Grzymski v. M.N.R.

Grzymski v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-03-16 Neutral citation 2005 TCC 189 File numbers 2002-1946(EI) Judges and Taxing Officers Alexander A. Sarchuk Subjects Canada Pension Plan Employment Insurance Act Decision Content Docket: 2002-1946(EI) 2002-1947(CPP) BETWEEN: TED GRZYMSKI, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeals heard on common evidence with the appeals of Crystal Beach Optical Inc. (2002-2043(EI) and 2002-2044(CPP)) on April 14, 2004, at Toronto, Ontario By: The Honourable Justice A.A. Sarchuk Appearances: Agent for the Appellant: Richard Torok Counsel for the Respondent: John Grant ____________________________________________________________________ JUDGMENT The appeals pursuant to subsection 103(1) of the Employment Insurance Act and section 28 of the Canada Pension Plan are allowed and the decision of the Minister of National Revenue on the appeal made to him under section 91 of the Act and the determination of the Minister on the application made to him under section 27.1 of the Plan are vacated on the basis that the Appellant was not employed in insurable employment by Crystal Beach Optical Inc. for the period January 1, 2000 to February 28, 2001 within the meaning of paragraphs 5(1)(a) of the Act and 6(1)(a) of the Plan. Signed at Ottawa, Canada, this 16th day of March, 2005 "A.A. Sarchuk" Sarchuk J. Docket: 2002-2043(EI) 2002-2044(CPP) BETWEEN: CRYSTAL BEACH OPTICAL INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeals heard on common evidence with the appeals of Ted Grzymski (2002-1946(EI) and 2002-1947(CPP)) on April 14, 2004, at Toronto, Ontario By: The Honourable Justice A.A. Sarchuk Appearances: Counsel for the Appellant: Susan L. Crawford Counsel for the Respondent: John Grant ____________________________________________________________________ JUDGMENT The appeals pursuant to subsection 103(1) of the Employment Insurance Act and section 28 of the Canada Pension Plan are allowed and the decision of the Minister of National Revenue on the appeal made to him under section 92 of the Act and the determination of the Minister on the application made to him under section 27.1 of the Plan are varied on the basis that the Ted Grzymski was not employed in insurable employment by the Appellant for the period January 1, 2000 to February 28, 2001 within the meaning of paragraphs 5(1)(a) of the Act and 6(1)(a) of the Plan. Signed at Ottawa, Canada, this 16th day of March, 2005 "A.A. Sarchuk" Sarchuk J. Citation: 2005TCC189 Date: 20050316 Docket: 2002-1946(EI), 2002-1947(CPP) 2002-2043(EI), 2002-2044(CPP) BETWEEN: TED GRZYMSKI and CRYSTAL BEACH OPTICAL INC., Appellants, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT Sarchuk J. [1] By notice of assessment dated August 16, 2001, Crystal Beach Optical Inc. (Crystal Beach) was assessed by the Minister of National Revenue under the Employment Insurance Act and the Canada Pension Plan for failure to remit employment insurance premiums in respect of Ted Grzymski and Elisabeth Orfei in the amounts of $1,550.72 and $210.03 and for related interest for the period January 1, 2000 to February 28, 2001, as well as for CPP contributions of $1,786.08 and $273,38 and related interest for the same period. Both Crystal Beach and Grzymski filed Notices of Appeal with respect to this assessment. Orfei neither appealed nor did she seek to be an intervenor. The sole issue before the Court is whether Grzymski and Orfei were employees of Crystal Beach or independent contractors. Background [2] George Malina (Malina) is the president and 50% owner of Crystal Beach, a boutique-style optical retail store. His wife Yanna owns the remaining 50%. Since the spring of 1997, Crystal Beach has carried on business as a dispenser of optical supplies, more specifically eye glasses, lenses including contact lenses, and associated products in The Beaches area of Toronto. Malina testified that it catered to a customer-base willing to pay a higher price for specialized services and quality of product. The competition is severe, the margin of profits thin and in order to compete, Crystal Beach retained professionals to work on the premises to provide the best possible service. During the period under appeal, the professionals included an ophthalmologist who attended once a week, an optometrist who provided services twice a week and two opticians, Grzymski and Orfei. Crystal Beach and the professionals entered into monthly verbal agreements, the renewal of which was subject to his right to sever the relationship with anyone of them. Malina also indicated that as long as the services were to the customer's satisfaction, the agreement was for an indefinite period. In addition to these individuals, the Crystal Beach staff included himself and his wife. Malina testified that upon obtaining prescriptions written by ophthalmologists or optometrists, customers attend at Crystal Beach to have the opticians fit eye glasses and contact lenses. He noted that certain activities, such as adjustments of eye glasses can only be performed by a licensed optician and he and his wife were not qualified by law to provide the necessary services and, more particularly were not allowed to dispense and sell lenses without the presence of at least an optician. [3] Crystal Beach advertised for opticians in a local newspaper and on the Ontario Opticians Association's website. Malina intentionally sought opticians who were self-employed because, in his view, they provided better services and were more responsible. He interviewed several opticians including Grzymski and ultimately accepted his terms. He specifically sought Grzymski's services because he was well-known and had a reputation of being one of the best contact lens fitters in Toronto. Grzymski committed himself to Crystal Beach for three days a week, Tuesday, Thursday and Saturday. With respect to remuneration, Malina noted that not all opticians are paid equally, was aware of the rates opticians with Grzymski's experience and skill would expect to be paid and agreed to his stated fee of $24.00 per hour. At all times during the period in issue, Grzymski submitted invoices with his business name, the time involved and the type of services rendered, charged GST on the invoices and was paid by Crystal Beach by way of cheque. Crystal Beach did not deduct Worker's Compensation premiums, employment insurance premiums, or Canada Pension Plan contributions from his cheque nor was he paid for personal days or sick days. Furthermore, there was an understanding that if it was necessary for Grzymski to take time off, he would have to find a replacement with the same skill level. Other than that, Malina said he had no "influence" over who the substitute optician would be. [4] With respect to the services provided by Grzymski, Malina made specific reference to the following: (a) he did not supervise or give direction to Grzymski on the manner in which his duties were to be performed nor did Grzymski have to report to him; as well, there were no company policies that he was required to follow; (b) Grzymski was free to work elsewhere during the period of time he was with Crystal Beach and did in fact provide services to two other optical stores; (c) Grzymski used his own specialty tools for the bulk of the work he performed. He personally purchased all necessary supplies such as the soldering gun, butane and pupilometer. Furthermore, he did not carry out all of his duties at the store since certain repairs could not be done there as a result of which he performed them at his own premises where he had special equipment. Crystal Beach did not reimburse him for any of these expenses; (d) Malina testified that Grzymski had his own clients to whom he provided services and billed them directly. Although these services only occurred occasionally and were usually made during the regular working day, he was nonetheless paid the full hourly rate by Crystal Beach; (e) Grzymski had separate business cards which were displayed at the Crystal Beach premises and these cards did not make reference to Crystal Beach; and (f) Crystal Beach never paid for his membership or licensing fees. He was required to keep the license current with the College and to keep professional indemnity insurance in respect of which he paid the premium. [5] The Appellant Grzymski is a licensed optician. He is trained to grind, fit and dispense corrective lenses prescribed by an ophthalmologist or optometrist. During the period under appeal, Grzymski provided his services to three optical stores, Crystal Beach, Josephson's Opticians and Humberview Optical. His responsibilities included the examination of written prescriptions to determine the specifications of the lenses, the recommendation of eye glass frames and lenses after considering the customer's needs and making all adjustments as necessary. He testified that although he allotted specific hours and days to Crystal Beach, there was a degree of flexibility in that arrangement which permitted him to change his schedule, which occurred on several occasions. Although Crystal Beach had a few of the necessary basic tools, he preferred to use his own. Furthermore, Crystal Beach did not have certain equipment and if one of its clients required special work to be done, he would take the work off-premises. He said this occurred approximately 20% of the time. He noted that his "carry-on tools" cost between $1,500 to $1,800 and he had additional equipment at home valued at approximately $7,000 which he used for specialty work when necessary. He was personally responsible for expenses such as parking, tools and material and costs incurred with regard to customized items which he did quite frequently for his own customers and those of Crystal Beach. The reason his invoices did not reflect these additional expenses was because they formed part of the services he offered and were factored into the hourly rate he had quoted. He said that if he made a mistake in the course of providing his services to Crystal Beach, he was responsible for the consequences and any additional cost that might be incurred. He carried his own insurance with respect to malpractice, paid his own licensing fees, and was not paid benefits nor did his contract call for sick days or holidays. Appellants' submissions [6] By agreement, counsel for Crystal Beach made the submissions and provided the authorities for the Appellants. The position of both is that Grzymski was an independent contractor because among other things, the work he was involved in required a specialized license. There was absolutely no direction as to how the work was to be done nor was there any supervision by Crystal Beach. Furthermore, the latter provided virtually none of the equipment required, did not reimburse Grzymski for expenses incurred by him, played no role in determining whether the work was completed properly, and would have accepted a qualified substitute selected by Grzymski to carry out his function at his expense. Both Crystal Beach and Grzymski considered him to be in business for himself. In the contractual arrangement, it was Grzymski who determined the hourly rate, determined which days it would be suitable for him to work and those days were specifically requested because he had other customers that he was servicing at the time. Counsel observed that it is usual for the employer to determine what its needs are and the employee accommodates those needs. However, the manner in which this arrangement was made is more akin to a business relationship as opposed to an employer/employee relationship. The fact that Grzymski was able to and did provide his services to competitors and Crystal Beach had no say in this context was of particular import. Furthermore, Grzymski was not provided with any of the benefits that employees normally have which again suggests that he was in business on his own as opposed to being an employee. As well, Grzymski absorbed the costs of materials, tools, equipment, in addition to the licensing fees, professional memberships, accounting fees, insurance premiums, all expenses necessarily incurred in order to permit him to perform the services. Counsel observed that in an employment context, many of these expenses would normally be borne by the employer. Respondent's submissions [7] Counsel for the Respondent contends that the assessment was correct in that the opticians were engaged in insurable employment within the meaning of paragraph 3(1)(a) of the Act and that they were engaged in pensionable employment within the meaning of subsection 6(1) of the Canada Pension Plan. Specific reference was made by counsel to the four-in-one test set out in the decision of Wiebe Door Services Ltd. v. M.N.R.[1] and adopted in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.[2] which, he said, applied to the facts before the Court and supports the Minister's conclusions and assessments. [8] With respect to control, counsel argued that Grzymski's testimony regarding a replacement was flawed and his evidence not credible. Specifically, it was alleged that (a) Grzymski conceded that he could have been disciplined by the owners; (b) there is no evidence supporting his assertion that he determined the rate of pay; and (c) the schedule was not set by him since, according to counsel, the evidence was that the only days available were Tuesday, Thursday and Saturday, i.e. the days on which he actually worked. With respect to ownership of tools, counsel proposed that it was clear in the industry that an independent contractor would be expected to use his own pupilometer. Furthermore, he argued that "the more significant tool is the provision of the premises themselves at which the business was conducted". As for Grzymski's chance of profit or risk of loss, counsel submitted that Malina's testimony established that the hourly rate paid for his services was based on a market standard. There was no risk of loss to him since the only way he could have increased his profit was to have arranged to work extra hours if they were available. With respect to Grzymski's assertion that he still attended to his own clients during the normal workday at Crystal Beach, counsel argued that his inability to recall that such instances had occurred during the relevant period of time suggest that it never occurred. [9] Counsel for the Respondent further submitted that the payor, i.e. Crystal Beach, was not Grzymski's client. In counsel's words: "the client here - the argument of the Appellant would be that the client here is really the payor, that's the client. But I would suggest that when you take a step back and view the whole entity, I think the clients here, and given what I am going to go into in terms of the facts, the clients here would be the people who came in. And really we have an employer/employee relationship and the clients we should be looking at are the people who walk through the door. And with that having been said, the payor set the price to be charged. ... The payor provided the customers. ... The payor billed the clients directly, billed the customers directly. No independent billing of those customers. ... " I gather from this comment that counsel was of the view that Crystal Beach should not be considered to be a Grzymski "client" and that the only clients were the Crystal Beach customers to whom Grzymski provided his services as an employee of Crystal Beach. Conclusion [10] The question of whether an individual is an "employee or independent contractor" has been canvassed a number of times during the past few years and there has been a discernable change with respect to the tests to be applied. This development was most thoroughly analyzed in Sagaz supra, where Major J. stated: 46 In my opinion, there is no one conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor. Lord Denning stated in Stevenson Jordan, supra, that it may be impossible to give a precise definition of the distinction (p. 111) and, similarly, Fleming observed that "no single test seems to yield an invariably clear and acceptable answer to the many variables of every changing employment relations." ... (p. 416). Further, I agree with MacGuigan J.A. in Wiebe Door, at p. 563, citing Atyah, supra, at p. 38, that what must always occur is a search for the total relationship of the parties: [I]t is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a [page 1005] contract of service any longer serves a useful purpose ... The most that can profitably be done is to examine all the possible factors which have been referred to in these case as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same whether in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones. 47 Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks. 48 It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case. [11] Given the facts before the Court, I have concluded that the Appellant Grzymski was at all times an independent contractor. First, he was completely free to control the manner in which he performed his responsibilities. He was not supervised at any time, there was no work evaluation, no training given. In this context, it is also relevant to note that Grzymski, who was licensed for contact lens fitting, made a personal arrangement with the ophthalmologist to use his equipment and examination room for that purpose. Malina specifically noted "I never investigated what kind of an agreement he had, but Dr. Shustermann allowed him to use the examination room with respect to contact lens fitting" and further observed that the equipment used for this purpose was "not our equipment". Malina also noted that Grzymski had a certain following of customers and that many people preferred to deal with him. As a result, Malina said "I would divide these customers into two sections: one, that he was invoicing himself with respect to contact lenses and all that, because these were his old customers; and those who needed glasses went eventually through our store and through our system, and we billed for that". [12] There are a number of other indicators that Grzymski was an independent contractor. First, during the period in issue, Grzymski had also entered into contracts with two other optical dispensers albeit they were competitors of Crystal Beach which would have been somewhat unlikely if he were a mere employee. As well, he provided his own equipment since that provided by Crystal Beach was minimal in nature and far from adequate to permit Grzymski to provide the necessary services. He also performed the necessary alterations or repairs in certain instances with the specialized equipment he had at his home which, I note, occurred approximately 20% of the time, a fact which was not challenged by the Respondent. Furthermore, a degree of financial risk on the part of Grzymski existed as a result of which it was necessary to maintain professional indemnity insurance. This was to satisfy the fact that if a mistake was made by him in the process of grinding, fitting and dispensing the corrective lenses, he was responsible for the costs involved to rectify the mistake. While that may not do away entirely with the possibility of financial risk to Crystal Beach, it is nonetheless an important element in the context of a determination of "whose business is it". [13] Premised on the basis that during the period in issue Grzymski had only been required to find a replacement on one occasion, that being when his marriage took place, the Respondent challenged his credibility with respect to his assertion that he was obligated by the agreement with Crystal Beach to provide a substitute at his own cost when necessary. That the need to find a replacement did not occur more frequently establishes nothing. There is no basis upon which the testimony of Malina in this regard should be rejected and, I might add it was consistent with the testimony of Grzymski. The Respondent also challenges that Grzymski's testimony by alleging that his so-called schedule reflected the fact that the days on which he worked were the only days made available to him by Crystal Beach. That is not correct. Grzymski testified that he was only available on the three different days, Tuesday, Thursday and Saturday, since the other days were allocated to the two optical companies with whom he had contracts at that particular time. His testimony was supported by Malina who said that because Crystal Beach wished to obtain Grzymski's services, it accepted his schedule. Much was also made of the hourly rate by counsel for the Respondent who suggested it was, in effect, a customary rate accepted by Crystal Beach. The evidence of both Malina and Grzymski was that this was not "a negotiated rate" but was, according to Grzymski, "an appropriate fee to charge for my expertise" and was comparable to what he charged his other customers. Malina's evidence supports the conclusion that Crystal Beach accepted the terms set by Grzymski. One further issue raised by counsel for the Respondent was that the services which Grzymski was providing were to the Crystal Beach client base. It would appear on balance from the evidence of both Malina and Grzymski that a more appropriate description is that Grzymski was providing a service to Crystal Beach rather than providing a service to the customers of Crystal Beach. [14] Having considered all of the factors and the submissions made by counsel, I have reached the conclusion that Grzymski was in fact an independent contractor and that there was very little evidence to support the Respondent's position that an employee/employer relationship existed. [15] As previously indicated, Elisabeth Orfei was not present at the trial. What little evidence is before the Court came solely from Malina. Orfei, who was described by Malina as semi-retired, was an optician. She was hired to provide services one day per week. He noted that she did not have the same skills as Grzymski, she could not solder and "couldn't really do many things that Mr. Grzymski was capable of". Furthermore, she could not fit contact lenses. As a result, her contract was based on a substantially lower hourly rate. As well, Orfei did not have her own equipment or her own pupilometer; did not use the examination room because she did not and could not perform contact lens fitting; and performed 100% of her duties at the Crystal Beach office. The totality of the evidence with respect to Orfei's status falls well short of establishing that she was an independent contractor. Accordingly, the appeal of Crystal Beach as it relates to Orfei is dismissed. Signed at Ottawa, Canada, this 16th day of March, 2005. "A.A. Sarchuk" Sarchuk J. CITATION: 2005TCC189 COURT FILE NOS: 2002-1946(EI) and 2002-1947(CPP) 2002-2043(EI) and 2002-2044(CPP) STYLE OF CAUSE: Ted Grzymski and Crystal Beach Optical Inc. and The Minister of National Revenue PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: April 14, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice A.A. Sarchuk DATE OF JUDGMENT: March 16, 2005 APPEARANCES: Agent for the Appellant Ted Grzymski: Richard Torok Counsel for the Appellant Crystal Beach Optical Inc.: Susan L. Crawford Counsel for the Respondent: John Grant COUNSEL OF RECORD: For the Appellant, Crystal Beach Optical Inc. Name: Susan L. Crawford Firm: Crawford Chondon & Andree For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada [1] 87 DTC 5025. [2] [2001] 2 S.C.R. 983.