Excel Studio Ltd. v. M.N.R., docket 96-1665-UI

Date: 19980122

Dockets: 96-1665-UI; 96-1666-UI

BETWEEN:

EXCEL STUDIO LIMITED, OPERATING AS

EXCEL HAIR AND SKIN CARE,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

NORMA HILL,

Intervenor,

AND

BETWEEN:

EXCEL STUDIO LIMITED, OPERATING AS

EXCEL HAIR AND SKIN CARE,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

TAMARA FISHER,

Intervenor.

Reasons for Judgment

Rowe, D.J.T.C.C.

[1] In response to a request for a determination of a question by Norma Hill and also by Tamara Fisher, the Minister of National Revenue (the "Minister") determined, pursuant to subsection 61(3) of the Unemployment Insurance Act, that both individuals were engaged in insurable employment with the appellant during the period January 1, 1995 to May 23, 1996. In each instance, the determination was based on the finding that each intervenor provided services to the appellant which were normally offered in the appellant's salon and each did not own or operate the establishment run by the appellant corporation, operating under the trade name, Excel Hair and Skin Care (Excel). The Minister relied on the provisions of paragraph 61(3)(a) of the Unemployment Insurance Act and section 12 of the Unemployment Insurance Regulations. Norma Hill, in her Notice of Intervention, listed 57 reasons why she did not consider herself an employee of the appellant. Tamara Fisher, in her Notice of Intervention listed 40 reasons to support her view that she was not engaged in insurable employment with the appellant.

[2] By agreement of all parties, the appeals were heard on common evidence.

[3] Jeanne Cleary testified she is a hair stylist living in Kelowna, British Columbia and is the President of the appellant corporation, Excel Studio Limited (Excel Studio), which operates a hair salon business in Kelowna under the name of Excel Hair and Skin Care. She stated the business has been operating for 14 years and is a full-service salon offering a day spa, electrolysis, massage, reflexology, facials, pedicures, permanent tattooing on eyelids, and nail art. From the start of operations, a number of persons - varying from three to five - have been licensed, separately, to provide these various services. Filed as Exhibit A-1, was a photocopy of the Certificate of Registration issued to Tamara Fisher by The Hairdressers' Association of British Columbia, for 1997, certifying she has passed the examinations and is entitled to work in the field of: Special Beauty Culture - Facial/Manicure. Filed as Exhibit A-2, was a photocopy of the Certificate of Registration issued to Norma Hill by The Hairdressers' Association of British Columbia, for 1997, certifying she has passed the examinations and is entitled to work in the field of: Nail Technician/Manicurist. Filed as Exhibit A-3, was a bundle of documents pertaining to the business activities of the intervenors including:

- Certificate of Registration, dated September 7, 1985, issued by the Ministry of Finance, Province of British Columbia to Norma Hill - Nails By Norma - pursuant to The Social Service Tax Act - more commonly known as PST;

- listing in Yellow Pages section of Kelowna telephone directory for Nails By Norma in the section: Nail Salons as well as an advertisement in the same Yellow Pages under: Beauty Treatment Consultants - at 2618 Pandosy Street, Kelowna - Southgate Mall;

- listing in the White Pages of the Kelowna telephone directory for: Nails By Norma - phone: 861-4660;

- document pertaining to application, by Norma Hill, for insurance coverage on contents, professional liability and sewer backup damage on the premises occupied by her operating as Nails By Norma;

- BC Tel telephone bill for local and long distance charges for Norma Hill operating as Nails by Norma;

- letter dated June 6, 1996 regarding the status of the sub-lease, by Excel, of certain portions of Excel's leased space to Norma Hill, operating as Nails By Norma, and also a letter on the same subject to Tamara Fisher;

- business license issued by the City of Kelowna to Norma Hill, in name of Nails By Norma;

- correspondence from Revenue Canada - Customs and Excise - relating to the registration by Norma Hill, of her business, Nails By Norma, for purposes of the Goods and Services Tax (GST);

- copies of cancelled cheques issued on account of Nails by Norma to Interior Apartments and to ADT - a security company;

- business license issued by the City of Kelowna to Tamara Fisher, operating as Tam Enterprises, pertaining to: Esthetician - One Chair;

- Certificate of Registration issued October 9, 1995, by the Ministry of Finance and Corporate Relations, Province of British Columbia, pursuant to The Social Service Tax Act in the name of Excel Esthetics;

- listing in Yellow Pages under the category: Estheticians in name of Excel Esthetics - phone 763-9633 - and another listing under: Skin Treatment;

- advertisement in the Yellow Pages under the category: Beauty Salons, Equipment & Supplies providing phone number and address at 2618 Pandosy Street, Kelowna, BritishColumbia (Southgate Shopping Centre);

- listing in white pages of directory under Excel Esthetics;

- telephone bill for Tamara Fisher's business phone;

- various invoices from suppliers of beauty products directed to Tamara Fisher;

- document pertaining to insurance policy issued to Tamara Fisher, doing business as Excell (sic) Esthetics at 2618 Pandosy Street, described as a "strip mall", covering various items of loss, including employee theft, professional liability, business income, contents, signs and equipment;

- letter dated April 28, 1995 to Tamara Swart (Fisher) pertaining to her GST return;

- copies of cancelled cheques drawn on the bank account of Tamara Fisher, under the name Tam Enterprises c/o Excel Esthetics payable to Interior Apartments for the rent on her business premises, and to ADT, a security company;

- lease agreements dated August 20, 1997 between Jeanne Cleary, on behalf of Excel and Tamara Fisher for Tam Enterprises extending the sub-lease for a further one year period with an option to renew, and also to extend the sub-lease to Norma Hill of Nails By Norma;

- listing in white pages of Kelowna directory for Excel Hair Skin & Body Care, at 2618 Pandosy, phone - 763-9655;

- Yellow Pages listing for Excel under: Beauty Salons;

- Yellow Pages advertisement for Excel Hair, Skin & Body Care, offering a variety of services including aromatherapy, tanning, eyelash tint, pedicures, etc.

[4] Jeanne Cleary testified that Excel Studio Limited - the corporation - leased a total of 2,200 square feet of space in the mall. She referred to a diagram of the floor space - Exhibit A-4 - and described the location of her business and those of the two intervenors. She explained there are two doors which are common to all three businesses. Nails by Norma occupies 72 square feet and there is a sign advertising her business as a retail centre. Tamara Fisher, operating as Tam Enterprises and/or Excel Esthetics, occupied three rooms and a sign described her area as a retail centre. Filed as Exhibit A-5, were various photographs of the Esthetics business area. Cleary stated that, during the course of 14 years she has been operating her business, various persons - from time to time - have sub-leased space from her. Because she is licensed only as a hair stylist, she is not permitted to perform any services pertaining to nails or to undertake any service normally done by a licensed Esthetician. The appellant corporation is licensed as a hair salon with capacity for nine chairs. There are six individuals on the appellant's staff who are engaged in insurable employment and the appropriate deductions are made from their pay. None of these persons are licensed to provide any service other than relating to hairdressing and cannot provide any of the services available by either or both intervenors. In the advertisement in the Yellow Pages, she included a variety of services that were available through Excel Studio. However, she stated both intervenors had separate listings and advertisements in the directory for their own businesses and had separate telephone numbers. The intervenors paid their rent directly to the landlord, Interior Apartments, and there was no cash flow, whatsoever, between her business at Excel Studio and either of the business operations of Hill and/or Fisher. Cleary stated Tamara Fisher, operating as Tam Enterprises, sells certain products pertaining to dyeing eyelashes and eyebrows, back treatments, facials, aromatherapy, pedicures, manicures and full-body waxing. Norma Fisher of Nails By Norma does nails, gel nails and nail art. Filed as Exhibit A-6, were some photographs of the signage and area occupied by that enterprise. None of the services provided by either Hill or Fisher are normally provided by the appellant, nor can they be so provided by any person employed by the appellant within the space occupied by Excel Studio as a hair and beauty salon. The services listed in the Yellow Pages advertisement of Excel Studio can be made available to a person on the basis that anyone inquiring about a service other than hairdressing can be referred to either Norma Hill or Tamara Fisher, each of whom has a separate telephone line and an answering service with business hours set by each of them. There is no need for any customers of Nails by Norma or Tam Enterprises to come into contact with the staff at Excel Studio. Norma Hill has been in the space adjacent to Excel Studio for nine years and Tamara Fisher has been in her area for three years. Jeanne Cleary stated she is well aware of the effect of 12(d) of the Regulations under the Act and pointed out that neither Hill nor Fisher are licensed to cut hair or otherwise provide services authorized to be done only by a hairdresser. In Cleary's opinion, the only connection the appellant has with either intervenor is as a landlord pursuant to a sub-lease but, even then, they pay their rent directly to the mall landlord.

[5] In cross-examination, Jeanne Cleary stated the appellant's lease is for a three-year term but the leases for the intervenors are for one year with option to renew. She stated the assumption of the Minister was incorrect that the appellant had entered into an agreement with Norma Hill to provide services as a nail technician to Excel Studio. In fact, the landlord was contacted and permission granted for the appellant to sub-lease some space to Hill and Fisher. Nails By Norma occupies only 72 square feet and Tam Enterprises takes up 334 square feet. The appellant uses about 1,800 square feet for its salon. Referred to the advertisement of the appellant - Exhibit A-7 - in the Yellow Pages, Cleary agreed the public, on reading the ad, would think Excel offered all of the listed services. Further, a person passing by or driving along the street would see a sign reading: Excel Hair, Skin & Body Care. She is the sole shareholder of the appellant and Excel and the intervenors each had separate GST, PST, bank accounts, Visa and Mastercard.

[6] Both intervenors were present but declined to cross-examine or to offer any evidence.

[7] Counsel for the respondent submitted the relevant regulation, 12(d) does not refer to hairdressers or barbers but to employment of persons and the services provided by the intervenors are those which are normally provided within a barbering or hairdressing establishment. Further, it could be said the entire space, regardless of any sub-leasing arrangement, constituted the establishment of the appellant.

[8] The relevant Regulation is 12(d) which reads:

"12. Employment in any of the following employments, unless it is excepted employment under subsection 3(2) of the Act or excepted from insurable employment by any other provision of these Regulations, in included in insurable employment:

(d) employment of a person in connection with a barbering or

hairdressing establishment, where that person

(i) provides any of the services that are normally provided therein, and

(ii) is not the owner or proprietor thereof;"

[9] It is clear from the evidence the intervenors would not be in insurable employment with the appellant except as a result of the above regulation applying because the normal indicia of employment are not present (Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025, F.C.A.).

[10] The Supreme Court of Canada in Martin Service Station Ltd. v. M.N.R. [1977] 2 S.C.R. 996, held that the Unemployment Insurance Act is designed to create a regime which recognizes the line between contracts of service and contracts for service is often not clear and Parliament wanted certain individuals performing tasks as set forth in the Regulation to be covered by the legislation as they were exposed to the risk of being deprived of work.

[11] In each of the cases submitted by Counsel for the respondent, the fact situations therein were common in that the persons held to be included in insurable employment by virtue of the wording of Regulation 12(d), were all performing the same duties as the appellants in the various appeals. In other words, these persons were rented space within a hairdressing establishment and performed services that were normally provided therein and were not owners of that establishment. In the case of Anderson (c.o.b. as 1st Impressions Hair Design) v. M.N.R., [1994] T.C.J. No. 869, Margeson, T.C.J. found that each of the intervenors and appellants were trained hair stylists and that there were a variety of ways under which hair designers could work. Some were engaged as commission agents and retained a percentage of the fees they took in while paying a portion to the owner or operator of the establishment, some were paid an hourly wage as an employee and others rented or leased a chair. In Hilts v. M.N.R. [1994] T.C.J. No. 872, Beaubier, T.C.J. relied on the following facts in order to hold that the appellant employed the hairdressers and was liable to pay unemployment insurance premiums:

- there was a common telephone

- prices were co-ordinated

- there was one business name and sign on the premises

- the services were the same as those normally offered by the establishment

- the hairdressers leased "space" by the week.

[12] The following facts did not alter this determination:

- the hairdressers had a key to the premises

- the hairdressers purchased their own supplies

- the hairdressers each kept their own cash drawer

- the hairdressers had access to common areas.

[13] At paragraph 5, Judge Beaubier referred to the definition of "establishment" from The Dictionary of Canadian Law (Dukelow & Nurse, Thomson Professional Publishing 1991) as:

"a place of business or the place where an undertaking or a part thereof is carried on."

[14] In Farron v. M.N.R. [1991] T.C.J. No. 1119, Rip, T.C.J. relied on the following facts to find the appellants were employers:

- the hair salon had one name

- the hair salon had one sign

- the "employees" enjoyed a common area

- the "employees" were not owners

- there was one telephone

- the appellants - the "employer"- was a licensed hairdressing establishment

- there was one appointment book

- the hairdressers performed services which were regularly available on the premises.

[15] The fact the hairdressers purchased their own supplies, kept their own books and cash drawer and set their own hours was not sufficient to remove them from the application of Regulation 12(d).

[16] In the within appeals, the appellant and the intervenors were totally separate in design and function. Each was licensed by The Hairdressers' Association of British Columbia to provide different services and the appellant and its staff, including its own president, Jeanne Cleary, was not authorized by the licensing authority - nor by the business license issued by the City of Kelowna - to carry on the business of Esthetician or Nail technician/Manicurist. The relevant words used in Regulation 12(d) are:

"employment of a person in connection with a barbering or hairdressing establishment, where that person provides any of the services that are normally provided therein."

[17] Neither intervenor was authorized or licensed to carry on business by providing any of the services normally provided in the studio owned and operated by the appellant because the services each of them provided - within the context of their own separate business - were never provided within the establishment that was the appellant's salon/studio. It is common in small commercial centres for a person or entity to lease space from the landlord of a strip mall and then, with approval of the landlord, to enter into sub-leases with other entrepreneurs. If a dentist leases a block of space and then decides to sublet a portion to a chiropractor and the chiropractor's office is then located in part of the space originally designated on the mall floorplan as being attributable to the dentist, that does not make the chiropractor a dentist or vice-versa. In the within appeals, it is clear on the evidence the parties truly functioned as independent entities each having a separate identity from a variety of standpoints, including registration for PST, GST, business licenses, trade licenses, bank accounts, insurance coverage, telephone numbers and answering machines, signage, service and product lines which were distinct. This is not one of those cases where an appellant attempts to avoid being categorized as an employer by virtue of the Regulation by entering into a series of thinly-disguised manoeuvres to mask the real function and status of the worker.

[18] In the within appeals, referring to the relevant portion of the Regulation, the word "therein" must refer to the actual establishment or place of business operated by the appellant. In effect, it must relate to the actual establishment which is the subject matter of the determination and not some other business in the same trade which might offer - if permitted - a wider range of services. I cannot see how the sharing of space in a commercial retail area within a small mall by the intervenors can be seen as the provision of services in connection with the hairdressing or barbering establishment owned and operated by the appellant pursuant to the licenses and authority issued for that specific purpose and none other. The words above underlined are much more narrow in scope than the words, "in respect of" as discussed by the Supreme Court of Canada in Nowegijick v. The Queen et al., 83 DTC 5041 where the Court said, at p. 5045, that:

"The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters."

[19] It is clear from the wording of the Regulation in issue that the intent is to connect the services provided by the putative employee to the ones provided by the purported employer within the establishment operated by the employer so as to eliminate exclusion from the unemployment insurance system of a person who is a worker within the same business or establishment but, to whom - with varying degrees of consent - there have been assigned certain attributes which - without a closer look - could place that person in a category where insurability would not be applicable.

[20] The offering, to the public, by the appellant in its advertisement in the Yellow Pages, of services, not provided by it, but otherwise available, on referral, to the intervenors, or others, is not particularly significant when looked at in the context of all of the evidence. The separate listing of the businesses of the intervenors, the separate telephone numbers and advertising, physical separation of each business by barriers, and the adequate signage identifying each establishment and the function and/or services provided or products sold therein, all served to make the relationship of the appellant to each of the intervenors one of quasi-landlord-tenant and neighbour/entrepreneur with a friendly relationship which permitted referral of customers and clients back and forth so as to offer them the opportunity to access full service in the various trades dealing with health, hair, beauty, and skin care within that particular area of the mini-mall. Customers and clients of the intervenors had no need - by physical intrusion or otherwise - to ever enter the space or intrude upon the business of the appellant. The particular Regulation, in my opinion, was never intended to apply in a fact situation such as in the within appeals where distinct businesses offering mutually exclusive services, as authorized by a regulatory body, are to be merged by reason of sharing physical space pursuant to a master lease subject to a practical, workable method of sub-leasing which was suitable to all concerned, including the owner of the mall who collected rent directly from the intervenors. The 72 square feet occupied by Norma Hill operating as Nails by Norma was very much her little domain in every sense, legally, physically, and in harmony with a commonly held concept of business. Similarly, the larger space occupied by Tamara Fisher was her own establishment for the purpose of carrying on her trade as a licensed Esthetician in her own right without reference to the appellant. There was absolutely no sharing of cash flow in any sense whatsoever between the appellant and either intervenor nor was there any legal ability to do so. The Regulation - while recognizing its intent - must be interpreted in a manner consistent with ordinary language and cannot be an instrument by which to bring about an impractical result not intended by any party and in direct opposition to their true status - on objective examination - as being persons not connected in the manner required by the legislation.

[21] The appeals are allowed and the decision of the Minister of National Revenue in each case is vacated.

Signed at Toronto, Ontario, this 22nd day of January 1998.

"D.W. ROWE"

D.J.T.C.C.