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Citation: 2004TCC150
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Date: 20040218
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Docket: 2003-1764(EI)
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BETWEEN:
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DODDS BROS. AUCTION LTD.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
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Docket: 2003-1765(CPP)
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AND BETWEEN:
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DODDS BROS. AUCTION LTD.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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REASONS FOR JUDGMENT
Beaubier, J.
[1] These appeals were heard together
on common evidence at Kelowna, British Columbia on February 9, 10
and 11, 2004. The Appellant's counsel called Robert
("Bob") Woodman, an operating officer and shareholder
of the Appellant, his father, a co-operator and shareholder of
the Appellant, Alan David "Woody" Woodman, and Douglas
Sinclair who, in 2003, entered into a car-buying enterprise with
Danny Saunders similar to that alleged by the Appellant.
Respondent's counsel called Danny Saunders, the alleged
employee; (or the operator of Danny's Used Cars -
"DUC"), his wife, Karin; and Valerie Gwen Dahm, an
employee of the Appellant from January, 1999 until July, 2000
where, among other things, she answered the telephone and did the
payroll accounting.
[2] These hearings turn on the
credibility of the witnesses. The Appellant pleads that Danny
Saunders was not its employee for the period from
September, 1999 until he quit on September 23, 2002. Rather,
the Appellant states that Danny operated a used car sales lot
("DUC") situated on its property, with money supplied
by Bob and Woody Woodman, and services by Danny for purchasing
low-end used cars and selling them. Profits were to be split
50-50 between Danny and Bob. The Appellant also supplied
forfeited pawned used cars to the lot for sale. The Respondent
claims that Danny was an employee of the Appellant at first for
$10 per hour in cash, and then for $2,500 per month for the last
year or year and one-half.
[3] Valerie ("Val")
Dahm's testimony was broad ranging, but was based largely
upon what she "thought", and not what she knew. DUC
operated in a small part of the Appellant's very large,
equipment-filled, 15,000 square foot fenced yard and Val was
seated at a desk in the Appellant's office to one side of the
yard. She could not see the yard from her desk. She went into the
yard to eat her lunch and was in the yard from time to time for a
total of about an hour a working day. She said she used Danny to
value pawned cars when Bob wasn't there. She did not say that
Danny was on the Appellant's payroll, although she did that
payroll. Rather she did say that Danny and Bob were the only ones
who took money from the DUC cash envelope in the Appellant's
safekeeping; Val recorded the entries into it for Danny when Bob
wasn't there. She also confirmed the fact that any pawned
cars sold by DUC for the Appellant were accounted for through the
Appellant's books and not in the DUC envelope. Sales proceeds
of DUC's used cars went into the envelope. In other words
where Val was not stating what she "thinks", or
"believes", her testimony largely confirmed Bob's
testimony.
[4] Karin is not believed and where
her testimony conflicts with any of the Appellant's
witnesses, it is not accepted. There are a number of reasons for
this. They include:
1. Karin testified that
for Danny's last year or year and one-half at the
Appellant's the Appellant paid Danny a salary of $2,500 per
month. But this is not mentioned in Karin's letter (Exhibit
A-14) which she wrote to Bob in the seven months or so before
September 23, 2002 asking for $3,000 per month for Danny.
2. Exhibit A-14 does refer
to money owed to Bob, Woody and DUC. She did not acknowledge
"DUC" as being in her writing or any debt to DUC.
However the Court finds that, given the letter's spacing and
Bob's testimony that the DUC was there. Karin wrote
"DUC" and used that term. The reference to a debt to
DUC also confirms the tenor of the letter and the Appellant's
case that Danny did not receive a salary, but operated on
Bob's and Woody's loans and advances from the DUC
envelope. This is also confirmed by Exhibit A-8.
3. The $3,000 per month
proposal does not refer to income taxes or withholdings on a
salary. This confirms the fact that Danny was borrowing from Bob,
Woody and DUC and that it was not making income for Danny. It
also confirms Karin's and Danny's testimony that Danny
has not filed income tax returns for six or seven years. If he
was not making an income, he would not have to file an income tax
return for tax purposes. This fact also puts the lie to
Karin's and Danny's allegation that initially in the
period Danny was paid a salary of $10 per hour by the
Appellant.
4. Finally, the letter
(A-14) refers to a quota. The Court interprets this phrase to
refer to the amount of profit DUC has to generate for Danny's
share of 50 percent of DUC's profits to equal $3,000 proposed
by Karin. Karin also made self-assured statements about car sales
in which she failed to distinguish between pawned car
transactions assigned from the Appellant and ordinary used car
transactions and she alleged cash "under the table"
sales on which GST was not recorded. The Court finds that she did
this to hurt the Appellant and because, despite her self-alleged
knowledge, she did not understand the differences between the
Appellant's consigned pawned cars and DUC's own cars and
the tax matters relating to the sales of used vehicles by a
dealer.
[5] Danny's testimony is not
believed for reasons which include parts of these already recited
respecting Karin where they may apply to Danny's own
testimony. In addition:
1. Doug Sinclair testified
about a similar car sales financing experience for a return of 50
percent of the profits on sales that he had with Danny in which
he, like Bob and Woody, kept paying in money. Doug paid about
$4,400 and recovered about $900. Danny admitted to Doug and in
Court that he used drugs; percocets while operating DUC (at 40
tablets a day in 2003) and, to Doug, marijuana.
2. Danny operated two
other body shops for a few months each while operating DUC. He
also towed vehicles under Karin's trade name "Hotrod
Vehicle Delivery Service" which she licenced in May, 2002,
and in the summer of 2002 set up a seal coating and asphalt
business. He was absent from DUC for two months in about June or
July, 2002 when he claims he was working at Dodd's for a
salary of $2,500 per month. None of this would be permitted by an
employee who was employed to be a used car purchaser and
salesman.
3. Danny admitted that he
has filed no income tax returns for six or seven years. Nothing
is alleged to have been withheld from his purported salaries for
any government body and it is all alleged to be in cash. Dodds
paid its regular, permanent employees by cheque. Bob and Woody
testified that DUC's purchases and sales were for low-end
cars for cash. These cars were planned to sell on the DUC lot for
about $2,000 or less, and permit DUC to double its cost of those
cars. All the cash came in and out of an envelope which Bob kept
or stored with Dodds' accountant except on occasion (usually
on week-ends) when Danny was given $1,000 or so to go out and
scout residential areas and buy old cars. Danny and Karin
admitted Bob and Woody's allegations that Danny borrowed cash
from them and the envelope continuously in amounts of plus or
minus $100. There is no written record of withholdings, cheques
or income tax returns by Danny to support any alleged salary.
Dodds' regular employees received cheques and presumably
Danny would file an income tax return reporting his income. Karin
filed income tax returns, Danny did not. In other words, Danny
presented no objective documentary evidence relating to third
parties which indicate that he was an employee of Dodds during
the period.
[6] The matters in dispute are set out
in paragraphs 4 to 10 inclusive of appeal 2003-1764(EI). They
read:
4. On November
15, 2002, the Minister of National Revenue (the
"Minister") issued a ruling determining that Danny
Saunders ("Saunders") was employed in insurable
employment under a contract of service during the period from
September 19, 1999 to September 23, 2002 (the
"Period").
5. The
Appellant appealed the ruling by letter dated December 19,
2002.
6. In response
to the Appellant's appeal of a ruling under section 91 of the
Employment Insurance Act, S.C. 1996 c.23 (the
"Act"), the Minister confirmed that Saunders was
employed by the Appellant in insurable employment during the
Period.
7. In
determining that Saunders was employed in insurable employment
with the Appellant during the Period, the Minister relied on the
following assumptions of fact:
a) the
Appellant's business was an auction house, pawn shop and car
dealership;
b) the
business was owned by Dave Woodman, Roxanne Woodman and Robert
Woodman;
c)
Saunders' duties were to take care of the yard, buying and
selling vehicles, controlling ingoing and outgoing pawns,
estimating the value of estate vehicles sold at auction,
estimating the value of repossessed vehicles from the bailiff and
in one case the tearing down of a restaurant;
d) the
Appellant provided the office from which Saunders performed his
duties;
e) there was
no written agreement in place between the Appellant and
Saunders;
f) the
Appellant required Saunders to work from 8:30 a.m. to 5:30 p.m.
Monday to Friday and Saturday from 8:30 a.m. to 12:00 noon;
g) the
Appellant recorded Saunders hours of work;
h) the
Appellant did not provide a benefits plan however Bob Woodman
paid Saunders' dental bills in cash;
i) the
Appellant supervised Saunders;
j) the
Appellant paid Saunders $10.00 per hour plus 50% commission for
the first two years of his employment which was then changed to
$2,500 per month plus 50% of the profits;
k) the
Appellant paid Saunders in cash;
l) the
Appellant provided most of the tools and equipment used in the
business including a flat deck trailer used to haul vehicles,
dealer plates, a gas card, the automobile dealership license and
the ADESA (Vancouver Car Auction) pass card required when
purchasing vehicles at auction;
m) Saunders provided
his own vehicle when he picked up or looked for vehicles to
purchase for the Appellant;
n) the
Appellant paid Saunders' expenses when he was required to
travel including meals, hotel and gas expenses;
o) customers
who purchased vehicles made payment to the Appellant, not to
Saunders;
p) the
vehicles sold by Saunders were owned by the Appellant until they
were transferred to customers;
q) the
Appellant had the final say in determining the selling price of a
vehicle;
r)
Saunders' wife Karin also worked at the Appellant's
business;
s) Saunders
did not share in the potential for profits or the risk of losses
in the business;
t) the
Appellant terminated Saunders; and
u) at no time
during the Period was Saunders the proprietor of a used car
dealership.
B. ISSUES
TO BE DECIDED
8. The issue
is whether Saunders was employed in insurable employment with the
Appellant during the Period.
C.
STATUTORY PROVISIONS RELIED ON
9. He relies
on paragraph 5(1)(a) and subsection 2(1) of the Act.
D.
GROUNDS RELIED ON AND RELIEF SOUGHT
10. He respectfully
submits that Saunders was employed in insurable employment with
the Appellant during the Period under a contract of service
within the meaning of paragraph 5(1)(a) of the Act as he
was not operating his own used car dealership during the
Period.
[7] Assumptions 7(a), (d), (e) and (m)
are correct.
[8] Respecting the remaining
assumptions, by paragraph letter, the Court finds as follows:
(b) It appears that shares in the
Appellant corporation were owned by the Woodmans. Robert is Dave
and Roxanne's son.
(c) Is False. Danny Saunders owned
Danny's Used Cars ("DUC") which operated from a
portion of the Appellant's fenced-in 15,000 square foot pawn
and auction yard in Vernon, B.C. throughout the period. On
occasion Danny valued a vehicle for pawn purposes when Robert was
not in the yard, but he did not do any of the other alleged
duties. Bob loaned money to DUC, in return for which his
"interest" on his loans was to be 50 percent of the
profit on the sales. From the evidence, it appears that there
were no profits and that DUC seldom sold a car for double its
cost (as was initially expected).
(f) Robert wanted Danny to put
in these kinds of hours, since he was financing DUC for a 50
percent share of the profits. But Danny didn't do this.
Moreover, Danny frequently and at will, substituted Karin for
himself on the used car sales lot. Karin was not paid by Dodds.
None of this would have occurred had Danny been an employee of
Dodds.
(g) Is false. But the Appellant did
record its regular full-time employees' hours of work. They
were paid on an hourly basis by cheque. The Appellant also
employed one or two part-time employees to help out on its
regular Wednesday night auction who were paid by the hour in
cash.
(h) The $300 was loaned to Danny to
fix his broken false tooth plate.
(i) Is false. Danny ran his own
business at DUC. Danny also had other businesses during the
period including two auto body businesses in separate
partnerships with two other men, operated Karin's towing
business "Hot Rod Vehicle Delivery Service", and took
two allegedly "salaried" months off in 2002 to operate
an asphalt business. The evidence is that Danny was trying to
operate several businesses when he couldn't even go to work
and run one business. Danny Saunders wandered freely among his
various enterprises and activities.
(j) Is false. DUC was set up by
Danny at the beginning of the period on the basis that Bob would
and did supply an envelope of cash, Danny would supply his
services free and DUC would operate out of the Appellant's
yard. DUC would buy old cars, fix them up if necessary, and sell
them. Bob and Danny would split the profits 50-50. This happened
and Danny took "advances" on account of his 50 percent
and borrowed more from Bob and Woody. Bob's alleged profits
were spent acquiring more inventory for DUC. Danny Saunders was
never paid $10 per hour or $2,500 per month, nor was there ever
any such agreement or contract with Bob, the Appellant or Dave
Woodman. Danny was at all times an independent entrepreneur who
operated on other people's money.
(k) Is true in that all of Bob and
Danny's dealings were in cash. The Appellant's business
dealings with its customers were usually in cash. Bob's and
Woody's loans to Danny were in cash. DUC operated in cash
sales except that Visa sales were put through Dodd's Visa
account since DUC did not have a Visa account or an auto
dealer's licence. DUC operated on Dodd's licence.
(l) This is not true. The
Appellant provided the licence at all times. It provided the
plates and the ADESA card twice and provided a gas card once;
these were provided for two individual purchasing
expeditions.
(n) Is not true at all times but Bob
may have supplied such funds on occasion.
(o), (p) and (q) Are only true respecting the Appellant's
pawned cars which were sold by DUC on consignment, and credit
card sales by DUC.
(r) Is not true. Karin Saunders
worked at DUC from time to time during the period in substitution
for Danny. She never received any employment or income from
Dodds. Rather any work she did was for Danny.
(s) Is not true. The profits
from DUC were to be split 50-50 between Bob and Danny. Danny
proposed and commenced the same deal with Doug Sinclair in August
and September, 2003 with almost identical consequences; that is,
Danny took the money and Doug lost most of his money as had Bob.
It appears that Danny took money, profits or not, and Bob (not
the Appellant) suffered a loss on his loans. To the question:
"Whose business was it?", the answer is "It was
Danny's. And Danny blew it away". It was Danny's
opportunity of a lifetime and he couldn't cut the mustard. He
couldn't go to work every day for long hours and do the
little deals and jobs that had to be done at DUC to make a
profit. Rather he had to get out and into other businesses,
cruise around to allegedly buy cars, do drugs, and simply avoid
going to work every day.
(t) Is false. Danny quit
operating DUC when the Appellant's new accountant began
asking him questions to distinguish DUC's operations from
those of the Appellant in the Appellant's fenced enclosure in
Vernon, B.C.
(u) Is false. Danny Saunders was the
owner of DUC which was a used car dealership using the
Appellant's car dealership licence and yard from which to
operate.
[9] Saunders was not employed by or
with the Appellant during the period. Rather, Saunders was an
entrepreneur operating DUC during the period.
[10] The appeals are allowed. The Appellant
is awarded all costs and all disbursements permissible under the
Employment Insurance Act respecting the Employment
Insurance appeal.
Signed at Saskatoon, Saskatchewan this 18th day of February,
2004.
Beaubier, J.
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