Date: 19980908
Docket: 96-1840-UI
BETWEEN:
CHARTROUT ENTERPRISES CO. LTD.
O/A V.I.P. BEAUTY SUPPLIES,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Cuddihy, D.J.T.C.C.
[1]
This appeal was heard in Halifax, Nova Scotia, on July 30,
1998.
I-
The appeal
[2]
This is an appeal from a determination by the Minister of
National Revenue (the "Minister") of June 19,
1996, where it was determined that Benjamin Watson
(the "Worker") was employed under a contract of
service with the Appellant (the "Payor"), from
January 1, 1994 to February 5, 1995, within the meaning
of paragraph 3(1)(a) of the Unemployment Insurance
Act (the "Act") because there existed
between the Payor and the Worker an employer/employee
relationship.
II-
The Facts
[3]
In rendering his decision the Minister relied on the facts and
reasons outlined in his Reply to the Notice of Appeal in
paragraph 5 as follows:
"(a) the
Appellant is a beauty supply distributor;
(b)
the Appellant is operated by family members exclusively and the
Worker was the first outside employee hired by the Appellant;
(c)
the Worker was hired as a sales representative for the Valley and
South Shore areas of Nova Scotia and his duties included some
deliveries, collection of payments, returns and credit notes, as
well as demonstration of products;
(d)
the Worker was paid $500.00 per week on a bi-weekly basis with no
source deductions taken;
(e)
the Worker could not promote other product lines while engaged by
the Appellant;
(f)
the Worker had to report daily with detailed accounts of his
sales, territory covered, orders and comments;
(g)
the Worker reported to the Appellant's office approximately
once a week;
(h)
the Worker was reimbursed for long distance phone calls to the
Appellant;
(i)
the Worker was responsible for all other expenses;
(j)
the Appellant had total control over the Worker's time and
duties;
(k)
the Worker was paid a set salary;
(l)
the Worker was not a self-employed consultant;
(m)
there was a contract of service between the Worker and the
Appellant."
[4]
The Appellant, admitted the allegations in subparagraphs (a)
and (g) to (i). The allegations in subparagraphs (b) and (f) were
admitted with further explanations to be given at the hearing.
The allegations in subparagraphs (c) to (e) and (j) to (m)
were denied.
III-
The law and analysis
[5]
Definitions from the Unemployment Insurance Act
"employment" means the act of employing or the
state of being employed."
"Insurable employment"
[6]
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;
[...]"
Brief summary of the evidence
[7]
John Moore, a business partner of the Payor, was heard in support
of the appeal. Exhibits A-1, A-2 and R-1
were filed in the Court record. The Worker, Benjamin Watson,
although duly notified, did not intervene in the proceedings and
was not heard as a witness.
[8]
Benjamin Watson was working for
Livingston Beauty Supplies when he contacted the Payor.
The Payor is a beauty supply distributor of hair cosmetic
products.
[9] A
meeting was held between the Worker and the partners of the
Payor. At this meeting, the reasons, terms and conditions of the
work were discussed.
[10] The
Worker expressed his wish to be hired as a commissioned salesman.
The Payor preferred that the Worker act as a consultant under his
own name and business, since the Worker offered to develop for
the Payor a new area of sales and to make up new business. The
areas suggested by the Worker were the Valley and South Shore
areas of Nova Scotia. The Worker had done business in these areas
previously. The Payor had not. It was understood at this meeting
that the Worker would be carrying on his own business, be
responsible for his own travelling and lodging expenses, and
satisfy his own obligations for income taxes and other
contributions.
[11] The
Worker owned his own cellular telephone and automobile. The
Worker paid all expenses for his telephone and automobile. The
Payor agreed to pay for long distance telephone calls only.
[12] The
agreement between the parties was that the Worker would act as a
consultant for a period of 12 months. That he would submit on a
bi-monthly basis an invoice for his sale consulting services
rendered at a rate of $1,000.00 (Exhibit A-1). The
Worker was to receive no other moneys from sales that would take
place.
[13] In
developing this new area for the Payor, the Worker would travel
to different communities, visit with prospective hairdresser
salons, carry on demonstrations and in essence promote the sale
of the Payor's product, which was almost exclusively called
ABBA at the time. He also agreed, while working, to assist the
Payor with deliveries and collect payments. The Worker was also
permitted to promote tanning products of his own but not
permitted to promote other hair products. The Worker prepared a
daily report sheet (Exhibit R-1). This report form was
prepared by the Worker for the purpose of reporting to the Payor.
The Worker gave the Payor verbal reports over the telephone once
or twice a week and met at the office of the Payor once a week in
person, either on Friday or Monday at his leisure.
[14] The
Worker set his own schedule. He was free to determine his hours
of work and his days off. He could work at night or on week-ends.
The Worker was on the road travelling four or five days a
week.
[15] He could
have hired someone else to do his work but the Payor did not
believe that he would have enough income to do so.
[16] At the
end of the twelve-month period it was decided that his services
as a consultant were too expensive for the profits being
generated. The Worker was then hired as a salesman with
commissions in January of 1995.
[17] At a
given time in January 1995, the Payor realized that the Worker
was selling products of competitors and ended the relationship in
February of 1995. When the Worker left he did not request nor was
he given a record of employment. There were never any discussions
as to vacation pay and none were paid.
Concluding analysis summary
[18] This
Court must adopt the reasoning used by Desjardins, J.A. of
the Federal Court of Appeal in Hennick,[1] and I quote:
"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]
[19] Then, she
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]
[20] It is not
the name you give a contract that makes it what it is. It is the
total relationship of the parties that determines what the
contract is.
[21]
Décary, J. of the Federal Court of Appeal in Normand
Charbonneau,[4]
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]
[22] What was
the total relationship between the parties? What was the combined
force of the whole scheme of operations?
[23] The terms
of the contract, the way it was entered into and the conduct of
the parties before, during and after the work period, must be
analyzed in order to decide whether the relationship was one of
employer/employee or whether the degree of autonomy was such that
the evidence demonstrated a contract for services.
[24] From the
evidence, it appeared conclusive that the Worker had a great deal
of experience in consulting and selling beauty supplies before he
approached the Payor. It was in fact the Worker who offered his
services to the Payor. The Worker met with all the partners of
the Payor who were all family members. As a result of the meeting
the subsequent agreement was that the Worker be paid for the
services he had offered. The Worker offered to open up for the
Payor a new area of sales which had never been covered by the
Payor. The Worker had previously worked in that area and could
possibly provide input into increasing the Payor's business
with his expertise. This prompted the Payor to accept to pay the
Worker for his services for a twelve-month period. After the
twelve-month period the Payor concluded that the consulting
services provided by the Worker were too expensive for what
profits were being generated and then decided to hire the Worker
as a salesman with commissions, in January of 1995. It is during
this month of January, that the Payor discovered that the Worker
was selling competitors products and that the Workers second
employment as a salesman was terminated.
[25] The
Worker was not heard, however, from this evidence which was not
contradicted, the Worker offered his services, for which he
billed the Payor, for a period of twelve months, paid his own
taxes and other contributions if any and did not receive or
require any vacation pay. There was no understanding between the
Payor or any of its representatives that the Payor would deduct
any moneys from the Workers earnings.
[26] In the
carrying out of his duties the Worker was free to organize his
own schedule and needed or required no direct supervision in this
respect. In fact, the area to be developed by the Worker was
unknown to the Payor. It was the Worker who offered and took
charge of the plan to cover the area. The Payor accepted this
offer as an investment for the twelve-month period and took a
risk that was not profitable.
[27] As to the
important test of subordination, the Worker made up his own
schedule. He was free to decide how he would execute the work and
carried out his work at the hours and days he chose. The Worker
was free to choose the means of performing his work and no
relationship of subordination existed between him and the Payor
in respect of such performance. The Worker decided on his own,
the way or manner he would execute his services. He did in fact
prepare of his own making a document called "daily call
report" (Exhibit R-1). This report was not
provided to the Payor on a daily basis but was used by the Worker
when he called in, by telephone, to the office of the Payor
during the week and when he informed the Payor in person once a
week what services were being performed.
[28] The
Worker was not paid any commission or other benefits and was
however allowed to sell tanning products of his own while
providing services to the Payor. This would tend to indicate that
the Worker was not employed exclusively for the Payor. No
evidence was shown by the Worker, since he chose not to
intervene, what profits he did make with the sale of his tanning
products.
[29] As to the
tools used while working, it is accepted that samples were
provided by the Payor and were returned by the Worker after
February 1995. However, the car, travelling and living expenses
and any other disbursements such as a cellular phone were paid by
the Worker. The only expenses paid by the Payor were long
distance calls as agreed at the initial stage of the
contract.
[30] As to the
integration test, it is accepted that the work provided was
integrated into the business of the Payor, but the Worker
executed his services in the manner described above.
[31] 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. Those
obligations, show the mutual dependencies of the parties as a
consequence of the contract.
[32] Why did
the Worker not request a record of employment when he left work?
What did he say in his application for unemployment insurance
benefits, that prompted the Minister to request from the Payor a
record of employment? What did the Worker report in his income
tax return for 1994 and 1995? Did he indicate as an employer, the
Payor? Did he file a copy of the invoice that he sent to the
Payor? Did the Worker report earnings from the Payor as an
employee in his taxation year for 1994 or 1995? Did he report
earnings from his tanning products or sales of other Payors?
[33] No
evidence was heard from the Worker, he did not intervene in the
proceedings and could have, and the only accepted evidence is
what was heard before me. I heard nothing from the Respondent,
except what was alleged and admitted and the Exhibit that was
filed.
[34] After
seeing and hearing the witness for the Appellant, I have no
reason to disbelieve him. He has demonstrated on a balance of
probabilities that the Worker was paid for the services offered
and provided which must be qualified as a contract for services.
The initial agreement would thus indicate that the Payor was far
more interested in the end result of the services of the Worker
and in fact concluded after the initial twelve-month period that
the services offered by the Worker were not profitable for the
business. The Worker was then providing services on his own
account, from January 1, 1994 to January 1, 1995. He
was then hired as a commissions salesman and was dismissed at the
end of January beginning of February 1995. This is the only
logical conclusion which may be derived from the evidence in
this case when analyzing the total conduct and contractual
relationship of the parties.
IV-
Decision
[35] The
appeal is allowed and the determination of the question in issue
is reversed.
Signed at Dorval, Quebec, this 8th day of September 1998.
"S. Cuddihy"
D.J.T.C.C.
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