Citation: 2006TCC658
Date: 20061205
Docket: 2005-761(CPP)
2005-759(EI)
BETWEEN:
ENVIROWAY DETERGENT MFG. INC.
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
DAVID ADAMS,
Intervenor.
REASONS FOR JUDGMENT
Beaubier, J.
[1] These appeals were
heard together on common evidence at Saskatoon, Saskatchewan, on November 22, 2006. The
Appellant’s counsel called the sole shareholder and director of the Appellant,
Birendra “Bob” Behari. The Respondent’s counsel called a former salesman for
the Appellant, Jerry Balon. The Intervenor did not appear.
[2] Paragraphs 3 to 8,
inclusive, of the Reply to the Notice of Appeal (File No. 2005-759(EI)) set out
the matters in dispute. They read:
3. By Notice of
Assessment dated March 5, 2004 the Appellant was assessed for, among other
things, employment insurance premiums in the amount of $7,563.88 for the 2003
year, in respect of David Adams (hereinafter “Adams”), Jerry Balon (hereinafter
“Balon”), David Panasiuk (hereinafter “Panasiuk”), Manoj Prasad (hereinafter
“M. Prasad”), Nishchal Prasad (hereinafter “N. Prasad), Rajani Sharma
(hereinafter “Sharma”), Earl Thomas (hereinafter “Thomas”) and Raymond Young
(hereinafter “Young”).
4. By Notice of
Assessment dated March 5, 2004 the Appellant was assessed for, among other
things, employment insurance premiums in the amount of $155.04 for the 2004
year, in respect of M. Prasad.
5. By letter
received April 6, 2004, the Appellant appealed to the Minister for a
reconsideration of the 2003 and 2004 year assessments.
6. In response to
the Appellant’s appeal, the Minister decided to confirm the assessments for the
2003 and 2004 years as Adams, Balon, Panasiuk, M. Prasad, N. Prasad, Sharma,
Thomas and Young (collectively hereinafter “the Workers”) were employed under a
contract of service with the Appellant.
7. In so deciding
as the Minister did with respect to the Workers, the Minister relied on the
following assumptions of fact:
(a) the Appellant
was in the business of manufacturing and wholesale distribution of cleaning
detergents, janitorial supplies and associated products;
(b) Birendra Behari
(hereinafter “the Shareholder”) was the sole shareholder of the Appellant;
(c) the Workers
were hired as sales people and their duties included contacting customers,
selling and distributing the Appellant’s products and educating customers on
product use;
(d) the Workers did
not have written contracts with the Appellant;
(e) the Workers’
earnings were based on commissions;
(f) the Workers
earned a set commission of 25% to 27% of the profit from sales;
(g) the Appellant
paid the Workers on a bi-weekly or monthly basis;
(h) the Appellant’s
business hours were from 8:30AM to 5:00PM, Monday to Friday;
(i) the Appellant
set goals and quotas for the Workers;
(j) the Appellant
expected the Workers to meet daily and monthly goals;
(k) the Appellant
expected the Workers to meet sales quotas;
(l) the Appellant
monitored the Workers’ performance by sales volume and profit margins;
(m) the Appellant provided
training seminars for the Workers;
(n) the Workers
were required to keep track of their hours worked and calls made;
(o) the Workers
were required to keep log sheets;
(p) the Workers
submitted reports to the Appellant on a weekly basis;
(q) the Workers
were required to attend monthly sales meetings;
(r) the Appellant
set the product distributor price and the product retail price;
(s) the Appellant
expected the Workers to sell the product for a price between the distributor
price and retail price;
(t) the Workers
did not replace themselves of (sic) their own helpers;
(u) the Workers did
not work for others while performing services for the Appellant;
(v) the Workers
performed their services in the field;
(w) the Workers
provided their own vehicles;
(x) the Appellant
provided the Workers with price lists, order taking books, product literature
and manufacturers literature;
(y) the Appellant
provided the Workers with the Appellant’s business cards;
(z) the Appellant
provided all of the supplies required;
(aa) the Workers
incurred vehicle expenses;
(bb) the Appellant
reimbursed the Workers for vehicle expenses;
(cc) the Appellant
paid all advertising expenses;
(dd) the Workers did
not incur operating expenses in the performance of their duties;
(ee) the Workers did
not provide their own liability insurance;
(ff) the Workers
did not have a chance of profit or risk of loss;
(gg) the Workers
represented the Appellant while in the field;
(hh) the Workers were
not in business for themselves;
(ii) prior to
February of 2003 the Appellant was withholding contributions and premiums from
the Workers’ wages;
(jj) the Workers’
working conditions were similar before and after February of 2003;
(kk) M. Prasad was
the nephew of the Shareholder and N. Prasad was the
step-cousin of the Shareholder;
(ll) the Workers’
wages, for the period January 1, 2003 to February 29, 2004, were as follows:
|
|
2003
|
2004
|
|
Adams, David
|
$
8,214
|
|
|
Balon, Jerry
|
$38,671
|
|
|
Panasiuk, David
|
$22,823
|
|
|
Prasad, Manoj
|
$63,995
|
$3,262
|
|
Prasad, Nishchal
|
$38,924
|
|
|
Sharma, Rajani
|
$ 7,428
|
|
|
Thomas, Earl
|
$ 6,455
|
|
|
Young, Raymond
|
$17,227
|
|
B. ISSUES TO
BE DECIDED
8. The issue to be
decided is whether the Workers were employed under a contract of service with
the Appellant during the period January 1, 2003 to February 29, 2004.
[3] Mr. Behari’s
testimony was contradictory to Mr. Balon’s. Where there is a conflict, Mr.
Balon’s testimony is preferred to Mr. Behari’s testimony. That is because:
1. Mr. Balon never applied
for EI after he left the Appellant’s workplace. He said he was sick of the
problems there and he is believed. Thus, he has evidenced his lack of interest
in the outcome of this appeal, whereas Mr. Behari does have an interest in its
outcome.
2. Mr. Balon attended the
meetings where the Appellant submitted to the salesmen up to 15 or 20 different
drafts of contracts purporting to terminate employment and to create
contractual work. Mr. Balon signed one of them and was told the next day it was
invalid and had been shredded. Therefore, Mr. Balon never signed a contract
whereas Mr. Behari initially testified that all of the salesmen had signed
contracts.
3. The Appellant only filed
one such contract in evidence and it had been signed by one of its managers. Moreover,
as will be seen, it is of questionable value. Despite Mr. Behari’s statements,
the Court does not believe that there are any other signed contracts. In the
circumstances of this case wherein (1) signed contracts are alleged to exist,
(2) the contracts are crucial to the case, (3) Mr. Balon testified that many
forms of the alleged written contract were submitted to the salesmen and then
withdrawn by the Appellant, and (4) the Appellant allegedly has signed copies
of them, then the failure of the Appellant corporation to submit signed copies as
Exhibits raises the question as to whether they even exist. The Court finds
that any alleged signed contracts, which Mr. Behari stated exist, do not exist
if they are not exhibited. Mr. Behari testified in rebuttal and he did not deny
Mr. Balon’s evidence that he signed one of the Appellant’s contract forms which
the Appellant then purposefully destroyed.
[4] On the basis of the
foregoing alone, the Court finds that Jerry Balon was an employee of the
Appellant for the entire period. However, there are also additional reasons for
this finding which will be detailed in what follows:
[5] Respecting the
assumptions in paragraph 7, as quoted, the Court finds:
(a) Correct.
(b) Correct.
(c) Correct.
(d) For the foregoing reasons, the
Court finds this assumption to be correct except in respect to David Panasiuk
concerning whom Exhibit A-1 was filed. This was alleged by Mr. Behari to be a
contract that was representative of all of the salesmen’s alleged contracts. Exhibit
A-1, however, amounts to a contract of employment, rather than that of a
sub-contractor, because:
Paragraph 1.01 – Requires the
“sub-contractor” to perform such duties as shall be prescribed by the Appellant
in the manner determined by the Appellant.
Paragraph 4.01 – Requires the
sub-contractor to devote his whole time to the Appellant’s business except as
may be agreed to in writing by the Appellant.
Paragraph 5.01 – Permits the Appellant
to terminate the sub-contractor if the sub-contractor has been “unfaithful in
his service” to the Appellant.
These excerpts make the contract
form one of employment.
(e) and (f) Mr. Balon was unable
to calculate them – for good reason. The calculation of commissions is set out
in Schedule A to Exhibit A-1. It consists in part of a percentage on “Gross
Profit Margins of 45%+” and then lower percentages of lower gross profit
margins. These margins were known only to the Appellant and the different
products with their margins are not written out. There were also other
“commissions” described with similar problems. In other words, it appears that
the salesmen were paid what the Appellant felt like paying them from time to
time, because there was no objective source or basis from which to verify the
Appellant’s calculations.
(g) The workers were paid monthly.
(h) Is generally correct.
(i), (j) and (k) Are correct.
(l) Is correct.
(m) These “seminars” were for
product training or introduction.
(n), (o) and (p) Are correct.
(q) They were required to attend
meetings from time to time for sales and other purposes.
(r) Is correct.
(s), (t), (u), (v), (w), (x), (y),
(z) and (bb) Are correct.
(aa) The Appellant paid the workers
$1,000 per month out of which they were to meet all of their expenses. Each
salesman had a geographic sales territory and if in Saskatoon, an industrial territory. For
instance, Mr. Balon’s territory at all times was confined to an area of
Northern Saskatchewan including Prince Albert, La Ronge and Reindeer Lake,
where he generally sold to schools, hospitals and Indian Reservations and in
the City of Saskatoon, to five or six industries such as truckers or garages.
(cc) Is correct.
(dd) Is wrong. The workers incurred
expenses in excess of the $1,000 per month, such as motels, meals, vehicle expenses,
postage, fax disbursements and other costs. Many of these were claimable under the
Income Tax Act.
(ee) Is correct.
(ff) Is wrong, within the limits
and based on the foregoing conditions that they were selling for commissions
and incurred large expenses weekly.
(gg), (hh), (ii) and (jj) Are correct.
(kk) and (ll) Were not refuted.
[6] Based on the
foregoing findings of fact –
1. The Appellant and the
salesmen, by their actions and the alleged one written contract, intended that
the substance of their contracts was that of employer-employees.
2. Control – was
exercised over the workers by the Appellant.
3. Tools – The workers
supplied their own vehicles. The Appellant supplied everything else.
4. Profit or Loss –
The workers could incur a profit or a loss. However much of this was in the
control of the Appellant which allocated fixed territories to the salesmen and
calculated their compensation on a basis and in a manner that could not be
verified objectively.
5. Integration – The
workers were completely integrated into the Appellant’s business. They could
only sell the Appellant’s products within territories fixed by the Appellant.
[7] The workers were
not in business for themselves. They were employees of the Appellant.
[8] The appeals are
dismissed.
Signed at Vancouver, British Columbia, this 5th day of December, 2006.
"D.W. Beaubier"
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