REASONS
FOR JUDGMENT
C. Miller J.
[1]
Shahrokh Monjazeb, the Appellant, claims
to have been an employee of PCS Pacific Cabling Solutions Ltd. (“PCS”) for the period in issue, January 1, 2014 to
April 28, 2015 (the “Period”) notwithstanding he
invoiced PCS twice a month for “system design, product
support and training consulting fees” and charged GST. Mr. Brown, the principal
of PCS, claims Mr. Monjazeb was an independent contractor for the Period
notwithstanding PCS provided paid vacation leave, paid a base salary plus
commission and direct deposited the remuneration to Mr. Monjazeb’s bank
account. It is an interesting twist on the stereotypical employee versus
independent contractor issue: normally the one asserting employment tends to
create employment-like trappings and, similarly, the one asserting independent
contractor attempts to create independent contractor-like trappings – not the
other way around.
[2]
The Canada Revenue
Agency (“CRA”) initially sided with Mr.
Monjazeb, ruling on August 12, 2015 that he was in insurable and pensionable
employment under the auspices of the Employment Insurance (“EI”) and Canada Pension Plan (“CPP”) legislation. However, upon PCS’s appeal of this
ruling, the CRA overturned the ruling and on November 16, 2015 decided that Mr.
Monjazeb was an independent contractor for purposes of the EI and CPP
legislation. Mr. Monjazeb appeals that decision.
[3]
I note at the outset that the British Columbia
Ministry of Jobs, Tourism and Skills Training and the Minister responsible for
Labour issued a Determination in December 2015 finding that Mr. Monjazeb was an
employee bringing into play provisions of the Employment Standards Act
of British Columbia.
[4]
Both Mr. Monjazeb and Mr. Brown testified, and
while there were a few significant differences and points of view, there was
sufficient similarity and consistency to glean the facts of the working
relationship.
[5]
Mr. Monjazeb is an audio engineer with a keen
interest in education in that field. Since the early 1990’s in British
Columbia, he has been developing education programs in customs electronics.
Initially, he provided programs through a company, Hybrid Colleges Inc., which
became insolvent in 2000. He then pursued his business as a proprietorship
under the name Hybrid College International (“Hybrid”).
He also operated what he called a subsidiary, Hybrid Customs (in fact this is
also part of his proprietorship) which sold and installed systems and design
products. In layman’s terms, the industry Mr. Monjazeb worked in was home
entertainment systems. Another branch of his proprietorship was AV Supplies
Importers (“AVSI”), through which he imported
and distributed audio and video products.
[6]
PCS was in the business of selling home
entertainment systems and the incidental equipment to distributors of such
packages. PCS was not a retailer and did not deal directly with the ultimate
consumer. Mr. Brown, who described himself as owner, purchasing agent, sales representative,
general manager and supervisor of PCS, first met Mr. Monjazeb as a
customer who was buying product through Hybrid Customs for resale. In
conversation, he became aware of Mr. Monjazeb’s education business, training
those in the industry in “understanding and learning to
apply critical acoustical design concepts, learning applied science of loud
speakers and amplifiers design concepts, advanced architectural acoustics
design principles and techniques and advanced multi-channel HD surround sound
systems” (taken from one of Mr. Monjazeb’s brochures). Mr. Brown and Mr.
Monjazeb agreed that PCS could provide some value added to new customers by
attending Mr. Monjazeb’s courses offered through Hybrid. In 2010, Mr. Monjazeb,
again through Hybrid, offered a few programs to PCS customers. Mr. Monjazeb
testified that optimally he required six students, though did conduct programs
(normally a four-day program) to less. Mr. Monjazeb would invoice PCS through
Hybrid for theses program. Mr. Monjazeb referred to this arrangement as
contract number 1. Initially, the programs were conducted in hotels but in 2012,
PCS developed a theatre room on its premises for this purpose. Mr. Monjazeb
provided three or four programs a year until 2013.
[7]
In June 2013, the relationship altered somewhat.
This is where there is a different point of view between Mr. Monjazeb and Mr.
Brown. Mr. Brown maintains that Mr. Monjazeb was looking to increase his income
as he was struggling financially. Mr. Brown agreed to provide work for Mr.
Monjazeb in the form of technical system design support to his sales staff. PCS
did not have a design expert with Mr. Monjazeb’s qualifications. There was no
written contract but they agreed that Mr. Monjazeb would work five days a week.
Mr. Brown saw this added expertise as a way to improve sales. Initially, Mr.
Monjazeb had no sales responsibility.
[8]
Mr. Monjazeb testified that Mr. Brown asked him
to join the team and did not want him to work as an independent contractor,
other than with respect to the training element, which would now be exclusive
to PCS. Mr. Monjazeb indicated he considered himself a full-time employee in
technical support.
[9]
Three months later, a salesperson left PCS and a
position became available in sales, and Mr. Monjazeb asked to be involved in a
few accounts. Mr. Brown agreed and offered Mr. Monjazeb that opportunity,
assigning certain accounts to him. Mr. Brown saw this as a “morphing” from just providing a training service to
train and design support to adding a sales element. Mr. Brown viewed this as
temporary.
[10]
The arrangement did not change vis-à-vis
the education programs. PCS still invoiced customers $800 or $900 and Mr. Monjazeb
invoiced PCS about $500 per student. PCS paid Mr. Monjazeb for these programs through
Hybrid by way of cheque.
[11]
Mr. Brown and Mr. Monjazeb agreed on a
remuneration package with respect to technical support and sales of a base
amount plus commission. There was a commission for sales made directly by Mr.
Monjazeb on accounts he handled that were assigned to him and a smaller
commission on sales of others where he provided some technical and design
support.
[12]
Mr. Monjazeb indicated that in June 2013, Mr.
Brown had suggested that Mr. Monjazeb remain an independent contractor, which
required an invoice every two weeks charging a fee plus GST. I take from the
testimony from the two witnesses that, in fact, it was Mr. Monjazeb who
insisted on this arrangement so that source deductions would not be taken thus
reducing his income. This arrangement continued into the fall when Mr. Monjazeb
took on the sales responsibilities. He acknowledged that he could not afford to
have the source deductions taken off. Mr. Brown indicated that he did not know
what to do but continue the arrangement, though suggested to Mr. Monjazeb on
several occasions that an employment arrangement be formalized. Mr. Monjazeb
refused. Finally, in March of 2014, Mr. Brown presented Mr. Monjazeb with a
written offer of employment. This is worth repeating:
[13]
Mr. Brown stated that this offer was not
accepted, as had it been, he would have made the appropriate source deductions.
Mr. Monjazeb stated the offer was accepted as his remuneration increased
accordingly. Mr. Monjazeb, however, continued to invoice PCS, using Hybrid
invoices and charging GST. He was paid by direct deposit as, according to Mr.
Brown, it was easier for his wife who attended to payroll to deal with Mr.
Monjazeb in the same fashion. There was an email dated August 2013 from Mr.
Monjazeb to Mrs. Brown stating “here is my new bank
information for payroll deposit…”. Mr. Monjazeb did not accept the 8:00
to 4:30 time offered but negotiated a 9:00 a.m. start time. He did go to the
office daily and performed well, in many months being the leading salesperson
for PCS. While it was clear no one at PCS, including Mr. Brown, had
Mr. Monjazeb’s expertise in design, he did seek and get help in the sales
aspect from Mr. Brown. He also received some guidance on the PCS software (GP)
inventory system. He relied on PCS computers at work to utilize this system,
critical to the sales function.
[14]
Mr. Monjazeb did not engage in some of the
duties other employed sales staff provided such as occasionally working in the
warehouse. He also did not take an hour-long lunch break, but limited his break
to just half an hour.
[15]
Mr. Brown felt Mr. Monjazeb was always looking
to increase his remuneration as Mr. Momjazeb never felt it was adequate. Mr.
Brown attempted to help where he could but also had to be cognizant of PCS’s
bottom line. He did, however, assist Mr. Monjazeb by having the company
reimburse him for mileage and cell phone costs. Also, when Mr. Monjazeb decided
he was going to go to an annual electronics convention in Las Vegas, Mr. Brown
paid a small portion of costs, given Mr. Monjazeb said he had met a customer of
PCS’s.
[16]
Mr. Brown also was, in his words, trying to be a
nice guy in allowing Mr. Monjazeb paid vacation leave. In an email from
Mrs. Brown dated May 8, 2014, she confirmed the total number of holidays from
June 3, 2013 to May 2, 2014, was 17 ½ days. She wrote:
Two weeks
vacation equals 10 days from your anniversary date of June 3, 2013 through to
June 3, 2014. You have taken 17 ½, so if you subtract the 10 days that
employees are entitled to in one year, you have taken 7 ½ days over that
without a year being yet complete. Ken has agreed to have you pay back 4 of
these days less one day each over the next 4 pay periods; two days at your
previous rate of pay and two days at your current rate of pay…
[17]
PCS had employed sales staff as well as
contracted sales agents. Mr. Brown acknowledged he viewed Mr. Monjazeb
more as an agent though not exactly the same as the other agents. Mr. Monjazeb
could not sell competing product through the auspices of Hybrid, though he did
continue to conduct some business through AVSI. He indicated that would be
outside his PCS working hours. He did not do any outside design work through
Hybrid during his time with PCS.
[18]
During the Period, Mr. Monjazeb continued to pay
an assistant, Ms. Bertolo, to assist him administratively, though she
testified her work was a few hours on weekends and was limited to the education
business. She could not replace Mr. Monjazeb at his work at PCS. While he could
engage others to provide some of the education programs, he did not believe he
could do so with respect to his design and sales role at PCS. Mr. Monjazeb
clearly saw the education program he provided for PCS as a separate agreement
from what he believed was his contract of employment, or as he called it “contract 2”, with PCS. He agreed the education
element was provided as an independent contractor.
[19]
Mr. Monjazeb had a PCS business card showing a
PCS email address and describing him as a system design and support specialist.
He also had business cards for Hybrid. Mr. Brown stated sales agents (i.e. not
employed sales staff) would also be provided cards. Agents could sell other
products. Mr. Monjazeb felt he could not use his Hybrid tradename to do so,
though, as indicated earlier, it appears that he did earn a small amount of
income through AVSI while working at PCS.
[20]
Mr. Monjazeb presented several emails to
evidence the true nature of the working relationship: for example, in January
2014, Mr. Brown wrote to a customer suggesting he contact “our Shahrokh Monjazeb…for pricing information”.
Mr. Monjazeb refuted that he was able to work his own hours and come and go as
he pleased. He explained he was required to be at work from 9:00 a.m. until 5:00
p.m. He provided an email of January 7, 2014, from Mr. Brown to a customer
stating “Shahrokh will be in at 9:00 .a.m. today”.
Mr. Monjazeb also pointed to emails from Mr. Brown providing budget
spreadsheets “as you can see where you are at
throughout the year”. Mr. Brown also requested sales forecasts from Mr.
Monjazeb. It was clear Mr. Brown stayed on top of the sales activity.
Analysis
[21]
As with every case of employee versus
independent contractor, the key determination is whether the worker was in business
on his own account. Jurisprudence has evolved to provide guidance on how to
grapple with that question. The first step is to identify what the parties
themselves intended. Then an analysis of the circumstances follows to see if
they align with that intention. The traditional factors of control, ownership of
equipment, risk of loss, chance of profit and responsibility for investment and
management are considered in this analysis.
[22]
The difficulty in this case, as I alluded at the
outset, is that Mr. Monjazeb, who wants to be found to be an employee refused
to accept an employment remuneration package that would have meant source
deductions being taken from his pay. On the other hand, Mr. Brown, who insists
Mr. Monjazeb always remained an independent contractor, provided vacation pay
and other trappings of employment. This incongruity, I suggest, goes more to
intention than being determinative factors one way or the other. The issue is
further confused by Mr. Monjazeb’s acknowledgment that he remain an independent
contractor as far as the provision of education programs goes. He continued to
hire an assistant to help in that “business”
every second weekend. It is understandable why Mr. Brown might view all
Mr. Monjazeb’s services in one light.
[23]
So, does what was intended, even if it can be
figured out, assist in this analysis? I agree with Mr. Brown that the
relationship morphed, to use his word, from a clear independent contractor
relationship into some sort of hybrid. I accept that Mr. Brown wanted to
cement the relationship as an employment relationship. I accept as evidence
that he made this offer on several occasions, formalizing the written offer of
April 1, 2014. I view this as a recognition by Mr. Brown that Mr. Monjazeb
was, in most respects, other than with respect to source deductions, already an
employee, and that Mr. Brown needed to solidify that position.
[24]
While Mr. Monjazeb says he accepted the April
2014 offer, he clearly did not do so vis-à-vis the actual formalizing of
an employment relationship, as he continued to insist on submitting invoices
and charging GST rather than accept the standard employee source deductions. I
can only conclude that any mutual intention is unclear and an attempt to rely
on intention as shaping the real working relationship is unhelpful. Frankly,
this is a conclusion that I have reached in many an employee versus independent
contractor cases. The relationship is more readily determined by addressing the
traditional factors confirmed by the Supreme Court of Canada in the Sagaz
Industries Canada Inc. v 671122 Ontario Limited, and which I identified
earlier.
Control
[25]
As the Supreme Court of Canada emphasized,
control is always a factor, and, indeed, I would go so far as to say in most
cases it is the most important factor. In reviewing control there are several
elements courts have indicated are helpful:
-
actual hands-on supervision;
-
training;
-
negotiating terms;
-
ability to work elsewhere;
-
ability to hire substitute workers;
-
freedom to come and go and set schedule.
[26]
To be clear, this analysis does not address the
education portion of Mr. Monjazeb’s work. I am satisfied that remained a
discrete part of the work provided by Mr. Monjazeb, a part which he
acknowledges was provided as an independent contractor. It is the balance of the
work I intend to review, of which there are two categories. First, his
technical assistance to other salespeople for which he received a 2% commission
if such assistance resulted in a sale. This formed a minor part of the work.
Second, his sales work for which the commission portion of his remuneration was
6% of gross margin in sales.
[27]
With respect to hands-on supervision, Mr. Brown
admitted neither he nor anyone else at PCS had the technical expertise of Mr.
Monjazeb to oversee that element of his work. With respect to the far larger
element of his work, sales, I am satisfied that there was some
considerable oversight by Mr. Brown. He was diligent in following sales
activity and demanding forecasts. I also find that Mr. Monjazeb sought Mr.
Brown’s advice on sales issues. Further, it was Mr. Brown who
assigned Mr. Monjazeb customers, and indeed, some of PCS’s best customers due
to Mr. Monjazeb’s additional technical expertise. I conclude this aspect of
control favours employment.
[28]
While Mr. Brown could provide no training in the
technical domain, he could and did assist on the sales front. He also trained
Mr. Monjazeb with respect to the use of the software system required to make
and track sales. This suggests a slight tip towards employment.
[29]
With respect to negotiating terms of the
contract, it was evident that Mr. Monjazeb was constantly seeking to
enhance his remuneration, but it was Mr. Brown, limited by PCS’s financial
circumstances, who set the percentages, salary and, at his discretion, paid certain
expenses. I do not perceive these negotiations as a business-to-business
negotiation, but more readily consistent with an employer/employee negotiation.
[30]
Could Mr. Monjazeb work elsewhere? While he
continued to provide education programs, even though during the period only to
PCS customers, they were provided by him as an independent contractor. He also
did continue some work for the AVSI branch of his business, though confirmed
this was not in competition with PCS. He believed he could not compete with
PCS. His work there was full-time and limited what else he could do. This
element of control, I conclude, is neutral.
[31]
With respect to substitute workers, I find Mr.
Monjazeb could not have sent anyone in his place to perform the technical and
sales service he was hired to do. While he did have an assistant, her work had
nothing to do with the sales work at PCS. Clearly, this evokes employment.
[32]
Concerning freedom to come and go as he pleased,
I am satisfied both Mr. Monjazeb and Mr. Brown had the expectation that
Mr. Monjazeb was to be at work from 9:00 a.m. until 5:00 p.m. Yes, Mr. Monjazeb
took only a half hour lunch, but it was within the time set by Mr. Brown. The
very fact of a limited time for lunch is indicative of employment.
[33]
Mr. Brown points to Mr. Monjazeb’s unilateral
decision to go to the CES convention in Las Vegas. I agree that does accord
with the freedom of an independent contractor, but it is only one instance and
I am not swayed it overwhelms the everyday requirement of PCS which was much
more a sign of employment.
[34]
On balance, I find the control factor favours a
finding of employment.
Ownership of Equipment
[35]
The equipment Mr. Monjazeb required to properly
perform his sales function was a terminal at the PCS offices, with access to
the particular GP software program used by PCS. This minor point suggests
employment.
Chance of Profit
[36]
Like other sales employees, Mr. Monjazeb’s
chance of profit was tied into his commission arrangement, an arrangement
equally associated with sales employees as sales agents. The Respondent
suggested, however, that with access to PCS customers, Mr. Monjazeb had an
opportunity to develop customers for the education side of his business, and,
conversely, through his education business he could develop potential customers
for the sales side of his work. There was no evidence this actually happened.
The evidence was that the education programs during the Period in question were
limited to PCS customers. I recognize though that there may have been some
crossover that could potentially increase his income, which does point to
business rather than employment.
Risk of Loss
[37]
I find Mr. Monjazeb faced little or no risk of
loss. The only example of expenses incurred unilaterally that might suggest
being in business for himself was attending the CES convention. Even then, PCS
reimbursed some expenses. PCS also covered some other incidental expenses such as
phone and automobile. On balance, I conclude this factor is more in line with
employment than business.
Responsibility for Investment and Management
[38]
Any responsibility for investment and management
appears to be tied into the education element of his work. This is where he
invested in hiring assistants to develop programs and provide administrative
support. I heard no evidence of any investment by Mr. Monjazeb in PCS or
involvement in the management of the business of sales. The business was that
of PCS.
[39]
The analysis supports a finding of employment
notwithstanding not all factors point overwhelmingly in that direction:
sufficient do, however, on balance.
[40]
I have considerable sympathy for Mr. Brown. He
was caught between a rock and a hard place. He had a worker who, I believe, he
realized was truly an employee, but who refused to formalize that status due to
the consequent impact on income earned by deduction of the source deductions.
Mr. Brown simply let it go. He could have insisted on the employment contract
and run the risk of losing a top salesman, or he could carry on with the
invoicing arrangement and “pretending” Mr.
Monjazeb was an independent contractor. It is understandably irksome to Mr.
Brown that Mr. Monjazeb now turns around and demands the benefits of
employment, with the financial impact on PCS that flows from that. Yet, I
conclude that in law, Mr. Monjazeb was an employee. But I also conclude that he
is responsible for creating this unnecessary and unfortunate litigation. If
I were able to award costs against Mr. Monjazeb in PCS’s favour, I would
do so. Regrettably, our Rules do not permit such.
[41]
I allow the Appeal and vacate the Minister of
Revenue’s decision of November 16, 2015 on the basis that Mr. Monjazeb was an
employee for purposes of the EI and CPP legislation.
Signed at Ottawa, Canada,
this 13th day of September 2016.
“Campbell J. Miller”
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