Restaurants Masalit Inc. v. M.N.R., docket 98-861-UI

Date: 19990630

Docket: 98-861-UI

BETWEEN:

LES RESTAURANTS MASALIT INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Taylor, D.J.T.C.C.

[1] This is an appeal heard in Toronto, Ontario, on May 17, 1999 against the determination made by the Respondent under the Unemployment Insurance Act (the "Act") and the Employment Insurance Act (the "Amended Act") that Francis Jean, the Worker, was engaged in insurable employment during the period June 19, 1996 to October 3, 1997. It was the position of the Appellant corporation, represented in Court by the president Mr. Malcolm John Thompson, that the Worker was an independent contractor. The Respondent, in the Reply to the Notice of Appeal, relied on the following assumptions:

"(a) the Appellant is a company which operates a "Pizza Hut" franchise;

(b) the Appellant sells prepared food at an eat in location and also delivers prepared foods to customers;

(c) the Worker was hired by the Appellant to deliver prepared foods to the Appellant's customers;

(d) the Worker and the Appellant signed a written agreement (the "Agreement");

(e) the Appellant employs approximately seven persons to make deliveries;

(f) the Worker and other delivery personnel are recruited through employment centres and newspapers;

(g) according to the written agreement, the Worker was required to provide his own vehicle to make deliveries and the Worker was required to absorb all expenses relating to his vehicle;

(h) in order to work for the Appellant, the Worker had to sign a statement to the effect that he had a valid driver's license and that he had adequate insurance coverage on his vehicle;

(i) the Worker was required to wear the Appellant's sweater, cap and coat to identify the Worker as a representative of the Appellant;

(j) the Appellant prepared the work schedules for the Worker and the other delivery staff;

(k) the Worker was required to advise the Appellant if he could not perform the services on a particular day;

(l) the Worker kept in touch with the Appellant by means of a pager;

(m) during peak hours, the Worker was required to report in person to the Appellant's premises, between deliveries;

(n) during non peak hours, the Worker was not required to report to the Appellant's premises, however the Worker was required to remain on stand-by within five to ten minutes distance from the Appellant's premises;

(o) the Worker was sometimes required by the Appellant, to fold pamphlets while waiting for delivery orders;

(p) the Worker was paid $2.40 for each delivery;

(q) the Worker was required to maintain a detailed register of all his deliveries showing the bill number, the delivery address and the selling price;

(r) the Worker was required to remit to the Appellant's representative all monies collected per the register sheet mentioned in paragraph (q), less his remuneration of $2.40 for each deliver;

(s) the Worker did not perform services for any others since the Appellant had priority on the Worker's time;

(t) the Worker performed the services on a recurring basis;

(u) according to the written agreement, the Worker was required to indemnify the Appellant for any claims against the Appellant, resulting from the Worker being considered an employee under the Income Tax Act or any other law;

(v) the Appellant is involved in the sale of prepared foods and the Worker was hired to deliver the prepared, (sic) therefore the Worker is an integral part of the Appellant's business;

(w) the Worker did not represent, advertise or promote himself as a self-employed individual;

(x) the Worker was employed by the Appellant pursuant to a contract of service."

[2] I also include a copy of the agreement filed in the French language in Court:

"CONDITIONS GENERALES DES LIVREURS CONTRACTUELS

1. Chaque livreur recevra, 2,40$ par livraison, c'est a dire pour chaque adresse différente. Chaque pizza sera confié au livreur au prix du client pour livraison à celui-ci aux prix établis régulièrement par Pizza Hut.

2. Chaque livreur sera responsable pour la perte ou les dommages causés aux pizzas, une fois que celles-ci lui auront été confiées part le poste de remise des pizzas.

3. Il est convenue que le coût de toute pizza offerte gratuitement suite à un délai de livraison dépassant 30 minutes, si cela ne peut être imputé au livreur, sera absorbé par le restaurant qui l'expédie.

4. Chaque livreur sera libre d'établir son propre horaire de travail. Si toutefois un livreur ne peut se présenter au travail comme convenu, il doit en aviser le gérant(e) ou toute personne responsable du restaurant aussitôt que possible pour que celui-ci trouve un remplaçant.

5. Chaque livreur doit fournir son propre véhicule et se charger des dépenses d'essence, d'assurance, réparation, etc.

6. Chaque livreur doit porter son uniforme au complet soit le chandail, la casquette et si nécessaire, le manteau durant le travail, sans aucune considérations.

7. Pizza Hut ne fournira pas au livreur de fonds de caisse.

8. Le livreur doit effectuer son travail de livraison de façon courtoise.

9. Les livraisons seront confiées au livreur selon la méthode du premier entré, premier servi.

10. Le livreur n'est pas tenu de demeurer au restaurant lorsqu'il attend une livraison, mais est libre d'aller et de venir. Il ne doit toutefois, en aucune temps, entrer à la cuisine.

11. Le livreur n'est pas tenu de poinçonner une carte de temps.

12. Il est entendu que le livreur garde tous les pourboires des clients, et il doit les déclarés aux différents gouvernements selon sa discrétion.

13. (a) Il est convenu que le livreur n'est pas sujet aux contrôles et à la direction de Pizza Hut quant à concerne les méthodes de livraison, mais que le livreur est un entrepreneur indépendant et ne doit en aucun cas être considéré comme employé de Pizza Hut ou bénéficier des droits et privilèges de Pizza Hut ou de ses employés.

(b) Le livreur convient par les présentes d'indemniser Pizza Hut de toutes les demandes d'indemnité, revendications au causes d'actions fondés sur la loi de l'impôt sur le revenue ou une autre loi à l'égard d'une obligation de la part de Pizza Hut de verser des cotisations, faire des remises pour retenir des intérêts ou pénalités s'y rapportant en raison du fait que le livreur est considéré comme un employé de Pizza Hut.

14. Pizza Hut peut mettre fin à la présente entente immédiatement et sans avis préalable advenant le cas où un livreur contractuel viole à l'encontre l'une des clauses ci-haut mentionnées. Chacune des parties peut également mettre fin à l'entente à volonté à condition d'envoyer un avis écrit d'une semaine.

15. Il est convenu que le livreur est un entrepreneur indépendant (travailleur autonome), et ne doit en aucun cas être considéré comme un employé de Pizza Hut (Les Restaurants Masalit, Inc.).

Fait à Sherbrooke, ce 21ième

jour du mois de juin

1996.

______________________ _______________________

Livreur Contractuel Gérant(e) du Restaurant

Les Restaurants Masalit sont un usager autorisé du

marque déposée de Pizza Hut"

[3] Mr. Thompson provided testimony on behalf of his company and in particular, commented on items (i), (j), (k), (m), (o), (s) and (v) of the above Reply to the Notice of Appeal. It was his contention that the "sweater, cap and coat" (item (i)) were to identify the delivery person as coming from the Appellant's place of business – for security reasons, not to be a "representative" of the Appellant, in the sense of advertising or promoting the Appellant's business. For the work schedule (item (j)) these were merely posted after each delivery person had chosen and arranged his own schedule, at least his preferred schedule. These were not "assigned" by the Appellant corporation, and during days or hours when the Worker had not agreed to being available, he was free to do anything else including deliveries for other businesses. For item (k), the Worker could arrange to have another person fill in for him if he would be unavailable. If this was done, the Appellant was not interested in being informed – but if a replacement could not be found by the Worker, then the Appellant needed to know in time to make other arrangements for delivery at those times which he could do readily. In connection with item (m), the Worker was not required to "report in person" to the premises between deliveries – he often did stay there as a matter of convenience, but the contact was usually by the pager. As indicated in item (o), the Worker sometimes folded pamphlets – but he was not required to do so, and he was not being paid to do so – he was paid only for deliveries. The only priority (item (s)) was that to the schedule of working days or hours, which the Worker had accepted.

[4] During cross-examination of Mr. Thompson, counsel for the Respondent entered a copy of the standard agreement (reproduced above) between the Appellant and the Worker. Counsel concentrated largely on the wearing of the uniform (item (i)) and the integration (item (v)) in the list from the Reply to the Notice of Appeal.

Argument

[5] Mr. Thompson filed with the Court a copy of a Tax Court case (96-1951(UI)) Resto Vimont P.H. Inc. o/a Pizza Hut and M.N.R., allowed on appeal. He asserted that the situation before the Court in this appeal basically paralleled that in Resto Vimont (supra) and this appeal should also be allowed.

[6] Counsel for the Respondent provided the Court with two other cases from the Tax Court: 872538 Ontario Inc. v. M.N.R. [1993] (92-644(UI)) and Family Pizza Inc.v. M.N.R. [1997] (96-1971(UI)) both dismissed on appeal. Counsel relied on these to urge the Court to dismiss the instant appeal. It was stressed for the Court that the Appellants "sweater, cap and coat" (item (i)) above were for the purpose of promoting the Payor's business not merely for security identification and that resulted, in counsel's mind, as "integration" of the whole business operation, including the delivery procedures, as further referenced in item (v) above in the Reply to the Notice of Appeal.

Analysis

[7] This is what might be termed a regular "Pizza delivery" appeal, although the Court recognizes that each appeal may have some different elements. As I followed counsel for the Respondent, the main factor leading to a conclusion that Mr. Frances Jean was an employee – rather than an independent contractor, a status to which both parties had agreed in the signed written agreement - was "integration". Counsel's point regarding "integration" seemed to be that delivery was a necessary element of the whole operation, therefore Mr. Francis Jean was integrated – into the business. I will certainly concede that some form of delivery service was required if Masalit delivered pizzas. But to rely almost entirely on this one small component of the Masalit business to reject the recorded agreement's version of the relationship – an independent contractor – when that agreement and relationship clearly was carried out as intended, appears to me to be an unwarranted extension of the "integration" factor arising from Wiebe Door Services Ltd. c. M.R.N. [1986] 3 C.F. 553, 87 DTC 5025. I would quote as some support a comment made by this Court in Richard Bass v. M.N.R., [1988] 1 C.T.C. 202, 87 DTC 666, at page 669:

"Though he was not an integral part of the Company's operations, he was certainly a valuable and necessary asset."

[8] The other factors in Wiebe Door (supra) "control", "tools" and "chance of profit and loss" at best are neutral, even probably supporting the Appellant's position rather than that of the Respondent. As I view it, "control" other than minor liaison was lacking. The "tools" were virtually all those of the Worker. And to me it is evident that the opportunity for greater income (more deliveries) rested almost entirely with the Worker, and accordingly the "chance of profit or loss". I do not suggest for a moment that the signing of an "independent contractor agreement" between the parties is decisive of the issue in question, and I refer to the case of Manhatten Multi-Marketing Inc. v. M.N.R. [1991] (90-483(UI)) and a quotation therefrom from Bradford v. M.N.R., 88 DTC 1661, at page 1667):

"The general principle that commends itself to me arising out of this appeal and the recent jurisprudence noted is that under a given set of circumstances within which there are certain aspects of "employee", some others of "independent contractor", and even others that are somewhat ambiguous, that the intentions and objectives of the parties, if clearly and unequivocally stated and agreed upon, should be a prime factor in the determination of the Court."

The further comment by the learned Judge in Multi-Marketing (supra) read:

"Although I do not go so far as saying in this case intention is a prime factor, it is the factor which tips the scales in favour of the Appellant."

[9] I would certainly agree that the adjective "prime" above might give a slightly elevated description, but I do not think that a written agreement should be relegated to a level of unimportance – it should be considered seriously. I further add that such a view seems consistent with the classic analysis of Stone, J.A. at page 239 of the M.N.R. v. Emily Standing case, 147 N.R. 238:

"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."

I emphasize the word "merely" above, a clear and proper rejection by the learned Justice of the fact that in the earlier Tax Court hearing of Emily Standing (90-69(UI)) too great an emphasis, even direct reliance had been placed on the agreement between the parties.

[10] Having made those preliminary points above, I turn to the case law provided by the parties in this appeal (cited above), and face the fact that these are conflicting decisions from this Court on basic facts which on the surface appear similar. I intend to confine my review to just these three cases – although I recognize that there may well be many, many others that could be cited. In Resto Vimont (supra) the detailed examination by the judge noted:

(1) "he filed a written contract of employment as exhibit A1"

(2) "he had to have his own car"

(3) "his sole function was to deliver pizza"

(4) "he could call another driver to replace him when he was unable to go"

(5) "if he works harder, he would earn more money"

(6) "different to that of the regular employees who had to do all kinds of work for the payer on a regular basis"

(7) "he had to take a special insurance on his car"

(8) "his average work-load a week was twenty-five (25) hours"

(9) "the manager of the payer was the one responsible to schedule the hours for all the drivers"

(10) "the employees take the orders – the drivers deliver the pizza"

(11) "the drivers were paid at the end of the day without any deductions" (simplified translation from the French language used by this witness)

[11] Faced with these factors the learned Judge in Resto Vimont (supra) recorded the following summary:

"The drivers in the case at bar, unlike the regular employees of the Appellant company, are not subject to control, once they accept to work wearing the Appellant's costume, and when the hours are scheduled by the manager. They are the owner of the tool and pay for all the expenses. They have the chance of profit and the risk of loss, and their activity of delivering pizza is not integrated since delivery is only ten percent of the company business."

[12] It would be difficult for me to distinguish any of the eleven elements noted above from Resto Vimont (supra) from similar situations in the instant appeal. Indeed the fact that in this appeal the drivers themselves apparently exerted additional control over their affairs by having the opportunity of direct input to the scheduling of days and hours, as opposed to the manager scheduling in Resto Vimont (supra) could make an even stronger case for the Appellant.

[13] I shall review in the same manner the two opposing cases cited – Family Pizza (supra) and 872538 Ontario (supra), particularly any significant elements which appear in conflict with the above noted circumstances from Resto Vimont (supra). First from Family Pizza:

(1) "there is a person known as the head driver. That individual arranges the other drivers and arranges for the shifts to be worked by particular people"

(2) "(the drivers) must purchase a uniform from FPI which designates them as representing Family Pizza Inc. They must put (up) a Family Piza sign – provided by the Appellant at no extra cost – on their vehicle."

(3) "they pooled their money to rent a pager"

(4) "he (the manager) did not care if drivers delivered for other companies as long as they were not wearing a Family Pizza uniform---"

[14] The learned Judge in Family Pizza (supra) concluded:

"...the drivers ... were an integral part of the appellant's business because delivery of the product was necessary."

[15] I have earlier noted my reservations about relying on "integration" based on that reasoning alone. However, I do recognize that in Family Pizza (supra) due deference to the role of the head driver (above) might warrant the different determination, a situation not found in the instant appeal.

[16] Turning then to 872538 Ontario (supra) –

(1) "he (the driver) was guaranteed four deliveries an hour"

(2) "all drivers would mark on the calendar when they were not available for work for the following week. Saturday, the proprietor of the Appellant would make up the shift schedule for the forthcoming week and post the same –"

(3) "when a customer answers the door after ordering a pizza from the Appellant, he is met by a driver wearing a Pizza Pizza hat and jacket. The vehicle at the curb has a Pizza Pizza car toper sign on it and the order is in a thermos Pizza Pizza covering, which belongs to the Appellant."

[17] Based on the above, after considering other points, the learned Judge concluded:

"the Appellant controlled the drivers".

"the tools are owned by the driver".

"the only way one driver can make a profit greater than another is by owning a cost efficient vehicle and being quicker on deliveries---the business was the pizza business of the Appellant. Thompsett (the driver) was not in the business of carrying goods. He was delivering pizzas for the Appellant. He could not deliver pizzas prepared by others".

The learned Judge concluded:

"Taking all the evidence into consideration -- -- I am satisfied the contract between them was one of service."

Conclusions regarding this appeal

[18] As indicated earlier the conditions under which the parties operated in this appeal are virtually consistent with those in Resto Vimont (supra) in fact somewhat more supportive of this Appellant. It does not appear to me that the written contract between the parties – Family Pizza (supra) and 872538 Ontario (supra) played a role in favour of the Appellants, or at least was sufficient to offset the different factors seen as supportive of the Minister's assessments. On the other hand, it was a leading point noted by the learned Judge in Resto Vimont (supra). I am of the view that such a written contract, executed between two parties at arm's length, with no indication of undue influence, and then carried out in its major aspects should at least be a starting point in favour of the relationship described therein, always subject to a critical examination of the entire relationship provided to the Court.

[19] Based on that perception in this case that the agreement between the parties was clear and unambiguous and adhered to vigorously I cannot regard it as insignificant in the process when there are virtually no factors which contradict its terms and conditions. It may be viable for the Respondent to attach the identification "employee" to workers in certain circumstances, but in my view that reversal of the elementary conditions of the relationship exhibited and maintained in this appeal would require more substance than was provided in this matter. This is not an appeal under paragraph 3(2)(c) of the Act, clearly circumscribing the role of this Court, but it is simply an appeal from an assessment under paragraph 3(1) of the Act requiring a decision by the Court based on the law and on the facts.

[20] The main factors which lead me to the conclusion that the Worker here is an independent contractor as I understand the evidence are:

(1) the written agreement itself read in total

(2) the operation of the relationship consistent with that agreement

(3) The apparent independent nature of that relationship –

-picking-up and delivering pizza were external and peripheral to the main functions of the establishment. -the conditions of the contract are – "Each delivery person will be free to set his own work schedule" (simple translation of the French language used in the document)

-he was not required to maintain a time card

-no other functions assigned or required

-could arrange for a substitute driver

- not required to stay on premises between deliveries (pager)

(4) The scheduling -

– he had direct input to these arrangements

(5) Payment –

- he was paid at the end of each day, leaving no obligation on either party

- no deductions of any kind from his pay

- no payment for any benefits by the payor

(6) Except for the Pizza Hut identification by clothing – described as for security reasons by Mr. Thompson, the driver provided all the "tools" necessary – including a pager, a car, and special insurance on the car. The "security" was for the customer, to ensure that pizza from a different shop was not paid for in error, in this highly competitive business, as I understood Mr. Thompson. Just for the record, I would note that the Respondent called no one to refute that testimony of Mr. Thompson.

[21] Before closing I would return to the Reply to the Notice of Appeal (above) and reference in particular items (m) , (v) and (w).

Item (m)

"during peak hours, the Worker was required to report in person to the Appellant's premises, between deliveries

As I follow the testimony often the Worker in his own interest – to get as many deliveries as possible did this automatically. I do not regard this situation as determinative, even indicative of an employer-employee relationship.

Item (v)

"the Appellant is involved in the sale of prepared foods and the Worker was hired to deliver the prepared, (sic) therefore the Worker is an integral part of the Appellant's business;"

I have indicated that the conclusion in the above statement does not follow from the facts of the relationship and "integration" is an unwarranted extension of those facts.

Item (w)

"the Worker did not represent, advertise or promote himself as a self-employed individual;"

Under this set of circumstances, I can think of no good reason that he should do so. It might appear that the Respondent would prefer to only classify as "independent contractors" those individuals whose indicia of business was on a grander and more easily comprehensible scale. I do not agree with that approach and the exigencies and complexities of modern day small individual business operations should be understood and accepted.

[22] As support for that view, I would quote from Ranger v. Canada (M.N.R.) [1997], F.C.J. No. 891:

"In Wiebe Door Services Ltd., [See Note 1 below] this Court considered the applicable tests for determining the existence of a contract of service as opposed to a contract for services. Relying on the judgment of Lord Wright in Montreal v. Montreal Locomotive Works Ltd., the Court identified four factors in the assessment of the various characteristics of an employment relationship: degree of control, ownership of tools, risk of loss and chance of profit, as well as the degree of integration of the employee's activities in the employer's undertaking. These tests, as this Court recently noted in Charbonneau, [See Note 2 below] are not the ingredients of a magic formula. They are guidelines which are generally worth considering, but not to the point of jeopardizing the ultimate objective of the exercise, which is to determine the overall relationship between the parties.

______________________________________________________

Note 1: Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553 (F.C.A., per MacGuigan, J.A.)

Note 2: Attorney General of Canada v. Normand Charbonneau, (1996), (A-831-95 and A-832-95, per Décary J.A.).

______________________________________________________

Although the trial judge rightly declined to view the terms of the contract binding the applicant and respondent as decisive, his reasons indicate a lack of overall analysis of the relationship between the company and its employee. He failed to examine such factors as the chance of profit and the risk of loss, and erred in analyzing the integration from the standpoint of the employer rather than that of the employee, as Wiebe Door Services Ltd. instructs us to do."

[23] On that basis, and admittedly giving considerable weight to the written and enforced agreement itself, I am prepared to follow the general line of reasoning in Resto Vimont (supra) and decide that the circumstances here support the Appellant's contention to a much greater degree than that of the Respondent.

[24] The appeal is allowed and the decision of the Minister is vacated.

Signed at Ottawa, Canada, this 30th day of June 1999.

"D.E. Taylor"

D.J.T.C.C.