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Citation: 2004TCC263
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Date: 20040408
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Dockets: 2003-3773(EI)
2003-3774(CPP)
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BETWEEN:
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ABE VERGARA O/A SWEET CITY,
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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
Bowman, A.C.J.
[1] These appeals are from a decision
of the Minister of National Revenue that D was employed by the
appellant in pensionable and insurable employment during the
period October 1, 2002 to January 31, 2003. I do not propose to
identify this individual by name for reasons that will be
apparent from my outline of the facts. D did not testify but the
appellant did, as well as one of the attendants who worked in the
appellant's licensed body rub parlour. I shall identify her
simply as "A".
[2] The appellant carries on business
known as Sweet City in premises in the City of London in which a
body rub parlour, or, as the Notice of Appeal puts it somewhat
more euphemistically, a "licensed adult entertainment
services parlour" which provides "relaxational massage
services".
[3] During the period in question, D
worked at the appellant's premises as an attendant who
provided the massage services. She was one of about 20 to 30
women who worked at Sweet City as attendants. The parlour
operated 24 hours a day, 7 days a week and three 8-hour
shifts per day. It consisted of a reception area, a bathroom and
shower and six massage rooms, one of which had a shower. The
massage room had a massage table, a chair and shelves on which
oils, ointments and powder were stored, as well as linens which
had to be changed after each massage.
[4] The clients would come to the
parlour and select an attendant and decide what sort of service
they wanted. The fees were $40 for one half hour, or $70 for a
full hour, or double that amount for "duet massages"
involving two attendants. The fees were somewhat higher for dance
massages or shower shows. An exact description of some of these
services was not given.
[5] The client would pay the attendant
whom he had selected the required fee who, in turn, would write
the fee, the service and the name of the client in a log book and
deposit the fee in an envelope on which her name or pseudonym as
well as the other information would be recorded. The envelope
would be deposited in a slot which led to a box. The attendant
kept her own book as well, in which she recorded the service, the
name of the client and the fee.
[6] After the money had been paid,
recorded and deposited, the client and the attendant would
proceed to the massage room where the service was performed. The
attendants were expected to clean up the massage room after each
massage, change the linen and remove any garbage.
[7] At the end of the week the total
fees earned by a particular attendant would be divided up between
the attendant and Sweet City on a 50/50 basis. Also, the
attendants would pay Sweet City $1 for each massage, to cover the
cost of laundering the linens.
[8] Each week the attendants would
determine how many 8-hour shifts they would schedule for
the following week. A testified that there was no minimum number
of shifts that had to be scheduled. Some attendants would
schedule as few as one in a week, whereas A scheduled 6 and she
tried to pick shifts for times when there were likely to be more
clients.
[9] It was the practice of Sweet City
to levy fines if someone failed to come to a scheduled shift. The
fines were $200 for failure to show on weekends and $100 for
failure to show on a weekday.
[10] The decision that D was employed under
a contract of service was based upon a number of assumptions,
some of which parallel the four aspects of the Wiebe Door
test.
[11] The simple fact of the matter is that I
have seldom seen a business relationship that bore fewer of the
indicia of employment than this one. I think the decision of the
Minister is wrong. What we have here is clearly a business
carried on by the attendants, including D. Sweet City supplied
the premises, the linen and certain oils and ointments and within
those premises the attendants carried on the business of
providing exotic recreational massage services. For this
privilege they paid Sweet City 50 percent of their revenues.
[12] The leading case is the recent decision
of the Supreme Court of Canada in Sagaz Industries Canada Inc.
et al. v. 671122 Ontario Limited, [2001] S.C.C. 59 [2001] 2
S.C.R. 983. The passage that is usually quoted is found at
paragraph 47 of the judgment:
... Although there is no universal test to determine
whether a person is an employee or an independent contractor, I
agree with MacGuigan J.A. that a persuasive approach to the issue
is that taken by Cooke J. in Market Investigations,
supra. The central question is whether the person who
has been engaged to perform the services is performing them as a
person in business on his own account. In making this
determination, the level of control the employer has over the
worker's activities will always be a
factor. However, other factors to consider include
whether the worker provides his or her own equipment, whether the
worker hires his or her own helpers, the degree of financial risk
taken by the worker, the degree of responsibility for investment
and management held by the worker, and the worker's
opportunity for profit in the performance of his or her
tasks.
[13] Essentially the Sagaz decision
is a reaffirmation of the test propounded in Wiebe Door
Services Ltd. v. M.N.R., [1986] 3 F.C. 553. Every case
depends on its own facts and no single factor is necessarily
determinative. The Court must consider all of the factors and
assign to them the appropriate weight within the context of the
case as a whole.
[14] Here, two factors stand out in
particularly bold relief. The first is that the appellant
exercised no control over the attendants. They set their own
schedules and determined how many shifts they would work. They
were free to accept or reject any client. The appellant exercised
no control over how they performed the services or what services
were performed. They had to pay what was called a fine for
missing a scheduled shift, but I regard this as more in the
nature of compensation to Sweet City for loss of an opportunity
to make the money that might have been earned had the attendant
appeared. It does not point in the direction of an employment
relationship.
[15] One of the assumptions on which the
assessment was based was that the attendant was supervised by
various managers and by the appellant. The assumption is wrong.
She was supervised by no one. If the appellant was there he
provided security and oversaw the handing over of money. If he
was not there, one of the other attendants would sit at the desk
answering telephone calls and acting as receptionist.
[16] A testified that the attendants were
free to have someone else substitute for them. I found A to be a
credible and articulate witness and most of the evidence upon
which I rely in these reasons was supplied by her. I daresay the
appellant was credible enough but his command of English was
rather less than perfect. A described the way matters were done
while she worked at Sweet City and she testified that the system
was the same for D, whom she knew and who worked at Sweet City
during part of the time when A was there.
[17] Counsel for the respondent points to
certain rules that he says the attendants had to observe. They
were minimal. They are simply the rules anyone would insist on if
they were allowing a business person to use his or her premises
in which to carry on business. They included no smoking and no
drugs. They certainly were not controls of the type only an
employer would exercise. Some of the "rules" which the
respondent pleaded as assumptions simply did not exist. So far as
control is concerned, then, there was none.
[18] Another key element is the
attendant's chance of profit or risk of loss. An attendant
could turn up at a scheduled shift and, if no clients came in, or
if no one picked her, she would earn nothing. If she was willing
to work 6 shifts a week, and if she was chosen by a number of
clients, new or regular, she could earn more money. Moreover, she
was free to provide services to clients in her home.
[19] Clearly, to use the words quoted by
Major J. in Sagaz, the attendant was performing the
services "as a person in business on his own account".
None of the indicia of an employment appear to be present.
[20] The relationship between the attendants
and Sweet City was purely a business relationship, in which each
brought to the business his or her particular talents or
properties. Each stood to profit if business was good; each stood
to lose if it was not good. The appellant provided the
facilities, the attendant provided the services, and for the
privilege of using the appellant's facilities paid
50 percent of her gross revenues. It was a
profit-sharing business relationship between business
persons. The analogy with partnerships or joint ventures is not
perfect but it is illustrative. It was a mutually beneficial
business relationship. The activities of the attendants or
masseuses are quintessentially and archetypally entrepreneurial.
What we have is certainly not an employer-employee
relationship.
[21] One further point should be mentioned.
D and Sweet City entered into a written agreement in which they
said, among other things, "It is further agreed that the
masseuse is a private contractor and not an employee of
Sweet City." Since I have concluded that D was clearly
an independent contractor and not an employee in any event there
is no need to rely upon this provision. However, such contractual
stipulations should be treated with caution. I say this for
several reasons.
(a)
The question whether a relationship arises under a contract of
service or a contract for services is essentially a determination
of fact and law that is dependent upon many considerations. The
label that the parties put upon the relationship is not
determinative.
(b)
If the Court is to give any weight to declarations by the parties
about their relationship it must be satisfied that the parties
understand what they are agreeing to. This presupposes a
reasonable level of comprehension of the legal and factual
distinction between the two types of relationship. An
illustration of the degree of uncertainty that exists in this
area is the Sagaz decision. There, the Supreme Court of
Canada arrived at precisely the opposite conclusion from three
judges of the Ontario Court of Appeal (Catzman, Borins and
Sharpe JJ.A.) (46 O.R. 3rd 760). If such a degree
of doubt exists at those levels, it will be apparent that a court
will have difficulty in finding in a formula of words in a
written agreement a meeting of the minds between two individuals
that can be of much assistance in determining the issue.
(c)
In Wolf v. The Queen, 2002 DTC 6853 three judges of the
Federal Court of Appeal, in separate reasons, held that in a case
arising under the Quebec Civil Code the intention of the parties
as expressed in the contract between them could be a decisive
factor. Noël J.A. said at p. 6870:
[122] I too would allow the appeal. In my view, this is a case
where the characterization which the parties have placed on their
relationship ought to be given great weight. I acknowledge that
the manner in which parties choose to describe their relationship
is not usually determinative particularly where the applicable
legal tests point in the other direction. But in a close case
such as the present one, where the relevant factors point in both
directions with equal force, the parties' contractual intent,
and in particular their mutual understanding of the relationship
cannot be disregarded.
[22] As noted above, regardless of the
contract, D was clearly in business and not an employee.
[23] The appeals are allowed and the
decisions that D was employed in insurable and pensionable
employment in the period in question are set aside to be replaced
by a decision that she was not employed in insurable and
pensionable employment in the period in question.
Signed at Ottawa, Canada this 8th day of
April 2004.
Bowman, A.C.J.
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