Financière Banque Nationale Inc. v. M.N.R.

Financière Banque Nationale Inc. v. M.N.R.
Court (s) Database
Tax Court of Canada Judgments
Date
2009-01-16
Neutral citation
2008 TCC 624
File numbers
2008-224(EI)
Judges and Taxing Officers
Pierre Archambault
Subjects
Employment Insurance Act
Decision Content
Docket: 2008-224(EI)
BETWEEN:
FINANCIÈRE BANQUE NATIONALE INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
CARLO MASSICOLLI,
Intervener.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on July 17 and August 1, 2008, at Montréal, Quebec
Before: The Honourable Justice Pierre Archambault
Appearances:
Counsel for the Appellant:
Wilfrid Lefebvre
Vincent Dionne
Counsel for the Respondent:
Mounes Ayadi
Counsel for the Intervener
Serge Racine
Stéphane Larochelle
____________________________________________________________________
JUDGMENT
The appeal from the determination made by the Minister of National Revenue under the Employment Insurance Act is allowed and the determination is reversed. Carlo Massicolli was employed by National Bank Financial in insurable employment from January 1, 2003, to October 1, 2004.
Signed at Ottawa, Canada, this 16th day of January 2009.
"Pierre Archambault"
Archambault J.
Translation certified true
on this 4th day of March 2009.
Brian McCordick, Translator
Citation: 2008 TCC 624
Date: 20090116
Docket: 2008-224(EI)
BETWEEN:
FINANCIÈRE BANQUE NATIONALE INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
CARLO MASSICOLLI,
Intervener.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] On December 1, 2006, a Canada Revenue Agency eligibility officer determined that Carlo Massicolli was employed in insurable employment by the Appellant, National Bank Financial (NBF), within the meaning of section 5 of the Employment Insurance Act (the Act), from January 1, 2003, to December 31, 2004 (the relevant period).[1] The appeals officer set aside that determination and determined that Mr. Massicolli did not hold insurable employment during that period. NBF filed an appeal from the appeals officer's determination in this Court, and Mr. Massicolli filed a Notice of Intervention on March 10, 2008. On June 26, 2008, counsel for the Respondent notified the other parties to the dispute that he now supported NBF's position, that he would not be adducing any evidence, and that he would make no oral submissions at the hearing scheduled for July 17, 2008. By reason of this change of position by the Respondent, I decided not to take the Respondent's assumptions of fact into account; consequently, each of the other two parties had the burden of proving the facts in support of the findings that they sought from this Court.
Agreed facts
[2] The three parties filed a Partial Agreed Statement of Facts, which frames the issue in the instant case as follows: Was Mr. Massicolli an independent contractor or an employee of NBF during the relevant period? Contrary to the position usually taken by payors and workers before this Court, NBF submits that Mr. Massicolli was an employee, and Mr. Massicolli submits that he was an independent contractor. I shall reproduce paragraphs 1-29 of the Partial Agreed Statement of Facts:
[TRANSLATION]
1. The Appellant, a company incorporated in Canada, provides securities brokerage and other services.
2. The Appellant's securities brokerage services consist, among other things, in offering counselling and brokerage services to individuals through investment advisors, and in offering institutional brokerage and corporate finance services.
3. The counselling and brokerage services that the Appellant offers to individuals are rendered by investment advisors who are assigned to various branches throughout Canada, including the branch located in Pointe‑Claire, Quebec ("the Branch").
4. On August 27, 1993, the Intervener joined the Appellant's team of investment advisors. His job consisted, among other things, in providing investment advice to clients based on their investor profiles and investment objectives ("Clients"). From January 1, 2003, to October 1, 2004 ("the Period"), the Intervener was an investment advisor and broker at the Branch.
Regulation
5. During the Period, the Appellant and the Intervener were subject to legislative rules, including the Securities Act (Quebec), and rules established by self‑regulatory bodies governing securities trading, including the Investment Dealers Association of Canada (IDA).
6. The IDA is a self-regulatory body which is responsible for, among other things, the supervision, administration and registration of brokers, and which supervises the conduct of business by brokers and their representatives and ensures that brokers are sufficiently capitalized to carry out their functions appropriately with a view to protecting Clients. During the Period, the Appellant was a member of the IDA as a securities dealer.
7. Since 1982, the Commission des valeurs mobilières du Québec (now the Autorité des marchés financiers) entrusted the IDA with the administration and regulation of the activities of securities brokers like the Appellant and representatives like the Intervener.
8. In 2008, the IDA and Market Regulation Services Inc. (MRS) merged to become the Investment Industry Regulatory Association of Canada (IIROC). IIROC now fulfils the IDA's role in the province of Quebec.
9. In order to comply with IDA requirements during the Period, the Appellant implemented mechanisms for the supervision and control of transactions and operations involving Clients' affairs.
10. The Intervener was one of the representatives registered by the Appellant with the Commissions des valeurs mobilières du Québec in accordance with section 149 of the Securities Act (Quebec).[2]
11. During the years in issue, the Intervener held licences to practice his profession in British Columbia, Quebec and Ontario.
Remuneration and benefits
12. During the Period, the Intervener was remunerated solely by commission, and the Appellant had no obligation to pay the Intervener any minimum income.
13. During the Period, the commissions paid to the Intervener represented roughly 50% of the commission fees charged to Clients.
14. The Appellant was responsible for, among other things, billing and Client account receivables, and gave the Intervener the share of the commissions to which he was entitled.
15. During the Period, the Intervener was entitled to fringe benefits, including various group insurance policies such as life insurance and health insurance.
Office and equipment
16. The Intervener had an office at the Branch.
17. The Intervener sometimes had to work away from the Branch premises in order to meet with Clients.
18. Client files had to be stored at the Branch, and operations and transactions on Client accounts had to be effected or initiated from the office located at the Branch.
19. During the Period, the Intervener had to incur work-related expenses, including travel expenses and motor vehicle expenses. The Appellant did not reimburse these expenses.
20. The Appellant made the following available to the Intervener at the Branch:
a. meeting rooms;
b. financial analysis, reception, marketing, accounting and payroll services, and
c. Intranet resources.
Administration and marketing
21. During the Period, the Intervener offered investment advice and brokerage services to Clients under the Appellant's banner. In his dealings with the Clients during the period, the Intervener used business cards and letterhead bearing the Appellant's logo and business name.
23. As of April 2003, the Intervener formed an undeclared partnership with Mark W. Auger, an investment advisor who worked at the Branch.[3] The business name of the partnership was "Auger‑Massicolli."[4] Around June 2003, the Auger‑Massicolli business name also appeared on the Intervener's business cards and letterhead.[5]
22. Beginning around June 2003, the business cards and letterhead used by the Intervener in his dealings with Clients also bore one of the following trademarks:
a. "Bâtir de la résistance aux conséquences du hazard" (TMA622252);
b. "Building resistance to randomness" (TMA621930); and
c. Dolmen Design (TMA642799).
24. The trademarks referred to in paragraph 22 were the property of Les Placements Sydwood Inc., an entity unrelated to the Appellant or to any of the Appellant's subsidiaries.[6]
Staff and assistants
25. The Intervener had the help of assistants in carrying out his work.
26. Part of the cost of these assistants was borne by the Intervener through deductions from his remuneration, and part of the cost was borne by the Appellant. The Appellant made source deductions at all times from the assistants' salaries in accordance with Quebec and federal tax legislation.
27. The Appellant covered the cost of office furniture and supplies associated with the assistants' activities.
Contributions to government bodies
28. The Intervener was responsible for the fees and contributions payable for his licences from the government bodies in the provinces in which he was registered.
Administration
29. The Appellant could charge the Intervener for transaction losses.
Factual background
[3] The testimony of the witnesses, and the numerous documents adduced at the hearing, proved numerous additional facts. Some of those facts shall be set out directly below, while others will be addressed under the heading "Analysis".
[4] After obtaining a Bachelor's of Business Administration (Finance) degree from the Université du Québec à Montréal in 1986, Mr. Massicolli worked for The Co‑operators Financial as a financial advisor. After that company was acquired by the Laurentian Bank of Canada, he held managerial positions at that bank, including the position of branch audit and security manager and the position of credit manager.
• Agreement with NBF
[5] Before being hired by the brokerage firm of Lévesque Beaubien Geoffrion Inc. (LBG), now NBF, Mr. Massicolli filled out an employment application form on which the [TRANSLATION] "position applied for" was advisor (see Exhibit A‑2, tab 1). On the form, signed on August 26, 1993, Mr. Massicolli stated: [TRANSLATION] "I wish to work for your Company and . . . agree to comply with the regulations and practices in force at the Company." (Emphasis added.) In a letter dated August 27, 1993, Maurice Dupont, vice‑president and Laval branch manager, confirmed the offer to hire Mr. Massicolli. The letter was amended by a letter dated September 1, 1993, which states: [TRANSLATION] "This is to confirm the main points of the agreement that finalize [sic] your employment with our firm . . ." (Emphasis added.)
[6] The letter states that he was hired effective September 1, 1993, at which time his [TRANSLATION] "training" would begin. According to the conditions of his hiring, he was to receive a hiring bonus: a total of $15,000 in [TRANSLATION] "salary" that would be paid for the first nine months, plus commissions [TRANSLATION] "in accordance with the commission and bonus system established by LBG." The letter adds: [TRANSLATION] "The above bonus is not reimbursable, but your progress will be monitored and reviewed regularly . . ." (Emphasis added) It specifies that if Mr. Massicolli engaged in conduct detrimental to LBG's reputation, LBG would have the option to [TRANSLATION] "terminate your association with our firm." Mr. Dupont concludes the letter by stating that it is his pleasure to welcome Mr. Massicolli to [TRANSLATION] "our team" (see Exhibit A‑2, tab 4).
[7] On the employment application form, under the heading [TRANSLATION] "Terms and Conditions of Hiring", it is stated that Mr. Massicolli's employment was to begin at the Laval branch, and that his [TRANSLATION] "employee number" would be 11368. In addition to his annual salary in the form of commissions, he was to receive basic life insurance coverage as a benefit.
[8] NBF's Investment Advisor's Guide provides more details about the calculation of investment advisors' remuneration.[7] The document sets forth the following basic principle:
[TRANSLATION]
I. Basic principle
§ The remuneration of an investment advisor is established in three stages:
1st stage: Establish the gross commission that NBF receives for all operations and transactions carried out by the investment advisor.
2nd stage: Establish the commission of the NBF advisor. This commission is a percentage of the gross commission, and can range from 0% to 55% of the gross commission, depending on the type of activity or the value of the transaction.
3rd stage: Adjust the investment advisor's commission by increasing or decreasing the commission amount through adjustments related to his production and by subtracting certain amounts representing additional costs incurred by NBF with respect to the services provided which are over and above certain established parameters.
[9] To illustrate all the components of the establishment of investment advisors' commissions, it is helpful to reproduce the "Monthly Summary of Income — Example" from the guide.[8]
Monthly Summary of Income – Example
+
Net commissions on transactions
+
Portfolio management fees
+
Finder's Fees
+
Net commissions on Trailer Fees, PAC with mutual fund and group RSP with mutual fund
+
Net commissions on life insurance contracts
+
Net commissions on term contracts
+
Adjustments on transaction commissions
A
Total income subject to adjustment
B
Adjustment: 33⅓% of A
C
Income after adjustment (A – B)
+
Net commissions on administration fees
(SSP, RSP Portfolio, RIF Portfolio, Full Access Plan)
-
Losses on transactions
-
Amount exceeding budgeted Entrepreneur Account
D
Income after adjustments and commissions on administrative fees
-
Portion (%) of net income paid to the assistant
-
Monthly fixed payment to the assistant
-
Contribution towards guaranteed income of investment advisor
-
Contribution towards computer services
-
Regulatory and [self-regulatory association] registration fees
-
Contribution towards assistant's salary
-
Legal fees
-
Relay Program reimbursement
-
Other reimbursements of fees assumed by the advisor
E
Net income after fees assumed by the advisor
(line D less total fees)
+
Quarterly performance bonus
-
Portion (%) of performance bonus paid to the assistant
F
Monthly net income (i.e. gross income for tax purposes) (line E plus quarterly net performance bonus)
[10] Although there are no precise quotas for investment advisors, NBF's remuneration policy in force on April 1, 2003 discloses that the remuneration of advisors who have generated gross commissions lower than $55,000 per three-month period is reduced by 33% for the subsequent month.[9] According to Mr. Massicolli, NBF did not set any targets for him, because his production exceeded its expectations.
[11] Part IV of the Employee Guide (English version of Exhibit A-2, tab 23) prepared by NBF's Human Resources Department deals specifically with various terms and conditions of employees' work. Two provisions deserve special attention:
4.3 Bonuses
• Permanent employees who are eligible for discretionary bonuses based on the profitability of the firm and/or the division, and also on the employee's individual performance, must have worked during the reference period and be employed by the firm at the time the bonus is paid in order to be eligible. In addition, any applicable vacation pay that is payable in accordance with provincial labour law provisions is included in the bonuses paid.
. . .
4.4 Commission
• Employees eligible to receive commissions must have worked during the reference period in order to be eligible. In addition, any applicable vacation pay[10] that is payable in accordance with provincial labour law provisions is included in the commissions paid.
[Emphasis added.]
[12] The Employee Guide also describes the various forms of group insurance coverage offered to permanent full-time or permanent part-time employees (administrative or producer) who work a minimum of 20 hours per week. Coverage includes basic life insurance, basic accidental death and dismemberment insurance, medical insurance, dental insurance and short-term disability insurance. According to the Employee Guide, an employee is eligible for the group insurance program from his or her hiring date. (Exhibit A‑2, tab 23, page 16). Paragraph 6.4 specifies that basic life insurance premiums are paid 100% by the employer. This applies as well to basic life insurance for dependants and to basic accidental death or dismemberment insurance. As for medical insurance, the employer pays the premiums for personal coverage, but the employee pays a premium for family dental and medical coverage.
[13] The short-term disability insurance policy covers the first 90 calendar days of absence due to illness. An employee with at least two years of service receives 100% of his or her remuneration for the first 20 consecutive working days of absence. The benefit payment for the remaining 70 days is 85%. If the employee has no base salary, compensation is based on the commissions and bonuses earned during the 12 full months worked prior to becoming disabled, to a maximum of $240,000 (gross) per year (section 6.1.4 of the English version of the Employee Guide). However, investment advisors like Mr. Massicolli were not entitled to join the defined-benefit pension plan, because they were considered "producer" employees with no base salary (see page 22 of the French version of the Employee Guide).
[14] The Employee Guide describes several other benefits, including reduced costs for financial programs offered by the National Bank of Canada (NBC) and NBF (see Part VIII of the document). The Investment Advisor's Guide also contains a section concerning the "employee account", an account, in Canadian or U.S. funds, opened in the name of a permanent or retired NBF employee (policy P140‑10 in the Employee Guide). The account features attractive interest rates on any credit balances in current accounts, as well as reduced brokerage fees, and a waiver of administrative fees for registered plan accounts. Although Mr. Massicolli says that he did not avail himself of this benefit, he was entitled to do so.
[15] The part of the Investment Advisor's Guide that deals with travel expenses states: "Except the events listed below, commission employees (retail sector) must assume meal, travel and accommodation expenses themselves: the President's Club; the President's Convention; the President's Council; training for recruits, investment and administrative assistants . . . ."
[16] The Employee Guide deals with NBF's training and development policy. All permanent full-time workers who have completed their probationary period are eligible to be reimbursed for the costs they incur for training courses, or the fees that they pay to attend a development seminar (Exhibit A‑2, volume 5, tab 23, page 9). Mr. Massicolli was reimbursed for the cost of certain training courses that he enrolled in, including courses given by CSI Global Education, but he covered his registration fee for a conference on estate freezes held by the Association de planification fiscale et financière (see Exhibit INT‑2, tab 44).
[17] At the time he was hired, Mr. Massicolli lived in St‑Constant, on the South Shore across from Montréal, but had to work at the Laval branch. Since Mr. Massicolli noticed that LBG had no branch on the West Island, he decided to build his clientele in that geographical area of Montréal.
[18] Mr. Leclerc acknowledged that NBF did not provide actual client lists to its investment advisors, but that the advisors could get some of their clientele from among the customers of NBC, which owned 20-30% of LBG at that time. There was thus a synergy between NBC's clientele and NBF's clientele. Mr. Massicolli acknowledged contacting the managers of NBC's various branches. He spoke to potential clients about investments. Mr. Leclerc estimated that 20-25% of the clients served by Mr. Massicolli were NBC customers.
[19] Tired of having to cross two bridges to get to work, Mr. Massicolli moved to Baie d'Urfé on the West Island. By 1996, Mr. Massicolli had built up enough of a client base on the West Island for LBG to open a point of sale, which was a sub‑branch of the Laval branch. The location opened on May 10, 1996. Since there were other investment advisors who lived on the West Island, two new advisors joined the West Island team, which justified the opening of an actual branch in the fall of 1996. Mr. Massicolli and a colleague, Christian Lamarre, became co-managers. This situation did not please Mr. Massicolli. In a sense, he was competing with the branch's other investment advisors. He found it difficult to motivate them. Since he was a co‑manager, he also had to act as compliance officer with regard to the activities of the West Island branch. In any event, a new manager, Martin Leclerc, was appointed in 2000. This appointment enabled Mr. Massicolli and Mr. Lamarre to concentrate on the activities that were apparently of more interest to them: developing and serving a brokerage clientele.
[20] Mr. Massicolli focused more on providing investment advice than on selling products developed by NBF. In adopting this approach, Mr. Massicolli was prioritizing fees for counselling services over commissions on the purchase and sale of securities. In furtherance of this approach, Mr. Massicolli formed a team with Mark W. Auger in May 2003 so that they could concentrate their efforts on entrepreneurs and wealthy families. One of the reasons for this association was the principle of complementarity: each investment advisor would be able to develop expertise in different aspects of securities brokerage. Mark Auger was responsible for managing the portfolios of the Auger‑Massicolli team's clients, while Mr. Massicolli was responsible for business development.
[21] In many respects, Mr. Auger and Mr. Massicolli behaved as entrepreneurs. For example, in order to develop its new niche, the Auger‑Massicolli team decided to pursue a high-end marketing strategy. It called on the services of a graphic designer to create the stationery. The prototype prepared by the graphic designer described Auger‑Massicolli as a limited liability partnership, designated by the French abbreviation "SENC" (société en nom collectif). The proposed letterhead and business cards contain the business name ending in SENC, NBF's name, and each entity's logo. However, as stated in the Investment Advisor's Guide, any advertising by an NBF representative requires NBF's approval.[11] The "Goals Worksheets" show that the question of a proposed limited liability partnership was discussed in July 2003. The Auger‑Massicolli team never obtained NBF's approval for the use of the French designation SENC. That is probably why Mr. Massicolli and Mr. Auger say that they formed an undeclared partnership, which is not required to "make declarations in the manner prescribed by the legislation concerning the legal publication of partnerships" (article 2189 of the Civil Code of Québec (the Civil Code)).
[22] In order better to focus on their target clientele consisting of entrepreneurs and wealthy families, Mr. Auger and Mr. Massicolli decided to reduce the number of clients that they served from 760 to 460.[12] A part of this "purging" was done by transferring clients to another NBF investment advisor. Transferring at least $10 million in investments entitled the Auger‑Massicolli team to a consideration of $25,000, which was used to help pay an assistant's salary for two years. It appears that some portion of the $25,000 also helped defray the team's marketing expenses.
[23] Mr. Auger and Mr. Massicolli used a "Goals Worksheet" to define their objectives: the commission target, the income to be earned during the month, and the amount of assets to have under management. The team tried to persuade Luc Paiement, the president and person responsible for individual investor services at NBF, to form a group that they called "Private Client Wealth Management". Negotiations between the Auger‑Massicolli team and NBF's management lasted several months. In the end, NBF allowed the team to personalize NBF's concept of "Advisor Baskets" and to use the designation "MWA Basket" instead (Mr. Auger's initials are MWA). A letter signed by Mr. Paiement on December 15, 2003, informs NBF's clients about this "MWA Basket".
[24] On the other hand, the proposals made by the Auger‑Massicolli team in relation to (a) a limited liability partnership; (b) a separate incorporated division; (c) merger/integration into FBN Gestion Privée; (d) separate branding / joint branding, appear not to have been approved by Mr. Paiement. In fact, in a letter to Mr. Paiement dated January 24, 2004,[13]Mr. Auger expressed his frustration in the following terms:
Auger‑Massicolli is genuinely concerned that our experiences and know how [sic] are being undermined by NBF's inaction. We are behind schedule. Our most direct competitors, National Bank of Canada and Desjardins, are not wasting anytime [sic] in aggressively recruiting, training, and coordinating the required people and technological resources. Auger‑Massicolli will not stand still.
[25] The Auger-Massicolli team moved from talk to action. It left NBF on October 1, 2004, some eight months later, to join Desjardins Securities. Upon the team's departure in October 2004, NBF filled out a Record of Employment (ROE) in compliance with the provisions of the Act.
[26] In addition to that Record of Employment, NBF prepared T4 information slips for 2004 as it had done for the preceding years. On these slips, the commissions paid by NBF to Mr. Massicolli are entered in box 14 as "employment income". NBF also prepared copies of Form T2200, Declaration of Conditions of Employment, for Mr. Massicolli for the years 2003 and 2004 (see Exhibit A‑2, volume 5, tabs 27 and 29). These forms describe Mr. Massicolli as an "employee" holding the position of investment advisor. For the year 2003, the form states that he is authorized to work from home[14] and that he is paying an assistant's salary at his discretion. Mr. Leclerc, Mr. Massicolli's branch manager, said that the latter did not object to being issued T4 slips and T2200 forms for the years 2003 and 2004. In fact, Mr. Massicolli included his commissions from NBF in his employment income as entered on line 101 of his income tax return (see Exhibit INT‑1, tabs 39 and 40). He also deducted "employment expenses" on line 229.[15]. It should be noted that he reported $400 in business income on his 2004 income tax return. This amount is related to financial planning advice and is the only business income reported on the return.
The regulatory context
[27] Before setting out each party's position, it is important to describe the regulatory context in which a securities brokerage business operates in Quebec. As with certain other professions and occupations, there are rules governing the conduct of such business.[16] In order better to protect the public and the brokerage industry, there are stringent standards. These standards apply to the businesses themselves, but they also apply to their employees and agents. As I understand it, brokerage firms that came together under the IDA umbrella imposed standards on themselves in order to better protect their industry and their clients. The Commission des valeurs mobilières du Québec, created by Quebec legislation, entrusted the IDA with the responsibility to regulate brokerage activities from 1982 onward.
[28] The By-laws, Regulations and Policies of the IDA are set out in its Rule Book (July 1997). The IDA's Constitution articulates the aims of the Association, and section 2(b) in particular refers to "encourag[ing] through self‑discipline and self‑regulation a high standard of business conduct among Members[17] and their partners, directors, officers and employees and to adopt, and enforce compliance with, such practices and requirements as may be necessary and desirable to guard against conduct contrary to the interests of Members, their clients or the public". (Emphasis added.) (English version of the IDA Constitution, the French version being Exhibit A‑2, volume 2, tab 12.)
• General obligations
[29] By-law No. 29 pertains to "Business Conduct" and section 1 (cited by the IDA as By-law 29.1) states, inter alia, as follows:[18]
Business Conduct
1. Members and each partner, director, officer, sales manager, branch manager, assistant or co-branch manager, registered representative, investment representative and employee of a Member (i) shall observe high standards of ethics and conduct in the transaction of their business, (ii) shall not engage in any business conduct or practice which is unbecoming or detrimental to the public interest, and (iii) shall be of such character and business repute and have such experience and training as is consistent with the standards described in clauses (i) and (ii) or as may be prescribed by the Board of Directors.
For the purposes of disciplinary proceedings pursuant to the By-laws, each Member shall be responsible for all acts and omissions of each partner, director, officer, sales manager, branch manager, assistant or co-branch manager, registered representative, investment representative and employee of a Member; and each of the foregoing individuals shall comply with all By-laws, Regulations and Policies required to be complied with by the Member.
[Emphasis added.]
Duty of supervision
[30] Among the rules of conduct governing IDA members are the rules related to the duty of supervision, particularly By-law 29.27(a):
27.(a) Each Member shall establish and maintain a system to supervise the activities of each partner, director, officer, registered representative, employee and agent of the Dealer Member that is reasonably designed to achieve compliance with the Rules of the Association and all other laws, regulations and policies applicable to the Member's securities and commodity futures business. Such a supervisory system shall provide, at a minimum, the following:
(i) The establishment, maintenance and enforcement of written policies and procedures acceptable to the Association regarding the conduct of the types of business in which it engages and the supervision of each partner, director, officer, registered representative, employee and agent of the Member that are reasonably designed to achieve compliance with the applicable laws, rules, regulations and policies;
(ii) Procedures reasonably designed to ensure that each partner, director, officer, registered representative, employee and agent of the Member understands his or her responsibilities under the written policies and procedures in (i);
(iii) Procedures to ensure that the written policies and procedures of the Member are amended as appropriate within a reasonable time after changes in applicable laws, regulations, rules and policies and that such changes are communicated to all relevant personnel;
(iv) Sufficient personnel and other resources to fully and properly enforce the written policies and procedures in (i);
(v) The designation of supervisory personnel with the qualifications and authority to carry out the supervisory responsibilities assigned to them. Each Member shall maintain an internal record of the names of all persons who are designated as having supervisory responsibility and the dates for which such designation is or was in effect. Such record shall be preserved by the Member for seven years, and on-site for the first year;
(vi) Procedures for follow-up and review to ensure that supervisory personnel are properly executing their supervisory functions. Where the supervision is conducted and supervisory records are maintained at a branch office, the follow-up and review procedures shall include periodic on-site reviews of branch office supervision and record-keeping as necessary depending on the types of business and supervision conducted at the branch office;
(vii) The maintenance of adequate records of supervisory activity, including on-site reviews of branch offices as described in (vi), compliance issues identified and the resolution of those issues.
[Emphasis added.]
[31] IDA By-law No. 39 deals with agents. The most relevant portions are as follows:[19]
Principal and Agent
39.1 All By-laws, Regulations, Policies and Forms of the Association that refer to the term employee shall be deemed to refer as well to the term agent and all references to the term employment shall be deemed to refer as well to the term agency relationship, where applicable.
39.2 For the purposes of this By-law "securities related business" means any business or activity (whether or not carried on for gain) engaged in, directly or indirectly, which constitutes trading or advising in securities or exchange contracts (including commodity futures contracts and commodity futures options) for the purposes of applicable securities legislation and exchange contracts legislation in any jurisdiction in Canada, including for greater certainty, sales pursuant to exemptions under that legislation.
39.3 The relationship between the Member and any person conducting securities related business on behalf of the Member may be that of
(a) an employee, or
(b) an agent who is not an employee,
but may not be that of an incorporated salesperson.[20]
39.4 Where a Member structures its business relationship with a person conducting securities related business on behalf of the Member using the principal / agent relationship contemplated in paragraph 39.3(b), the Member shall ensure that:
. . .
(c) the Member shall be responsible for, and shall supervise the conduct of the agent in respect of the business including compliance with applicable legislation and the By-laws, Regulations, Policies and Forms of the Association, including the by-laws, rulings, policies, rules, regulations, orders and directions of any self-regulatory organization or similar authority to which the Member is subject;
(d) the Member shall be liable to clients (and other third parties) for the acts and omissions of the agent relating to the Member's business as if the agent were an employee of the Member;
. . .
(n) the Member and the agent shall enter into an agreement in writing which shall be provided to the Association prior to engaging in the principal/agent relationship and shall contain terms which include the provisions of paragraph (a) to (m), inclusive, and which do not include provisions which are inconsistent with paragraph (a) to (m), and shall provide the Association with a certificate by an officer or director of such Member and upon request by the Association shall provide an opinion of counsel confirming the agreement is in compliance with such provisions.[21]
[Emphasis added.]
[32] IDA Regulation 1300, which pertains to "Supervision of Accounts" (English version of Exhibit A‑2, volume 3, tab 12), defines a "managed account" as "any account solicited by a Member or . . . registered representative of a Member, in which the investment decisions are made on a continuing basis by the Member or by a third party hired by the Member," A "discretionary account" is defined as an "account of a customer other than a managed account in respect of which a Member or any person acting on behalf of the Member exercises any discretionary authority in trading by or for such account . . ." (Regulation 1300.3). Regulation 1300.7 states:
No Member or any person acting on its behalf, shall exercise any discretionary authority with respect to a managed account unless: (a) the individual who is responsible for the management of such account is: (i) a partner, director, officer, employee or agent of the Member who has been approved by the Association as a portfolio manager or associate portfolio manager; or (ii) a sub-adviser with which the Member has entered into a written sub-adviser agreement . . ."[22] [Emphasis added.]
[33] In addition to Regulation 1300, there is Policy No. 2, which establishes "Minimal Standards for Retail Account Supervision",[23]particularly for managed accounts. Part VII, which pertains to the supervision of such accounts, states that the member must be approved by the IDA to open such accounts, and must comply with all the requirements specifically detailed in the By-laws, Regulations and Policies of the IDA. Only qualified portfolio managers may handle managed accounts. (Division E: Managed Accounts).
[34] As Mr. Massicolli acknowledged in his testimony, since neither he nor Mr. Auger was a partner, director, officer or agent of NBF, neither of them could be a portfolio manager unless he was an employee of NBF. It has been established that Mr. Auger was an assistant portfolio manager, and the evidence does not disclose the existence of a "written sub-advisor agreement". Neither Mr. Auger nor Mr. Massicolli was an IDA member. They were merely registered representatives. They had to be NBF employees in order to open portfolio management accounts and exercise discretionary authority over such accounts. They could open such accounts only on behalf of NBF, which had to exercise tight control over the activities of employees acting as portfolio managers or assistant portfolio managers.
[35] More generally, it is important to note that the rules contained in the By-laws, Regulations and Policies apply only to managers and their personnel. A member's personnel includes its directors (if it is a corporation), partners (if it is a partnership), officers, sales directors, branch managers or co-managers, investment representatives and any other employees of the member. It also includes agents acting on behalf of a member, provided there is a written agreement approved by the IDA. Thus, the duty of supervision applies only to those persons. The rules impose no obligations, including supervisory obligations, regarding any other person operating a brokerage business or carrying on brokerage activities. NBF therefore has no obligation to supervise a sub-contractor who is not one of the persons included in this long list.
The parties' positions
• NBF's position
[36] Counsel for NBF went over the relevant rules that should assist the Court in determining whether Mr. Massicolli was an employee or whether he was self‑employed. First of all, the question should be decided in accordance with the Civil Code, since the Act does not define "employment . . . under [a] . . . contract of service" for the purposes of the definition of "insurable employment" in subsection 5(1) of the Act. In support of his position, he cited Tambeau, sub nom. 9041‑6868 Québec Inc. v. Minister of National Revenue, 2005 FCA 334. In particular, he cited the remarks of Décary J.A.:[24]
[3] When the Civil Code of Québec came into force in 1994, followed by the enactment of the Federal Law - Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4 by the Parliament of Canada and the addition of section 8.1 to the Interpretation Act, R.S.C., c. I-21 by that Act, it restored the civil law of Quebec to its rightful place in federal law, a place that the courts had sometimes had a tendency to ignore. On this point, we need only read the decision of this Court in St-Hilaire v. Canada, [2004] 4 FC 289 (FCA) and the article by Mr. Justice Pierre Archambault of the Tax Court of Canada entitled "Why Wiebe Door Services Ltd. Does Not Apply in Quebec and What Should Replace It", recently published in the Second Collection of Studies in Tax Law (2005) in the collection entitled The Harmonization of Federal Legislation with Quebec Civil Law and Canadian Bijuralism, to see that the concept of "contract of service" in paragraph 5(1)(a) of the Employment Insurance Act must be analyzed from the perspective of the civil law of Quebec when the applicable provincial law is the law of Quebec.
. . .
[7] In other words, it is the Civil Code of Québec that determines what rules app