Date: 20010412
Dockets: 2000-3591-EI, 2000-3592-CPP
BETWEEN:
RANDY FATT,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Rowe, D.J.T.C.C.
[1]
The appellant appeals from a decision of the Minister of National
Revenue (the "Minister") issued on May 16, 2000 wherein
the Minister decided the appellant was not employed in
pensionable and insurable employment with Sea to Sky Payphones
Ltd., the Payor, because he was not employed under a contract of
service during the period from April 1 to August 15, 1999, within
the meaning of paragraph 5(1)(a) of the Employment
Insurance Act and paragraph 6(1)(a) of the Canada
Pension Plan. The appellant also filed an appeal -
2000-3592(CPP) - and it was agreed the result would follow
the within appeal.
[2]
The appellant testified that he resides in Edmonton and during
the relevant period he was providing services to Sea to Sky
Payphones Ltd. (SSP), a company operating out of Vancouver. He
stated he had been contacted by Ted Kelly - Sales Manager for SSP
- with whom he had worked earlier in another business.
After some initial reluctance, the appellant decided to
participate in the SSP venture and was assigned a territory
between the south part of Edmonton to Red Deer - both in
Alberta - but later on the territory boundaries were not
respected by other sales agents. The nature of the business
required the appellant to call on service stations or other
places of business that would be likely places in which to
install pay phones. The telephone company, AT & T, was the
service provider and in the event the owner or manager of a
business agreed to participate in the location of a pay phone on
the premises, then a contract would be entered into between that
entity and Canada Payphone Corporation (CPC). SSP was the sales
agent for CPC but the on-going contractual obligations were
between the customer and CPC in terms of dividing revenue
produced by the pay phones. The appellant stated he entered into
a written contract - Exhibit A-1 - with SSP in which
the intent was for him to be paid the sum of $90.00 for each site
secured and a further sum of $90.00 when the pay phone had been
installed. Fatt had nothing to do with the installation as the
crews were hired by SSP or CPC to carry out that function.
Although the copy of the agreement filed as an exhibit is not
signed, nearly all of the pages carry the appellant's
initials and he stated he considered himself to have been bound
by the terms of that contract. In his opinion, the
confidentiality clauses practically eliminated the ability to
work for other similar companies or to hire workers to assist in
carrying out the sales function. All prices and arrangements,
including the actual location of a pay phone on the premises of a
participating business, were handled by SSP or CPC. An example of
the type of contract entered into between a customer and CPC was
filed as Exhibit A-2.
[3]
The appellant received payment for his services by means of
direct deposit to his bank account and it was intended he would
receive payment every two weeks based on his reports which were
submitted weekly in addition to a monthly report. The appellant
was required to provide his own vehicle and cell telephone and he
was not compensated for those expenses or others incurred in the
course of attempting to make sales. His remuneration was totally
dependent on sales. He had no set working hours but the appellant
commented that is normal within the sales industry. Prior to
commencing his sales calls, he received three or four hours
training in Edmonton and later met with a SSP representative
together with other sales agents four or five times during the
course of his working relationship. He attended a meeting with
Don Perks, the principal of SSP at which the Sales Manager was in
attendance as well as four other salespeople. During his career
as a salesperson, the appellant stated he had worked both as an
employee and as an independent contractor. One of the
difficulties he encountered in terms of his pay cheques was that
he never received any hard copy of the details relevant to his
payment for a particular period since the money was deposited
into his bank account by electronic means. He would send SSP the
contracts signed by each of the site providers and he expected to
receive payment based thereon after two weeks. A further payment
was due to him once the pay phone had been installed at a
particular site but he had no means of knowing whether that had
been accomplished and relied on SSP and/or CPC to make payment to
him at their discretion. There were never any discussions held
between himself and any managers or administrators of either
corporation with regard to the applicability of employment
insurance premiums or Canada Pension Plan contributions. The
formation of the working relationship was based on past
friendship with Ted Kelly, Sales Manager of SSP. By the time he
left the SSP business on August 15, 1999, Fatt believed he had
been fully compensated for his services. He had not been required
to report details of his sales activities but when he attended a
convention there was a CPC booth situated there and he worked out
of the location which was obviously designed to promote the
business of CPC. Although he signed the agreement - Exhibit
A-1 - the appellant stated he had not intended to work on
the basis of being an independent contractor. He agreed he was
entitled to receive an additional sum of $25.00 per pay phone if
he secured at least 50 pay phones - every three months - with a
minimum of 50 pay phones generating at least $9.51 per day.
Although he should have been remunerated at the rate of $90.00
per site for locating a pay phone on a premise, he would often
receive deposits to his account in odd-numbered amounts. He
expected payment of sales commissions to be based on his main
reporting document - Exhibit A-3. He considered his
personal services were necessary but agreed he could have hired
assistants. While he paid for all of his direct selling expenses,
there were other occasions during which his expenses were paid
for by CPC and/or SSP such as when he attended meetings called by
the Sales Manager. The appellant agreed the payor was interested
in the end result but also provided him with reports, sketches,
promotional materials and CPC had to approve the location of each
pay phone solicited by him so that he had no real risk of loss in
paying for sales accessories including his business cards -
Exhibit A-4 - which described him as an Authorized Agent of
CPC.
[4]
In cross-examination, the appellant agreed he made the changes
- in his own handwriting - to the contract - Exhibit
A-1. He stated he became concerned when other salespeople began
to ignore territorial boundaries. He was required to submit a
weekly report and when he failed to do so, he would receive a
call from the Sales Manager. CPC was in a start-up phase and
there were certain expectations passed down to the sales force.
On the income side, the appellant stated he always had trouble
clarifying the basis of his payments while on the expense side he
could only have sustained a loss if he had been very foolish with
his outlay during sales calls. His own telephone number was
listed on the business card - Exhibit A-4 - with the
telephone number of CPC together with other information
concerning CPC's fax, e-mail and website and office address
in Burnaby, British Columbia. When he took a business trip to
Grande Prairie, Alberta, the appellant agreed he had paid for his
own expenses. Earlier, he had worked for an entity - Paytel
Canada Inc. - engaged in the same type of business and he
had sought a determination of his status on that occasion which
had resulted in a decision being issued by the Minister -
Exhibit R-1 - holding that he had not been
employed in insurable employment. The appellant stated he chose
not to pursue the matter because Paytel had gone out of
business.
[5]
The position of the appellant was that he was an employee of SSP
and/or CPC employed pursuant to a contract of service. He had
earlier received a ruling - dated October 21, 1999 - to
that effect which he considered to have been correct and should
not have been overturned by the decision of the Minister dated
May 16, 2000.
[6]
Counsel for the respondent submitted the decision of the Minister
was correct and in accordance with the established
jurisprudence.
[7]
In Wiebe Door Services Ltd. v. M.N.R., [1986] 2 C.T.C.
200, the Federal Court of Appeal approved subjecting the evidence
to the following tests, with the admonition that the tests be
regarded as a four-in-one test with emphasis on the combined
force of the whole scheme of operations. The tests are:
1. The Control test
2. Ownership of tools
3. Chance of profit or risk of loss
4. The integration test
Control:
[8]
There was very little control exercised over the appellant and he
was free to work his own hours and in the manner best suited to
achieving a satisfactory result. The reporting requirements were
as much based on his own need to provide details of his
successful placements of pay phones - upon which his
remuneration was based - as any other reason. He was
literally out in the territory attempting to make sales which
would generate revenue for him upon having the customer sign the
contract, followed by another sum after the installation was done
and he was also entitled to participate in downstream revenue
provided certain conditions had been met. He was free to set his
own hours and to sell to whomever he considered a likely
prospect, initially within a defined territory and later wherever
he chose.
Ownership of tools:
[9]
The main selling tools were his vehicle and cellular telephone.
The promotion material provided by SSP and/or CPC would probably
have been provided in any event to any persons or entities
selling that product as a means of informing potential customers
of the nature of the business and the service to be
performed.
Chance of profit or risk of loss:
[10] The
remuneration was based on commissions for sales together with a
form of additional payment if certain volumes of placements were
made in sites which produced a certain amount of revenue. In that
sense, he was able to use his own extensive sales experience to
gauge which venues might be more productive so that he might
eventually participate in the revenue stream. His risk of loss
was negligible because as an experienced salesman he would never
allow expenses to exceed revenue except for a very brief period
of time. Again, with his experience in selling he would organize
his calls in an efficient and cost-effective manner.
Integration:
[11] This test
is one of the most difficult to apply. At page 206 of his
judgment in Wiebe, supra, MacGuigan, J.A.
stated:
"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?"
Perhaps the best synthesis found in the authorities is that of
Cooke, J. in Market Investigations, Ltd. v. Minister of Social
Security, [1968] 3 All. E.R. 732 at 738-39:
The observations of Lord Wright, of Denning L.J., and of the
judges of the Supreme Court in the U.S.A. suggest that the
fundamental test to be applied is this: "Is the person who
has engaged himself to perform these services performing them as
a person in business on his own account?" If the answer to
that question is "yes," then the contract is a contract
for services. If the answer is "no" then the contract
is a contract of service. No exhaustive list has been compiled
and perhaps no exhaustive list can be compiled of considerations
which are relevant in determining that question, nor can strict
rules be laid down as to the relative weight which the various
considerations should carry in particular cases. The most that
can be said is that control will no doubt always have to be
considered, although it can no longer be regarded as the sole
determining factor; and that factors, which may be of importance,
are such matters as whether the man performing the services
provides his own equipment, whether he hires his own helpers,
what degree of financial risk be taken, what degree of
responsibility for investment and management he has, and whether
and how far he has an opportunity of profiting from sound
management in the performance of his task. The application of the
general test may be easier in a case where the person who engages
himself to perform the services does so in the course of an
already established business of his own; but this factor is not
decisive, and a person who engages himself to perform services
for another may well be an independent contractor even though he
has not entered into the contract in the course of an existing
business carried on by him.
There is no escape for the trial judge, when confronted with
such a problem, from carefully weighing all of the relevant
factors, as outlined by Cooke, J."
[12] While the
evidence is not very clear on this point, it appears as though
SSP was the corporate sales arm of CPC. In view of that, the
Minister obviously considered the appellant to have been another
part of that structure which was based on contractual
relationships between independent entities and/or persons.
Certainly, CPC required SSP to enter into working arrangements
with sales agents who could place the pay phones into locations
so CPC could earn revenue from their use. The appellant was
instrumental in providing that necessary service within his
territory or area of operations but he was also able to
participate in future revenue as a result of his placements. The
venture was relatively new and the CPC office was located in
British Columbia. For the most part, the appellant was left to
his own devices, skills and contacts in order to make the sales
which would produce revenue. Once the contract was signed, he was
entitled to receive a particular sum followed by another equal
amount subsequent to installation of the pay phone. In the event
the phone did not produce any revenue, then that would only
impact upon his future revenue as part of the overall formula
which determined additional remuneration based on volume and
revenue from all the phones he had located on the various sites.
If one regards the entire operation as being vertical in design,
then the appellant would be more likely to fit into the category
of employee. However, if the structure is reasonably capable of
being seen as one where parties entered into a mutually
satisfactory business arrangement to jointly promote a product
from which both could derive revenue, then the working
relationship takes on the aspect of a contractual relationship
between independent entities. Had the payor been CPC, there would
have been a stronger case for finding the appellant to have been
an integral part of its overall operation but CPC had chosen to
farm out - to SSP - the sales function of placing pay
phones in certain locations and SSP - in turn - had its Sales
Manager - an old friend and former co-worker of the
appellant - contact Fatt and convince him to join the new
venture. In the modern marketplace, there is less reliance on
hierarchical structures as vehicles for delivering goods and/or
services from the producer/originator to the ultimate consumer
and a variety of methods and mechanisms may be utilized to
achieve that end without the producer of those goods or services
being required to own and/or control each component or sequence
within the overall system.
[13] In the
case of Clientel Canada Corp. v. Canada (Minister of National
Revenue - M.N.R.), [1999] T.C.J. No. 678, Porter
D.J.T.C.C. heard the appeal of a corporation that had employed
sales agents in order to market AT & T Canada telephone
services. At pages 7-8 of his judgment, Judge Porter stated:
"When I consider the control portion of the tests
enunciated above, I do not find any great measure of control
exercised by the Appellant over the Workers. In fact it seems to
me that the workers had a significant amount of independence, to
decide whether and when they would work and how they carried out
their work. Obviously there had to be some standards, as
otherwise the name of the product itself could become tarnished.
That seems to me to be no more than an independent subcontractor
coming onto a building site where he would have to liase and
cooperate with the other players on the site. That in itself
would not make him any less an independent contractor. In the
case at hand the agents could work whatever days they wanted;
they could take vacations when they wanted to for which they were
not paid; they could go about their tasks as they saw fit,
picking their own routes and their own choice of transport. I see
a great deal of independence here and very little supervision.
The sole requirement seemed to be that if an agent wanted to work
he had to have some identity with him and he was not to make
contact with householders too early or too late in the day, which
might be perceived as a nuisance and jeopardize the product.
Similarly if they wanted to go off either in the day or for a day
or more they had no need to notify the Company and they did not
need permission. This part of the test tends to establish an
independent contractor status.
With respect to the question of tools or equipment, counsel
for the Minister submitted that these involved clothing, identity
badges, forms, training and policy binders, brochures and a sales
script. I am not sure that one could necessarily categorize these
items as tools, but they were indeed provided by the Appellant
and in fact some of them came directly from AT & T and related
more to the product itself. In addition some of them were
purchased or paid for by the agents. Clearly though, there were
tools provided by the agents themselves such as vehicles and cell
phones. They had to provide their own vehicles, if they needed
them or otherwise bear their own costs of transportation. They
bore all the costs of operating them, without reimbursement from
the Appellant. This seems to me to be quite significant. On
balance I find that this aspect of the test leans towards the
independent contractor status.
It seems to me, when it comes to considering the opportunity
for making a profit or suffering a loss, the agents were exposed
to some risk of loss. They could well incur expenses and be
unable to sign up new applications. There was no evidence that
this ever happened but the risk was certainly present. They had
little opportunity to make additional profits out of this
operation, in the entrepreneurial sense, but there was nothing to
stop them selling other products on the same days they were
selling AT & T services and apparently some of them did so. The
fact that Lance King signed his contract in the name of a
business lends some support to the Appellant's position in
this respect.
How they managed their days and went about their business
would very much govern how much they netted out from their work,
and this in my view is far more consistent with the situation of
an entrepreneur than with an employee.
The fourth aspect of the tests, enunciated by the Federal
Court of Appeal, relates to the integration of the work into the
business of the Appellant. One had to look at this from the point
of view of the agent rather than the Company. The question
frequently put in these situations is "whose business is
it"? Clearly the Appellant had its own business. The
question is whether the agents were part of that business, as
urged upon me by counsel for the Minister or whether each agent
was in business for himself as the Appellant maintains. It is
true that the Appellant's business could not operate without
agents in the field, but neither could a large construction
company operate without sub-trades, and so that proposition does
not really fly. The Appellant on the other hand could operate
without any particular agent so it is difficult to find that they
were integral to its business. This test is always a difficult
one, but I am mindful that Lance King signed up in a business
name. I am also mindful that each agent was free if he chose to
go out and sell other products, although not in competition with
or at the same time as the AT & T services. This is all more
consistent with being in business for himself than being an
employee of the Appellant.
When I consider the method by which the agents were paid, how
they bore all their own expenses, provided their own vehicles and
phones to go about their work, their lack of benefits enjoyed by
the full-time employees, their ability to decide when and how
they would work, their opportunity to work for other companies,
their own marketing efforts with customers at their own expense,
I can only come to the conclusion that this all leads to the
inalienable conclusion that these agents were engaged by way of a
contract for services not a contract of service. There is
virtually nothing in my view, which displaces the clearly
expressed intention of the parties in the contract that it be
considered a contract for services and not a contract of
service."
[14] In the
case of Ivanov v. M.N.R., T.C.J. No. 8646 (1999-4124(EI)),
I found a sales agent selling long distance services - to be
provided by AT & T Canada - to have been an independent
contractor. In Ivanov, above, I referred to the
case of 740944 Alberta Ltd. v. M.N.R., T.C.J. No.
8428 (1999-1868(EI) and 1999-1869(CPP)), wherein Porter
D.J.T.C.C. dealt with the case of an individual who had been
selling long distance services for a marketing entity owned by
the numbered company. In that instance, the Minister had issued a
decision that the worker had been an employee engaged in
insurable and pensionable service. In the 740944 case
Judge Porter held the worker had not been providing services
pursuant to a contract of service but had been functioning as an
independent contractor. Some of the matters considered by Judge
Porter in the course of his analysis are as follows:
-
there was an agreement entered into by the worker and the company
whereby both parties intended the worker would be an independent
contractor and, there being no clear evidence they functioned
differently in the course of the working relationship, that
deference should be given to the intentions of the parties at the
time of signing;
-
if salespersons wanted to do well, it was beneficial for them to
attend the sales meetings where they could be updated on programs
and services for sale;
-
people had a choice of territory and whether they worked or not
on a given day was up to them;
-
there was no requirement the salespeople had to be in the office
at any appointed time;
-
the sales personnel paid for their own transportation to make the
calls door-to-door;
-
there was the opportunity for profit if they organized themselves
in an efficient manner and there was the risk of loss if they
incurred expenses but did not generate any commission revenue
from sales;
-
the salespeople were not integral to the business of the
appellant corporation in that they could choose to work for other
organizations so long as when they were standing at the door of a
potential customer they did not offer long distance services of
any provider except AT & T;
-
each salesperson was operating their own mini-business in
whatever manner they saw fit.
[15] In the
case of Charbonneau v. Canada (Minister of National Revenue -
M.N.R.), [1996] F.C.J. No. 1337, the Federal Court of Appeal
dealt with the issue whether or not a log skidder was an employee
or independent contractor. The judgment of the Court was
delivered by Décary, J.A. who stated at page 1:
"Contract of employment or contract of enterprise? This,
once again, is the question that arises in this case, the issue
in which is whether the respondent, the owner and operator of a
skidder, was engaged in insurable employment for the purposes of
the application of paragraph 3(1)(a) of the Unemployment
Insurance Act.
Two preliminary observations must be made.
The tests laid down by this Court in Wiebe Door Services Ltd. v.
M.N.R. - 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). In other words, we must not pay
so much attention to the trees that we lose sight of the forest
- a particularly apt image in this case. The parts must
give way to the whole.
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."
[16] It is
apparent the parties intended the appellant would be functioning
as an independent sales contractor and they basically carried out
the terms of said agreement. As for the effect to be given to the
agreement - Exhibit A-1 - it is clear what the parties thought
their relationship was will not change the facts. In the case of
Minister of National Revenue v. Emily Standing, 147 N.R.
238, Stone, J.A. at pages 239-240 stated:
"...There is no foundation in the case law for the
proposition that such a relationship may exist merely because the
parties choose to describe it to be so regardless of the
surrounding circumstances when weighed in the light of the
Wiebe Door test ..."
[17] However,
there is no evidence the parties subsequently conducted
themselves at odds with the terms of their agreement. The
appellant is an experienced salesman and his subsequent desire to
revise the status of his engagement must be based on more than a
mere wish the Court now classify him as an employee who had been
engaged pursuant to a contract of service. Like any appellant, he
was required to carry the day in terms of discharging the burden
of proof and upon considering all of the evidence and the
relevant jurisprudence, I find he has failed to do so.
[18] The
appeal is dismissed. As agreed by the parties at the outset,
appeal 2000-3592(CPP) is also dismissed.
Signed at Sidney, British Columbia, this 12th day of April
2001.
"D.W. Rowe"
D.J.T.C.C.
COURT FILE
NO.:
2000-3591(EI)
STYLE OF
CAUSE:
Randy Fatt and M.N.R.
PLACE OF
HEARING:
Edmonton, Alberta
DATE OF
HEARING:
February 13, 2001
REASONS FOR JUDGMENT
BY:
the Honourable Deputy Judge D.W. Rowe
DATE OF
JUDGMENT:
April 12, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Agent for the
Respondent:
Denise Espent (Student-at-law)
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
COURT FILE
NO.:
2000-3592(CPP)
STYLE OF
CAUSE:
Randy Fatt and M.N.R.
PLACE OF
HEARING:
Edmonton, Alberta
DATE OF
HEARING:
February 13, 2001
REASONS FOR JUDGMENT BY: the
Honourable Deputy Judge D.W. Rowe
DATE OF
JUDGMENT:
April 12, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Agent for the
Respondent:
Denise Espent (Student-at-law)
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
Email this Content