Date: 19991012
Docket: 98-764-UI; 98-784-UI
BETWEEN:
CLIENTEL CANADA CORPORATION,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Porter, D.J.T.C.C.
[1] These appeals were heard on common evidence, by consent
of the parties at Toronto, Ontario on September 14, 1999.
[2] The Appellant appeals the decisions of the Minister of
National Revenue (the "Minister") dated April 14,
1998 that Nicholas Birks and Lance King (the
"Workers") were employed by the Appellant,
respectively from March 3 to April 3, 1997 and from
February 3 to May 3, 1997, in insurable employment under the
Employment Insurance Act (hereinafter referred to as the
"Act”). The reason given for the
determination was that:
“ Nicholas Birks/Lance King was employed under a
contract of service therefore he was considered to have been an
employee.”
[3] The established facts reveal that the Appellant at the
material time, amongst other things, operated a Sales and
Marketing business relating to the use of AT & T Canada
telephone services and that the Workers were engaged as sales
agents to acquire applications for these services in and around
the city of Vancouver, British Columbia. The Appellant claims
that the Workers and other agents like them, worked in this
capacity, as independent contractors under contracts for
services, rather than as employees and that accordingly
no employment insurance premiums are required to be paid. The
Minister has decided to the contrary, that the arrangements
amounted to contracts of service and that
accordingly employment insurance premiums are due and payable
by the Appellant.
The Law
[4] The manner in which the Court should go about deciding
whether any particular working arrangement is a contract
of service and thus an employer/employee
relationship or a contract for services and thus an
independent contractor relationship, has been clearly laid out by
the Federal Court of Appeal in Wiebe Door Services Ltd. v.
M.N.R., 87 DTC 5025. The test to be applied has been further
explained by that Court in Moose Jaw Kinsmen Flying Fins Inc.
v. M.N.R., 88 DTC 6099. There are, following these cases,
numerous decisions of this Court, some of which have been cited
by counsel, which demonstrate how these appellate guidelines have
been applied. In the Moose Jaw Kinsmen Flying Fins Inc.
case, above, the Federal Court of Appeal said this:
"[Analysis]
The definitive authority on this issue in the context of the
Act, is the decision of this Court in Wiebe Door Services Ltd. v.
The Minister of National Revenue, 87 DTC 5025. MacGuigan J.
speaking on behalf of the Court, analyzed Canadian, English and
American authorities, and, in particular, referred to the four
tests for making such a determination enunciated by Lord Wright
in City of Montreal v. Montreal Locomotive Works Ltd.,
[1974] 1 D.L.R. 161 at 169-70. He concluded at page 5028
that:
Taken thus in context, Lord Wright's fourfold test
[control, ownership of tools, chance of profit, risk of loss] is
a general, indeed an overarching test, which involves
"examining the whole of the various elements which
constitute the relationship between the parties". In his own
use of the test to determine the character of the relationship in
the Montreal Locomotive Works case itself, Lord Wright combines
and integrates the four tests in order to seek out the meaning of
the whole transaction."
At page 5029 he said:
"...I interpret Lord Wright's test not as the
fourfold one it is often described as being but rather as a
four-in-one test with emphasis always retained on
what Lord Wright, supra, calls "the combined force
of the whole scheme of operations," even while the
usefulness of the the four subordinate criteria is
acknowledged."
At page 5030 he had this to say:
" What must always remain of the essence is the search
for the total relationship of the parties.
He also observed "there is no escape for the trial judge,
when confronted with such a problem, from carefully weighing all
the facts.
...like MacGuigan J. we view the tests as being useful
subordinates in weighing all of the facts relating to the
operations of the Applicant. That is now the preferable and
proper approach for the very good reason that in a given case,
and this may well be one of them, one or more of the tests can
have little or no applicability. To formulate a decision then,
the overall evidence must be considered taking into account those
of the tests which may be applicable and giving to all the
evidence the weight which the circumstances may
dictate."
[5] The nature of the tests referred to by the Court can be
summarized as follows:
a) The degree or absence of control exercised by the alleged
employer;
b) Ownership of tools;
c) Chance of profit and risk of loss;
d) Integration of the alleged employee's work into the
alleged employer's business.
I also take note of the further words of MacGuigan J., in the
Wiebe case, above, where he approved the approach taken in
the English courts:
"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, 738-9:
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."
[6] To this I would add the words of Décary J. in
Charbonneau v. Canada (MNR) [1996] F.C.J. No. 1337 where
speaking for the Federal Court of Appeal he said this:
“The tests laid down by this Court ... 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
jeopardising 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,
or whether there is ... such a degree of autonomy that there is a
contract of enterprise or for services. In other words we must
not pay so much attention to the trees that we lose sight of the
forest. ... The parts must give way to the whole.”
Review of the Evidence
[7] In the Reply to the Notice of Appeal relating to the
Worker, Nicholas Birks, the Minister was said to have relied on
the following facts:
"(a) the Appellant is a corporation duly incorporated
under the laws of the Province of Ontario which carried on
business in Ontario and then, beginning on or about February of
1996, in both Ontario and British Columbia;
(b) the Appellant engaged Michael Jarmana as regional sales
manager to direct and control the British Columbia business
operations from the Appellant's office located at 916-1030
West Georgia Street, Vancouver;
(c) the Appellant was in the business of acquiring
applications from customers to use AT & T Canada services;
(d) the Appellant required both salespeople or customer
relations representatives to work out of designated areas going
door to door soliciting applications from customers to use
AT & T Canada services and area managers to obtain their own
applications and to train and supervise area teams of customer
relations representatives;
(e) the Appellant established the fees charged its customers
and neither the customer relations representatives nor the area
managers had the authority to either change the fee schedule or
negotiate different fees with the Appellant's customers;
(f) the Appellant maintained a record of and determined the
validity of applications obtained by each worker;
(g) customer relations representatives were to be remunerated
at the rate of $13.20 per hour (based on a minimum production of
1.2 valid applications per hour) plus production bonus after
training of $11.00 per valid application over the prescribed
minimum, plus an additional $2.00 bonus per each valid
application if the customer relations representative completes
over 42 in any given week (first twelve applications are training
applications for which no remuneration applies);
(h) area managers were to be remunerated at the rate of $11.00
per valid application personally obtained and for valid
applications completed by each customer relations representative
trained and supervised by them they were to be paid a
manager's override bonus of $2.00 per valid application for
the first 41, plus an additional $1.00 bonus per each valid
application if the customer relations representative completes
over 42 in any given week;
(i) during the period in question, the Worker was engaged by
the Appellant as a customer relations representative;
(j) the Worker does not set his own rate per valid application
personally obtained;
(k) the Worker was initially trained by the Appellant free of
charge to him;
(l) the Worker reported to and received direction from his
area manager on an on-going basis;
(m) the Worker had no decision making in either the choice or
cost of services being offered to the Appellant's customers
or the method used to sell these services;
(n) the Appellant retained the right to control and supervise
his work throughout the period in question;
(o) the Appellant provided the Worker with the materials and
stationary required to do the work;
(p) the work performed by the Worker constitutes an integral
part of the Appellant's business;
(q) the Worker is required to do his work personally;
(r) any profits or losses from the operation of the business
accrued to the Appellant and not to the Worker;
(s) during the period in question, the Worker assumed no
risks;
(t) the Worker was employed by the Appellant pursuant to a
contract of service during the period in question;
(u) the Worker is not related to the Appellant within the
meaning of the Income Tax Act;
(v) the Appellant deals with the Worker at arm's
length."
[8] The Minister also admitted that the Workers were
remunerated by the Appellant based on the number of pieces of
work that they completed but denied all the other allegations
contained in the Notices of Appeal.
[9] Unless they are refuted on the balance of probabilities by
the evidence, the Court is bound to accept the facts set out in
the Reply to the Notice of Appeal including the facts admitted by
the Minister contained in the Amended Notice of Appeal with the
exceptions noted by the Minister.
[10] The Appellant for its part admitted the following facts
upon which the Minister was said to rely, in the Reply to the
Notice of Appeal, namely paragraphs (a), (b), (c), (g) with
a great deal of explanation, (h) subject to some explanation, (i)
except that he called them agents, (j) and (o). The rest, the
Appellant in effect denied.
[11] David Silverberg gave evidence on behalf of the
Appellant. No witnesses were called on behalf of the Minister.
Mr. Silverberg said that he was the vice-president of the
Appellant, which was incorporated in 1996. The Company received
the rights to market AT & T telephone services to homeowners in
Canada. It began a marketing programme in the Vancouver area in
1997. In order to conduct the necessary solicitation of
homeowners in the area it engaged a large number of agents, of
which Lance King and Nicolas Birks were but two. He said there
were several hundreds of them engaged. They operated in the
Vancouver area for some five to six months when the intermediary
company through which they were dealing with AT & T lost its
contract and that operation came to an end. The head office of
the Company was in Toronto and Mr. Silverberg himself never met
the agents. However, he had set up the procedures by which they
were to be engaged.
[12] The agents were first attracted by newspaper
advertisements which touted the idea that they could earn $13.00
per hour on a guaranteed basis. He said that after the initial
contact they were invited into a one day training session with
the Company, unless they had prior sales experience. Those with
prior sales experience could sign up right away and those without
could sign up the day after the training session if they were
still interested. Prospective agents were told that the $13.00
represented 1.2 applications for AT & T services being
completed per hour, but they were actually to be paid on a per
signed and approved application basis. All the agents including
the two in question initially signed the “Independent Agent
Agreements”. Those agreements specifically spelled out that
the workers were to be independent agents and not employees. That
clearly was the intention of the Appellant and the workers at the
time.
[13] The simple fact that the contract refers to the
relationship being one of independent contractors, does not
necessarily mean that is so. As a matter of law, the Court is
clearly not bound by the mere name given to the situation by the
parties. The substance of the contract has to be examined and it
is the substance not the form which will be the deciding factor.
However, in the absence of there being clear evidence to the
contrary, the Court should give due consideration to the
expressed intention of the parties.
[14] Bonuses, minimum objectives and other terms of
remuneration were set out in these agreements. There was also a
policy manual which was provided to each agent at the time of the
training, not all of which according to Mr. Silverberg was
followed in practice. In addition agents were required to sign
and abide by a code of ethics which, Mr. Silverberg maintained,
was nothing more than common sense. They were asked to sign these
work ethics in order to comply with the expectations set up by
AT & T. It also afforded the Company a degree of comfort, that
when operating in the field the agents would abide by these
standards and there would be a certain check on what they might
do.
[15] As agents advanced in their work they had the opportunity
to become Sales Managers for which there was a separate contract.
Lance King signed one of these on April 1, 1997. Basically the
terms of this latter agreement seem to be the same as the
Independent Agent Agreement but it incorporated a pay structure
which enabled the manager to receive an extra $2.00 for each
application signed and accepted through an agent working through
him. There was as well some evidence that the manager would go
out with new agents and give them some help starting up, although
Mr Silverberg said that agents did not have to work through
managers unless they chose to do so. He made it clear that agents
could work with managers if they wanted to do so and these people
had more experience and could help them do better but it was
their choice and they certainly were not supervised by the
managers. The managers themselves were, he stressed, not
employees of the Company but also independent agents who could
make more money by helping the less experienced agents go about
their work. They had no supervisory authority over the
agents.
[16] Returning to the facts upon which the Minister was said
to rely, it is clear that the Minister has accepted that the
Workers were paid by the piece as set out in paragraph 6(h).
[17] It is not at all clear where the Minister obtained the
word “customer relations representative” as set out
in paragraph 6(i). The contract specified an independent agent
and that was the term used throughout by Mr. Silverberg in his
evidence.
[18] The Appellant agreed that the Workers did not set their
own rates as set out in paragraph 6(j). The fees charged were set
by AT & T directly.
[19] The Appellant disagreed with paragraph 6(k). Mr.
Silverberg said that there were fees charged to the new agents
for the training and the materials. However, what they tended to
do was make a deal with the agents whereby the latter did not pay
for these directly but in turn were not paid for their first so
many signed and approved applications, and thus there was a set
off.
[20] With respect to the question of reporting to an area
manager referred to in paragraph 6(l) the evidence of Mr.
Silverberg was quite clear that this was not a requirement.
[21] With respect to item 6(m) the Appellant accepted that the
worker had no decision making in the cost of services being
offered as these were set by AT & T directly. Mr. Silverberg
however maintained that they had lots of scope in how they went
about their sales, where they went and when, subject to outside
limits on hours and the adherence to certain ethics. They were
equipped in their training with a presentation that they could
use if they wished and which the Appellant considered to be a
successful approach, but the individual agents were free to use
it, adapt it or discard it as they saw fit.
[22] With regard to the mater of control set out in paragraph
6(n) Mr. Silverberg was adamant that apart from the minimum work
ethic standards there was no right of control exercised by the
Appellant. He said that each agent was free to work whenever they
chose, and could go for days at a time without working if they so
chose. They did not have to report to the Company or check in
with it in any way when they went to work. The sole connection
with the Company was when they turned in their signed
applications. Obviously if they did not turn these in they did
not get paid. However, he maintained there was no control by the
Company, and the agents worked as they saw fit. One exception to
this was the requirement to wear an identity badge which showed
they were officially representing both AT & T and the
Appellant, as well as a jacket and cap provided by AT & T.
Whilst there was some latitude with respect to the clothing worn
the purpose of the badge was to provide some security to
potential customers that they were legitimately selling the
AT & T product.
[23] The matter of complaints was broached in the course of
the evidence. Mr. Silverberg said that the Company had a
verification system in place whereby the Company called back the
customer named in each signed application, in order to verify
that the information was correct. He said this was not a question
of checking on agents but simply ensuring that the factual
information was correct before it was sent onto AT & T. If
there were complaints about any particular agent they usually
went directly to AT & T and it was very difficult for the
Appellant to even track down which agent might have been
involved.
[24] The matter of benefits was also discussed during the
course of the evidence and in simple terms there were none.
Benefits in the context of these agents related simply to the
opportunity to advance to a Sales Manager and make extra
commissions. There was no vacation pay nor deductions for
anything. There were no extended health benefits or anything like
that.
[25] There was some discussion about areas or territories but
it was far from clear that these were ever set up on any formal
basis. He said that agents were advised to keep track of where
they had been to avoid duplication of the same areas, which would
not be productive. However, the Company itself was not involved
with this. Similarly he said that agents were free to solicit
customers on street corners, shopping malls, through church
organizations or through friends and family as they saw fit.
There was no requirement to go street to street or house to
house.
[26] The Appellant agreed that they provided the materials and
stationary required to do the work, which in turn came from
AT & T.
[27] The Appellant disputed that the Workers were required to
do the work personally, maintaining that they were free to get
others to go out and do the work for them. However, I did not
find this evidence particularly credible and it did seem to me
from a logistical point of view that it was necessary for each
agent to do his own work.
[28] With respect to paragraph 6(q) regarding profits and
losses, the evidence of Mr. Silverberg was clear that any
expenses that were incurred by an agent had to come out of his
sales commission. If they used cell phones, as a number of them
did, they did so at their own cost. They were not reimbursed for
any car expenses, travel of any kind, hotel accommodations if
they went out of town or meals. They could go further afield than
Vancouver but if they did so, they went at their own expense.
There was no evidence that either of the Workers in question in
this case ever did so, but that was the situation if they had
chosen to so do. Thus, there was the potential to incur losses if
they incurred expenses but were unsuccessful in obtaining new
signed applications. However, they could not earn more money
except by working harder and bringing in more signed
applications.
[29] It was noteworthy in my mind whilst on this subject that
Lance King signed his contract in the name of “Lance King
doing business as Central Telecom”, which is certainly an
indication that he was operating his own business as a sole
proprietorship.
[30] Items 6(t), (u) and (v) are all conclusions arrived at by
the Minister. Item (t) is the issue in this case and the
Appellant did not disagree that the Workers were not related to
the Appellant, nor that the Appellant dealt with them at
arm’s length.
[31] After listening carefully to Mr. Silverberg, I found his
evidence on the whole to be quite credible. He was obviously
quite frustrated at the whole process, but I nonetheless found
him to be a reliable and honest witness, with the one exception
that I noted above. I accept his evidence where it differs from
the facts said to have been relied upon by the Minister. He was
the person who set up the original scheme of affairs although he
had no day-to-day involvement in the operation. He knew however
what was going on and indeed had the overall responsibility for
it. It is clear that the Company engaged a large number of agents
to go work in the field and it really had very little to do with
them other than the initial training. This from my perspective
had more to do with how the product worked than anything else and
also required the agents to go about the business of selling the
products in a professional manner. That was clearly the
expectation of AT & T. The sole interest of the Appellant was
to receive signed applications for the AT & T services. It was
clear from his evidence that subject to those circumscriptions,
how the agents went about their business and when and where was
entirely up to themselves. They were exhorted or encouraged to
work many hours or days but whether or not they did so was their
own affair. That in essence was the message that I gleaned from
his evidence, and I have no difficulty in accepting that as
fact.
[32] Those then are the significant facts that I took from the
evidence. I turn now to consider how the law applies to these
facts.
Application of the Law to the Facts
[33] 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.
[34] 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.
[35] 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.
[36] 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.
[37] 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 has 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.
[38] 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.
Conclusion
[39] For the reasons expressed above I hold that Lance King
and Nicholas Birks were engaged by the Appellant by way of a
contract for services during the periods in question and
accordingly were not employees. They were not employed in
insurable employment. Thus, the decisions of the Minister are
vacated and the appeals allowed.
Signed at Calgary, Alberta, this 12th day of October 1999.
"Michael H. Porter"
D.J.T.C.C.