W.A. Pacific Rim Co. v. M.N.R., docket 94-2355-UI

Date: 19971014

Docket: 94-2355-UI; 94-74-CPP

BETWEEN:

W.A. PACIFIC RIM COMPANY INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

CAROL-ANN NELSON,

Intervenor.

Reasons for Judgment

Mogan, J.T.C.C.

[1] These appeals are commenced under the provisions of the Unemployment Insurance Act and the Canada Pension Plan. The only issue is whether certain individuals who provided services to the Appellant in 1992 and 1993 are to be regarded in law as employees or independent contractors.

[2] The Appellant is in the cartage business hauling freight for revenue. It also has contracts with Canada Post providing for the delivery of parcels and flyers which the Appellant refers to as “ad mail”. The flyers are coloured advertisements issued usually by retail stores for direct delivery to residential dwellings. The flyers or advertisements are sometimes regarded by the public as “junk mail”. The Appellant had entered into contracts with Canada Post for the delivery of these flyers in the Niagara region around St. Catharines and also in the City of Hamilton and surrounding urban areas. These appeals are concerned only with the operation of the Appellant delivering flyers in the City of Hamilton and surrounding urban areas

[3] On a typical weekend, the Appellant would be responsible for delivering flyers produced by a number of well-known retail stores and eating locations like Zellers, Canadian Tire, Kentucky Fried Chicken, etc. These flyers are delivered to the Appellant’s warehouse in the Hamilton area. At the warehouse, the flyers for a particular store are allocated into bundles with the number in each bundle determined by the walking routes established by Canada Post for mail delivery purposes. Each route has a specific number of residential dwellings. The number could vary greatly depending upon whether the dwellings are single family homes or apartment buildings or some other density in between. For compensation purposes, the Appellant drew a distinction between apartment buildings where many flyers could be delivered at only one location and other lower density residential areas like single family homes and duplexes where the person making the delivery would have a different location for each delivery.

[4] The actual door-to-door delivery was performed by individuals whom the Appellant referred to as “walkers”. Each walker was assigned at least one route each weekend. The routes were the same as the regular Canada Post delivery routes. In an average low-density residential area, a walker could deliver approximately 90 flyers per hour and was expected to work approximately three hours delivering up to 300 flyers. In a high-density residential area like apartment buildings (referred to as “key access” routes for reasons explained below) a walker could deliver many more flyers in a much shorter time because a single apartment building could have from 100 to 200 apartments. These routes got their name “key access” because Canada Post had a special key for each building in order to access the mail boxes for all apartments in a particular building. Because the Appellant had a contract with Canada Post for whom these flyers were delivered, Canada Post provided the Appellant with the necessary key to access all of the individual mail boxes in each apartment building. A walker was able to effect delivery of the flyers in each apartment building by actually opening the individual mail boxes as if the flyers were ordinary mail like that delivered during the week.

[5] The Appellant’s first contact with walkers was usually established through advertisements in local newspapers. The Appellant would simply run an ad stating that it needed walkers to cover designated routes for the delivery of flyers on weekends. Many individuals answered the ad looking for an opportunity to earn some casual money for a few hours of work. The people who responded to the ads were asked to attend a meeting at the Appellant’s warehouse at a particular time. At that meeting, they were shown a video produced by Canada Post, and a senior employee of the Appellant would describe what was required in order to deliver the flyers and satisfy the Appellant’s contract with Canada Post. The obligation placed on the walkers may be summarized as follows:

1. A walker was expected to attend at the Appellant’s warehouse on Saturday between 7:00 a.m. and 2:00 p.m. to pick up the flyers.

2. A walker was required to collate the number of flyers to be delivered so that no one flyer would be folded inside another. Canada Post had a covenant with its customers that each flyer would be a separate item within the bundle of flyers to be delivered on a particular day so that a small flyer for one store would not be lost in a larger flyer for some other store. It was the responsibility of each walker to collate his/her bundle of flyers in the manner prescribed by Canada Post. The collating could be done at the Appellant’s warehouse or at the walker’s home.

3. A walker was required to have a vehicle so that the flyers could be picked up from the Appellant’s warehouse and transported to the areas where they would be delivered.

4. The flyers were to be delivered on Sunday between the hours of 8:00 a.m. and 9:00 p.m. If for any reason (i.e. weather or illness, etc.) the flyers could not be delivered on Sunday, they had to be delivered on Monday and in any event not later than 9:00 p.m. Monday evening.

5. Upon completing one or more routes, a walker was expected to phone in to the Appellant’s warehouse reporting the routes that had been completed.

[6] Those walkers who were assigned to key access routes were given a post office key for which they paid a deposit of $10. This was necessary to secure the return of the key because it was important not to let the public have access to the mail boxes in the various apartment buildings. Each walker was provided with a bag to carry the flyers. The bags were of high quality costing the Appellant about $85 per bag; and so the Appellant required a $40 deposit for each bag. Because of the high turnover among the walkers, many of the bags would be used by a walker on only one weekend.

[7] Mr. William Armstrong, President of the Appellant corporation testified as the principal witness for the Appellant. He stated that there was a high turnover of walkers for a variety of reasons. It was not a high-paying job and some individuals never came back after working only one Sunday. A walker would sometimes bring family members to help speed up the delivery but, if they were chased by a dog or had some other unpleasant incident, they would never come back. Bad weather on a given Sunday would turn some people off. And finally, some people simply did not have the self-discipline to get up on Sunday mornings on a regular basis to go out and deliver flyers. As a result, there was a high turnover among the walkers but the Appellant did have a hard core of regular walkers who could be relied upon to go out every Sunday to deliver flyers.

[8] On a given weekend, the Appellant would have between 100 and 150 walkers distributing flyers. The Appellant also had another eight to 10 individuals who were identified as “verifiers”. The function of a verifier as indicated by the name was to verify the delivery of flyers by a specific number of walkers who were assigned to a particular verifier. One of the verifiers, Mr. Korczynski, testified at the hearing and described what he did in order to perform his function as a verifier. It should first be noted that he was not required to perform the verifying himself. In the years under review, 1992 and 1993, Mr. Korczynski was managing a hotel and so he arranged to have his wife do the verifying about 50% of the time. When he did the verifying, he would use a spot-check method by checking a number of residences at the beginning of a particular route, a number at the end of the route, and a number some place in between. Once he had identified his spot-check group of residences, he might check the mail boxes or actually knock on doors to ask the resident if the group of flyers had been received. If it was good weather and a resident was out cutting grass or raking leaves, he would ask if the walker had come by and if the flyers had in fact been delivered. By applying this random check method over each route, Mr. Korczynski said that he felt comfortable knowing whether the walker had in fact performed the delivery services.

[9] Mr. Armstrong explained that it was necessary to have verifiers for three reasons. First, it was not possible to do an in-depth check on the integrity or prior employment record of each person who came forward as a walker, and there had been a few isolated incidents in the past where a walker had simply dumped a bundle of flyers at a remote location and not performed any delivery services at all. Second, the post office did its own verification on Tuesday or Wednesday of each week after the Appellant had notified the post office that all of the deliveries had been completed. The Appellant had no way of knowing which routes would be verified by the post office and so the Appellant’s verifiers were a necessary check on the overall operation. And third, it was important for the walkers to know that the Appellant did employ verifiers so that the walkers themselves would know that their delivery service was being monitored.

[10] The walkers and verifiers did not wear any uniform which identified them with the Appellant but each walker and each verifier had an identification tag with a photograph of the individual on one side and, on the reverse side, the name of the Appellant and the words “Canada Post”. The identification tags were to protect the individuals in case they should be challenged for being on the premises of a private residence or in the mail room of an apartment building.

[11] In these appeals, it is only the classification of the walkers and the verifiers which is in dispute. At the commencement of the hearing, counsel for the Appellant acknowledged that those individuals who worked in the office or warehouse of the Appellant were accepted by the Appellant as being employees and not independent contractors.

[12] Having regard to the basic facts of these appeals, there are two elements which lead me to think that the walkers and verifiers were independent contractors and not employees. First, the deliveries on a particular route did not have to be performed by the walker to whom that route was assigned. For example, a particular individual “X” could respond to the Appellant’s ad; attend the meeting at the Appellant’s warehouse to see the post office video and receive instructions for the delivery of flyers; be accepted by the Appellant as a qualified walker; and be assigned a specific number of routes for the following weekend. On the following Sunday, X could use his or her children or relatives or friends to deliver the flyers; and X would have discharged his or her responsibility to the Appellant so long as the flyers were effectively delivered to all of the residences on the routes. The same comments would apply to the verifiers in the sense that they did not have to do the verifying themselves so long as they were satisfied in a responsible manner that the delivery of flyers on the routes which were assigned to them had been verified. In the specific instance of Mr. Korczynski, he stated that his wife did his verifying about half the time. Mr. Armstrong stated that a number of the verifiers had a longer experience with the Appellant because they had started as walkers.

[13] The second element which favours the Appellant is what I would call the casual nature of the delivery and verifying services. This was not high-skilled work. A person could be trained as a walker or verifier in less than an hour. The volume of work could not exceed a few hours in any given week. No individual could rely on the earnings from this work for livelihood. And lastly, the nature of the work seemed to attract a disproportionately high number of individuals who did not have “staying power” in the sense that the Appellant experienced a high volume of turnover among walkers. Mr. Armstrong indicated that the verifiers generally had a longer work experience with the Appellant. Even the verifiers, however, could not rely on their services to the Appellant as a means of livelihood. The functions of walkers and verifiers were by their nature short-term weekend work which could result in only casual income for casual services.

[14] In Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025, the Federal Court of Appeal used a four-in-one test to determine whether an individual was an employee or an independent contractor. The four tests are control, ownership of tools, chance of profit or risk of loss and integration. With respect to control, there was a minimum of control exercised by the Appellant over the walkers and verifiers. Although the Appellant would appoint a particular individual as a walker or verifier, the Appellant made no attempt to determine if the appointed person delivered the flyers or did the verification. The particular individual who agreed to perform the delivery services as a walker or to verify the deliveries as a verifier could perform those services himself/herself or find any responsible relative or friend to do those services on his/her behalf. It is a fact that the services of a walker were reviewed by a verifier; and the services of a verifier were, in turn, reviewed by Canada Post. That review, however, does not in itself imply an element of control. It could be the scrutiny of any client when work is performed by an independent contractor.

[15] On the second test, ownership of tools, the most important equipment for a walker was a vehicle to transport the flyers from the Appellant’s warehouse to the areas where the flyers would be distributed. It was an absolute requirement that any person applying to be a walker have a vehicle capable of transporting the flyers. The only other items which might be characterized as “tools” were the postal keys used in the “key access routes”; and the bags which the walkers used to carry the flyers. Although the key was essential to perform delivery services in the apartment buildings because it gave access to the individual post office boxes inside the lobby of each building, the bag was not essential if a walker had any other means of carrying the flyers. If a walker was afraid of damaging the bag provided by the Appellant, the walker could use a wagon or a basket or any other device to carry the flyers. It did not make any difference to the Appellant whether the flyers were carried in one of these special bags so long as they were delivered to the designated residences on a particular route. The verifiers also required a vehicle because each one was verifying the deliveries of many (possibly 15) walkers. For a walker and a verifier, a vehicle was the principal tool. The remaining item, the identification tag, appears to have been owned by the individual walkers and verifiers because most of them were kept by those individuals when they ended their association with the Appellant.

[16] On balance, I find that the test “ownership of tools” favours the Appellant because the most important item for walkers and verifiers was a vehicle capable of carrying bundles of flyers or permitting the verifier to cover many delivery routes. That item was far more important than the bag which was provided by the Appellant in exchange for a deposit. The vehicle was always owned by the walker or verifier and not by the Appellant. With respect to the key for apartment buildings, that key was essential for gaining access to the individual mail boxes in the building but the key itself belonged to the post office and not the Appellant.

[17] With respect to the third test “chance of profit or risk of loss”, the walkers were paid on a piece-work basis. Exhibit A-4 is a schedule establishing the rates paid to walkers for either regular foot routes or key access routes. This exhibit is dated April 1, 1993 and establishes the rates for (i) sorting the flyers; (ii) delivering the flyers; and (iii) an allowance for the vehicle. From Exhibit A-4 it is clear that the rates increase depending upon the number of flyers which the walker has to deliver on a given weekend. Therefore, a walker who is highly productive can take on more routes and, by doing them in a shorter period of time, make more money in less time. Also, Mr. Armstrong was emphatic in stating that the Appellant was not responsible for any damage caused by a vehicle used by either a walker or a verifier. In other words, if a walker or verifier using his or her personal vehicle in connection with the delivery of flyers or verifying the delivery caused damage to the person or property of some third party, it was the responsibility of the walker or verifier to pay for that damage. Mr. Armstrong thought that the Appellant had no responsibility at all for the damage. In addition to the risk of damage, the walker and the verifier paid the operating costs of their vehicles but, in turn, received a car allowance as indicated in Exhibit A-4. Neither the walker nor the verifier was paid a flat hourly rate.

[18] Because a walker did not have to perform the actual deliveries himself or herself, a walker could earn more money by using relatives or friends to help with deliveries and by taking on more routes. There is an entrepreneurial element in the walker’s work which is not ordinarily present in the work of an employee. While there is not that entrepreneurial element in the work of a verifier, it is a fact that a verifier had more discretion and more judgment in the way he or she went about verifying the delivery of flyers. The chance of profit or risk of loss as a test is either neutral or tilted in favour of the independent contractor.

[19] And lastly, with respect to the integration test, the flyer delivery service was not the only business carried on by the Appellant. It is also in the cartage business hauling freight for revenue. The Appellant would not be out of business if the flyer delivery service was terminated. Applying the four-in-one test from Wiebe Door, I conclude that the walkers and verifiers were independent contractors and not employees.

[20] My conclusion in these appeals is supported by two other decisions of this Court. I refer to Mister Messenger Inc. v. M.N.R. (Court file no. 88-553(UI)), a decision of Judge Baryluk dated August 16, 1989 and Charles McKinnon v. M.N.R. (Court file no. 93-335(UI)), a decision of Judge Margeson dated January 19, 1994. The Respondent relied on the decision of this Court in 872538 Ontario Inc. v. M.N.R. (Court file no. 92-644(UI)) sometimes referred to as the “Pizza Pizza” case. In that case, Judge Teskey found that the drivers were employees but they were controlled by the company; and most of the equipment necessary for the pizza business was owned by the company. In my opinion, the Pizza Pizza case is easily distinguished from the appeals herein. The appeals are allowed.

"M.A. Mogan"

J.T.C.C.