Citation: 2013 TCC 122
Date: 20130506
Dockets: 2010-2539(EI)
2010-2540(CPP)
BETWEEN:
LA SCALA CONSERVATORY OF MUSIC II,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Graham J.
[1]
The Appellant is a
partnership of a husband and wife named Mauro and Maria Piperni. The Appellant
operates a music store known as L.A. Music. Throughout the Appeal, the Appellant
was simply referred to as L.A. Music.
[2]
L.A. Music sells
musical instruments to the general public and, at various times in the period
in question, also offered music lessons. L.A. Music engaged in various other
activities during the period but those activities are not relevant to the Appeal.
[3]
The Minister of
National Revenue assessed L.A. Music for Employment Insurance premiums and Canada
Pension Plan contributions for the period from January 1, 2007 to April 30,
2009 in respect of 19 workers that the Minister concluded were engaged in
insurable and pensionable employment under the Employment Insurance Act (“Act”)
and the Canada Pension Plan (“Plan”) and a further 4 workers (the
sons and daughters of Mauro and Maria) that the Minister concluded were engaged
in pensionable employment under the Plan. A list of the 23 workers and
the years during the period in question in which they worked is attached as
Schedule “A”.
[4]
L.A. Music contends
that the 23 workers were independent contractors and thus no premiums or
contributions were payable and has appealed the assessments on that basis. The
sole issue before me is whether the workers were engaged in insurable and
pensionable employment in the periods in question.
PROCEDURAL HISTORY
[5]
This Appeal was heard
over 9 days. The first 6 days of the Appeal were heard by Justice Wyman Webb
before his elevation to the Federal Court of Appeal. Following Justice Webb’s
elevation, L.A. Music was given the choice of starting the trial over with a
new judge or continuing the trial with a new judge who had read the transcripts
of the first 6 days of hearing. L.A. Music elected to continue the trial with a
new judge who had read the transcripts. Accordingly, I reviewed the transcripts
of the first 6 days of hearing in detail and presided over the remaining 3 days
of trial.
LAW
[6]
In its very recent
decision in 1392644 Ontario Inc. v. M.N.R., 2013 FCA 85, [2013]
F.C.J. No. 327, (“Connor Homes”), the Federal Court of Appeal clarified the
test that is to be applied in determining whether a worker is an employee or an
independent contractor. Prior to this decision, there had been some confusion
in the jurisprudence whether the intention of the parties was to be considered
before or after applying what is commonly referred to as the Wiebe Door
analysis. At paragraphs 39 to 42 of Connor Homes, the Court stated that
the correct test to be applied is a two-step test:
[39]
Under the first step, the subjective intent of each party to the relationship
must be ascertained. This can be determined either by the written contractual
relationship the parties have entered into or by the actual behaviour of each
party, such as invoices for services rendered, registration for GST purposes
and income tax filings as an independent contractor.
[40]
The second step is to ascertain whether an objective reality sustains the
subjective intent of the parties. As noted by Sharlow J.A. in TBT Personnel
Services Inc. v. Canada, 2011 FCA 256, 422 N.R. 366 at para.
9, “it is also necessary to consider the Wiebe Door factors to determine
whether the facts are consistent with the parties’ expressed intention.” In
other words, the subjective intent of the parties cannot trump the reality of
the relationship as ascertained through objective facts. In this second step,
the parties [sic] intent as well as the terms of the contract may also be taken
into account since they colors [sic] the relationship. As noted in Royal
Winnipeg Ballet at para. 64, the relevant factors must be considered “in the
light of” the parties’ intent. However, that being stated, the second step is
an analysis of the pertinent facts for the purpose of determining whether the
test set out in Wiebe Door and Sagaz has been in fact met, i.e.
whether the legal effect of the relationship the parties have established is
one of independent contractor or of employer-employee.
[41]
The central question at issue remains whether the person who has been engaged
to perform the services is, in actual fact, performing them as a person in
business on his own account. As stated in both Wiebe Door and Sagaz,
in making this determination no particular factor is dominant and there is no
set formula. The factors to consider will thus vary with the circumstances.
Nevertheless, the specific factors discussed in Wiebe Door and Sagaz
will usually be relevant, such as the level of control over the worker’s
activities, whether the worker provides his own equipment, hires his helpers,
manages and assumes financial risks, and has an opportunity of profit in the
performance of his tasks.
The application of
the test
[42]
… The first step of the analysis should always be to determine at the outset
the intent of the parties and then, using the prism of that intent, determining
in a second step whether the parties’ relationship, as reflected in objective
reality, is one of employer-employee or of independent contractor. …
[7]
Based on the foregoing,
I will first examine the parties’ intention and then consider whether the
reality of their relationship was consistent with that intention using the Wiebe
Door factors as set out in paragraph 41 of Connor Homes.
WITNESSES
[8]
A total of 11 witnesses
testified.
[9]
Michael Watson
testified for L.A. Music. He is a retired CRA employee who worked for L.A.
Music during the relevant period and continues to work there. He is clearly
knowledgeable about the differences between employees and independent
contractors. As an ongoing worker at L.A. Music, he had a reason to support
L.A. Music. In my view, his knowledge of the law and his desire to support L.A.
Music caused him to embellish his testimony where he felt it would benefit L.A.
Music. For that reason, where his testimony conflicts with the testimony of
other, more reliable witnesses, I have preferred the evidence of those
witnesses over his.
[10]
Kevin Pooler testified
for L.A. Music. I found him to be the most reliable of all of the witnesses. He
appeared to answer questions honestly with no attempt to tailor his evidence to
a specific outcome.
[11]
Mark Rudyj testified
for L.A. Music. He was terminated by L.A. Music during the period in question
and clearly still bears a grudge against L.A. Music. In my view, his grudge
caused him to slant his testimony in favour of the Respondent. For that reason,
where his testimony conflicts with the testimony of other, more reliable
witnesses, I have preferred the evidence of those witnesses over his.
[12]
Robert Paul Jacobs (known
as Paul Jacobs and referred to as such herein) testified for L.A. Music. I
found him to be a reliable witness.
[13]
Dragan Petrovic
testified for L.A. Music. I found him to be a reliable witness. While he
clearly had a strong view about his status as an independent contractor, I do
not feel he made any attempt to slant his testimony to support that outcome.
[14]
Victor Miolla testified
for L.A. Music. I did not find him to be a reliable witness. Despite repeated
objections from counsel for the Respondent and repeated warnings from Justice
Webb, Maria Piperni asked leading questions on direct examination to many of
L.A. Music’s witnesses. I found those leading questions to be particularly
prevalent during her direct examination of Victor Miolla. Victor continues to
work with L.A. Music today and thus had an evident willingness to be lead by
Maria. Except where noted, I have essentially disregarded Victor’s testimony.
[15]
Maria Piperni testified
on her own behalf. I found that Maria frequently exaggerated evidence where she
felt that doing so would benefit her case and was on occasion evasive. For this
reason, where Maria’s evidence is contradicted by evidence of other workers I
have generally preferred the evidence of the other workers and, in some
circumstances, I have simply not accepted Maria’s evidence.
[16]
Mauro Piperni testified
on his own behalf. There were numerous occasions where he was lead by Maria
Piperni in direct examination. I have given less weight to his evidence in
those circumstances. Like Maria, Mauro tended to exaggerate evidence and thus
there are a number of circumstances where I have preferred the evidence of
other witnesses over that of Mauro or have simply not accepted Mauro’s
evidence.
[17]
Antonio Moreira
testified for the Respondent. I found him to be a reliable witness. Despite the
fact that he was terminated by L.A. Music sometime after the period in question
and clearly dislikes the Piperni’s, I found that he answered questions posed to
him in a straightforward manner with little attempt to slant his evidence
against L.A. Music. While his recollection of dates was weak, I found it to be
as a result of the passage of time rather than any desire to mislead the Court.
My confidence in his testimony is strengthened by the fact that his evidence
was generally consistent with that of Kevin Pooler who I found to be a very
reliable witness.
[18]
Robert Simpson
testified for the Respondent. He choose to stop working for L.A. Music during
the period in question but, at the time of his testimony, was actively seeking
to start working for them again. As a result, he had a clear motivation to
please Maria and Mauro. This desire to please was evident in his answers when
he was being cross-examined by Maria. Despite that, I found his testimony to be
generally reliable.
[19]
Riley O’Connor
testified for the Respondent. I found him to be a reliable witness. Despite the
fact that he views himself as having been terminated by L.A. Music sometime
after the period in question and clearly holds a grudge against L.A. Music, he
did not appear to slant his testimony as a result.
[20]
Despite numerous
objections from counsel for the Respondent and repeated warnings from Justice
Webb, both Maria and Mauro continued to attempt to put facts in evidence
through the questions that they were asking witnesses. I have not considered
any such “facts” to be evidence.
ANALYSIS
[21]
For simplicity, I will
break my analysis of the 23 workers down into two groups: workers who were
members of the extended Piperni family (i.e. the Piperni’s and the Hilmarson’s)
and workers who were not.
Non-Family Workers
Intention
[22]
The first step in Connor
Homes is to examine the parties’ intentions.
[23]
There is no question
that L.A. Music’s intention was that each of its workers be independent
contractors. The question is whether that intention was shared by the workers. Michael
Watson, Paul Jacobs, Dragan Petrovic and Robert Simpson all intended to be
independent contractors from the time that their work with L.A. Music began.
The intentions of the other workers are less clear.
[24]
L.A. Music entered into
written contracts with its non-family workers. A sample contract between L.A. Music and
Michael Watson is duplicated in Schedule “B”. The written contracts were
essentially identical. The only significant exceptions were the name of the
worker and the description of the skills that the worker possessed that were set
out in subsections 1(2) and 1(4) of the written contract.
[25]
Maria prepared the
written contracts using some samples that she found on the internet. The
contracts were prepared in 2008 after the CRA began auditing L.A. Music. They were
clearly an attempt by L.A. Music to provide the CRA with written proof of the parties’
intentions and to document those intentions going forward.
[26]
Workers who were
already working at L.A. Music prior to the audit under oral contracts were
asked to sign the written contracts. Workers who began work with L.A. Music
after the audit commenced signed the written contracts at approximately the
same time as they commenced work. In a number of cases the written contracts
were backdated to give the impression that they had been signed when the worker
started with L.A. Music.
[27]
Despite L.A. Music’s
assertions to the contrary, I find that the written contracts do not represent
the actual terms of L.A. Music’s contractual agreement with any of the workers.
(a)
Subsection 1(6) of the
written contract states that the workers “will be available to teach lessons,
classes, and clinics on a need basis.” The only workers who actually taught
lessons were Michael Dorosz and Riley O’Connor. There was no evidence that any
of the other workers ever taught lessons at L.A. Music. With the exception of
Riley O’Connor, none of the workers who testified indicated that they believed
teaching was part of what they had contracted to do. In fact Dragan Petrovic
testified that he was asked to teach and refused to do so.
(b)
Section 3 of the
written contract states that the workers “will carry liability insurance
relative to any service that he or she performs” for L.A. Music. None of the
workers who testified carried such insurance nor was L.A. Music able to provide
an example of any worker who had carried such insurance.
(c)
Section 4 of the
written contract purported to deal with compensation. The workers who testified
made it clear that the daily or hourly rate that they were paid was something
that was negotiated up front yet the written contract simply states that “L.A.
MUSIC shall award the Independent Consultant the amount As [sic] agreed to by
both parties, awarded at the end of each period of service.” The rate of pay is
not specified nor is there any mention of L.A. Music’s bonus system. I accept
that the rate of pay and timing of payment differed from worker to worker and
thus that it may have been more convenient for L.A. Music to describe the
compensation in general terms such as these. However, I do not accept that
either party would have signed a contract on such vague terms if their true
intention had been to accurately document the terms of their relationship as
opposed to simply creating a piece of paper to show to the CRA.
(d)
Each worker who
testified made it clear that the hours and days that they worked and their ability
to choose not to work on a given day was something that was negotiated up front
and that was very important to them. Yet the written contract is completely
silent in this respect.
[28]
Maria explained that
the above inconsistencies were due to the fact that she was not legally trained
and that she had pieced together the contract from the internet. While I accept
that that is the case, I am not prepared to simply ignore the inconsistencies
in the written contract but still accept that it accurately represents the
parties’ intention that the workers are to be independent contractors. Either
the written contract is a full and accurate representation of the parties’
agreement or it is window dressing. Accordingly, I give no weight to the terms
of the written contracts in assessing the parties’ intentions.
[29]
While I do not accept
that the written contract reflects the terms of the agreement between L.A.
Music and the workers who signed the contracts, I do accept that the fact that a
given worker signed the written contract could be evidence of an ongoing
intention on the part of the worker to be an independent contractor. In other
words, I accept that a worker who wanted to be an independent contractor may
have been prepared to sign a written contract that purported to support that
intention regardless of the contents of the rest of the contract. In order to
make this determination, I would need to look at the circumstances under which
each worker signed the contract.
[30]
There was conflicting
testimony regarding the circumstances in which the written contracts were
signed.
(a)
Kevin Pooler testified
that the contract was presented to him by L.A. Music sometime after he started
working and he was told that it was something that he needed to sign. He took
it home and reviewed it before signing it. He did not feel that he had any
choice but to sign it. While he was not explicitly told that he would lose his
job if he did not sign the contract, he believed that he would.
(b)
Antonio Moreira
testified that he signed the contract because he needed the work.
(c)
Mark Rudyj testified
that Mauro’s and Maria’s son, Michael Piperni, told him that if he did not sign
the contract he would not be paid for the work he had already done. While I
accept that Mr. Rudyj felt pressured to sign the contract and that that
pressure came from Michael Piperni, I do not accept that he was threatened in
the manner described. No other worker testified that he had been threatened in
this manner. In addition, cheating a worker out of pay for work that he had already
done appears to be completely inconsistent with the type of environment which I
accept that L.A. Music was trying to create for its workers. As explained
above, where Mr. Rudyj’s testimony conflicts with the testimony of other
workers, I prefer the testimony of the other workers as he clearly bears a
grudge against L.A. Music.
(d)
Riley O’Connor
testified that he signed the contract because he was afraid that he would lose
his job and because he was afraid of what the CRA might do if they audited him.
(e)
Paul Jacobs testified
that he was given the contract and told to read it over. He took it to his
accountant to review before he signed it. He did not make any changes to it.
(f)
Dragan Petrovic
testified that he reviewed the contract with his lawyer before signing it
because his understanding of contractual English is not strong. He stated that
he did not feel pressured to sign the contract and felt that he could have had
a term changed if he had wanted to.
(g)
Robert Simpson
testified that he was told that the contract needed to be signed to support
L.A. Music’s dispute with the CRA. He stated that he did negotiate to have the
word “liability” removed from the insurance provision. This is the only
evidence that was presented of any worker actually negotiating a term of the
contract.
(h)
Michael Watson
testified that everything in his contract was negotiated and discussed before
he signed it. He stated:
… In
the sense that this contract was the subject of negotiated discussions,
everything in here was something that we discussed before the contract was
drawn up. This simply formalizes a discussion or a negotiated process that we
went through.
I do not accept Mr. Watson’s evidence. I
find it extremely unlikely that Mr. Watson would negotiate and discuss each
clause only to end up signing a contract that was essentially identical to the
contract signed by everyone else and which actually did not reflect the terms
of his agreement. This is a key example of the way in which Mr. Watson embellished
his testimony in an attempt to favour a finding that he was an independent
contractor. That said, while I do not find him to have been a credible witness
on this point, I still accept that the reason that he signed the contract was
to evidence his ongoing intention to be an independent contractor.
(i)
Maria testified that
she gave each worker the choice of whether to sign the contract and continue as
an independent contractor or to become an employee. While I accept that she
gave that choice to some of the workers, I do not believe that she gave it to
all of them as the workers’ testimonies do not support that fact. Maria asserted
that no workers were pressured to sign the contract. I do not accept her
testimony on that point. Given the testimony of the other workers, I cannot
believe that there was not some level of pressure exerted.
[31]
In summary, it is clear
to me from the above testimony that those workers who clearly wanted to be
independent contractors (i.e. Michael Watson, Paul Jacobs,
Dragan Petrovic and Robert Simpson) felt they were under no pressure to
sign the contract and everyone else felt as if they had no choice. As I have
not accepted Maria’s testimony on this issue, I have no evidence on which to
assess the circumstances in which the non-family workers who did not testify signed
the contract. Given the conflicting evidence that I have heard from the
witnesses who testified, I am not prepared to draw any conclusions as to the
remaining non-family workers’ intentions from the fact that they signed the
written contract.
[32]
The parties spent a
great deal of time examining whether the workers fully understood what it meant
to be an independent contractor. There was a lot of testimony about discussions
that Maria may or may not have had with workers about the distinction between employees
and independent contractors and the benefits of being one or the other before
they signed the contracts. In my view, nothing turns on this. To the extent that the workers’
understanding of the distinction is relevant, it would be their understanding
at the time they began working, not the time they signed the contracts. The
evidence from the remaining workers who testified indicates that while they
were all clearly hired as independent contractors they did not feel that that
was the true nature of their relationship with L.A. Music.
(a)
Kevin Pooler testified
that he felt he was working for L.A. Music nine-to-five and running his own
recording business on the side.
(b)
Antonio Moreira
testified that he felt he was an employee.
(c)
Riley O’Connor
testified that he felt he was an employee both when he started working at L.A.
Music and when he signed the contract. He stated that he did contract work in
other aspects of his life and that his 3 years with L.A. Music did not feel
like contract work.
(d)
Mark Rudyj testified
that he never felt he was an independent contractor. As set out above, I feel
that Mr. Rudyj was slanting his testimony against L.A. Music. I do not
therefore completely accept his statement but I am prepared to accept that he
was at least unsure of his status.
[33]
Given this testimony, I
find that Kevin Pooler, Antonio Moreira, Riley O’Connor, Mark Rudyj and
Victor Miolla did not intend to be independent contractors.
[34]
The Respondent did not
make an assumption of fact regarding the intentions of the workers. Maria and
Mauro testified that the remaining workers intended to be independent
contractors. However, they said the same thing about the above workers. In
light of the above evidence which contradicts Maria’s and Mauro’s evidence, I
am not prepared to accept that the workers about whom I have no other evidence
intended to be independent contractors based simply on the fact that they
accepted the job on that basis.
[35]
In conclusion, I find
that the only non-family workers who shared a common intention with L.A. Music
as to the nature of their relationship are Michael Watson, Paul Jacobs,
Dragan Petrovic and Robert Simpson. Thus, for those four workers following the
test set out in Connor Homes, I must consider whether the objective
reality supports their subjective intention. For the remaining non-family
workers, I must simply consider whether the objective reality indicates that
they were independent contractors or employees.
[36]
I will apply the Connor
Homes test to each worker individually. However, because much of the
evidence relating to the objective relationship is common to all of the
workers, I will first review that evidence, I will then use that evidence when
examining the particular circumstances of each worker in light of their
intentions or lack thereof.
Control
[37]
During the period in
question, L.A. Music initially operated two stores. Sometime in 2008, they
closed the second store. The store that was closed had previously conducted
some sales and was home to L.A. Music’s rental business. The rental business is
not relevant to the issues before me as none of the workers were involved in
it. I heard almost no testimony about the physical layout of the store that was
closed down. Substantially, all of the evidence was focused on the remaining
store.
[38]
The remaining store
consisted of approximately 12,000 square feet spread out over 3 floors and a
basement area. Sales occurred on the first and third floors. The store was a
converted office space and, despite renovations, it kept the feel of a number of
separate spaces with a central lobby on each floor. Thus the drums department,
for example, was not part of a large open store but rather occupied a
self-contained space off the central lobby on the third floor. The first floor
contained an acoustic guitar room and the electric guitar department. The
second floor was used for music lessons and also held some office space that
was rented out to third parties. The lessons were run by L.A. Music during part
of the period in question and by a third party during the remainder of the
period. The third floor contained the keyboards, drum and pro audio departments. The basement was used for
storage and inventory.
[39]
L.A. Music operated its
store in what appears to be a relatively unique manner in the local industry. L.A.
Music hired salespeople who were highly skilled at playing one or more
instruments or, in the case of the pro audio area, highly skilled in the
programming and operation of the relevant equipment. All of the salespeople came
to L.A. Music with a pre-existing intimate knowledge of the instruments,
equipment and/or software in their given area of expertise. The salespeople were
passionate about their area of expertise outside of work and they brought that
passion with them to work. Sales to customers were made, not by pressuring the
customer to purchase a given instrument, but rather by having these highly
proficient salespeople demonstrate their skills on various instruments or
equipment in order to inspire a customer to buy that instrument or equipment. If
one walked into L.A. Music’s store on a given day, it would not be unusual to
come across one or more of its salespeople giving impromptu performances in
order to inspire the customers.
[40]
L.A. Music’s strategy
was to find workers with the skills necessary to inspire customers and then to
set those workers loose in the relevant department to see how they performed as
salespeople. The workers did not receive training. They came to the job with
the necessary musical skills. They were not trained in either sales techniques
or, in the case of the workers who also taught music lessons, teaching
techniques. This argues in favour of an independent contractor relationship.
[41]
There was a great deal
of testimony concerning the flexibility that the workers enjoyed in their
working hours and days. It was clear that the flexibility that the workers
enjoyed was one of the primary reasons that the workers chose to work at L.A.
Music and one of the primary reasons that L.A. Music was able to attract and
retain workers.
[42]
When a potential worker
first met with L.A. Music, he or she would negotiate the days and hours that he
or she would work. Most workers agreed to work from store opening until store
closing on whatever day they worked but some negotiated a later start or an
earlier end to their day due to other commitments. Mauro characterized this
flexibility in setting the initial days and hours to be worked as being
indicative of an independent contractor relationship. I do not agree. This
level of flexibility would equally be present when an employee applied to work part-time
for an employer who had a variety of available shifts.
[43]
However, what was
unusual about L.A. Music’s relationship with its workers was that its workers
could, and frequently did, simply advise L.A. Music that they would not be
coming to work for some or all of a given day or days. The workers were not
required to ask permission to be absent. It was essential that L.A. Music offer
this level of flexibility to its workers in order to attract the type of talent
that they wanted. For the vast majority of the workers, this flexibility was
the primary reason that they were at L.A. Music rather than another music
store. The workers were musicians or technicians first and salespeople second
or even third. All of the workers had outside musical interests which could
unexpectedly require their attention and which were a higher priority for them
than their L.A. Music work. For example, many of the workers played in bands.
If the opportunity for a gig arose unexpectedly, it was understood that the
workers would simply advise L.A. Music that they would not be available to
work. The same was true for vacations. If workers wanted to take a vacation, they
simply advised L.A. Music of the days that they would be absent. While there
was an expectation that workers who were going to be absent would try to
arrange to have another worker from their department cover their shift, the
workers were not required to do so. This unusual level of flexibility strongly
supports independent contractor status.
[44]
Mauro and Maria both testified
that workers could simply show up at the store when they wanted to work more days
or hours and they would be allowed to work. I do not accept their testimony on
that point. Not only does it make no commercial sense, it was also not
supported by any of the workers who testified and was, in fact, contradicted by
a number of them. I find that if workers wanted to increase, decrease or change
their working days and hours, they had to negotiate that with L.A. Music.
However, this ability to negotiate is not indicative of an independent
contractor relationship. This same level of flexibility to negotiate changes would
equally be present for a part-time employee.
[45]
Subject to workers
advising L.A. Music that they would be absent for part of a day, the workers’ hours
of work were fixed. However, I do not think that these fixed hours suggest an
employment relationship. The fixed hours were generally the hours that the
store was open. L.A. Music needed workers to sell equipment during its store
hours. It was not interested in having workers work at midnight.
[46]
Generally speaking, the
work was done at L.A. Music’s store. The fact that the location of the work
was determined by L.A. Music does not argue for either independent contractor
or employee status. L.A. Music was a retail business operating out of a fixed
location. It needed its workers to sell equipment at its store.
[47]
All of the salespeople
were required to demonstrate and sell instruments, equipment and related
accessories and to help customers with any questions or problems that they had.
However, some of the salespeople had additional duties. In my view, there were 2 categories of
salespeople. The first category of salespeople was those whose job was purely
to sell instruments and equipment and to help customers with questions or
problems. I will describe this category as the “pure salespeople”. The second
category of salespeople was those who, in addition to sales, were required to
perform a range of other duties more closely related to the general operations
of the store such as unloading deliveries, moving inventory, setting up
displays, pricing products, updating pricing on the L.A. Music website and
cleaning. I will describe this category as the “sales workers”. The narrow duties
of the pure salespeople indicate neither employee nor independent contractor
status. However, the more general duties of the sales workers are more
consistent with an employment relationship.
[48]
There was conflicting
evidence regarding whether the workers were supervised or not. For the reasons
set out in more detail under my analysis of the relationship of Michael Piperni
and Maria’s and Mauro’s other son, Rob Piperni, with L.A. Music, I find that
Michael Piperni and Rob Piperni were supervisors at L.A. Music. I also find
that Mauro and Maria acted in a supervisory capacity.
[49]
There does not appear
to have been much in the way of supervision of the actual sales activities. In
fact, this appears to have been intentional on L.A. Music’s part as it was L.A.
Music’s belief that creative personalities do not thrive in controlling
environments. No one was looking over the workers’ shoulders telling them how
to sell. However, L.A. Music had sales policies which the workers had to
follow. Those policies governed such things as customer relations, refund
policies, exchange policies, returns policies and discounts. As it would be
normal for a company hiring workers to set parameters within which the work was
to be performed, I find these policies do not point towards either independent
contractor or employee status.
[50]
The only supervision in
the sales process occurred when a customer asked a worker if they could have a
discount. In this case the worker was required to seek approval from a supervisor. I do not view the simple need to seek
approval in that circumstance as being indicative of an employment relationship.
[51]
Based on the foregoing,
I conclude that the pure salespeople had little supervision. By contrast, the
presence of supervision was more noticeable for the types of duties performed
by the sales workers. Workers who I would classify as sales workers described
themselves as being told by a supervisor to perform various activities and as
feeling that they had no choice but to do so. This is indicative of an
employment relationship.
[52]
Salespeople who were
also teachers were not supervised in their teaching duties. They were told when
and where to teach but not how. That said, one does not expect a high level of
supervision of a teacher regardless whether he or she is an employee or an
independent contractor.
[53]
Workers did not receive
sick days or vacation pay. This is consistent with an independent contractor relationship.
[54]
Workers were not
prohibited from working for competitors in the retail music business although
there was no evidence that any of the salespeople actually did so. There was
evidence that a number of the workers were involved in bands or other music
related businesses on their own time. I do not consider these activities to be
in competition to L.A. Music’s business. Some workers competed with L.A.
Music’s music lessons by offering their own lessons. Paul Jacobs was in the
process of opening his own music store (albeit far enough away from L.A. Music
that it would not compete directly with them) while he was working at L.A.
Music. Overall, the fact that the workers could compete and, in the case of
lessons, did compete argues in favour of independent contractor status.
[55]
The workers were
permitted to give their names and contact information to customers who might be
interested in hiring them outside of L.A. Music to provide certain services. For
example, Kevin Pooler testified that he would give his contact information to
customers who might be interested in his recording services. Riley O’Connor
also testified that he gave customers his contact information for his personal
music instruction business. This factor argues in favour of independent
contractor status.
[56]
The frequency with
which workers were paid varied from worker to worker and was set at the
discretion of the worker. Most workers were paid weekly. Some were paid every
two weeks and others monthly. Regardless of the frequency of payment, the
workers were paid on the last day of the pay period for all work performed up to
and including that day. The variation in the frequency of payment argues
slightly in favour of independent contractor status but the fact that payment
was made immediately at the end of the period for all work up to the end of the
period is more typical of an employment relationship. Therefore, overall, I
consider this factor neutral.
[57]
Prior to the CRA audit,
the workers did not issue invoices. Sometime after the audit commenced, L.A.
Music informed the workers that they would not be paid if they did not issue
written invoices. The decision to require invoices was clearly motivated by a
desire to create documents that supported an independent contractor
relationship. Thus I attach no weight to the actual physical invoices. Prior to
the audit, workers simply kept track of the number of days they had worked and
the number of bonuses that they had earned and advised L.A. Music orally how
much money was owed to them. There was no formal method employed by L.A. Music
to track workers’ days or sales. Maria testified that the operation was small
enough that they just knew who had worked when, what they had sold and what
they were owed. Overall, I do not find the presence or lack of invoices useful
in determining the workers’ status.
[58]
Some of the above
factors indicate that the workers were independent contractors. Others indicate
that they were employees. In my view the most significant factors are the
flexibility that the workers enjoyed in scheduling their work, the duties they
performed and the corresponding level of supervision that they were subject to.
The remaining factors taken as a whole are effectively neutral. Therefore, when
applying the Connor Homes test to each worker below I will focus
primarily on the issues of flexibility, duties and supervision.
Tools
[59]
The Respondent submitted that the
store itself, the inventory, the floor models and all of the furniture,
fixtures and equipment were tools provided by L.A. Music. While I accept that
those items were supplied by L.A. Music, I do not accept the Respondent’s
position that they were all tools. The Respondent’s position presupposes that
the issue in this appeal is whether the workers were in the business of selling
musical instruments. That is not the issue. The business of selling musical
instruments is L.A. Music’s business. The issue is whether the workers were in
the business of providing salesperson services. There were a limited number of
tools actually required for the salespeople to do their jobs. L.A. Music’s
sales strategy was to sell instruments by using the workers’ performances. Thus
the key tool required was demonstration instruments and equipment. Those
instruments and equipment were owned by L.A. Music. Without them, the salespeople could not inspire the customers and
thus, under L.A. Music’s business model, would have a harder time making sales.
[60]
For the teachers, the
instrument that the student was learning on was also a tool that was required.
With the exception of an old pair of cymbals provided by Riley O’Connor, the
instruments the students learned on were provided by either L.A. Music or the
students themselves. Maria indicated that Michael Dorosz brought in his own
guitar for his own use while teaching.
[61]
Maria testified at length about
workers providing laptops and SCSI drives. I found her evidence on this point to be unreliable
and have not given it any weight except where it was supported by other
witnesses. In general, Maria’s testimony on this point was more of a recitation
of things that workers had brought with them to the store at one point or
another rather than a description of specific tools that the workers actually
used in their work. For example, she described Kevin Pooler and Antonio Moreira
as using their laptops at work. Mr. Pooler, who I have found to be a very
reliable witness, made no mention of a laptop when he was asked what tools he
provided. Mr. Moreira testified that he brought his personal laptop to work but
never used it for anything to do with work.
[62]
For the sales workers
who were required to update L.A. Music’s website, a computer was clearly a tool
required but the computers for that task were provided by L.A. Music.
[63]
L.A. Music appeared to believe
that the tools that its workers owned for use in their business ventures
outside of L.A. Music were tools that should be taken into account when
considering the tools test for their relationship with L.A. Music. I do not
accept this position. Take, for example, Kevin Pooler, who has thousands of
dollars of recording equipment that he uses in his recording business. While
work on that equipment may make Mr. Pooler more knowledgeable about and skilled
at operating the equipment that he demonstrates and sells at L.A. Music, that
does not mean that his recording equipment is a tool that he uses in his
activities as a salesperson.
Chance of Profit
[64]
The workers were paid a
flat daily rate. The rate was negotiated when they were hired.
[65]
L.A. Music paid bonuses
to workers who achieved certain daily sales targets. The exact mechanics of the
bonus system were unclear from the testimony. Either the system differed among
the workers or the workers’ recollection of the system differed. Nothing turns
on these differences. The system described by Paul Jacobs appears to be
fairly typical. He testified that he would receive a $25 bonus for generating
$3,500 in sales and a $50 bonus for generating $5,000. While there was evidence
of some workers earning bonuses during specific busy times of the year like Christmas,
in general it appeared that bonuses were not common among the workers and it
was clear that some workers earned almost no bonuses.
[66]
L.A. Music argued that
the bonus system provided the workers with an opportunity for profit. The
Respondent argued that the opportunity to earn more by being good at selling instruments
and equipment was not an opportunity for profit. The Respondent relied on the
Federal Court of Appeal decision in City Water International Inc. v. The
Queen, 2006 FCA 350, [2006] F.C.J. No. 1653. In City Water the Court
considered whether service technicians were employees or independent
contractors. The technicians were paid by the hour and were given a $200
monthly incentive bonus if they avoided recall work. That bonus was reduced by
$50 for each recall until the $200 was exhausted. The Court concluded, at paragraph
24, that “[w]hile [the technicians] may have had an incentive to work harder
and get paid an extra $200, this is not the same as the commercial risk of
running a business …”. Based on City Water, I agree with the Respondent
that L.A. Music’s bonus system did not, in itself, create a chance of profit.
[67]
The workers did not
subcontract their shifts nor do I accept that they were free to do so. Thus,
they could not profit by subcontracting. When a worker was absent and they
arranged for another worker to take their place, the other worker was paid his
own daily rate not the rate of the absent worker and was paid directly by L.A.
Music not by the absent worker. All of these factors argue in favour of an
employment relationship.
[68]
For salespeople who
were also teachers, Riley O’Connor testified that the rate that students paid
was set by the store and that his remuneration for teaching was simply part of
his daily rate of pay. Maria testified that the rate that the students paid was
set by negotiations between the teacher and the student. I prefer
Mr. O’Connor’s evidence over Maria’s as it is more logical. I cannot
imagine why L.A. Music would leave it in the teacher’s hands to negotiate the
rate when the teacher had no financial incentive to negotiate a higher rate.
[69]
Although this point was
not specifically argued by L.A. Music in its submissions, based on certain
questions asked of witnesses it appeared that L.A. Music may have believed that
the sales work that a given worker was doing was part of a larger music
business carried on by the worker. I do not accept this position. Take, for
example, Michael Watson. While he plays drums in a band and sells drums at L.A.
Music, I do not consider him to have an overall drum business encompassing both
activities. His band may be a business in which he uses drums as a tool to make
music. That business does not have any connection to his work at L.A. Music. In
his band he sells a performance, at L.A. Music he sells drums. The fact that
the band may be a business activity carried on by Mr. Watson does not affect my
decision as to whether his sales activities are a separate business activity or
not.
Risk of Loss
[70]
The workers were paid a
guaranteed daily rate regardless of the amount of instruments and equipment they
sold. They had few, if any, expenses. Mauro testified that he never sent a
worker home if he had too many workers. Thus, workers were not only guaranteed
their daily rate but were also guaranteed not to have their number of scheduled
days reduced unexpectedly.
Conclusion
[71]
Having reviewed the
evidence which is common to all of the non-family workers, I will now apply the
Connor Homes test to each of them.
(a)
Paul Jacobs: As set out above, Mr. Jacobs intended to
be an independent contractor. The objective reality of his relationship with
L.A. Music supports that intention.
Control: Like all of the other workers, the flexibility Mr.
Jacobs had in determining when he worked argues strongly in favour of
independent contractor status. Mr. Jacobs was a pure salesperson. He testified
that he did not clean up the store or perform any similar types of labour.
While at one point he helped the store to create some signage using his fine
arts skills, I do not consider that activity to put him into the category of
sales worker. As a pure salesperson, Mr. Jacobs had limited supervision over
his activities. In addition to his regular sales activities, Mr. Jacobs had a
unique arrangement with L.A. Music. He felt that he could draw more customers
into the store and sell more products by offering them online through Kijiji.
He approached Mauro and negotiated a deal whereby L.A. Music would pay him $10
for each item of inventory that he sold through Kijiji. The sales did not
actually take place online. Mr. Jacobs used Kijiji to draw potential customers
to the store where he would then complete the sale. The indicia of control as
they relate to these Kijiji sales were different than the indicia for other
sales. New products were listed on Kijiji at their normal retail price but
older products were set at a price agreed on between Mr. Jacobs and Mauro. Thus
Mr. Jacobs had some level of control over pricing. Because the customers were
attracted online, Mr. Jacobs did not need to be physically present at L.A.
Music’s store to post the ads on Kijiji or to respond to emails from potential
customers. He testified that he did much of this work from his home and that
his wife assisted him with it. While there was no evidence whether he paid his
wife to do so, the fact remains that he was able to delegate his work to an
assistant. Overall, the control test provides strong objective support for his
intention to be an independent contractor.
Tools: Mr. Jacobs used guitars provided by L.A. Music to
inspire customers. He testified that he would bring his guitar tuning tools to
L.A. Music so that he could make sure that a guitar that he was demonstrating
for a customer would sound good. It appeared that some of the tools he brought
would also have been available at L.A. Music but that some types of allen wrenches
that he brought were not available. However, overall, the amount of tools he
provided for his pure sales activities were outweighed by those provided by
L.A. Music. By contrast, Mr. Jacobs provided the majority of the tools
needed for the Kijiji sales. He had a digital camera that he used to photograph
L.A. Music’s inventory. While he did not indicate how he made the Kijiji
postings from home, he presumably used a laptop or other computer. Mr. Jacobs
also maintained ownership of the Kijiji postings. When he left L.A. Music, that
intellectual property was not transferred to the store. Given Mr. Jacobs’ heavy
emphasis on Kijiji sales, I find that overall, the tools test provides strong
objective support for his intention to be an independent contractor.
Chance of Profit: Mr. Jacobs’ chance of profit was
significantly different from the other workers because of his Kijiji sales. With
Kijiji he was able to earn money during times when he was not at work. He was
also able to earn money from the work of others (i.e. his wife). He earned $10
per sale regardless of the price of the item. If Mr. Jacobs sold 4 items in a
day through Kijiji and another salesperson sold the same 4 items in the store,
Mr. Jacobs would earn $40 whereas the other worker would only earn a bonus if their
total daily sales exceeded the relevant target. Mr. Jacobs’ evidence was that
the Kijiji sales were so successful that he actually agreed to reduce his daily
rate as he wanted to focus more of his time at the store on generating Kijiji
sales. Thus, he traded guaranteed daily income at the store for the potential
to earn substantially more income through his own efforts on Kijiji. In
addition, the terms that he negotiated with Mauro allowed him to count the
Kijiji sales towards his daily sales targets so he had the potential of earning
not just the $10 per sale for the Kijiji sales but also the sales bonuses. The
creation and maintenance of the Kijiji sales system placed Mr. Jacobs in a
position that was significantly different than that of the other workers. While
the presence of a flat commission and bonus system may not necessarily mean
that a worker has a chance of profit, when viewed through the prism of Mr.
Jacobs’ intention to be an independent contractor, his ability to profit through
a system that he created on his own initiative is objective support of his
intention to be an independent contractor.
Risk of Loss: Like all of the other workers, Mr. Jacobs had no
risk of loss. Thus this factor does not support his subjective intention to be
an independent contractor.
(b)
Dragan Petrovic: As set out above, Mr. Petrovic intended
to be an independent contractor. However, the objective reality of his
relationship with L.A. Music does not support that intention.
Control: Like all of the other workers, the flexibility Mr. Petrovic
had in determining when he worked argues strongly in favour of independent
contractor status. Mr. Petrovic appeared to actually have even more
flexibility than the other workers. Mr. Petrovic would fall into the category
of pure salesperson although it is not clear how much he actually focused on
selling. I put him into that category as the two activities that he clearly
focused on (i.e. demonstrations on the keyboards and answering customers’
questions) are part of the pure salesperson category and because he clearly
would not have done any of the more menial tasks performed by sales workers as
he felt they were beneath him. As a pure salesperson, Mr. Petrovic had limited
supervision over his activities. Overall, the control factor provides strong
objective support for Mr. Petrovic’s subjective intention to be an independent
contractor.
Tools: Mr. Petrovic needed two things to sell keyboards.
First he needed demonstration keyboards on which to play and then he needed
SCSI drives to connect to those keyboards to demonstrate the keyboards’ full
potential. L.A. Music provided the demonstration keyboards. Mr. Petrovic
provided the SCSI drives. The SCSI drives contained music that he had prepared
at home. Mr. Petrovic used the SCSI drive to demonstrate the capabilities of
the keyboards at L.A. Music. He had more than one SCSI drive as they were
particular to different keyboards. The SCSI drives cost approximately $100 to
$150 each. My impression was that Mr. Petrovic would have owned the SCSI drives
regardless of his work at L.A. Music. The value of the SCSI drives relative to
the demonstration keyboards is also small. Therefore, while Mr. Petrovic’s
provision of the SCSI drives is not inconsistent with his subjective intention
to be an independent contractor, I do not attach much weight to this factor.
Chance of Profit: Mr. Petrovic testified that he
specifically opted out of the bonus system. My overall impression was that Mr.
Petrovic felt that selling was an activity unbecoming a true musician. He
appeared to be quite satisfied with his daily rate and was more interested in
simply performing at the store, establishing industry contacts and having the
opportunity to purchase keyboards from L.A. Music at a discount than he was in
earning a profit. In my view, his attitude towards profit and his actions do
not provide objective support for his subjective intention to be an independent
contractor.
Risk of Loss: Like all of the other workers, Mr. Petrovic had no
risk of loss. Thus this factor does not support his subjective intention to be
an independent contractor.
(c)
Michael Watson: As set out above, Mr. Watson intended to
be an independent contractor. Although his case is not as strong as that of Mr.
Jacobs, the objective reality of Mr. Watson’s relationship with L.A. Music
supports his intention to be an independent contractor.
Control: Like all of the other workers, the flexibility Mr. Watson
had in determining when he worked argues strongly in favour of independent
contractor status. As a pure salesperson, Mr. Watson had limited
supervision over his activities. Overall, the control factor provides strong
objective support for Mr. Watson’s subjective intention to be an
independent contractor.
Tools: Mr. Watson used drum sets provided by L.A. Music to
inspire customers and make sales. There is no evidence that he provided any of
his own tools. Given the significant number of demonstration drums that would
have been provided by L.A. Music, I conclude that the tools factor does not provide
objective support for Mr. Watson’s subjective intention to be an
independent contractor.
Chance of Profit: The evidence indicates that Mr. Watson
was more successful at earning bonuses than many of the other workers. While
the ability to earn a bonus in these circumstances does not indicate an
independent contractor relationship, when viewed through the prism of Mr.
Watson’s intention to be an independent contractor it is not objectively inconsistent
with that intention.
Risk of Loss: Mr. Watson claimed that he incurred expenses
attending drum trade shows and subscribing to drum industry magazines. While I
accept that doing these things would have helped him in his sales activities, I
suspect that he was once again embellishing his evidence. I suspect that these
are expenses that he would have incurred irrespective of his work with L.A.
Music. I therefore conclude that, like all of the other workers, Mr. Watson had
no risk of loss. Thus this factor does not support his subjective intention to
be an independent contractor.
(d)
Robert Simpson: As set out above, Mr. Simpson intended to
be an independent contractor. Although his case is not as strong as that of Mr.
Jacobs, the objective reality of his relationship with L.A. Music supports his
intention to be an independent contractor.
Control: Like all of the other workers, the flexibility Mr. Simpson
had in determining when he worked argues strongly in favour of independent
contractor status. There was no evidence which suggested that he was anything other
than a pure salesperson. As a pure salesperson, Mr. Simpson had limited
supervision over his activities. Overall, the control factor provides strong
objective support for Mr. Simpson’s subjective intention to be an independent
contractor.
Tools: Mr. Simpson used pro audio equipment provided by
L.A. Music to inspire customers and make sales. He generally did not bring any
of his own tools to L.A. Music. On one occasion he brought in some tools to fix
the dust cover on a set of speakers. He built a unit that would allow customers
to test headphones but he sold the unit to L.A. Music so this was not a tool
that he provided. The tools factor does not support his subjective intention to
be an independent contractor.
Chance of Profit: Although, Mr. Simpson never earned a
bonus, the bonus system did provide him with an opportunity to do so. Because
there was evidence that others, such as Michael Watson, earned bonuses
under the bonus system, I accept that Mr. Simpson’s opportunity to earn a bonus
was not merely wishful thinking. While the potential to earn bonuses in these
circumstances does not indicate an independent contractor relationship, when
viewed through the prism of Mr. Simpson’s intention to be an independent
contractor it is not objectively inconsistent with that intention.
Risk of Loss: Like all of the other workers, Mr. Simpson had no
risk of loss. Thus this factor does not support his subjective intention to be
an independent contractor.
(e)
Kevin Pooler: As set out above, I was unable to find
that Mr. Pooler intended to be an independent contractor. Therefore, the
determination of his status rests purely on the Wiebe Door factors. I
find that those factors indicate he was an employee.
Control: Like all of the other workers, the flexibility Mr.
Pooler had in determining when he worked argues strongly in favour of
independent contractor status. Mr. Pooler was a sales worker. In addition to
sales, his duties included receiving inventory and either putting it away or
putting it on display as well as putting prices on floor items and updating the
website with pricing information. As a sales worker, Mr. Pooler was supervised
in his activities although he was responsible for fewer of the more menial sales
worker activities than some of the other sales workers and was thus subject to
less supervision. Overall, the control factor suggests that Mr. Pooler was an
independent contractor.
Tools: Mr. Pooler used pro audio equipment provided by L.A.
Music to inspire customers and make sales. There is no evidence that he
supplied any of his own tools. Therefore the tool factor indicates that Mr.
Pooler was an employee.
Chance of Profit: The ability to earn a bonus in these
circumstances does not indicate an independent contractor relationship.
Risk of Loss: Like all of the other workers, Mr. Pooler had no
risk of loss. Therefore this factor indicates an employment relationship.
(f)
Mark Rudyj: As set out above, I was unable to find
that Mr. Rudyj intended to be an independent contractor. Therefore, the
determination of his status rests purely on the Wiebe Door factors. I
find that those factors indicate he was an employee.
Control: Like all of the other workers, the flexibility Mr.
Rudyj had in determining when he worked argues strongly in favour of
independent contractor status. Mr. Rudyj was a sales worker. In addition to
sales, his duties included stacking merchandise, occasionally scanning
inventory into the computer system, shipping products from one L.A. Music store
to the other, tidying up his department, taking out garbage and breaking down
boxes. He also testified that he helped clean out the basement area of the
store when L.A. Music was renovating the basement. I believe that in his
testimony Mr. Rudyj over emphasized the amount of time that he spent tidying
up, taking out garbage and breaking down boxes but I accept that these were
things that he was told to do from time to time. As Mr. Rudyj had to carry
out more menial duties than some of the other sales workers, I conclude that he
was also subject to more supervision than they were. Overall, the types of
duties that Mr. Rudyj was required to perform and the level of supervision
outweighs the flexibility that he had in the job. I find the control factor
favours a finding of employment status.
Tools: Mr. Rudyj used pro audio equipment provided by L.A.
Music to inspire customers and make sales. There is no evidence that he supplied
any of his own tools. Therefore the tool factor indicates that Mr. Rudyj was an
employee.
Chance of Profit: The ability to earn a bonus in these
circumstances does not indicate an independent contractor relationship.
Risk of Loss: Like all of the other workers, Mr. Rudyj had no risk
of loss. Therefore this factor indicates an employment relationship.
(g)
Victor Miolla: As set out above, I was unable to find
that Mr. Miolla intended to be an independent contractor. Therefore, the
determination of his status rests purely on the Wiebe Door factors. I
find that those factors indicate he was an employee. Also as discussed above,
due to the extent to which Maria lead Mr. Miolla in his testimony, I have
essentially disregarded most of his testimony.
Control: Like all of the other workers, the flexibility Mr. Miolla
had in determining when he worked argues strongly in favour of independent contractor
status. I do not accept Mr. Miolla’s description of his duties. I find him to
have been a sales worker and to have therefore been subject to supervision. In
addition, Mr. Miolla testified on cross-examination that Riley O’Connor was his
assistant and that he would direct Mr. O’Connor to perform tasks for him. This
testimony was confirmed by Mr. O’Connor. Overall, I find that the
supervision of Mr. Miolla and, in turn, his supervision of Mr. O’Connor,
was enough to overcome the flexibility of his work schedule and indicates that
he was an employee.
Tools: Mr. Miolla used drum sets provided by L.A. Music to
inspire customers and make sales. He gave no reliable evidence of his providing
any of his own tools. Therefore the tool factor indicates that Mr. Miolla was
an employee.
Chance of Profit: The ability to earn a bonus in these
circumstances does not indicate an independent contractor relationship.
Risk of Loss: Like all of the other workers, Mr. Miolla had no
risk of loss. Therefore this factor indicates an employment relationship.
(h)
Antonio Moreira: As set out above, I was unable to find
that Mr. Moreira intended to be an independent contractor. Therefore, the
determination of his status rests purely on the Wiebe Door factors. I
find that those factors indicate he was an employee.
Control: Like all of the other workers, the flexibility Mr. Moreira
had in determining when he worked argues strongly in favour of independent
contractor status. Mr. Moreira was a sales worker. In addition to sales, his duties
included maintaining the floor, stocking inventory in his department, updating
L.A. Music’s website with prices and product images, unloading new inventory
from trucks and then sorting it and distributing it to the department where it
belonged. In addition, Mr. Moreira was asked to do work that fell completely
outside of that expected of a normal sales worker. On one occasion he spent 2
days at L.A. Music’s old store tearing down drywall and soundproofing. On
another occasion he was told to go to a rental property owned by Mauro and help
a painter move some furniture. Finally, on his last day at work he was told to
go to Mauro’s rental property and clean dust out from under a stairwell. He did
not want to do any of these additional jobs but felt that he had no choice but
to do so. All of these additional duties indicate a very high level of
supervision. Overall, the types of duties that Mr. Moreira was required to
perform and the level of supervision outweighs the flexibility that he had in
the job. I find the control factor strongly favours a finding of employment
status.
Tools: Mr. Moreira used pro audio equipment provided by
L.A. Music to inspire customers and make sales. He did not provide any of his
own tools. He used his personal laptop once to create a MySpace account for
L.A. Music at Michael Piperni’s request. He was not paid for his time. Therefore
the tool factor indicates that Mr. Moreira was an employee.
Chance of Profit: Mr. Moreira testified that he was paid an
hourly rate rather than a daily rate. While his evidence contradicts that of
all of the other witnesses, I accept that he believed he was being paid by the
hour. I do not think that anything turns on this in any event. Mr. Moreira
testified he only earned a bonus twice as his sales were otherwise not high
enough. The ability to earn a bonus in these circumstances does not indicate
an independent contractor relationship.
Risk of Loss: Like all of the other workers, Mr. Moreira had no
risk of loss. Therefore this factor indicates an employment relationship.
(i)
Riley O’Connor: As set out above, I was unable to find
that Mr. O’Connor intended to be an independent contractor. Therefore, the
determination of his status rests purely on the Wiebe Door factors. I
find that those factors indicate he was an employee.
Control: Like all of the other workers, the flexibility Mr. O’Connor
had in determining when he worked argues strongly in favour of independent
contractor status. Mr. O’Connor was a sales worker. He also taught music
lessons at L.A. Music. When he was not teaching he was expected to be selling. In
addition to sales and teaching, his duties included stocking inventory in his
department, building sales displays, updating L.A. Music’s website with prices
and product images and unloading new inventory from trucks. These duties
indicate that Mr. O’Connor was subject to supervision. In addition, Victor
Miolla testified that Mr. O’Connor was his assistant and Mr. O’Connor confirmed
this. In terms of his teaching, Mr. O’Connor testified that a person he
described as the “lesson coordinator” would schedule his lessons for him. However,
he also testified that he had his own students outside of L.A. Music and freely
recruited new students from non-student customers at L.A. Music. Overall, the
types of duties that Mr. O’Connor was required to perform and his level of
supervision outweighs the flexibility that he had in the job and the fact that
he was competing with L.A. Music. I find the control factor favours a finding
of employee status.
Tools: Mr. O’Connor used drum sets provided by L.A. Music
to inspire customers and make sales. He did not use his own tools for his sales
work. Regarding his teaching, he stated that he sometimes provided his own
sheet music, that he brought in one of his old sets of cymbals for lessons and
that he was responsible for preparing his own lesson plans. The rest of the
drum set for the lessons was provided by L.A. Music. Overall, the tools factor
favours a finding of employee status.
Chance of Profit: The fact that Mr. O’Connor was a teacher
did not increase his chance of profit. His ability to earn a bonus does not
indicate an independent contractor relationship.
Risk of Loss: Like all of the other workers, Mr. O’Connor had no
risk of loss. Therefore this factor indicates an employment relationship.
(j)
Tim Guerin: Mr. Guerin did not testify. As set out
above, I do not have sufficient evidence to find that Mr. Guerin intended to be
an independent contractor. Therefore, the determination of his status rests
purely on the Wiebe Door factors. Mauro testified that Mr. Guerin
was exactly the same as Kevin Pooler. As I have found Mr. Pooler to be an
employee, I therefore find Mr. Guerin to be an employee.
(k)
Remaining Non-Family
Workers: The following
non-family workers did not testify. The limited evidence that Mauro and Maria
provided about these workers did not provide me with any basis upon which I
could distinguish them from one another:
·
Frank Bartoletti
·
Michael Dorosz
·
Archy Hachey
·
Lorne MacMillan
·
Matthew Sprague
·
Kyle Ray
·
Graham Wallace
As set out above, I do not have sufficient
evidence to find that these workers intended to be independent contractors. Therefore,
the determination of their status rests purely on the Wiebe Door
factors. I find that those factors indicate they were employees.
Control: Like all of the other workers, the flexibility that
these workers had in determining when they worked argues strongly in favour of
independent contractor status. As I do not have any evidence of the duties that
they performed, I am not able to determine whether they should be classified as
pure salespeople or sales workers and thus am unable to determine their likely
level of supervision. The Respondent made an assumption of fact that, in
addition to selling, all salespeople performed some or all of the following:
cleaning and organizing the store, updating L.A. Music’s website, unloading
inventory from delivery trucks, answering phones and building displays. In the
case of these remaining workers, I find that this assumption has not been
demolished. Based on the assumption, I will therefore categorize these workers
as sales workers and find that they had a higher level of supervision. Overall,
the types of duties that these workers were required to perform and their level
of supervision outweighs the flexibility that they had in the job. I therefore
find the control factor indicates that they were employees.
Tools: There is no reliable evidence to suggest that these
workers provided any of their own tools other than Michael Dorosz who used
his own guitar while teaching guitar lessons. Given that when selling, these
workers were using L.A. Music’s instruments and equipment for demonstration
purposes, I am left to conclude that the tools factor indicates that they were
employees.
Chance of Profit: The ability to earn a bonus in these
circumstances does not indicate an independent contractor relationship.
Risk of Loss: I have no evidence that these workers had any risk
of loss. Therefore this factor indicates an employment relationship.
Family Workers
[72]
The family workers are
the four Piperni children (Michael, Rob, Jacqueline and Valerie) and the Hilmarson
sisters (Ashley and Candice). During the years in question, Ashley was living
with and later engaged to Michael. Thus, for the purposes of my analysis I have
considered Ashley and Candice to be part of the extended Piperni family.
[73]
None of the family
workers testified. Maria testified that all of them resided locally so they
would presumably have been available to testify. While I have not drawn an
adverse inference from their failure to testify, this does not change the fact
that L.A. Music’s case has been hurt by the absence of the evidence that they
could have offered.
[74]
I will now apply the Connor
Homes test to each of the family workers.
(a)
Michael Piperni and
Rob Piperni: Although I
have limited evidence on the point, I am prepared to accept that Michael and
Rob always intended to be independent contractors. However, the objective
reality of their relationship with L.A. Music does not support that intention.
Control: There was conflicting
evidence regarding Michael Piperni’s and Rob Piperni’s roles at L.A.
Music.
(i)
Mr. Watson testified
that there was no supervisor or manager in the drum department. He stated that
he would refer significant issues to Maria or Mauro. He denied that Michael or
Rob were supervisors. He said that they were working along side him. He stated
that Maria and Mauro would leave the store in Michael’s and Rob’s hands if they
were away on vacation.
(ii)
Kevin Pooler described
Michael and Rob as “floor managers” although they were never formally
introduced to him as such. He stated that Rob was on his floor almost every
day. He testified that when he wanted to reduce his work schedule on a
permanent basis he spoke to Michael. He also testified that he would advise
Michael and Rob when he knew he would be absent from work.
(iii)
Mark Rudyj testified
that he viewed Michael and Rob as supervisors. As his evidence is consistent
with Kevin Pooler’s evidence on this point, I accept it. He also testified that
Michael introduced himself to him as a manager. As other witnesses have all
said that Michael did not do this, I do not accept Mr. Rudyj’s evidence on this
point.
(iv)
Mark Rudyj, Robert
Simpson and Riley O’Connor all testified that they were hired by Michael.
(v)
Paul Jacobs testified
that Michael and Rob were in charge of the store if Mauro and Maria were away.
(vi)
Antonio Moreira
testified that he considered Michael and Rob to be managers although they were
never introduced to him that way. He testified that he was hired by Rob, that
it was Michael or Rob who would tell him to unload the inventory truck, that he
would advise Michael or Rob if he was going to be absent from work and that it
was Michael who told him to do the physical labour at the old store and at
Mauro’s rental property. He stated that he would speak to Rob if a customer
wanted to negotiate a price.
(vii)
Robert Simpson
testified Rob was his supervisor and that he would talk to Rob if a customer
wanted a discount.
(viii)
Riley O’Connor
testified that both Michael and Rob were managers although they were never
formally introduced to him as such. He testified that he negotiated his hours
and rate of pay with Michael. He also testified that Rob was the manager of the
third floor and that he had to go to Rob if a customer wanted to negotiate a
price.
(ix)
Mauro testified that
Michael and Rob did not have the power to hire and fire workers but rather had
to run those decisions through him or Maria. While I accept that this may have
been the case, the fact remains that they presented themselves as having this
power and that they clearly played an important role in the hiring process as a
number of workers testified that they were hired without ever having spoken to
Mauro or Maria.
(x)
Maria testified that
Michael and Rob were not supervisors. She stated that Michael worked along side
the other salespeople and that those salespeople sometimes asked him questions
because of his broad base of knowledge. When asked what department Michael
worked in, Maria was evasive. I believe this is because Michael actually
covered all departments. This belief is supported by the testimony of the other
workers who described Michael and Rob as working on a particular floor, not in
a particular department.
These conflicting views of Michael’s and
Rob’s roles could potentially have been reconciled if either of them had
testified. Since Michael and Rob did not testify I am left to choose among the
various views. Mauro’s and Maria’s explanations are simply not logical. They
would have me believe that the sons of the owners of the business have a job
where they move throughout various departments on a given floor giving advice
and being asked about discounted pricing but that they are not acting in a
supervisory capacity over those departments. This is simply not believable. I
therefore prefer the testimony of the workers over that of Mauro and Maria. The
only worker who testified that Michael and Rob were not supervisors or managers
was Mr. Watson. As explained above, I felt that Mr. Watson slanted his
testimony in favour of the Respondent whenever possible. In light of the
overwhelming evidence from the other workers (three of whom were L.A. Music’s
own witnesses), I therefore find that Michael and Rob were supervisors. As
supervisors, they were supervising Mr. Jacobs, Mr. Watson and Mr. Simpson.
This means that there was a situation where two people (Michael and Rob) who
were supposedly independent contractors were supervising other people (Mr.
Jacobs, Mr. Watson and Mr. Simpson) who I have already concluded were
independent contractors without there being any contractual relationship
between Michael and Rob on the one hand and Mr. Jacobs, Mr. Watson and Mr.
Simpson on the other. The Federal Court of Appeal made it clear in Pluri Vox
Media Corp. v. The Queen, 2012 FCA 295, 2013 DTC 5012, that in a
situation where a worker is supervising an independent contractor and there is
no contractual relationship between the two workers, the better view is that
the worker who is acting as supervisor is, in fact, an employee. There is virtually
no evidence of what Michael and Rob did other than making sales and supervising,
no evidence of whether they enjoyed the same flexibility as the other workers
and no evidence of their general working conditions other than the fact that
they were supervised by Maria and Mauro. Therefore, since the only evidence
available indicates that they were employees, I have no choice but to find that
the control factor does not provide objective support for their subjective
intentions to be independent contractors.
Tools: There is no credible evidence that Michael or Rob
supplied any tools that were relevant to their sales or supervisory duties. Maria
testified that Michael brought in some of his own lighting and commercial pro
audio equipment to show customers. This was equipment that Michael had from
work that he did outside of L.A. Music. Given Maria’s propensity to exaggerate,
I am not confident that Michael brought the equipment to the store in order to sell
similar equipment as opposed to just bringing it in to show it off or for some
other reason. Overall, this factor does not provide objective support for Michael’s
and Rob’s subjective intentions to be independent contractors.
Chance of Profit: It appears that Michael and Rob both
participated in the bonus system although there is no evidence of how often
they earned bonuses and it is unclear whether they were primarily supervisors
or primarily salespeople. While the ability to earn a bonus in these circumstances
does not indicate an independent contractor relationship, when viewed through
the prism of Michael’s and Rob’s intentions to be independent contractors, it
is not objectively inconsistent with those intentions.
Risk of Loss: There is no evidence that Michael or Rob had any
expenses or faced any risk of loss. Thus this factor does not support their
subjective intentions to be independent contractors.
(b)
Valerie Piperni: There is insufficient evidence to allow
me to conclude that Valerie intended to be an independent contractor.
Therefore, the determination of her status rests purely on the Wiebe Door
factors. Those factors indicate she was an employee.
Control: In the years in question, Valerie was in college or
had just had a baby. She had no pre-assigned duties. Generally she would work
as a cashier or on product displays. She did not work in sales or teach. I find
that the duties that Valerie did are consistent with those of an employee not
an independent contractor. Valerie had no set schedule and simply worked when
she wanted to. However, it was clear that Valerie’s flexibility in working
whenever she wanted to and on whatever duties she wanted to arose from the fact
that she was Mauro’s and Maria’s daughter, not from any contractual relationship.
Therefore I have not given this flexibility any weight. Her work was clearly
supervised by her parents. Overall, the control factor indicates Valerie was an
employee.
Tools: There was some suggestion that one of Valerie,
Candice or Ashley may have used her personal laptop to help design some price
tags. The cash register that Valerie used was supplied by L.A. Music. At best
this factor is neutral.
Chance of Profit: Valerie did not have any potential to
earn bonuses. She was simply paid for when she worked. This favours a finding
that she was an employee.
Risk of Loss: Valerie had no risk of loss. Therefore this factor
indicates an employment relationship.
(c)
Jacqueline Piperni: There is insufficient evidence to allow
me to conclude that Jacqueline intended to be an independent contractor.
Therefore, the determination of her status rests purely on the Wiebe Door
factors. Those factors indicate she was an employee.
Control: Like Valerie, Jacqueline worked when she wanted to
and had no pre-assigned duties. She would generally work as a cashier or answer
the phone. She was also a lesson coordinator. She did not work in sales or
teach lessons. I find that the duties that Jacqueline did are consistent with
those of an employee not an independent contractor.
Tools: Maria testified that Jacqueline brought her laptop
to work but it is unclear to what use the laptop could have been put since L.A.
Music supplied the computers that were used by cashiers. This factor indicates
an employment relationship.
Chance of Profit: Jacqueline was paid a flat daily rate
without bonuses. There is no evidence which would indicate that she had any
ability to profit. This indicates she was an employee.
Risk of Loss: Jacqueline had no risk of loss. This indicates she
was an employee.
(d)
Ashley Hilmarson: There is insufficient evidence to allow
me to conclude that Ashley intended to be an independent contractor. Therefore,
the determination of her status rests purely on the Wiebe Door factors.
Those factors indicate she was an employee.
Control: Ashley worked when she wanted to. I find that this
was because she was a member of the Piperni family so I do not give it any
weight. She would generally work as a cashier, answer the phone and work on
product displays. She was also the lesson coordinator. She did not work in
sales or teach lessons. I find that the duties that Ashley did are consistent
with those of an employee not an independent contractor.
Tools: There was some suggestion that one of Valerie, Candice
or Ashley may have used her personal laptop to help design some price tags. The
computer that Ashley used as a cashier was supplied by L.A. Music. At best this
factor is neutral.
Chance of Profit: Ashley was paid a flat daily rate without
bonuses. There is no evidence which would indicate that she had any ability to
profit. This indicates she was an employee.
Risk of Loss: Ashley had no risk of loss. This indicates she was
an employee.
(e)
Candice Hilmarson: There is insufficient evidence to allow
me to conclude that Candice intended to be an independent contractor.
Therefore, the determination of her status rests purely on the Wiebe Door
factors. Those factors indicate she was an employee.
Control: Candice worked when she wanted to. I find that this flexibility
was because she was a member of the Piperni family so I do not give it any
weight. There is conflicting evidence as to Candice’s duties. She did not work
in sales or teach lessons. In his direct testimony Mauro stated that Candice
set up window displays for L.A. Music. On cross-examination he admitted that
she also worked as a cashier. In her direct testimony Maria made it appear as
if Candice had window display design expertise and had offered to do L.A.
Music’s display windows in exchange for a daily rate of pay plus materials. On
cross-examination Maria admitted that Candice also worked as a cashier on rare
occasions. By contrast, Antonio Moreira described Candice as the 3rd
floor cashier who occasionally reorganized product displays and on one occasion
had set up a Christmas display in the store’s window. Since Candice herself did
not testify I am left to choose between Mauro’s and Maria’s version and Mr. Moreira’s
version. I accept that Mr. Moreira may not have been aware of other display
work that Candice did but I also think that Mauro and Maria were exaggerating
Candice’s display work in order to make her appear to be an outside contractor.
I find that Candice was a cashier who also did display work in various areas of
the store and that she was paid the same daily rate for both types of work.
These duties and this method of payment are consistent with those of an
employee not an independent contractor.
Tools: There was some suggestion that one of Valerie, Candice
or Ashley may have used her personal laptop to help design some price tags. The
computer that Candice used as a cashier was supplied by L.A. Music. At best
this factor is neutral.
Chance of Profit: Candice was paid a flat daily rate
without bonuses. There is no evidence which would indicate that she had any ability
to profit. This indicates she was an employee.
Risk of Loss: Candice was reimbursed for any design expenses that
she incurred. She had no risk of loss. This indicates she was an employee.
Insurable Employment:
[75]
Paragraph 5(2)(i)
of the Act excludes employment from the definition of “insurable
employment” if the employer and employee are not dealing with each other at
arm’s length. Related people are deemed not to be dealing at arm’s length.
However, under paragraph 5(3)(b) if it is reasonable to conclude that
the employer and employee would have entered into substantially similar
contracts if they had been dealing at arm’s length then the parties are deemed
to deal with each other at arm’s length. As a result, the employment is
considered insurable employment and EI applies.
[76]
The Minister did not
assess L.A. Music for EI in respect of Valerie and Jacqueline as the Minister
concluded that they were engaged in excluded employment. Since Valerie and
Jacqueline are related to Mauro and Maria, the Minister must have come to the
conclusion that Valerie and Jacqueline would not have entered into
substantially similar contracts with L.A. Music if they had been dealing with
L.A. Music at arm’s length.
[77]
I find that the
contracts under which Ashley and Candice were employed were essentially
identical to those under which Valerie and Jacqueline were employed. The
Minister has already concluded that those contracts were non-arm’s length
contracts. I accept this conclusion and therefore find that Ashley and Candice were
not engaged in insurable employment as they were not dealing with L.A. Music at
arm’s length.
SUMMARY
[78]
In summary, I find that
the only workers, both family and non-family, who were independent contractors
were Paul Jacobs, Michael Watson and Robert Simpson. However, I also find
that the employment of Ashley Hilmarson and Candice Hilmarson was not insurable
employment.
[79]
The Appeal is therefore
allowed and the matter is referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that:
(a)
Ashley Hilmarson was
not engaged in insurable employment in 2008 and 2009;
(b)
Candice Hilmarson was
not engaged in insurable employment in 2009;
(c)
Paul Jacobs was not
engaged in insurable employment or pensionable employment in 2008 and 2009;
(d)
Michael Watson was not
engaged in insurable employment or pensionable employment in 2008 and 2009; and
(e)
Robert Simpson was not
engaged in insurable employment or pensionable employment in 2008.
Signed at Ottawa,
Canada, this 6th day of May 2013.
“David E. Graham”
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