Citation: 2005TCC362
Date: 20050525
Docket: 2004-2583(EI)/2004-2585(CPP)
2004-2586(EI)/2004-2588(CPP)
BETWEEN:
CHERYL WEGENER and LARRY EMMERSON
O/A DIRECTOR'S CHOICE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] These
are appeals by Cheryl Wegener and Larry Emmerson in respect of assessments
under the Employment Insurance Act and the Canada Pension Plan
for 2000 and 2001. The appellants carried on business in partnership under the
name Director’s Choice in Calgary. The Minister of National Revenue issued the
assessments for failure to pay, deduct and remit employment insurance and Canada pension
plan contributions in respect of a number of persons who had contracted with
Director's Choice to be their agent in locating work as extras on movie sets. In
these reasons, I will use the term "Director’s Choice" to refer to
the appellants jointly.
[2] At the hearing,
the Minister abandoned his argument that the workers were employees of
Director's Choice within the common law meaning of that term. Instead, the
Crown relied solely on regulations that extend coverage under the Employment
Insurance Act and the Canada Pension Plan to persons who obtain work
through placement agencies. The only question in this appeal is whether
Director's Choice is subject to these regulations.
[3] The following
are the relevant provisions.
Paragraph 6(g)
of the Employment Insurance Regulations made under the Employment Insurance Act:
6.
Employment in any of the following employments, unless it is
excluded from insurable employment by any provision of these Regulations, is
included in insurable employment:
[…]
(g) employment of a person who is placed in that
employment by a placement or employment agency to perform services for and
under the direction and control of a client of the agency, where that person is
remunerated by the agency for the performance of those services.
Section 7 of
the Insurable Earnings and Collection of Premiums Regulations made under the Employment
Insurance Act:
7. Where a person is placed in insurable employment by a
placement or employment agency under an arrangement whereby the earnings of the
person are paid by the agency, the agency shall, for the purposes of
maintaining records, calculating the person’s insurable earnings and paying,
deducting and remitting the premiums payable on those insurable earnings under
the Act and these Regulations, be deemed to be the employer of the person.
Section 34 of
the Calculation of Contribution Rates Regulations made under the Canada
Pension Plan:
34.(1) Where any individual is placed by a placement or employment
agency in employment with or for performance of services for a client of the
agency and the terms or conditions on which the employment or services are
performed and the remuneration thereof is paid constitute a contract of service
or are analogous to a contract of service, the employment or performance of
services is included in pensionable employment and the agency or the client,
whichever pays the remuneration to the individual, shall, for the purposes of
maintaining records and filing returns and paying, deducting and remitting
contributions payable by and in respect of the individual under the Act and these
Regulations, be deemed to be the employer of the individual.
(2) For the purposes of subsection (1), "placement or
employment agency" includes any person or organization that is engaged in
the business of placing individuals in employment or for performance of
services or of securing employment for individuals for a fee, reward or other
remuneration.
Facts
[4] During the years in question, Director's
Choice operated an agency for persons looking for work as extras or, using the
terminology in the industry, "background performers." Apparently, Calgary had several agencies doing this type of work at the
relevant time.
[5] Mr. Emmerson, who represented both appellants at a
two-day hearing, stated at the outset that he thought the assessments were most
unfair. First, he strongly objected to the categorization of
Director's Choice as a placement agency. He also stated that there was no need to impose the statutory obligations
on agencies such as Director’s Choice because the production companies who hired the performers took care of
all payroll matters. Finally, Mr. Emmerson stated that as far as he knew
Director's Choice was the only agency in Calgary
that had been assessed.
[6] In addition to their own testimony, the appellants called a person who operates a similar
agency, James Sinclair, and two individuals who had contracted with Director's
Choice to be their agent, Sherrie Francis and Lana Timmermans. The Crown called
two other individuals who had entered into contracts with Director's Choice, Jason Newman
and Lou Ann Robson. The four witnesses who had contracted with Director's
Choice provided very similar testimony.
[7] I will now describe the roles performed by
the various players who are relevant to the appeals.
[8] Director's Choice - Persons who are interested in doing background work
can register with Director’s Choice by paying a small fee, providing basic personal information and
allowing a photo to be taken for the agency's directory. Production companies
filming in Calgary that need background performers contact
Director's Choice and from its directory choose performers suitable for their
particular needs. Occasionally, the production companies do not need to select
specific people and they simply ask Director's Choice to arrange for a number
of people to attend on the set on a particular day.
[9] Director's Choice telephones the persons
selected and asks them if they are available to work on the appointed day. If a
person agrees to do the job, Director's Choice informs them where to report
for work and tells them of any particular clothing requirements. If a performer agrees to a job but at the last minute cannot attend, the person
usually calls Director's Choice who tries to find a replacement. Otherwise, the performer is expected to be present on the movie set on the appointed day.
[10] A person who registers with Director's
Choice enters into a written contract (Exhibit A-3) that obligates Director’s Choice to attempt to place them in the role of an
extra or principal. Although the contract refers to principal roles, it appears
that this was not part of Director's Choice's business. In order to meet the
requirements of the production companies, performers agree to contact only Director's Choice
and specifically agree not to contact the production companies directly about
roles or call times.
[11] The contract authorizes Director's Choice
to withhold 15 percent of performers’ earnings as compensation for acting as
their agent. Director's Choice ensures payment of the fee by requiring that the
remuneration paid by the production companies be sent to it.
The cheques issued by the production companies are made out in the names of
both the performers and Director's Choice and are mailed to Director's Choice.
Statements summarizing the pay and copies of time sheets are included with the
cheques. Director's Choice cashes the cheques and then sends its
own cheques to performers for the amount received less its
15 percent fee. Director's Choice includes with the cheques the pay summaries
and time sheets sent to it by the production companies.
[12] The 15 percent fee charged by Director's
Choice is the amount that the association representing background performers
recommends as a maximum that agencies should charge.
[13] Production Companies - When performers report for work on the movie set, they
fill out a form signed by both the performer and the production company. Two
forms were entered into evidence at the hearing. The two documents, Exhibits A-4 and R-4, are similar
but not identical and are typical of the
forms that all background
performers are asked to sign.
[14] The first part of the form is described as
a declaration of residency. It states that the declaration is required by
income tax regulations and needs to be signed by "individuals who provide
services to the Production as an Employee of the Production Company" to
enable the production company to claim an income tax credit. Although the form
uses the term "employee," the performers were not treated by the production
companies as employees for purposes of income tax source deductions. The
following statement in the form describes the relationship between the
production company and background performers and suggests that the production
company pays them for services rendered:
The intent is to show that payments made by the Production for
Canadian services are taxable to the individual (Canadian resident) who
receives such payments and are directly attributable to the making of the
Production.
[15] The second part of the form is a consent
regarding use of the performer's picture and voice. One of the two forms
entered into evidence contains the following sentence regarding remuneration to
be paid to the performer:
In consideration of the grant of these rights, R.R. FILMS INC., hereby
agrees to pay the undersigned the rate of $7.00 (Seven Dollars) per hour and
1.5 X the rate after 8 hours.
[16] The third part contains the performer's contact information and SIN number. The address given in both forms is the
address of Director's Choice.
[17] The last part of the form is a time sheet.
It has a space for noting hours worked and a computation of
remuneration to be paid.
[18] Mr. Sinclair, who owns an agency similar to
Director's Choice, testified that the
actors’ union, ACTRA,
negotiated the hourly rates paid to background performers. It is not clear to
me that ACTRA negotiated the rates throughout the 2000 and 2001 assessment period because a letter from ACTRA dated
November 21, 2001 (Exhibit A-11) suggests that it had only recently
negotiated rates for background performers. If the performers were not
unionized throughout the assessment period, the
hourly rates, which are printed on the production companies’ forms, were set by
the production companies. Director’s Choice had nothing to do with negotiating
the remuneration.
[19] Accounting services - The production companies hired
independent agencies to provide payroll services in respect of the cast. Mr.
Emmerson testified that TVD Televector Enterprises Inc. typically provided this
service in the Calgary area. TVD wrote the pay cheques, prepared
a pay summary for each performer (Exhibit R-3) and issued tax information (T4A) forms (Exhibit A-7). By issuing
tax slips, the production companies acknowledged that they are paying remuneration
to the performers. The T4A slips represent that the background performers are
not engaged as employees and no income tax is deducted at source.
[20] Background performers - Mr. Emmerson testified that most of the
people who registered with Director's Choice only did background work for a few
days. Some of the witnesses testified that they did not
continue because the work was not enjoyable and others testified that they only
participated as a one-time fun
experience. Many of the performers had full time jobs and many others were children.
[21] The four background performers who
testified stated that they had virtually no freedom on the movie set. While
they waited to perform, they were kept in an area away from the rest of the
cast, and when performing, every movement was under the detailed direction and
control of the production company.
Analysis
[22] The regulations under the Employment
Insurance Act and the Canada Pension Plan extend insurance and
pension coverage to certain work arrangements involving placement agencies. The general object of the regulations appears to be to extend coverage
to situations that may not otherwise qualify because the individuals are hired
by a placement agency but are under the control of clients of the placement
agency. The regulations are not intended to apply where the
individual is hired by, and paid by, a client of a placement agency. In this
case, the client is obligated to pay, deduct and remit premiums if the individual
is engaged as an employee.
[23] In order for Director's Choice to be
subject to the regulations, the following conditions need to be satisfied:
(i) Director's Choice must be a
placement or employment agency;
(ii) persons who
register with Director's Choice must be remunerated by the agency;
(iii) in respect of
employment insurance, the registrants must perform services for and under the
direction and control of a client of Director's Choice; and
(iv) in respect of the Canada pension plan, the registrants must perform services
for a client of Director's Choice under terms and conditions that constitute a
contract of service or that are analogous to a contract of service.
[24] Despite an excellent submission on behalf
of the Crown, I have concluded that the condition set out in (ii), that the
registrants are remunerated by Director's Choice, is not satisfied. In
light of this conclusion it is not necessary that I consider whether the other
conditions are satisfied and I do not express any opinion on them.
[25] In my view both
the form and substance of this arrangement is that the production companies,
and not Director’s Choice, remunerates the performers.
[26] I would note that
Director’s Choice does not engage the performers. The production companies
hire the performers, enter into written contracts with them and issue their pay
cheques. The performers, by signing a form that gives the address of Director’s
Choice instead of their own, in effect give a direction for the remuneration to
be mailed to Director’s Choice. The result of this implicit direction is that
the remuneration is paid to the performers by the production companies when the
cheques are sent to the address specified in the forms. The action of the
Director’s Choice in issuing cheques to the performers cannot be described as paying
remuneration in these circumstances. The remuneration was already paid.
[27] In these circumstances, the production companies have the obligation to pay, deduct and remit
premiums under the Employment Insurance Act and the Canada Pension Plan
if they engage background performers as employees.
[28] Counsel for the Crown suggests that the placement
agency regulations apply even if the agency has only a limited role in respect
of remuneration, as Director’s Choice did in this case. The following case
authorities were cited in support: Sheridan v. M.N.R.,
[1985] FCJ No. 230 (F.C.A.); Silverside Computer Systems Inc. v. M.N.R., [1997]
FCJ No. 1591 (F.C.A.), aff’g [1997] TCJ No. 38; and Tandem Placement
Services v. M.N.R., [2001] TCJ No. 640 (T.C.C.).
[29] In my view, these cases do not go as far as the Crown
suggests because the placement
agencies in all the cases played a significant role with respect to the
remuneration. In Silverside Computer Systems and Tandem Placement
Services, the client for whom the services were performed had nothing to
do with paying the remuneration. It was handled entirely by the placement
agency. The Sheridan case is closer to the facts in these
appeals because the clients did send cheques to the placement agency which
deducted a 10 percent fee before remitting the net amount to the workers. Again,
though, the placement agency had a substantive role with respect to the
remuneration. Heald J. of the Federal Court of Appeal stated:
She was not a mere conduit. She remitted to the nurses the amount
they earned for their services which amount was dependent on their rate of pay
which was determined, not by the hospitals but by the applicant. […] If her
role was that of a mere conduit, she would simply have transmitted the remuneration
in toto. I think also that a mere conduit would not have been involved in
fixing the quantum of the remuneration. I therefore reject this submission by
counsel for the applicant.
[30] I disagree with the submission of the Crown
that the facts in Sheridan are similar. The fact that the placement
agency in Sheridan determined the rates of pay is a key fact.
The Crown suggests that because ACTRA negotiated the hourly rates for
background performers that the setting of remuneration was irrelevant in this
case. As discussed above, I am not satisfied that ACTRA did negotiate the rates
during much of the assessment period. Even if it did, however, the fact remains
that ACTRA did not set the rates on its own but negotiated with representatives
of the production companies. Either way, it was the production companies that
agreed to the remuneration – not Director's Choice.
[31] In my view, none of the case authorities
cited by the Crown support its position that Director’s Choice paid
remuneration in this case.
[32] For the above reasons, I have concluded
that the placement agency regulations do
not apply to the appellants in this case. The appeals are allowed, without costs, and the
assessments are vacated.
Signed at Ottawa, Canada, this 25th day of May 2005.
“J. Woods”
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