work.

Nevertheless, as Professor P.S. Atiyah, Vicarious Liability in the Law of Torts, London, Butterworths, 1967, p. 41, has put it, "the control test as formulated by Bramwell, B.,... wears and air of deceptive simplicity, which... tends to wear thin on further examination." A principal inadequacy is its apparent dependence on the exact terms in which the task in question is contracted for: where the contract contains detailed specifications and conditions, which would be the normal expectation in a contract with an independent contractor, the control may even be greater than where it is to be exercised by direction on the job, as would be the normal expectation in a contract with a servant, but a literal application of the test might find the actual control to be less. In addition, the test has broken down completely in relation to highly skilled and professional workers, who possess skills far beyond the ability of their employers to direct.

[Entrepreneur test]

Perhaps the earliest important attempt to deal with these problems was the development of the entrepreneur test by William O. (later Justice) Douglas, Vicarious Liability and the Administration of Risk (1928-9), 38 Yale L.J. 584, which posited four differentiating earmarks of the entrepreneur: control, ownership, losses, and profits. It was essentially this test which was applied by Lord Wright in Montreal v. Montreal Locomotive Works Ltd. et al., [1947] l D.L.R. 161, 169-70:

In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer's right to interfere with the employee's conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior...

Taken thus in context, Lord Wright's fourfold test is a general, indeed an overarching test, which involves "examining the whole of the various elements which constitute the relationship between the parties." In his own use of the test to determine the character of the relationship in the Montreal Locomotive Works case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction.

[Organization test]

A similar general test, usually called the "organization test" (though termed the "integration test" by the Tax Court here), was set forth by Denning L.J. (as he then was) in Stevenson, Jordan and Harrison, Ltd. v. MacDonald and Evans, [1952] l T.L.R. 101, 111:

One feature which seems to run through all the instances is that, under a contract of service, a man is employed as part of the business, and his work is done as an integral part of the business; whereas under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.

The organization test was approved by the Supreme Court of Canada in Cooperators Insurance Association v. Kearney, [1965] S.C.R. 106, 112, where Spence J. for the Court quoted with approval the following passage from Fleming, The Law of Torts (2nd ed. 1961) 328-9:

Under the pressure of novel situations, the courts have become increasingly aware of the strain on the traditional formulation [i.e., the control test], and most recent cases display a discernible tendency to replace it by something like an "organization" test. Was the alleged servant part of his employer's organization? Was his work subject to co-ordinational control as to "where" and "when" rather than to "how"?

As Bendel points out, supra, at p. 381, the organization test is now "firmly established in Canada." He explains its attractiveness as follows, supra, at p. 382:

The aspect of the organization test which makes it so attractive in the labour relations context is that integration into another person's business, the key feature of the test, is a very useful indicator of economic dependence. The relationship between integration and economic dependence has been explained this way by the Ontario Labour Relations Board (in a case predating the Ontario dependent contractor amendments):

The essence of operating a business is holding out to a market society the availability of goods and services at the best possible price having regard to competing pressures exacted upon a particular market. It seems patently obvious to this Board that a particular business will not flourish in circumstances where growth is totally integrated with the operations of a particular customer. The essence of resolving and distinguishing the contractor from employee is his independence... In instances where the driver's means of financial support is [sic] inextricably bound up with the respondent we are of the view that he cannot be considered an independent contractor.

(Underlining by undersigned)

...

Professor Atiyah, supra, at pp. 38-9, ends up with Lord Wright's test from the Montreal Locomotive Works case, as he finds it more general than Lord Denning's, which he sees as decisive in only some cases.

[Analysis]

I am inclined to the same view, for the same reason. I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test, with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations," even while the usefulness of the four subordinate criteria is acknowledged.

(Underlining by undersigned)

...

Of course, the organization test of Lord Denning and others produces entirely acceptable results when properly applied, that is, when the question of organization or integration is approached from the persona of the "employee" and not from that of the "employer," because it is always too easy from the superior perspective of the larger enterprise to assume that every contributing cause is so arranged purely for the convenience of the larger entity. We must keep in mind that it was with respect to the business of the employee that Lord Wright addressed the question "Whose business is it?"

Perhaps the best synthesis found in the authorities is that of Cooke J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732, 738-9:

The observations of Lork Wright, of Denning L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account? " If the answer to that question is "yes," then the contract is a contract for services. If the answer is "no" then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk be taken, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him.

(Underlining by undersigned)

There is no escape for the trial judge, when confronted with such a problem, from carefully weighing all of the relevant factors, as outlined by Cooke J."

[30] Desjardins, J.A of the Federal Court of Appeal in Hennick,[1] reiterated the position of the Court:

"While this test is well known, it might be useful at the outset to emphasize that in his analysis of both Lord Wright's fourfold test (control, ownership of the tools, chance of profit, risk of loss) and of Lord Denning's organization or integration test, MacGuigan, J.A., in Wiebe Door Services Ltd., stressed all along that what remains of the essence is the search for the total relationship of the parties. He first quoted at length Lord Wright in Montreal v. Montreal Locomotive Works Ltd.[2]

In earlier cases a single test, such as the presence or absence of control, was often relied on to determine whether the case was one of master and servant, mostly in order to decide issues of tortious liability on the part of the master or superior. In the more complex conditions of modern industry, more complicated tests have often to be applied. It has been suggested that a fourfold test would in some cases be more appropriate, a complex involving (1) control; (2) ownership of the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive. Thus the master of a chartered vessel is generally the employee of the shipowner though the charterer can direct the employment of the vessel. Again the law often limits the employer's right to interfere with the employee's conduct, as also do trade union regulations. In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior." (Emphasis in text)

Then, he added:[3]

". . . I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test, with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations", even while the usefulness of the four subordinate criteria is acknowledged.

. . . . .

What must always remain of the essence is the search for the total relationship of the parties . . .

Of course, the organization test of Lord Denning and others produces entirely acceptable results when properly applied, that is, when the question of organization or integration is approached from the persona of the "employee" and not from that of the "employer", because it is always too easy from the superior perspective of the larger enterprise to assume that every contributing cause is so arranged purely for the convenience of the larger entity. We must keep in mind that it was with respect to the business of the employee that Lord Wright addressed the question "Whose business is it?" (my emphasis)

[31] In 1997, Décary, J. of the Federal Court of Appeal in Normand Charbonneau,[4] also stated:

"...

Two preliminary observations must be made.

The tests laid down by this Court in Wiebe Door Services Ltd. v. M.N.R. [5] - on the one hand, the degree of control, the ownership of the tools of work, the chance of profit and risk of loss, and on the other, integration - are not the ingredients of a magic formula. They are guidelines which it will generally be useful to consider, but not to the point of jeopardizing the ultimate objective of the exercise, which is to determine the overall relationship between the parties. The issue is always, once it has been determined that there is a genuine contract, whether there is a relationship of subordination between the parties such that there is a contract of employment (art. 2085 of the Civil Code of Québec) or, whether there is not, rather, such a degree of autonomy that there is a contract of enterprise or for services (art. 2098 of the Code)...

Moreover, while the determination of the legal nature of the contractual relationship will turn on the facts of each case, nonetheless in cases that are substantially the same on the facts the corresponding judgments should be substantially the same in law. As well, when this Court has already ruled as to the nature of a certain type of contract, there is no need thereafter to repeat the exercise in its entirety: unless there are genuinely significant differences in the facts, the Minister and the Tax Court of Canada should not disregard the solution adopted by this Court.

In our view, when the judge of the Tax Court of Canada allowed the respondent’s appeals in this case and found that the contract was a contract of employment, he fell into the trap of doing a too mathematical analysis of the tests in Wiebe Door, and as a result he wrongly disregarded the solution adopted by this Court in Attorney General of Canada v. Rousselle et al.[6] and upheld in Attorney General of Canada v. Vaillancourt."[7]

[32] What was the total relationship between the parties? Did the two Appellants succeed in establishing that the Worker was in business for herself?

Hearsay

[33] I wish to address the subject of hearsay which was discussed in argument. Section 18.29 of the Tax Court of Canada Act indicates that section 18.15 applies with such modifications as to circumstances require, in respect of appeals arising under Parts IV and VII of the Employment Insurance Act.

[34] Subparagraph 4 of section 18.15 reads as follows :

"(4) Notwithstanding the provisions of the Act out of which an appeal arises, the Court, in hearing an appeal referred to in section 18, is not bound by any legal or technical rules of evidence in conducting a hearing for the purposes of that Act, and all appeals referred to in section 18 shall be dealt with by the Court as informally and expeditiously as the circumstances and considerations of fairness permit.

R.S., 1985, c. 51 (4th Supp.), s. 5."

[35] The Court is not bound by any legal or technical rules of evidence, the appeal shall be dealt with by the Court as informally and expeditiously as the circumstances and consideration of fairness permit. This is imperative.

[36] It would appear therefore that the Appeals Officer who carries out an investigation under the Unemployment Insurance Act, be permitted to explain what he did and the information he obtained since it is as a result of the information gathered that the Minister decided whether the employment was insurable or not. However the Court in these appeals, in evaluating evidence that was not subjected to oath or cross examination (the two protective safeguards for excluding hearsay), must determine what probative value that evidence would have as the circumstances and considerations of fairness permit.

Concluding analysis summary

[37] The Respondent suggested that the Payor was a large corporate entity hiring and firing contract demonstrators as the need required and this was not in keeping with the purpose or intention of the Unemployment Insurance Act and ultimately these "contract demonstrators" were in fact employees of the Payor and the determination of the Respondent should be confirmed. The Worker and the Payor took the opposite view that the situation was one that should be considered as a contract for services as the Worker was in business on her own.

[38] The evidence demonstrated the existence of a genuine contract and the issue is whether there is a relationship of subordination between the parties such that there is a contract of employment or whether there is not rather such a degree of autonomy that there is a contract for services.

[39] The evidence at the hearing as to the initial agreement of the parties and the conduct of their affairs as a result are extremely important. It is also important to analyze the mutual dependency of the parties as a consequence of the contract between them in order to determine what the real intrinsic relationship was.

[40] The Payor’s business is importing, distributing fine fragrances and related products. The Payor’s line of products is sold only to major department stores. The Payor does not operate retail stores of its own. The Payor is not a retailer and does not sell products to off the street customers.

[41] The contract (Exhibit A-1) makes no mention of the Payor. It is only by the evidence that it is known that Michele Brunet was the Territory Manager for the Payor. It would appear, then, that the Territory Manager was the person that actually decided when and how many contract demonstrators would be needed and what fee would be allowed. This activity of the Territory Manager could possibly vary from one to another. The Territory Manager appeared to act on her own with the implicit consent of the Payor. Nothing in the evidence showed that she was authorized by the Payor to hire a person as an employee. The contract therefore was the principal document used to secure the services of the contract demonstrator and it must be accepted that if the contract was not signed as accepted, no work was provided and no fees payable. Therefore in analyzing the evidence, this basic contract was the foundation upon which rested the intentions of the parties and thus determined what the intrinsic relationship was between the Payor and the Worker through the activity of the Territory Manager.

[42] In analyzing the evidence of the Worker and the questionnaire submitted to the Respondent (Exhibit R-5), the Worker was engaged on a contract basis, for an undetermined amount of hours, for no determined number of days. She was paid according to the number of hours she decided to work. If she worked more hours she was paid more, if she worked less hours or did not go to work she was not paid. She worked at the stores she chose. It is accepted that she worked at stores where Calvin Klein products were being sold but she could work for other competitors. This was not excluded in the contract. The services of the Worker would be carried out personally by the contract demonstrator. The Worker would not have hired someone else to perform her services but nothing in the contract (Exhibit A-1) or the evidence at the hearing could prevent the Worker from hiring another person to assist her while she was working at a particular store on a given day. This could or would reduce her income but nothing says that it could not be done. The Worker was made aware either by the Territory Manager or the stores of the periods of promotion of Calvin Klein products but the decision as to what store, what hours and how she would perform her duties was the decision of the Worker. It did not appear that the Workers comings and goings were coordinated with the operations of the Payor. It is accepted that the contract demonstrator’s work was done for the stores who owned the products and indirectly for the Payor, the supplier. This work was not integrated to the Payor’s daily or weekly business but was only incidental to it. It was not part of the actual importing or distribution per se, of the products to the stores. The work had to do with the periodic promotional activity in selected stores at peak periods of the year. Although the stores sold those products on a day-to-day basis, the contract demonstrators services were not required on that basis. According to the evidence, the requirement of contract demonstrators was temporary and variable. The hours worked and invoiced to the Payor could vary from a few to many hours. Their number could vary on a daily, weekly, monthly or yearly basis. There could conceivably be periods where the contract demonstrators services were not required at all. Therefore it would not be unusual for the Territory Manager of the Payor to "contract out", if I can use the term, for those services in the way it was explained and accepted by the Worker in this case.

[43] The Worker when offered assignments could accept or refuse them. The Worker received and was offered no vacation pay or holidays. In fact, the Worker took at will her holidays. The Worker paid her own Canada Pension Plan contributions and filed her tax return as a self-employed person (Exhibit I-2). This certainly would not be the situation of an employer/employee relationship.

[44] The situation of the Worker, according to the whole of the evidence, was described by Cooke, J. in Market Investigations Ltd. v. Minister of Social Security [1968] 3 all E.R. 732 at p. 739

"A person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him".

[45] The Worker did not have an existing business of her own. The Worker was free to choose the means of performing her work and no relationship of subordination existed between her and the Payor in respect of such performance. It is accepted that at times the Worker would be made aware that she was appreciated but there were no training or performance records kept or implemented by the Payor for the Worker. The demonstrator sales report (Exhibit R-2) was meant to show the hours worked. Any employee of a store could initial the hours and this was a requirement to be paid. The Worker would indicate sales but was not required to fill out that part of the report if she did not have time. The Worker was not paid any commissions or other benefits. This document, therefore, could not be viewed as a performance or payroll record but as an account for services rendered. This document triggered the payment to the Worker.

[46] It is also accepted that a provider of services like the Worker is bound to act in the best interest of the client and in accordance with usual practice and the rules of art and where applicable to ensure that the service provided is in conformity with the contract. These express or implicit obligations arising out of the contract do not make it a contract of service. These obligations, as said earlier, show the mutual dependencies of the parties as a consequence of the contract.

[47] Furthermore, the transactions which took place between Michele Brunet and the Worker in 1990 (Exhibit A-1) and the hiring of the Worker by the Payor on February 22, 1993, as described by the Worker, permit to conclude that two different situations were contemplated and agreed to. These two situations illustrate the differences between the contract for services in 1990, 1991 and 1992 and the contract of service which took place when the Worker became an employee of the Payor.

[48] A suggestion made by the Respondent was to the effect that since Deborah Drummond McNulty was the only person that appealed the determination out of the hundreds of contract demonstrators was because she was an employee of the Payor and that the Court should view her evidence in a different light.

[49] The evidence shows that the Worker was advised on February 21, 1996, by the Respondent (Exhibit R-3) and invited to appeal if she did not agree. It would not be unusual for a person to appeal when invited especially in the circumstances of this Worker. The right exercised by a taxpayer to appeal should never cast a negative inference on his or her evidence unless other evidence provides a real legal reason for doing so. The fact that others did not appeal is not determinative of the issue before this Court.

[50] I have accepted the evidence of the Worker as straightforward and truthful and have no reason to disbelieve her. Her evidence illustrates the intention of the parties when they entered into the contract agreement (Exhibit A-1). I have also viewed the evidence of George Grabowski as truthful and the thorough cross-examination of this witness convincingly confirmed the position held by the Worker.

[51] Nothing, in the evidence persuaded me that the parties to the contract (Exhibit A-1) intended anything different or acted in any way contrary to the purpose or intent of the unemployment legislation. If the Respondent is of that view (which was not shown before this Court), a change in the legislation may be contemplated.

[52] This evidence has demonstrated a sufficient degree of autonomy in the Worker to describe her work as a contract for services.

[53] The Appellants, therefore, have dispelled the main allegations of the Respondent and have succeeded on a balance of probabilities in demonstrating that the Worker and the Payor entered into a contract for services on November 8, 1990 and that the Worker was providing services to the Payor on her own account.

Issue Estoppel

[54] This issue was argued on March 30 and 31, 1998.

[55] Counsel for the Payor filed sufficient documentation to make it unnecessary for the Court to extensively describe the situation which evolved between the Payor and the Respondent in the matter of "contract demonstrators" over the past few years.

[56] The appeal in the present case was filed in this Court by the Payor on May 17, 1996. On June 26, 1996, the Respondent and Elizabeth Arden, A Division of U L Canada Inc., were parties to appeal no. 94-620(UI) that was heard in Toronto, Ontario, before the Honourable Judge St-Onge of this Court.

[57] On July 8, 1996 a judgment was rendered allowing the appeal of the Payor. Counsel before Judge St-Onge were Richard Nixon for the Appellant and Judith Sheppard for the Respondent. The subject matter of that appeal was whether or not a worker, Tony Bergen, was employed by the Payor as an employee or was her work to be considered a contract for services. No review procedure was initiated by the Respondent in the Federal Court of Appeal as a result.

[58] The Court in the present case heard on common evidence the two appeals which involved the Respondent, the Payor Calvin Klein A Division of U L Canada Inc. and a Worker, Deborah Drummond McNulty. Counsel were Richard Nixon, representing the Payor and Judith Sheppard, representing the Respondent. The Worker was unrepresented. The issue was whether the Worker was an employee or employed under a contract for services with the Payor.

[59] A book of correspondence was filed by the Payor. This document contains three letters that speak for themselves and indicate particularly that, as a result of the final decision of Judge St-Onge in case no. 94-620(UI) on July 8, 1996 and another case Ferrero Canada Limited of August 12,1996 which dealt with the matter of "contract demonstrators", the Payor through counsel wished to have a meeting with the Respondent in order to discuss this matter and possibly avoid further litigation.

[60] No significant intention on the part of the Respondent to discuss the matter with the Payor or his counsel was expressed. The only submission of the Respondent is contained in a letter of counsel for the Respondent dated February 11, 1998, in which she advises counsel for the Payor that she has instructed the Respondent not to discuss any aspect of the present appeal with the Payor or its attorney while the matter was in litigation before the Tax Court of Canada and that any communication with the Respondent regarding a matter in litigation should only be made through Justice counsel, that the submissions at the appeals stage and the Notice of Appeal filed had been given due consideration by the Respondent and the Department of Justice and their opinion had not changed. The Payor then wrote to Susan Cox, the Acting Director of the Respondent in order to meet. There was no reply to this letter.

[61] As a result of what I heard, it appeared to me that the parties before Judge St-Onge and before me were the same. The lawyers were the same. The replies were similar in both cases, the issue "contract demonstrators" was the same and the type of agreement was similar. However, the agreement was entered into by two different workers. The judgment of the Honourable Judge St-Onge was binding between the Minister and the Payor.

[62] Respectfully no real or valid reasons appear to support the Respondent in refusing to meet with the Payor and its counsel under such circumstances described in the correspondence prior to the hearing of this appeal. The reason given that the case was in litigation would mean that as of the filing of an appeal, a taxpayer on his own or through his agent or counsel cannot undertake any further discussion with the Respondent unless Justice counsel agrees. Therefore, if Justice counsel disagrees to have further discussions does that end the matter? Must the taxpayer then rely on the Tax Court almost two years later in order to discuss the pertinence of the existence of a prior binding decision of this Court? Would these facts not lead to the existence of reasonable and probable grounds to believe that the Respondent and/or its representatives were not willing to discuss even the possibility of abiding by the binding decision of Judge St-Onge?

[63] Would it not be appropriate in a case where counsel disagrees, to give the opportunity to a taxpayer to meet prior to litigation at another level with another Justice counsel or outside counsel, bearing in mind that the decision of Judge St-Onge was binding for close to two years and that hundreds of taxpayers were likely to be affected by the outcome of such a meeting? Or is it that every person involved in the matter on behalf of the Respondent and Justice was awaiting yet another decision in relation to "contract demonstrators"?

[64] It might be said that this Court should say nothing in such cases as to what takes place between lawyers and/or parties before a hearing. I agree that all that goes on out of Court is not known to the Court and everyone is entitled to the benefit of the doubt.

[65] The Court system, however, with the greatest respect, is not the property of judges and lawyers. It belongs to the citizens. A Court cannot ignore what it hears and sees and has a duty to insure that the process works and make reasonable suggestions that might be helpful for the future. The Court must also be mindful of Practice Note no. 10 of the Court dated July 23, 1997 dealing with settlements.

[66] The position of the Respondent is difficult to accept, was not explained and could have been. One can readily understand the position of counsel for the Payor who had no alternative but to litigate as no avenues were left open for him to attempt any type of negotiation at the request of his client. One wonders what an unrepresented taxpayer would go through under similar circumstances?

[67] Should the Minister be estopped from proceeding any further?

[68] The motion of the Payor was deserving of attention. The motion was not heard at the outset of the hearing. The Court was unaware of the existing correspondence and the parties finally agreed to have both appeals heard before me on common evidence. They also agreed that this decision be applied to all the other "contract demonstrators" of the Payor outlined in Respondent’s Affidavit (Exhibit R-4).

[69] In view of all that is stated above and with the hope that these matters will be terminated, the motion of the Payor will be continued sine die saving the rights of the Payor to revive same if necessary.

Costs

[70] Section 104(3) of the Employment Insurance Act is the only provision dealing with travel and other allowances, including compensation for loss of remunerative time.

[71] Section 18.29 of the Tax Court of Canada Act stipulates as outlined earlier that provisions of sections 18.14, 18.15, paragraph 18.18(1)a section 18.19, subsection 18.22(3) and sections 18.23 and 18.24 apply with such modifications as the circumstances require, in respect of appeals arising under Parts IV and VII of the Employment Insurance Act.

[72] The Employment Insurance Act makes no mention of costs to be awarded for counsel or parties or agents.

[73] Section 20 of the Tax Court of Canada Act permits the Rules Committee to make rules for regulating the pleadings practice and procedure in the Court and subsection (f) of section 20(l.l) stipulates that the Rules Committee can make rules for awarding or regulating costs.

[74] The Rules for informal procedure provide for party to party costs in sections 10 to 13 inclusively.

[75] In the Court Rules dealing with employment insurance appeals there are no provisions in those rules expressly devoted to costs. Section 27 of these Rules stipulates that if matters are not provided for in the Rules, the practice shall be determined by the Court, either on a motion for directions or after the event if no motion is made.

[76] I view this section, as dealing with the practice and procedure before the Court as to the reception or rejection of evidence or regulating the procedure to be followed by the Court at the hearing on a motion for directions or after the hearing if no motion is made.

[77] The Rules Committee of this Court provided no provisions for costs in the Rules of Procedure to be followed under the Employment Insurance Act and under such circumstances it would follow that no party to party costs can be awarded even though the hearing takes place under the informal procedure.

IV- Decision

[78] The appeals are allowed. The determination of the questions in issue are reversed. The assessments of the Respondent are vacated. The motion of the appellant U L Canada Inc. is continued sine die. No costs will be awarded.

Signed at Dorval, Québec, this 24th day of April 1998.

"S. Cuddihy"

D.J.T.C.C.

---