Tracy Willcott o/a Sandalwood Esthetics v. M.N.R.

Tracy Willcott o/a Sandalwood Esthetics v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-07-13 Neutral citation 2005 TCC 428 File numbers 2004-3600(EI) Judges and Taxing Officers Dwayne W. Rowe Subjects Employment Insurance Act Decision Content Docket: 2004-3600(EI) BETWEEN: TRACY WILLCOTT O/A SANDALWOOD ESTHETICS, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeal heard on May 24, 2005 at Edmonton, Alberta Before: The Honourable D.W. Rowe, Deputy Judge Appearances: Agent for the Appellant: Brook Mishna Counsel for the Respondent: Galina Bining ____________________________________________________________________ JUDGMENT The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment. Signed at Vancouver, British Columbia, this 13th day of July 2005. D.W. Rowe Rowe, D.J. Citation: 2005TCC428 Date: 20050713 Docket: 2004-3600(EI) BETWEEN: TRACY WILLCOTT O/A SANDALWOOD ESTHETICS, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT Rowe, D.J. [1] The appellant appealed from a decision of the Minister of National Revenue (the "Minister") dated June 21, 2004, wherein the Minister decided the employment of Jolene Short (Short) with the appellant (Willcott) from January 1 to August 31, 2003, was insurable because Short was performing services normally provided in a hairdressing establishment and was not the owner or operator of said establishment. The Minister relied on paragraph 6(d) of the Employment Insurance Regulations (the "Regulations") made under the relevant provisions of the Employment Insurance Act (the "Act"). [2] Tracy Willcott testified she has operated - for 5 years - an enterprise known as Sandlewood Esthetics and Massage Therapy (Sandlewood) and provides therein services to clientele that includes facials, massages, manicures, pedicures, waxing and nails. During the relevant period, the business was operated from a former residence owned by her then-boyfriend - currently her husband - and the services initially offered to customers did not include hairdressing. Willcott stated Short was a client of Sandlewood and while doing her nails, they entered into a discussion whereby Short agreed to occupy a small space in the premises leased by Willcott in order to offer hairdressing services to members of the public. Short had her own business licence and - unlike Willcott - was qualified to offer hairdressing services. However, she was not licensed to perform massages or manicures or to provide services with respect to nails. Short occupied a former kitchen area in which there was an adequate sink so that with the addition of a haircutting chair and a few other items, it became suitable for a small hair salon. Willcott described the Sandlewood premises as having a front and rear door - leading to a parking area - with a reception area near the front. The hairdressing room was at the rear and stairs led to a lower level where there were tanning beds, a shower and a steam room. The agreement between Wilcott and Short required Short to pay $250 per month rent but that sum was changed to $400 after a short period, and was subsequently increased to $460. Other service providers were also renting space from the appellant and paid an amount dependent on the use of the overall facility as well as for the specific space occupied by their own enterprise. Willcott stated that during the course of discussions with Short, it was clear to both that Short would be an independent operator, free to run her business as she saw fit and to set her own rates. Further, Short was to be responsible for her own income tax remittances and for contributions to the Canada Pension Plan (CPP). Short had her own cash box and if clients paid by cash or cheque, Willcott stated she would have no knowledge of that. However, if it was necessary for Short to accept payment in the form of a credit card or debit card, she used the debit machine in the name of Sandlewood, as did other tenants, is order to save on service fees. Willcott explained that it was not difficult to separate the charge and/or debit slips attributable to Short - or another service provider - and would tally the amounts - usually every two weeks - and issue a cheque on the Sandlewood account to Short and/or other tenants to pay the amounts due to them for having provided services to their own clients. At the end of each month, Short wrote a cheque to Sandlewood in payment of the following month's rent. In addition to cutting hair, Short sold retail hair-care products, ceramic and craft items in her space and used her own tools, equipment and supplies. There was one telephone line to the Sandlewood business. Willcott did facials, manicures and pedicures; Short was the hairdresser and different individuals from time to time provided a tanning service, or performed reflexology and/or massage. Willcott stated she absorbed - as part of the total rental charge - all bank and/or credit card commissions and fees resulting from use of the debit machine and the amount thereof was one of the reasons Short's rent was increased by another $60. The appellant stated Short took holidays at her own discretion but adhered to Sandlewood's hours of operation as posted on a sign at the front door that indicated hairdressing services were provided within. In the beginning when Short rented her space, she used a sign which read "Hair by Jolene" but that was discontinued when a new Sandlewood sign was obtained that listed her as part of the service providers within the Sandlewood group. When Sandlewood did some advertising and promotion, Short and other tenants contributed to the cost. The telephone was located nearby Short's space and upon answering, she responded "Sandlewood". Willcott stated she was surprised to receive the assessment from the Minister in respect of Short, since it had always been clear from the outset - to both of them - that Short would be operating her own independent business and was merely a tenant within the premises that served the overall purpose of Sandlewood as a holistic centre. [3] In cross-examination, Willcott confirmed she was the only signatory on the Sandlewood business account. She identified a price list and brochure sheet - Exhibit R-1 - that included Short's fees for cutting hair or performing other services such as shampoo and set, colouring, conditioning, etc. - as well as other fees attributable to services provided by others at Sandlewood, including those pertaining to hands and feet, nails, facial treatments, waxing, tanning, and for relaxation and therapeutic massage. Willcott identified a photocopy - Exhibit R-2 - of the business cards she and Short and another tenant handed out. The card advertised Sandlewood as a "Full Service Salon" and on the third line thereof included "hair" as one of the services provided therein. Willcott stated she and Short and another service provider - Bonnie - shared the cost of promoting a package of services to customers and agreed that a sheet - Exhibit R-3 - was an example of a joint promotion prepared by Short who also had created the invitation - Exhibit R-4 - to an Open House event at Sandlewood Spa. Willcott agreed with counsel's suggestion that a first-time visitor to the premises would assume Short was part of the Sandlewood business. Clients were greeted by either the appellant or by Bonnie in the reception area. Willcott stated she wrote a cheque to Short or to Bonnie - on demand - and the period ranged from one week to one month. The appellant stated that at one point when Short was paying only $250 per month rent, she had wanted to hire another hairdresser but did not proceed with the plan because she became pregnant and - for health and safety reasons - was advised not to continue working as a hairdresser. Willcott agreed Short did not have any separate telephone line or listing apart from Sandlewood. With regard to the haircutting space, there was a door between it and the reception area and Willcott explained that if one of Short's clients parked in the back, entered through the rear door, received a haircut or other service and paid by either cash or cheque, she might not be aware of it. [4] In re-examination by her counsel, Willcott stated the purpose of the price list - Exhibit R-1 - was to avoid confusing Sandlewood customers by offering them three separate sheets. In addition, the three of them wanted to promote each other's business by participating in a package program that provided a full range of services to a customer that might occupy an extended period, perhaps one-half day or more. The appellant stated she sold trinkets, costume jewelry and gel candles in her own space. With respect to cleaning and tidying up, Willcott stated she and Short and Bonnie or - in earlier times - one or more of the other tenants - shared the cleaning of common areas, as required, and looked after their own business space. Willcott stated she informed Short the rent would have to be increased if another hairdresser was brought in because it would increase overall costs including those attributable to using the debit machine and/or in accepting credit cards for payment of services. [5] Jolene Short testified she was getting her nails done - by Willcott - when the appellant indicated she wanted a hairdresser at Sandlewood. About 6 weeks later - in July, 2002 - Short moved her hairdressing business to Sandlewood and began operating from a space therein. She brought her own equipment, tools and retail products. In March, 2003, she was informed a rent increase was necessary and - following some discussions - agreed to pay $460 per month. Short agreed that if a customer paid in cash or by cheque, she simply retained the funds. Only if a payment had to be facilitated by using the debit machine did it involve Willcott who calculated the amount due by examining the slips and subsequently issued a cheque twice a month. The amount of accumulated charges or debits was always sufficient to pay Short's rent. Short confirmed she shared the Sandlewood phone and appointment book and stated the door between her work area and the rest of the main floor - usually - was closed but not locked when a customer was in the chair. Short stated she was free to set her own hours but Willcott wanted her to be available to perform hairdressing services as part of any package deal that had been sold to a customer through the joint promotion of Sandlewood as a full-service spa. [6] In cross-examination, Short stated she understood she would operate her own hairdressing business within the Sandlewood framework and was to be responsible for her own Workers Compensation Board premiums and CPP contributions. Although Willcott arranged to have a proper sink installed in the hairdressing space, a desk, mirror, chair, and the normal tools and equipment were installed and/or supplied by Short. Short stated she had been in the hairdressing business for 11 years and brought over most of her former clients to the new premises at Sandlewood. In addition to being qualified to cut hair, she was trained as a cosmetologist - over a period of 1,400 hours - and held a provincial licence as well as one issued by the City of Edmonton. She was permitted to perform the full range of esthetic services but chose to limit her business to those services generally associated with hairdressing. Short stated she kept track of payments processed through the debit machine and estimated they amounted to 80% of her total revenue. The tabulation by Willcott was a simple process because each service provider within Sandlewood had a different identification code for processing debit and/or credit card payments. Short agreed Willcott would not know the extent of her revenue or her profit and loss position for any period. In addition to haircutting and selling hair products, Short sold crafts and small ornaments and participated with Willcott and Bonnie in operating a small tea room in the reception area. In order for clients to access the esthetics work area, they had to pass through the hairdressing space. Short stated she had painted the words "Hair by Jolene" on the front window but usually identified herself as a "hairdresser at Sandlewood". In the event she took a holiday - usually two weeks - she informed Willcott and Bonnie because no one else at Sandlewood was qualified to perform haircutting services. Originally, Short wanted to enter into a written lease and prepared - and signed - a draft agreement - Exhibit A-1 - but it was not signed by Willcott. Short stated that in the course of her career when she worked at salons and establishments that did hair cutting and styling - primarily - Employment Insurance (EI) premiums had been deducted from her remuneration. [7] In re-examination, Short stated most of her customers entered through the front door of Sandlewood and passed through the reception area to her space at the rear. [8] Counsel for the appellant submitted the Minister had accepted Short was an independent contractor but decided she was engaged in insurable employment by virtue of paragraph 6(d) of the Regulations. Counsel submitted the evidence did not support the view that Sandlewood was a hairdressing establishment in the normal sense because it was a full-service spa that had not offered haircutting until Short became a tenant. Counsel submitted the within fact situation was not comparable to those cases where hairdressers were renting a chair within a large salon and were found to have been in insurable employment by virtue of the application of said paragraph. In counsel's view of the evidence, the appellant, Short and Bonnie or - prior to her - other service providers within Sandlewood were attempting to maximize exposure to customers while minimizing costs by sharing space, telephones, directories, signage, advertising, and the debit machine. In that sense, counsel argued Sandlewood was not a "barbering or hairdressing establishment" since the main focus of that business entity was to provide a wide range of other services. Even if it did fall within that definition, counsel submitted it was reasonable to find Parliament never intended paragraph 6(d) of the Regulations to apply under these circumstances and that Short should be regarded not only as an independent entrepreneur but also as a person who was either the owner or operator of her own self-contained establishment within the overall business - Sandlewood - as carried on within those premises leased by Willcott. [9] Counsel for the respondent submitted Sandlewood was an establishment that provided services normally provided in such an establishment, as stated in paragraph 6(d) and that the extent of Short's participation with Willcott and Bonnie was such that she was an integral player in promoting the Sandlewood brand as part of a joint marketing strategy. Counsel pointed out that money was always due to Short as a result of her customers having paid through the debit machine and that those funds were deposited electronically into the Sandlewood account, for which the appellant was the sole signatory. Therefore, Willcott had the means to deduct EI premiums in the same manner as she deducted the monthly rent prior to issuing a cheque to Short for the net amount. Counsel conceded the provision at issue in the within appeal may not take proper account of recent small business trends in terms of space and cost sharing but submitted the language of said provision does not require the provision of hairdressing services to be the main or primary part of the business of the establishment. [10] The relevant provision of the Regulations reads as follows: 6. Employment in any of the following employments, unless it is excluded from insurable employment by any provision of these Regulations, is included in insurable employment: ... (d) employment of a person in a barbering or hairdressing establishment, where the person (i) provides any of the services that are normally provided in such an establishment, and (ii) is not the owner or operator of the establishment; ... [11] In the case of Nelson v. Canada ( Minister of National Revenue - M.N.R.), [2001] F.C.J. No. 700, 2001 FCA 131, Docket A-372-00, the Federal Court of Appeal held that chair renters in a hairdressing establishment who provided no service to the owners of the establishment were nonetheless engaged in employment described by paragraph 5(4)(c) of the Act and fell within the scope of paragraph 6(d) of the Regulations and that EI premiums should have been deducted by the owners of the establishment even though they had no means of withholding funds for that purpose. At paragraph 21 of her reasons, Sharlow J.A. stated: 21 However, when Parliament empowered the Commission to extend the scope of the legislation to workers not engaged under contracts of service, they would surely have been aware that in some situations there might not be a flow of funds from the owners of business establishments to insured persons to permit the operation of the normal withholding and remittance procedure. That procedural deficiency was resolved by permitting the enactment of additional regulations that impose on the owners of such establishments an independent obligation to pay the employee premiums, presumably leaving it to them to work out a method of recovering the employee premiums from the insured workers. [12] In the Nelson case it was clear that the establishment was a "barbering or hairdressing establishment" within the meaning of paragraph 6(d) of the Regulations. The case of E & S Tresses Ltd. v. Canada(Minister of National Revenue - M.N.R.), [1998] T.C.J. No. 1014, dealt with paragraph 12(d) of the Regulations, the predecessor to the paragraph - 6(d) - at issue in the within appeal. It is important to set out the wording of the former provision because there are a couple of differences in the current version that the appellant considers have a significant bearing on the interpretation to be applied. The former provision read: 12 (d) employment of a person in connection with a barbering or hairdressing establishment, where that person (i) provides any of the services that are normally provided therein, and (ii) is not the owner or proprietor thereof; [13] In the E & S Tresses decision, Porter D.J.T.C.C considered the appeal of a company that had set up a relationship with certain hairdressers. Judge Porter decided each haircutter was involved in a business activity in connection with a hairdressing establishment and that each provided services that are normally provided therein. However, the issue revolved around whether any or all of those persons were "the owner or proprietor thereof" and whether there was one or several "hairdressing establishments" within the overall physical space. Commencing at paragraph 21 of his reasons, Judge Porter found these facts as hereinafter stated: 21 The shares of the Appellant Company were owned 50% by Rupert Engen and 50% by Francesco's Hair Design Ltd. The shareholders of the latter Company were Pat Spadafora and Frank Spadafora. The Company owned the building in which the hairdressing activity was carried on. The Company in years prior to 1990 had operated a hair salon, aesthetician service, make-up artists and nail technicians, which operated under the name of "Mary's Place". Over the years various of these components left. In 1990, a number of hairstylists approached Engen and Spadafora with a view to renting space and sharing common area costs; the majority of them were the present Intervenors. Some of them have left since and Angie Desautels arrived later. The intention of each of them was to set up their own individual business under the same roof. Engen and Spadafora did not want to be involved in hiring staff. Thus, together they decided as a group to lease the building, that is the Intervenors plus Engen and Spadafora, from the Company and each would run his or her own separate operation. 22 This, they proceeded to do. Contracts were set up as in exhibit R-1. The old signage was taken down and new signage put up under the name of "Francesco's Tresses Hair". The building was a converted house and this name appeared on the new awning put up outside the front of the premises. Below the awning a sign was erected under the heading "E & S Tresses and Associates". On this sign the names of all parties were listed. Each party, including Engen and Spadafora, took out their own individual business licence. Each signed a contract with E & S Tresses Ltd. called a "Service and Expense Contract". This seems to have been done annually and the terms were re-negotiated each year. 23 The contract in question was signed on January 1, 1995. The first recital, it should be noted, stated that the corporation (E & S Tresses Ltd.) "is a hairdressing salon operating in the City of Edmonton". The Company agreed to provide "apropriate [sic] space and chairs", but the specific area was not defined. It also agreed to provide many administrative and support services such as receptionist, office manager, shampoo help, technical help, maintenance help, telephone and utilities, repairs and maintenance of equipment, charge card costs, business and property taxes, liability insurance and signage. 24 It made clear that the individuals were responsible for their own statutory deductions and expenses, accounting, legal, advertising and education costs. 25 It provided for the individuals to be independent contractors who could set their own hours of work. All clients' fees for services were to be made directly to the individuals and not to the Company. A monthly fee of $1,575.90 was required to be paid by each individual to the Company. If they became sick or pregnant they had to pay full fee for the first month in which they were absent, and 60% thereof for subsequent months. The agreement could be terminated on 30 days notice and G.S.T. was added onto the fees. That, in short, was the nature of the agreements. 26 In practice all the individuals set to, doing renovations and setting up their own area as they chose. They each operated independently, kept their own cash receipts and made their own appointments with the help of the receptionist. E & S Tresses Ltd. provided the management and support services and had some full-time employees for this but did not hire any hairstylists. They each ordered their own individual products through Francesco's Tresses. They ordered their business cards in the same way. These were all the same design with just the names interchanged. They had joint meetings and decided how to run the joint operation. If absent, their space was not used by others. They indicated that they had the freedom to sublease if they wished, although none in fact did this. 27 There were some common entrances to the premises and a common waiting area. Their areas were not physically separated one from the other by walls and doors although they spread out over three floors. The fees they paid to the Company were calculated as follows: 7% to wages 9% to utilities 6% to maintenance 8% to charge cards (they were paid by cheque daily) 50% to products 20% to space rental 28 They considered the joint management operation as a sort of co-op. The Company however operated the bank account on behalf of this group of people. It struck me that whilst they were clearly operating independent businesses they had a type of joint venture in the management of the communal aspects of their operations, and they then used the Company as a vehicle to carry those out. 29 If one or more individuals left, at the end of their 30-days notice, they would take with them their goodwill, their equipment and supplies but leave the space and the chairs. The other individuals would carry on in the same way. The departing party would take no capital payout with them. [14] Having ascertained those facts, Judge Porter continued as follows: 31 There is no doubt that the Intervenors carried on their separate businesses. They clearly did all they could to establish that, and much of their concern at the hearing of these appeals was directed to this point. In this they succeeded. I also gleaned from the evidence that they were extremely honest straightforward and well principled people, who were somewhat upset by the manner in which they had been dealt with by Revenue Canada officials over this matter. However, that is not the issue before this Court. 32 In actual fact they all carried on their separate businesses in one building under one common banner in which they shared a great deal. It was no doubt an extremely efficient business arrangement. However there was no division of the space such as one might find in a shopping mall where separate businesses are clearly delineated by walls and entrances or as in professional offices in office buildings where each has its own defined space with an individual entrance. Here they all carried on their separate businesses in a communal fashion, whereby an outside observer looking on, could not but come to the conclusion that there was one "business establishment" operating. They each in my view formed part of that establishment, a hairdressing salon. That of course is what the contract said, the Company was a hairdressing salon. I am unable to see a number of different "establishments". There was sufficient community of effort in my mind to say that this was one establishment. In my view the individuals did not own that establishment. They did not own or have a lease of specific space. If I am correct in saying that it was the physical space, then clearly that was owned by the Company not by the Intervenors. They may have formed part of the business establishment to the extent that they contributed to it, but in the end the funds belonged to the Company who owed them a duty to provide the services for which they had contracted. The Intervenors owned nothing but their own goodwill, equipment and products and had any one of them left, "the establishment" would have remained. 33 In conclusion then I find as follows: a) The Intervenors were self-employed operating their own independent businesses. b) The Intervenors were carrying on a business activity in connection with a hairdressing establishment. c) The Intervenors provided the services which were normally carried on therein, that is to say in such an establishment. d) The Intervenors were not the owners or proprietors of that establishment. e) The activity in which they were each engaged was insurable employment under Regulation 12(d). 34 In the event, the appeals are each dismissed and the determinations of the Minister are confirmed. [15] I heard a case involving the same provision and the facts therein were much closer to those in the within appeal. In Excel Studio Ltd. (c.o.b. Excel Hair and Skin Care v. Canada (Minister of National Revenue - M.N.R.), [1998] T.C.J. No. 48, I referred to several cases where persons were held to have been in insurable employment by virtue of the wording of paragraph 12(d) and commencing at paragraph 11 of my reasons recited some of those decisions as follows: [11] In each of the cases submitted by Counsel for the respondent, the fact situations therein were common in that the persons held to be included in insurable employment by virtue of the wording of Regulation 12(d), were all performing the same duties as the appellants in the various appeals. In other words, these persons were rented space within a hairdressing establishment and performed services that were normally provided therein and were not owners of that establishment. In the case of Anderson (c.o.b. as 1st Impressions Hair Design) v. M.N.R., [1994] T.C.J. No. 869, Margeson, T.C.J. found that each of the intervenors and appellants were trained hair stylists and that there were a variety of ways under which hair designers could work. Some were engaged as commission agents and retained a percentage of the fees they took in while paying a portion to the owner or operator of the establishment, some were paid an hourly wage as an employee and others rented or leased a chair. In Hilts v. M.N.R. [1994] T.C.J. No. 872, Beaubier, T.C.J. relied on the following facts in order to hold that the appellant employed the hairdressers and was liable to pay unemployment insurance premiums: - there was a common telephone - prices were co-ordinated - there was one business name and sign on the premises - the services were the same as those normally offered by the establishment - the hairdressers leased "space" by the week. [12] The following facts did not alter this determination: - the hairdressers had a key to the premises - the hairdressers purchased their own supplies - the hairdressers each kept their own cash drawer - the hairdressers had access to common areas. [13] At paragraph 5, Judge Beaubier referred to the definition of "establishment" from The Dictionary of Canadian Law (Dukelow & Nurse, Thomson Professional Publishing 1991) as: "a place of business or the place where an undertaking or a part thereof is carried on." [14] In Farron v. M.N.R. [1991] T.C.J. No. 1119, Rip, T.C.J. relied on the following facts to find the appellants were employers: - the hair salon had one name - the hair salon had one sign - the "employees" enjoyed a common area - the "employees" were not owners - there was one telephone - the appellants - the "employer"- was a licensed hairdressing establishment - there was one appointment book - the hairdressers performed services which were regularly available on the premises. [15] The fact the hairdressers purchased their own supplies, kept their own books and cash drawer and set their own hours was not sufficient to remove them from the application of Regulation 12(d). [16] However, the fact situation in Excel was different from those cases referred to and I commented as follows: [16] In the within appeals, the appellant and the intervenors were totally separate in design and function. Each was licensed by The Hairdressers' Association of British Columbia to provide different services and the appellant and its staff, including its own president, Jeanne Cleary, was not authorized by the licensing authority - nor by the business license issued by the City of Kelowna - to carry on the business of Esthetician or Nail technician/Manicurist. The relevant words used in Regulation 12(d) are: "employment of a person in connection with a barbering or hairdressing establishment, where that person provides any of the services that are normally provided therein." [17] Neither intervenor was authorized or licensed to carry on business by providing any of the services normally provided in the studio owned and operated by the appellant because the services each of them provided - within the context of their own separate business - were never provided within the establishment that was the appellant's salon/studio. It is common in small commercial centres for a person or entity to lease space from the landlord of a strip mall and then, with approval of the landlord, to enter into sub-leases with other entrepreneurs. If a dentist leases a block of space and then decides to sublet a portion to a chiropractor and the chiropractor's office is then located in part of the space originally designated on the mall floorplan as being attributable to the dentist, that does not make the chiropractor a dentist or vice-versa. In the within appeals, it is clear on the evidence the parties truly functioned as independent entities each having a separate identity from a variety of standpoints, including registration for PST, GST, business licenses, trade licenses, bank accounts, insurance coverage, telephone numbers and answering machines, signage, service and product lines which were distinct. This is not one of those cases where an appellant attempts to avoid being categorized as an employer by virtue of the Regulation by entering into a series of thinly-disguised manoeuvres to mask the real function and status of the worker. [18] In the within appeals, referring to the relevant portion of the Regulation, the word "therein" must refer to the actual establishment or place of business operated by the appellant. In effect, it must relate to the actual establishment which is the subject matter of the determination and not some other business in the same trade which might offer - if permitted - a wider range of services. I cannot see how the sharing of space in a commercial retail area within a small mall by the intervenors can be seen as the provision of services in connection with the hairdressing or barbering establishment owned and operated by the appellant pursuant to the licenses and authority issued for that specific purpose and none other. The words above underlined are much more narrow in scope than the words, "in respect of" as discussed by the Supreme Court of Canada in Nowegijick v. The Queen et al., 83 DTC 5041 where the Court said, at p. 5045, that: "The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters." [19] It is clear from the wording of the Regulation in issue that the intent is to connect the services provided by the putative employee to the ones provided by the purported employer within the establishment operated by the employer so as to eliminate exclusion from the unemployment insurance system of a person who is a worker within the same business or establishment but, to whom - with varying degrees of consent - there have been assigned certain attributes which - without a closer look - could place that person in a category where insurability would not be applicable. [17] In the Excel case, there was some commonality of purpose and I dealt with that aspect in paragraph 20: [20] The offering, to the public, by the appellant in its advertisement in the Yellow Pages, of services, not provided by it, but otherwise available, on referral, to the intervenors, or others, is not particularly significant when looked at in the context of all of the evidence. The separate listing of the businesses of the intervenors, the separate telephone numbers and advertising, physical separation of each business by barriers, and the adequate signage identifying each establishment and the function and/or services provided or products sold therein, all served to make the relationship of the appellant to each of the intervenors one of quasi-landlord-tenant and neighbour/entrepreneur with a friendly relationship which permitted referral of customers and clients back and forth so as to offer them the opportunity to access full service in the various trades dealing with health, hair, beauty, and skin care within that particular area of the mini-mall. Customers and clients of the intervenors had no need - by physical intrusion or otherwise - to ever enter the space or intrude upon the business of the appellant. The particular Regulation, in my opinion, was never intended to apply in a fact situation such as in the within appeals where distinct businesses offering mutually exclusive services, as authorized by a regulatory body, are to be merged by reason of sharing physical space pursuant to a master lease subject to a practical, workable method of sub-leasing which was suitable to all concerned, including the owner of the mall who collected rent directly from the intervenors. The 72 square feet occupied by Norma Hill operating as Nails by Norma was very much her little domain in every sense, legally, physically, and in harmony with a commonly held concept of business. Similarly, the larger space occupied by Tamara Fisher was her own establishment for the purpose of carrying on her trade as a licensed Esthetician in her own right without reference to the appellant. There was absolutely no sharing of cash flow in any sense whatsoever between the appellant and either intervenor nor was there any legal ability to do so. The Regulation - while recognizing its intent - must be interpreted in a manner consistent with ordinary language and cannot be an instrument by which to bring about an impractical result not intended by any party and in direct opposition to their true status - on objective examination - as being persons not connected in the manner required by the legislation. [18] The effect of the change in the wording of the relevant provision in the Regulations was considered by Judge Porter in the case of Shepherds Care Foundation v. Canada (Minister of National Revenue- M.N.R.),[2002] T.C.J. No. 163 (Shepherd's Care). At paragraphs 4 and 5 of his judgment, Judge Porter stated: 4 The material facts reveal that during the years in question, the Appellant operated a long-term care nursing home in the City of Edmonton, Alberta. For many years since its opening in 1984, Molly had been employed by the Appellant to operate a hairdressing salon on the ground floor of the premises of the Centre. Originally, she had done so as an employee. In 1995, the arrangement changed when the Centre leased the salon premises to Molly and she purported to become an independent contractor providing the hairdressing service from the same premises throughout the years in question. The Minister while conceding that she was not an employee working under a contract of service, has decided that her situation was covered by paragraph 6(d) of the Employment Insurance Regulations (the "EI Regulations") as in his view, she was not the owner or operator of the hair dressing establishment, but simply a provider of service therein under a contract for services. The Appellant maintains that she was indeed the "owner or operator" of the establishment. That then is the issue in this appeal. 5 In passing, I note that this is not the usual type of case where persons renting or leasing chairs in a salon seek to maintain that they are a number of different establishments under the one roof. In this case, it boils down to a question of whether it was the Appellant "operating" the hairdressing salon engaging the worker to do the work and provide the service under a contract for services, or whether the worker herself "carried on or operated" the establishment. [19] At paragraphs 10, 11 and 12 of his reasons, Judge Porter commented as follows: 10 It is to be noted that this Regulation is different from the former Regulation, promulgated under the Unemployment Insurance Act, which in paragraph 12(d)(ii) read as follows: (ii) is not the owner or proprietor thereof; ... Thus, the word "operator" is now used in place of the word "proprietor", which latter word might have more generally referred to some proprietary rights. Now the person just has to be either the "owner" or the "operator" of the "establishment" in order to remain outside the ambit of the Regulation as opposed to the "owner or the proprietor". The prior cases cited under the former legislation must therefore be looked at in this new light. 11 In my view, "operator" must be given its ordinary meaning in the context. The person who runs the overall business in the establishment is the operator of it. That is the person responsible for the clientele, the scheduling, the invoicing, the payment of accounts attributable to the establishment as a whole, e.g. insurance and utilities, the person who holds the business license, the person who one might say runs the business as a whole. The New Shorter Oxford English Dictionary, 1993 Edition, defines "operator" as: a person engaged in performing the practical or mechanical operations belonging to any process, business, ... or a person who or company which runs a business, enterprises, etc. 12 Quite clearly, the word "employment" does not relate only to employment under a contract of service. The jurisprudence is clear that the word must be interpreted in the sense of work done under either a contract of service or a contract for services. [20] At paragraphs 15 and 16, Judge Porter continued: 15 Whatever the requirement of the former Regulation to have a proprietary right of ownership involved escaped the ambit of the Regulation, it is now clear that the operator of the establishment is excluded also. Whilst the worker in this case may well have been the owner of a leasehold interest in the premises in question, upon which the hairdressing business was conducted and this in itself might resolve this matter, in my view, the issue really boils down to whether or not Molly was "operating the establishment". If she was, she is excluded from insurable employment. If she was not, subject to the question around ownership of a leasehold interest, she would be included within the ambit of the Regulations. 16 Counsel for the Minister, in my view, is correct when she says that the Appellant must show more than that the worker was in business for herself and operating under a contract for services. It must be shown also on the balance of probabilities, as the onus is on the Appellant here, to show that she operated the establishment in her own right rather than working therein providing services to the Appellant under a contract for services, to assist it in its operation of the establishment. By way of example, an electrician or other sub-contractor working on a building site as an independent contractor is in business for himself, but is not the owner nor does he have the conduct of the project, but simply provides his services to the larger operation. To the extent that it works outside the building site, he would be operating his own establishment. [21] The facts surrounding the operation of the hairdressing salon were set forth in paragraphs 24 to 41, inclusive, of his reasons, as follows: 24 I note in particular that Molly is responsible for the payment of the rent regardless of how much clientele she has. 25 I note further that the lease is specifically to enable Molly "to operate a beauty parlour on the premises" and that she was required to hold the necessary municipal license to operate a beauty parlour. She had to carry her own fire insurance and public liability insurance. There is no restriction in the lease on her clientele. There was an agreement to limit her charges for residents to amounts agreed upon with the Centre. She could charge less but not more than those agreed amounts. 26 I also noted that there was no restriction on who her clientele should be. The evidence of John Pray was that they would have wanted her to give priority to their residents at the Centre, but there was no written legal commitment to this. No doubt, she did so because the business was more than she could handle by herself in any event. After discussions with the Centre and hearing of the difficulties residents had getting an appointment with her, she hired another part-time hairdresser. Thus, there was ample business within the Centre. However, the evidence was that she was free to service residents of the adjacent seniors manor, employees of the Centre and outsiders. No doubt, if she had serviced outsiders to the detriment of the residents, her lease would not have been renewed when it became due as clearly the Centre wanted its residents to be able to access the salon. It was a service they wanted to have available to their residents, which is a far cry from saying that they were operating that service. 27 The witness explained how appointments were made by the residents. Many of these residents were in their 90's and confined to wheelchairs. Their families made arrangements with the nurses who made appointments with the salon on behalf of the residents. The salon then invoiced the residents by delivering invoices to the accounting clerk at the Centre who added it to the residents' account. It was paid by the family at the end of the month and the Centre, in turn, paid the salon. 28 I do not see this as the Centre engaging the salon. It was simply a simple collection process as the Centre looked after the affairs of their residents. 29 The salon became known as "Molly's Gentle Touch". The witness said everybody knew that Molly was the operator of this salon. Her invoices were headed "Molly's Gentle Touch". There was no sign to that effect on the premises. The old original sign remained entitled "Hair Salon". There was no sign outside the premises. It is clear it was not necessary, as she had all the business she needed. In any event, Molly was clearly viewed by all as the operator of the salon. 30 Thus, with respect to assumption 9(e), the witness was of the view that whilst the Centre owned the building and fixtures, they were leased out to Molly who was the operator of the salon. 31 With respect to assumption 9(f), it was correct in that Molly did not have an outside telephone line and all calls came through the Centre's switchboard. That apparently was a convenient arrangement and neither party saw the need to go to the expense of changing it. 32 With respect to assumption 9(g), the Appellant did not determine the fees charged to residents by the salon. It set a bar on the maximum fees which could be charged as a term of the lease. That is different to saying that it determined the fees. The maximum was set by agreement between the parties to the lease. 33 With respect to assumption 9(k), whilst the fixtures and fittings were owned by the Appellant, they were leased to Molly. Furthermore, she owned and paid for her own smaller equipment and utensils, such as combs, scissors, shampoos, care products and gowns. 34 The witness disagreed with item 9(i). He said each floor of the Centre operated as a separate nursing home. Thus, the nurses on each floor made appointments for the residents on that floor and kept track of them for their own clients. It was not as if there was one corporate arrangement for the Appellant to do the scheduling for the salon. 35 Assumptions 9(1) and (r) are somewhat repetitive. The witness made it clear that whilst the Centre owned the premises, it had leased them to Molly. She thus owned a leasehold interest in them. There was no sign saying "Molly's Gentle Touch", but the witness said everyone knew what it was. Molly obviously felt there to be no need for a banner. 36 The witness said all cheques were made out by the Centre to "Molly's Gentle Touch". 37 The witness said that Molly set her own hours. They asked her to stay open longer at one time as not all residents were getting appointments. However, it was up to her to set her own hours. She was completely independent in this respect. 38 There was no separate outside entrance to the salon premises and anyone coming from the outside had to go through the main door of the Centre or through the adjacent manor, which was connected. 39 Molly had her own keys to the premises and was able to lock them when she left. The Centre had a master key for safety and security purposes but nobody from the Centre would enter for any reason other than safety and security, if Molly was not there. 40 The witness agreed that if Molly left the Centre would want to get somebody else in to operate the salon as it was a service they wanted to have available to their residents. 41 The witness said Molly did not attend staff meetings but was free to attend information sessions if she chose and barbecues put on at the Centre. She did not, however, participate in staff meetings or the business of the Centre. [22] In paragraphs 43 to 47, inclusive, Judge Porter concluded: 43 I accept the submission of counsel for the Minister that there must be something more than being an independent contractor to take the situation out of the ambit of the Regulation. Independent contractors leasing or renting chairs in the establishment with other hairdressers are frequently ruled as being covered by this Regulation. 44 However, I view the situation at hand as being completely different. The establishment clearly consists of the premises upon which the business of a hairdressing salon was carried on. These premises were clearly leased to Molly. She owned a leasehold interest in the premises. She operated her own business under her own name therein. She was responsible to pay rent regardless. She had to pay fire and liability insurance. She arranged her own hours and her own clientele. The Centre could ask or make its wishes known, but it had no control except that of any landlord who might not renew a lease when it ran out. It was not a service that the Centre was operating. It made a provision for that service to be available on the premises in a non-exclusive fashion. It played no part in the operation of the business. It received rent; that was all. It expressed its wishes for the type of service it would like to see available to its residents. 45 On the other hand, Molly was clearly running the business in the premises. She did all those things normally associated with the running of a business. In the environment, it was known as her business. She invoiced in her business name. She did not have to make known to the Centre what receipts she had or what accounts she had to pay. She was on her own in this respect. She had exclusive use of the premises under the terms of her lease. By the terms of that lease, she was required to use the premises for the "operation of a beauty parlor" and nothing else. 46 The sum total of all the evidence leads me to the inalienable conclusion that Molly was the operator of the salon on the leased premises and thus the "operator of the establishment". The situation at hand is a far cry from that often aimed at by the Minister under the Regulations where a number of hairdressers work together in one establishment and rent chairs or lease undivided space from the main proprietor of an establishment. 47 In the result, the appeal is allowed and the assessments are vacated. [23] It is apparent the facts in the cases quoted herein run the full gamut in terms of the need to deal with the issue whether a worker is either the "owner or proprietor" or the "owner or operator" of the relevant business entity. In the within appeal, it is clear the tenor of the discussions between Willcott and Short - at the outset - tended to point towards a relationship of landlord-tenant and the draft agreement - Exhibit A-1 - prepared and signed by Short bears that out. However, Willcott did not sign that draft and it is obvious the parties undertook steps to integrate the hairdressing salon into the overall ambience of Sandlewood in accordance with the business strategy to market it as a full-service spa. To that end, Short sacrificed her individuality and her painted sign "Hair by Jolene" was removed and she became one of the service providers listed on the new Sandlewood signage. She participated in joint promotions in which treatment and care packages were offered, some of which could occupy a half-day or more. She was also a co-venturer in the operation of the small tea room in the reception area. Her hair customers usually entered through the front reception area and persons seeking those services offered on the lower floor of the premises were required to walk through her space in order to access the stairs. Short accepted the change in her business identity and identified herself as a "hairdresser at Sandlewood". In order to process payments from approximately 80% of her customers, she used the debit machine owned by the appellant and the funds went into an account solely controlled by her. The entire business premises - located in a former residence - was leased by Willcott and she was the holder of the municipal business licence that permitted Sandlewood to operate an establishment that offered a full-service salon and tea room, together with a range of services including hair, esthetics, massage therapy, tanning and spa treatments. Within Sandlewood, there were no signs indicating Short was operating a separate business. Instead, Short was very involved with the general operation of Sandlewood insofar as it related to cleaning the common areas, greeting customers, answering the telephone, serving tea on occasion and utilizing her marketing talents to create brochures and advertising material in order to promote the spa, including participating in an Open House event. Prior to Short's arrival, Sandlewood did not offer hairdressing services to its clients. Therefore, any transformation into a "barbering or hairdressing establishment" must have occurred as a result of Short's decision to move her chair, tools, equipment and retail products into the space set aside for that purpose. There was no dispute with the Minister's assumption - at paragraph 6 (ff) of the Reply to the Notice of Appeal (Reply) - that after Short ceased working at the salon, another hairdresser began working in order that Sandlewood could continue to provide hairdressing services. [24] The facts in the within appeal do not support the existence of the kind of separation and independence that was evident in Excel or Shepherd's Care. In the former, I found the worker was operating her own separate establishment in a 72-square foot area and that it was her domain in every sense of the word. In Shepherd's Care, the worker held a leasehold interest and was found to be fully responsible for the entire operation of her hairdressing business without any involvement by the foundation that acted merely as her landlord. [25] In my view, Sandlewood became a "barbering or hairdressing "establishment within the meaning of paragraph 6(d) of the Regulations, shortly after Short moved in and continued to meet that definition throughout the relevant period of the within appeal. Notwithstanding her undisputed status as an entrepreneur while providing her hairdressing services, in order for Short to be excluded from insurable employment within the language of said paragraph, she must be either the owner or the operator of an establishment that normally provides those services. The wording appears to contemplate only one owner or operator of such an establishment since it uses the definite article "the" to precede the noun in each case. In the ordinary sense of the word "establishment" and in accordance with the dictionary definitions referred to in the jurisprudence referred to earlier, I have difficulty with the proposition that Short's hairdressing space was capable of being - itself - an establishment within the context of the provision. Both Willcott and Short wanted Short to operate her business as a member of an informal cooperative or coalition of sole proprietors each operating their own small business in which they provided a variety of different services to clients within the framework and concept of Sandlewood as a full-service salon that included hairdressing services. On the facts, it is not reasonable to regard Short as the operator of her own hairdressing establishment within the rented space comprising a portion of the overall business premises because there were almost no indicia of separation or characteristics consistent with individual identity of that function in order to set it apart from the Sandlewood business operation. Instead, the hairdressing component was an integral part of the overall set of services offered to clients. When Short tidied up the common area, answered the telephone, met clients in the reception area, served tea or participated in a promotion program, she was not doing so in furtherance of her former business that she had operated for many years under the trade name "Hair by Jolene". Instead, her activities were consistent with her role as a service provider within the overall Sandlewood concept. Although her coming on board transformed Sandlewood into a hairdressing establishment, the methodology pursued in the course of carrying out her admittedly independent business as a service provider did not make her an owner of that entity. Willcott was the owner of the Sandlewood establishment prior to Short's arrival and subsequent to her departure. During the relevant period, Willcott remained the owner of the establishment that had become a hairdressing establishment and was capable of providing the services normally provided in such an establishment. Those services were advertised on the signs and were added to the price list and to the advertising material promoting Sandlewood as a full-service salon. [26] To demonstrate the narrow purpose of paragraph 6(d) of the Regulations, I refer to the case of Oshawa Coiffures Ltd. (c.o.b. L'Attitudes International Image Centers) v.Canada (Minister of National Revenue - M.N.R.), [2004] T.C.J. No. 456, a judgment of Woods, T.C.J. dated September 29, 2004. In that case, a nail technician was found to have been an employee of a hair salon under the principles of common law. However, Justice Woods dealt briefly with the alternative submission that the technician's employment could have been insurable by virtue of paragraph 6(d) of the Regulations. At paragraph 15 of her reasons, Justice Woods stated: [15] This issue deserves more consideration than is possible in written submissions. However, based on the limited information provided, I would be reluctant to find that nail technicians were subject to the regulation for the following reasons: (a) The regulation refers to "hairdressing establishment," not the broader term "beauty salon." If the regulation were intended to apply to persons who provide aesthetic services, one might expect that the description of the establishment in the regulation would be broader. (b) Aesthetic services such as manicures are often provided in establishments that do not cut hair, such as nail salons and spas. If nail technicians were intended to be included in by the regulation, it is likely that the regulation would have referred to these other establishments as well. [27] It is apparent Parliament decided the converse does not apply and that it is only barbers and hairdressers who require the protection of said Regulation even while performing their services in an establishment that provides other services apart from those normally provided in a hairdressing establishment. [28] In the within appeal, Willcott and Short proceeded in good faith to pursue a workable and cost-effective method of carrying out their own service businesses in conjunction with one or more other service providers within the same building. It is vital for entrepreneurs of small and medium enterprises to keep close watch on expenses because it is difficult to increase revenue which often proves to be inelastic once the business has attained a certain maturity. I concur with the submission of counsel for the appellant that it is unlikely Parliament wanted to cover this sort of situation and the usual appeals before the courts involve the sort of establishments that follow a practice commonly referred to within the industry as "renting chairs". In those cases, the circumstances clearly established the workers provided hairdressing services in an establishment as contemplated by the legislation. The provision at issue does not have any formula as is found in the following paragraph - 6(e) - concerning drivers of a taxi, commercial bus, school bus or any other vehicles used by a business or public authority for carrying passengers. In that instance, the driver is considered to be engaged in insurable employment only if he or she is not the owner of more than 50% of the vehicle or the owner or operator of the business or the operator of the public authority. In my view, in order to qualify as a "barbering of hairdressing establishment", it is not necessary that a business entity has as its primary - or major - business purpose the provision of those services. Instead, I find it reasonable to conclude that by providing any of the services normal to that establishment, the entity will meet that definition. [29] Although it does not play any part in my conclusion, Willcott did have the means by which to deduct the EI premiums prior to remitting to Short her entitlement from the accumulated debit machine transactions that had been deposited to the Sandlewood account. [30] The appellant put forth a valid argument but I am not persuaded the decision of the Minister is wrong and it is hereby confirmed. [31] The appeal is dismissed. Signed at Vancouver, British Columbia, this 13th day of July 2005. D.W. Rowe Rowe, D.J. CITATION: 2005TCC428 COURT FILE NO.: 2004-3600(EI) STYLE OF CAUSE: Tracy Willcott o/a Sandalwood Esthetics and M.N.R. PLACE OF HEARING: Edmonton, Alberta DATE OF HEARING: May 24, 2005 REASONS FOR JUDGEMENT BY: The Honourable D.W. Rowe, Deputy Judge DATE OF JUDGMENT: July 13, 2005 APPEARANCES: Agent for the Appellant: Brook Mishna Counsel for the Respondent: Galina Bining COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario