Date: 19990315
Dockets: 97-897-UI; 97-101-CPP
BETWEEN:
ERIN MILLS COIFFURES LTD.
O/A NINO D'ARENA HAIR DESIGN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for judgment
PORTER, D.J.T.C.C.
[1] These appeals were heard at Toronto, Ontario on November 3, 1998. They were heard on common evidence with the consent of the parties.
[2] The Appellant appeals the decision of the Minister of National Revenue (the "Minister") made on March 26, 1997 that confirmed assessments made against it on February 1, 1996 in the amount of $1,163.02 for Canada Pension Plan contributions and $1,812.34 for unemployment insurance premiums for 1994 and $671.58 for Canada Pension Plan contributions and $974.26 for unemployment insurance premiums for 1995 plus applicable interest and penalties. The reason given was:
"... This is because the worker involved in the assessments (Vicky Nguyen) was employed under a contract of service and therefore was an employee of Erin Mills Coiffures Ltd. o/a Nino D'Arena Hair Design."
The decision was said to be issued pursuant to subsections 27(2) of the Canada Pension Plan (the "Plan") and 61(2) of the Unemployment Insurance Act (the "Act") and was based on paragraphs 6(1)(a) of the Plan and 3(1)(a) of the Act respectively.
[3] The established facts reveal that the Worker worked as a nail technician for the Appellant in one of its beauty salons over the years in question. The issue before the Court is whether in doing so, the Worker was employed under a contract of service or a contract for services. If she was engaged to work under a contract of service, such would constitute insurable employment under the Plan and the Act respectively, so that both contributions and premiums would be due. If on the other hand she was engaged by way of a contract for services, that would not be insurable employment and the Appellant would not be required to pay contributions and premiums.
The Law
[4] The manner in which the Court should go about deciding whether any particular working arrangement is a contract of service and thus an employer/employee relationship or a contract for services and thus an independent contractor relationship, has been clearly laid out by the Federal Court of Appeal in Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025. The test to be applied has been further explained by that Court in Moose Jaw Kinsmen Flying Fins Inc. v. M.N.R., 88 DTC 6099. There are, following these cases, numerous decisions of this Court, some of which have been cited by counsel, which demonstrate how these appellate guidelines have been applied. In the Moose Jaw Kinsmen Flying Fins Inc. case, above, the Federal Court of Appeal said this:
"[Analysis]
The definitive authority on this issue in the context of the Act, is the decision of this Court in Wiebe Door Services Ltd. v. The Minister of National Revenue, 87 DTC 5025. MacGuigan J. speaking on behalf of the Court, analyzed Canadian, English and American authorities, and, in particular, referred to the four tests for making such a determination enunciated by Lord Wright in City of Montreal v. Montreal Locomotive Works Ltd., [1974] 1 D.L.R. 161 at 169-70. He concluded at page 5028 that:
Taken thus in context, Lord Wright's fourfold test [control, ownership of tools, chance of profit, risk of loss] is a general, indeed an overarching test, which involves "examining the whole of the various elements which constitute the relationship between the parties". In his own use of the test to determine the character of the relationship in the Montreal Locomotive Works case itself, Lord Wright combines and integrates the four tests in order to seek out the meaning of the whole transaction.
At page 5029 he said:
...I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations," even while the usefulness of the four subordinate criteria is acknowledged.
At page 5030 he had this to say:
What must always remain of the essence is the search for the total relationship of the parties.
He also observed "there is no escape for the trial judge, when confronted with such a problem, from carefully weighing all the facts."
...like MacGuigan J. we view the tests as being useful subordinates in weighing all of the facts relating to the operations of the Applicant. That is now the preferable and proper approach for the very good reason that in a given case, and this may well be one of them, one or more of the tests can have little or no applicability. To formulate a decision then, the overall evidence must be considered taking into account those of the tests which may be applicable and giving to all the evidence the weight which the circumstances may dictate."
[5] The nature of the tests referred to by the Court can be summarized as follows:
a) The degree or absence of control exercised by the alleged employer;
b) Ownership of tools;
c) Chance of profit and risk of loss;
d) Integration of the alleged employee's work into the alleged employer's business.
[6] I also take note of the further words of MacGuigan J., in the Wiebe case, above, where he approved the approach taken in the English courts:
"Perhaps the best synthesis found in the authorities is that of Cooke J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All E.R. 732, 738-9:
The observations of Lord Wright, of Denning L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?" If the answer to that question is "yes", then the contract is a contract for services. If the answer is "no" then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk be taken, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him."
[7] To this I would add the words of Décary, J.A. in Charbonneau v. Canada (M.N.R.) [1996] F.C.J. No. 1337, where speaking for the Federal Court of Appeal he said this:
"The tests laid down by this Court ... are not the ingredients of a magic formula. They are guidelines which it will generally be useful to consider, but not to the point of jeopardizing the ultimate objective of the exercise, which is to determine the overall relationship between the parties. The issue is always, once it has been determined that there is a genuine contract, whether there is a relationship of subordination between the parties such that there is a contract of employment ... or, whether there is ..., such a degree of autonomy that there is a contract of enterprise or for services. ... In other words, we must not pay so much attention to the trees that we lose sight of the forest. ... The parts must give way to the whole."
[8] These then are the legal guidelines that I must bear in mind in deciding this issue.
The Facts
[9] The assumptions of fact upon which the Minister relied are set out in the respective Replies to the Notices of Appeal. They are the same in each case and are as follows:
"(a) the Appellant's business consists of 22 beauty salon which have their own manager;
(b) the Appellant's shareholders are as followed:
Conforti Holdings Ltd. 50%
Monzer Alsmaman 50%
(c) the worker was hired as nail technician;
(d) according to the Appellant's payroll records for the years 1994 and 1995, the worker's employment status was as follows:
January 1, 1994 to March 19, 1994
employee (Period 1)
March 20, 1994 to April 29, 1995
Self-employed (Period 2)
April 30, 1995 to November 4, 1995
Employee (Period 3)
(e) the reason for lay off was maternity leave;
(f) the worker's rate of pay was established at 70% of the gross income generated by herself;
(g) the worker's hours of work were determined by the clients appointments but had to be within the hours of the beauty salon;
(h) the required equipment such as brush, nail polish, nail dryer were provided by the worker but the expenses were reimbursed by the Appellant when she was considered an employee;
(i) the worker had to perform her services personally;
(j) the Appellant maintains the right to terminate the worker's services;
(k) the worker's services were integrated to the Appellant's business;
(l) the worker's conditions of employment during the three periods referred to in paragraph (e) were the same except that during periods 1 and 3 the Payor reimbursed the worker for the cost of supplies while in period 2 the worker paid for the supplies;
(m) the worker was employed by the Appellant pursuant to a contract of service;
(n) the Appellant did not withhold unemployment insurance premiums (Canada Pension Plan contributions) from the worker's remuneration."
[10] The Appellant, through its agent, admitted items (a) to (f), (although this only started at the time of the second period), (g) and (h) (except that the evidence revealed there was no reimbursement during the second period), (j), (l) and (n). The Appellant denied items (i), (k) and (m).
[11] The evidence revealed that during period #1 the Worker had been engaged as an employee and paid a wage of $8.00 per hour. Then in March 1994 she indicated that she wanted to work on a self-employed basis and the remuneration arrangements were changed at that time, so that she received 70% of the gross income generated by her work and the Appellant received 30%. During this second period she provided and used her own tools and equipment with the exception of the table which was a fixture in the establishment. She also purchased all her own supplies at her own expense. Then, when she found she was not making enough money and wanted to go back to a normal employee basis again, she continued to receive 70% of her generated income but did not have to supply, out of this amount, her tools and equipment or her supplies, these were then supplied to her by the Appellant throughout this third period.
[12] It is clear that whilst she had an expertise in her work and was not supervised on a day-to-day basis, she was nonetheless under the general supervision of the Appellant. She was required to work only during the hours that the salon was open, which in turn was controlled by the shopping mall in which the salon was situated. Her hours were basically set for her. She was subject to termination at any time by the Appellant. She could have somebody stand in for her but that was the case in all three periods and not unique to period #2. She was also required to do all her work in the salon.
[13] It is clear that during periods #1and #3 the Worker used the tools belonging to the Appellant and during period #2 she used her own tools. This was a significant difference.
[14] Apart from the cost of her tools during the second period the Worker had no risk of loss and no chance of additional profit. She could simply make more money by working more. However she did not participate in paying for the general overhead of the premises. She had no minimum payments to make. If she had no clientele she had no expenses. In such case she simply did not make any money. However she did not lose any, either. The entrepreneurial aspect was completely lacking in this arrangement.
[15] Finally when one comes to consider the integration aspect of the business and ask the question whose business was it, it is perfectly clear to me that this was the business of the Appellant throughout. The clientele was that of the Appellant and the services provided by the Worker were part of an overall service offered by the Appellant. Appointments were made through their receptionist, services were paid for at rates set by the Appellant, payments were made to the Appellant who handled all the accounting and bookkeeping. The Worker did not submit invoices for her work to the Appellant nor did she charge any GST. She did not carry on any services except at the premises of the Appellant.
[16] In the final analysis it seems perfectly clear to me that this Worker was carrying out duties which were an integral part of the business of the Appellant. At different times she carried them out in accordance with different financial arrangements but I do not see that her status as an employee changed. Even if that was what the parties thought they wanted to do, I do not see that they in fact achieved their objective. Much as a commission salesman might work for different remuneration arrangements from an hourly employee, in fact he may remain as an employee quite simply working by the piece on a percentage basis even though he may provide some of his own equipment. I do not see the situation at hand any differently.
Conclusion
[17] In conclusion I am of the view that the arrangement between the Appellant and the Worker throughout the three periods of time remained a contract of service. The financial terms of that arrangement changed in each of the three periods but in essence the nature of the arrangement did not. Quite frankly the Appellant has not established that the Worker enjoyed the necessary measure of independence in order to term the arrangement one of a contract for services.
[18] In the result both appeals are dismissed, the decision of the Minister and the assessments are confirmed.
Signed at Calgary, Alberta, this 15th day of March 1999.
"Michael H. Porter"
D.J.T.C.C.