Mazraani v. M.N.R.

Mazraani v. M.N.R.
Court (s) Database
Tax Court of Canada Judgments
Date
2016-04-12
Neutral citation
2016 TCC 65
File numbers
2013-3484(EI)
Judges and Taxing Officers
Pierre Archambault
Subjects
Employment Insurance Act
Decision Content
Docket: 2013-3484(EI)
BETWEEN:
KASSEM MAZRAANI,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
INDUSTRIELLE ALLIANCE, ASSURANCE ET SERVICES FINANCIERS INC.,
Intervenor.
Appeal heard on May 11 and 12 and June 1, 2, 15 and 16, 2015 at Montreal, Quebec.
Before: The Honourable Justice Pierre Archambault
Appearances:
For the Appellant:
The Appellant himself
Counsel for the Respondent:
Emmanuel Jilwan
Counsel for the Intervenor:
Yves Turgeon
JUDGMENT
The appeal pursuant to subsection 103(1) of the Employment Insurance Act (the “Act”) is allowed and the decision of the Minister of National Revenue, dated August 1, 2013, is varied on the basis that the appellant was engaged in insurable employment within the meaning of paragraph 5(1)(a) of the Act for the period from April 10, 2012 to November 23, 2012, while working for the Intervenor.
Costs are payable by the Intervenor to the Appellant in the amount of $2,000.
Signed this 12th day of April 2016.
“Pierre Archambault”
Archambault J.
Citation: 2016 TCC 65
Date: 20160412
Docket: 2013-3484(EI)
BETWEEN:
KASSEM MAZRAANI,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
INDUSTRIELLE ALLIANCE, ASSURANCE ET SERVICES FINANCIERS INC.,
Intervenor.
REASONS FOR JUDGMENT
Archambault J.
Founded in 1892, Industrial Alliance Insurance and Financial Services Inc. [Industrial Alliance, IA, or the Company] is a life and health insurance company whose primary mission is to provide financial protection to its insureds and their beneficiaries in the event of death, disability, or illness, and to help clients achieve financial independence at retirement or accomplish special projects.
To carry out this mission, Industrial Alliance offers a wide range of life and health insurance products, savings and retirement plans, RRSPs, mutual and segregated funds, securities, auto and home insurance, mortgage loans, and other financial products and services. It is known for the personalized service provided by its professional agents, who are attentive to the ever-changing needs of their clients.
The fourth largest life and health insurance company in Canada, Industrial Alliance is at the head of a large financial group with operations in all regions of Canada, as well as in the United States.
Industrial Alliance . . . employs more than 3,700 people, and manages and administers over $70 billion in assets.[1]
[Emphasis added.]
I. ISSUE [1] The issue in this appeal is whether one of its former professional agents, Mr. Mazraani, was an employee of the Company during the period from April 10, 2012 to November 23, 2012 (relevant period).[2] Mr. Mazraani is appealing[3] a decision of the Minister of National Revenue (Minister) regarding the insurability of his employment under the Employment Insurance Act (Act).[4] Because the contract was concluded in the province of Quebec, the solution to this issue depends on whether Mr. Mazraani was working under a contract of employment pursuant to article 2085 of the Civil Code of Québec (Civil Code or Q.C.C.)[5] or as an independent contractor under a contract of enterprise or for services pursuant to article 2098 Q.C.C.[6]
II. ASSUMPTIONS OF THE MINISTER AND ADMISSIONS [2] The Minister decided that Mr. Mazraani did not hold insurable employment. In doing so, she relied on the following assumptions of fact set out in paragraph 5 of the Reply to the Notice of Appeal:
a) The Payer is a personal insurance and financial services company whose principal activity is the sale of life, disability and health insurance; (admitted)
b) The Payer’s head office is located in the city of Québec, and it has several branches throughout the Province of Quebec; (admitted)
c) In the Province of Quebec, the insurance and financial services industry is regulated by the Autorité des marchés financiers (the “AMF”); (admitted)
d) In order to sell insurance and other related financial products in Quebec, individuals and companies must hold a valid license from the AMF; (admitted)
e) The Appellant was hired by the Payer as a financial advisor in April 2012; (admitted)
f) Prior to working for the Payer, the Appellant had already worked for several years as a financial planner with another major insurance company; (admitted)
g) At the time of his hiring by the Payer, the Appellant’s AMF license was inactive; (admitted)
h) Between April 3, 2012 and June 7, 2012, the Appellant attended a mandatory training course which was offered by the Payer, on the basis of two hours a day, three days a week; (admitted)
i) The completion of this training course was required in order for the Appellant to meet regulatory requirements and to reactivate his AMF license; (denied)
j) The Appellant did not receive any remuneration for his attendance and completion of this training course; (denied)
k) On May 3, 2012, the Appellant and the Payer entered into a written contract with an effective date of April 30, 2012; (admitted)
l) This contract provided, inter alia, that:
i. The Appellant was authorized to solicit and obtain applications and requests for the various contracts and financial services offered either directly or indirectly by the Payer; (admitted)
ii. The Appellant was liable for any amount incurred by or owed to the Payer or a client due to a mistake, negligence, fraud or dishonesty by him or one of his mandataries; (admitted)
iii. The Appellant was remunerated by way of a “fund” that was set up by the Payer; (denied)
iv. The Appellant was remunerated on a weekly basis by way of advances on the balance of this fund; (admitted)
v. The balance of this fund was obtained by calculating the commissions and bonuses paid to the Appellant, less any charges, weekly advances and other fees, expenses and commitments made in the performance of his duties; (admitted)
vi. The Appellant would remain liable to the Payer after the termination of the contract for any negative balance in this fund; (denied)
vii. The Appellant was an independent contractor, and the contract specified that it must not be interpreted as establishing an employer-employee relationship between him and the Payer; (denied)
viii. The Appellant agreed to pay all expenses incurred in the exercise of his duties, including but not limited to the following:
- obtaining or renewing the licenses necessary to exercise his duties; (admitted)
- obtaining or renewing professional civil liability insurance; (admitted)
- membership dues in professional or other associations; (admitted)
- his business office, including secretarial fees and office supplies; (admitted)
- information systems, long-distance calls and facsimiles; (admitted)
- travel, solicitation and publicity; (admitted)
- training and upgrading; (denied)
ix. The Appellant was not authorized to:
- bind the Payer by any promise or agreement; (admitted)
- incur any liability whatsoever on behalf of the Payer; (admitted)
- accept a risk on behalf of the Payer; (admitted)
- commit the Payer to any relationship whatsoever; (admitted)
- use brochures, advertisements or printed matter bearing the Payer’s name or logo that had not been preapproved in writing by the Payer; (admitted)
m) In a letter from the Payer dated April 27, 2012, the Appellant was also advised that his agent contract would be terminated if he did not receive any remuneration for five consecutive weeks; (denied)
n) The Appellant was affiliated with the Payer’s branch located in Ville LaSalle; (admitted)
o) The Appellant’s tasks were to solicit and obtain applications for the Payer’s insurance products from potential clients; (admitted)
p) The Appellant would set up appointments over the phone with potential clients, and meet with them in order to present and sell them products offered by the Payer or other affiliated companies; (admitted)
q) These meetings often took place at the clients’ homes; (denied)
r) The Appellant had access to a cubicle at the Payer’s Ville LaSalle branch where he could also work from; (admitted)
s) The Appellant was required to transmit to the Payer all of the applications for insurance that he obtained from potential clients; (admitted)
t) The Appellant was paid exclusively on commission; (denied)
u) The Appellant was entitled to receive advances on these commissions; (denied)
v) Upon each successful sale of the Payer’s products, the Appellant would earn a percentage of the total value of the insurance contract; (admitted)
w) The Appellant was not subject to direct control by the Payer; (denied)
x) The payer did not supervise the amount or the quality of the work performed by the Appellant, aside from ensuring that the Appellant complied with legislative and regulatory requirements; (denied)
y) The Payer did not dictate the way in which the Appellant had to perform his tasks; (denied)
z) The Payer did not assign a particular territory to the Appellant; (admitted)
aa) The Payer did not provide the Appellant with a list of clients to contact; (admitted)
bb) The Appellant determined his own work schedule; (denied)
cc) The Payer did not control the hours worked by the Appellant or his absences; (denied)
dd) The Appellant’s attendance at the Payer’s premises was not compulsory, nor was it monitored; (denied)
ee) The Appellant was not entitled to vacation or sick leave with the Payer; (denied)
ff) The Appellant was required to pay for his own professional liability insurance; (admitted)
gg) The Appellant had the option to provide his own computer or to rent one from the Payer; (denied)
hh) The Appellant rented a laptop computer from the Payer in order to perform his work; (admitted)
ii) The cost of the computer rental was deducted from the Appellant’s compensation fund on a weekly basis; (admitted)
jj) The Appellant was required to use his own vehicle to travel for his work for the Payer; (admitted)
kk) The Appellant did not receive any compensation or allowance from the Payer for the use of his vehicle; (admitted)
ll) The Appellant had a chance of profit and a risk of loss in providing his services to the Payer; (denied)
mm) The Appellant had no guarantee of a steady income while working for the Payer; (denied)
nn) The Appellant was responsible for any and all expenses incurred in the performance of his work for the Payer; (denied)
oo) The Appellant did not receive any compensation or allowance from the Payer for his work-related expenses; (denied)
pp) In the event that policies for which the Appellant received a commission were cancelled within a certain time after taking effect, the Appellant was liable to reimburse the Payer a pro-rated amount of the commission received upon the successful sale of said policies; (admitted)
qq) The payer issued a T4A slip (Statement of other income) in the name of the Appellant for the 2012 taxation year; (admitted)
rr) The payer reported that the appellant earned an amount of $7,084.91 in self-employed commissions; (admitted)
ss) No deductions at source were made by the Payer from the Appellant’s income in respect of income tax, employment insurance or the Quebec Pension Plan; (admitted)
tt) In his income tax return for taxation year 2012, the Appellant declared gross commission income from self-employment in the amount of $7,084; (admitted)
uu) The Appellant reported that he incurred $7,098 in expenses to earn this income from the Payer in 2012; (admitted)
vv) The Appellant declared a net loss of $14 from his commission income earned from the Payer in 2012. (Admitted)
[Emphasis added.]
III. MINISTER’S DECISION [3] The appeals officer who confirmed the decision of the rulings officer indicated that she had been an appeals officer for about 19 years, dealing with employment insurance matters. She confirmed the independent contractor status in part because she thought that Mr. Mazraani looked more like a self-employed or independent contractor as he was required to supply or pay for his own tools. This is what she actually stated in referring to Mr. Mazraani’s pay slip showing the charges deducted from the amount he was paid by IA:[7]
MR. JILWAN: All right. So this element, what this element brought to your analysis?
MS. LAMBERT: Well this looks more like a self-employed non-insurable, because he has to supply his own tool or to pay to supply his tool.
[Emphasis added.]
[4] She also consulted the data regarding Mr. Mazraani’s income as filed with the Canada Revenue Agency (CRA), and she noted that he had claimed a $14 loss in respect of his activities for Industrial Alliance. She wrote in the English summary of her report[8] that the worker “had a possibility for loss” and that this element was “indicative of a contract for services”. Furthermore, she testified that employees are not allowed the “expenses”[9] that Mr. Mazraani claimed.
[5] In the summary referred to above, the appeals officer wrote under the heading “Provision of labour” that the “worker did not have a set schedule, or a minimum number of hours to be worked.” She believed the version of the payer given to the rulings officer by Mr. Eric Leclerc, the LaSalle Branch manager, who said that the Company did not supervise the worker’s work and did not tell the worker how to carry out his work. The appeals officer did not get any direct information from the Company because it never returned her phone calls and did not reply to her letter.[10] The only documents from the Company or from Mr. Mazraani are the Agent Contract, submitted by the former, and the “rapport de paie”, submitted by the latter and showing the expenses for which he was being charged by the Company![11]
IV. FACTUAL DESCRIPTION A. IA Organization Structure: from employees to independent contractors [6] Mr. Bruno Michaud, Senior Vice-president, Sales and Administration, explained that Industrial Alliance works through 52 branches (which are also described as firms or agencies) in the province of Quebec and the Ottawa region in order to sell its products.[12] Both in Quebec[13] and outside that province, the Company also sell its products through general independent agencies or insurance brokers.
[7] In paragraph 7 of the decision (CRT reasons) of the Commission des relations du travail du Québec (CRT) in Blackburn and Kaliszczak c. Industrielle Alliance, assurance et services financiers inc, 2014 QCCRT 0737,[14] it is stated that Industrial Alliance operates close to 50 agencies in Quebec, which are constituted of teams of four or five representatives, each team being “associée à un directeur des ventes”. These sales managers all “relèvent d’un directeur d’agence”, who is the person in charge of the branch. These branch managers report to one of the superintendents “qui sont tous sous la responsabilité du vice‑président du “réseau carrière”. In his testimony before this Court, Mr. Michaud said that this vice-president would report to him, the Senior Vice‑president, Sales and Administration.[15] He also added that there were “five superintendents who are responsible for on average 10 branches each” and “[t]hey would act as a coach for the branch manager.”[16] This description shows a highly hierarchical organization which carries out the Company’s mission, and it shows as well that the superintendents act toward the branch managers (who are all IA employees) as the sales managers do toward the agents (who are not considered by the Company as employees), that is, as coaches![17]
[8] During his testimony−and as described in the CRT reasons−Mr. Michaud stated that Industrial Alliance used to treat all its agents as employees before 1993, while many, if not most, of its competitors were treating theirs as independent contractors. So there were incentives for Industrial Alliance to do likewise. One of the reasons indicated by Mr. Michaud was that its employees asked for the change. However, Mr. Michaud also acknowledged, in response to one of my questions, that there were benefits to the Company as well, such as being freed from contributions to the Régime de rentes du Québec (Quebec Pension Plan).[18]
[9] Here is the description by the CRT of the business organization plan change made by Industrial Alliance:[19]
[8] Bruno Michaud est l’un des dirigeants d’Industrielle Alliance. Il y travaille depuis près de 32 ans. Actuellement, il occupe le poste de vice-président principal, vente et administration en assurance et rente individuelle. Il affirme que le modèle d’affaire « réseau carrière » actuel existe depuis le 1er janvier 1993.
[9] Auparavant, explique-t-il, tous les représentants d’Industrielle Alliance étaient des salariés payés à commission. À ce moment, l’entreprise était pratiquement la seule à utiliser ce modèle d’affaire. En fait, la majorité de l’industrie utilisait des travailleurs autonomes comme représentants et cette formule a fait peu à peu son chemin, car de plus en plus de représentants y voyaient plusieurs avantages, surtout d’un point de vue fiscal. Aussi, lorsque l’occasion se présenta de procéder à l’intégration au sein d’Industrielle Alliance d’un important contingent de représentants, plus de 100, en provenance d’une autre compagnie d’assurance qui possédaient déjà ce statut, la décision fût [sic] prise de revoir le modèle d’affaire d’Industrielle Alliance afin que ses représentants soient dorénavant considérés comme des « travailleurs autonomes ».
[10] Outre un changement à son modèle d’affaire, cette nouvelle orientation impliquait pour Industrielle Alliance de revoir sa relation contractuelle avec ses représentants, donc de revoir la rédaction de son contrat de représentant. Pour ce faire, il fallait, dit-il, éviter des ennuis avec les autorités fiscales en lien avec le changement de statut de leurs représentants. C’est pourquoi Industrielle Alliance a jugé opportun de soumettre son nouveau contrat de représentant à Revenu Canada pour examen et acceptation.
. . .
[11] S’il est vrai que le contrat de représentant a subi plusieurs modifications entre 1993 et 2011, Bruno Michaud tient toutefois à préciser que le contrat est en substance le même. Aussi, indépendamment des modifications, toutes les parties reconnaissent que les représentants déclarent depuis ce temps aux autorités fiscales la rémunération qu’ils reçoivent d’Industrielle Alliance à titre de revenu d’entreprise.
[Emphasis added.]
[10] According to Mr. Michaud’s testimony before this Court, Industrial Alliance acquired another company in January 1992 and all the agents of that particular company were treated as independent contractors. Therefore, the Company made the business decision to treat all its agents as independent contractors, except for the sales managers.
[11] It is evident from the Agent Contract (Agent Contract) reproduced below and signed by Mr. Mazraani that great care was taken in implementing IA’s intent to treat its agents as independent contractors. First, the contract is entitled “Agent Contract” and not “Employment Contract”. Furthermore, section 4 explicitly states that the agent is an independent contractor and that the contract does not establish an employer-employee relationship. In addition, there is the fact that Industrial Alliance requires that its agents be responsible for many expenses, such as those which are described in section 4 of the contract, which would include paying rent for the use of the computer and software.[20]
[12] In addition to having, I am sure, the benefit of professional help in drafting this contract, Industrial Alliance approached the CRA (then Revenue Canada) employment insurance division to look over the contract and get their input on how to ensure that its agents would in fact be treated as independent contractors. Not only did the CRA representative indicate that the status of agents as independent contractors would be confirmed, but he made specific suggestions as to how to improve the contract, such as removing section 5 and modifying others. For instance, the CRA representative suggested replacing, in section 8 of the French version, the words “RÈGLEMENTS ET INSTRUCTIONS” by “POLITIQUES”.[21] The letter of November 3, 1993 in which these suggestions are made concludes with the statement that, on receipt of the modified copy of the contract, they would confirm the independent worker status of the agents effective January 1, 1993.[22] This occurred on December 23, 1993.[23] Both letters are addressed to the attention of Mr. Bruno Michaud, “Assistant vice-president Marketing, Assurance et rentes individuelles”.
[13] When asked by Mr. Mazraani to distinguish between the way in which the Company handled its agents before 1993, when they were treated as employees, and the manner in which it did so afterwards, when they were treated as independent contractors, Mr. Michaud gave the following answers:[24]
MR. MICHAUD: The main change, as I said this morning, was that advisors could incorporate themselves, could hire employees and that was the main -- the main purpose of the ---
JUSTICE ARCHAMBAULT: So before 1993, people could not hire their own assistant?
MR. MICHAUD: No.
JUSTICE ARCHAMBAULT: No, okay. So they could hire assistants ---
MR. MICHAUD: I would say they could but the expense ---
JUSTICE ARCHAMBAULT: They could?
MR. MICHAUD: --- the expense was not deductible. So from a tax point of view, since ---
JUSTICE ARCHAMBAULT: I thought it was? [sic]
MR. MICHAUD: No, no. I’m sorry, it was not because they were employees. They were commissioned employees.
. . .
JUSTICE ARCHAMBAULT: Yeah, okay.
Do you see any other differences?
MR. MICHAUD: That’s the main difference.
[Emphasis added.]
[14] I asked again and was more specific:[25]
JUSTICE ARCHAMBAULT: So was there any difference in the handling of the representatives before ‘93 and after? . . .
. . .
JUSTICE ARCHAMBAULT: Is there any -- like for example, the way you would train them, coach them, motivate them, these are examples of ---
JUSTICE ARCHAMBAULT: Would there be any change between before and after?
MR. MICHAUD: These three examples I don’t think there was so many change.
. . .
JUSTICE ARCHAMBAULT: Yeah, okay. So there was not much change in the terms of the training of your representative, in the coaching of them, in the motivation.
MR. MICHAUD: Yeah.
. . .
MR. MICHAUD: The other big change was they were able to sell their -- sell their clientele.
JUSTICE ARCHAMBAULT: That didn’t happen before ‘93?
MR. MICHAUD: Before, no, no.
[Emphasis added.]
[15] Mr. Michaud acknowledged that some things remained the same, such as:[26]
MR. MICHAUD: Yes, but I would say going back there, you have to keep in mind that for the insurance business, most of the advisors were insurance agents. There was also and there’s still the relationship of principle [sic] and agent between the insurance carrier and the advisor. And if the advisor would do something wrong, then the life insurance company would be held responsible. It was as simple as this.
JUSTICE ARCHAMBAULT: Before?
MR. MICHAUD: And still.
JUSTICE ARCHAMBAULT: And still the case?
MR. MICHAUD: Still, yeah.
[Emphasis added.]
B. LaSalle Branch [16] The manager of the LaSalle Branch, Mr. Leclerc, was the last of the IA witnesses to testify, and this occurred on the fifth day of the hearing.[27] He stated that his branch had an average of 45 financial advisors (agents), of which around 15 had less than two years of experience.[28] Around 13 or 14 new agents are hired every year.[29] He insisted that the people who are called sales managers are really only coaches, that their role is only to assist and help the agents, and that they do no supervision of the work of the agents. When I mentioned that the Company had produced a lot of training materials for its agents, he replied that they were documents found on its internal Internet and that the agents were free to use them. He added that the Company never follows up to ensure that they perform their work in the manner suggested in these training documents.
[17] However, later on, after further questioning, he acknowledged that these training materials were also used in the numerous training sessions given by IA personnel (usually the sales managers) and that the sales managers were also spending more than 50% of their time on the road accompanying the agents and helping them to improve their sales techniques and assisting them in any way that was required.
[18] I counted 53 agents on the intercom phone number list for the personnel of the branch as of May 2012 and six sales managers in addition to the branch manager, Mr. Leclerc.[30] So, that gives an average ratio of one sales manager for eight agents. Mr. Michaud testified that the sales managers are not appointed by the branch manager but by the superintendents. Both the branch manager and the sales managers are treated as employees.[31]
C. Mr. Mazraani hired as agent under an Agent Contract (1) The application and the informal hiring [19] Mr. Mazraani received in 1986 a Bachelor of Science in business computing from the Lebanese American University in Beirut, Lebanon. In 1991 and 1992, he also studied at Concordia University in Montreal in computer sciences but did not obtain a degree. In 2002, he attended a Canadian securities course in Montreal. He worked for London Life Insurance from 2008 to March 2011 as an agent. He was involved in selling financial products such as life, disability, critical illness and liquidity insurance.[32]
[20] On December 21, 2011, Mr. Mazraani submitted an application to work for Industrial Alliance.[33] According to Mr. Mazraani’s testimony, he was hired on April 3, 2012, when he met Mr. Leclerc, who introduced him to his new sales manager, Mr. Beaulé. The latter trained and supervised him even though the formal contract was only signed on May 3.[34] He was not informed at that first meeting that he was being hired as an independent contractor:
MR. MAZRAANI: That -- in the meeting, especially the first meeting, we never discussed -- either was Mr. Leclerc or Mr. Beaulé that I am building my own business. It was I have just to do whatever ---
JUSTICE ARCHAMBAULT: You’re saying they never specifically stated that you were going to build your own business?
MR. MAZRAANI: No.[35]
[Emphasis added.]
[21] He started work on April 4, by attending the theoretical training. He was advised by letter on April 12, 2012 that he was allowed to use the Intranet and was given an access code and a password for that purpose.[36] In this letter, it is stated that “[l]’extranet est réservé exclusivement à la force de vente. Son développement est également progressif et les divers secteurs de la compagnie seront appelés à y ajouter diverses fonctionnalités.” The weekly rent for the laptop was $18.05 before taxes.[37]
(2) The April 27 letter [22] On April 27, 2012, Mr. Mazraani was formally informed by Mr. Arsenault, an IA sales superintendent, that the Company was offering him an agent contract and that he could begin underwriting insurance and annuities contracts for the Company as a financial security advisor on April 30, 2012.[38] In this letter (April 27 letter), Mr. Mazraani is reminded that the Act Respecting the Distribution of Financial Products and Services (Distribution Act) required that he “hold a valid licence in order to operate in the disciplines or categories of discipline [he was] authorised to operate in.” He apparently got his licence back on April 30, after studying for and passing an exam. He had been unemployed from the time of the termination of his relationship with London Life in March 2011[39] up to the time he started working for Industrial Alliance.
[23] In the April 27 letter, it is stated: “[You] will be part of service unit 35 of team 90 and you will also be in charge of the policies and clientele that currently make up part of this service unit. Your sales director will be Mr. René Beaulé”. [Emphasis added.] This service unit was located at the Ville LaSalle Branch which was also known as the Mercier Agency. The letter adds: “You will be compensated according to our career establishment program. The initial amount of your advances on commissions will be $600 per week and an amount of $2,500 will be deposited in your career establishment fund.” He was advised as follows: “if during the period in which you are regulated by the career establishment program, you do not receive any remuneration for five consecutive weeks, we will terminate the program. We will also terminate your career agent’s contract”.
[24] At paragraph 47 of the CRT reasons, it is indicated that the advances on commission paid during the training (“stage”) period or at the beginning of the parties’ relationship were not reimbursable:
. . . les parties reconnaissent que les avances de commission non-remboursables sont versées uniquement pendant le stage ou au début de l’embauche. Par la suite, il est entendu que toutes les avances de commissions sont remboursables.
[25] It appears from Mr. Mazraani’s bank statements that he started receiving his advances on commissions on May 3, 2012, and there were similar payments made each week thereafter in May, for a total of $2,555.[40] All these payments were equal payments, except for the last one, which was lower−$304 instead of $562.
(3) Licensed to act as a financial security advisor on April 30, 2012 [26] In order to be allowed to sell financial products, Mr. Mazraani was required, under the Distribution Act, to hold a licence issued by the AMF. According to Mr. Michaud, Mr. Mazraani was not allowed to start acting as a financial advisor before April 30 because he only got this licence at that time. The application for the licence was made to the AMF by Mr. Mazraani on February 6, 2012. In that application, he asked for reinstatement of his certificate.[41] In the section headed “Choice of Ways to Carry on Business”, there is a statement by Industrial Alliance, made on April 11, 2012, confirming that Mr. Mazraani will be “attached to our firm . . . without being an employee . . . to pursue activities in the following sector . . . insurance of persons”. [Emphasis added.] Under the fourth heading, “Statement”, Mr. Mazraani confirms that he will not be carrying on activities (paid or not) in a field other than that which is connected with his practice as a representative. If he had indicated otherwise, he would have been required to send in the “Dual Employment form”. [Emphasis added.] Under heading number 6, “Fees payable to the AMF – Contribution to the Chambre de la sécurité financière”, there is an item, “Contribution to the Chambre de la sécurité financière”, for which a sum of $237 appears. This is in addition to the mandatory fee for each sector or sector class and for “study of application”.[42]
(4) The Agent Contract dated May 3, 2012 [27] In addition to the April 27 letter, Mr. Mazraani received the Agent Contract together with the “Commission and Bonus Schedule and Remuneration Rules” (Remuneration Rules). Here are some of the relevant portions of the contract, signed on May 3, 2012, but effective April 30, 2012:
AGENT CONTRACT
______________________________
. . .
2- AGENT’S RIGHTS AND POWERS
a) The Company authorizes the Agent to solicit and obtain applications and requests for the various contracts and financial services offered either directly by the Company or through another company with which the Company has signed a distribution agreement (hereinafter called the “authorized entity”). The Agent agrees to offer quality service.
b) The Agent agrees to make all reasonable efforts to maintain in force all contracts issued by the Company and for which he/she is responsible as an Agent.
c) The Agent agrees to deliver immediately to the applicant each contract for insurance or other financial products, in accordance with legislation and instructions from the Company.
d) The Agent agrees to submit to the Company, or the authorized entity, all applications for insurance, annuities or financial products that he/she has obtained.
However, after advising the Company, the Agent could give an application or request to other insurers if:
i) the Company refuses to issue a contract; or
ii) the Company doesn’t offer the type of product requested.
e) The Agent is liable for any amount incurred by or owed to the Company or a client due to a mistake, negligence, error, omission, fraud or dishonesty by him/her or one of his/her mandataries.
3- REMUNERATION
During the term of the contract, the Agent requests that weekly advances be paid to him/her and he/she agrees to reimburse them. Hence, the Company has created a “fund” on behalf of the Agent in which all weekly advances are posted.
In consideration of the contracts established subsequent to applications or requests submitted by the Agent, the Company pays to his/her fund all remuneration related to these contracts as established according to the Company’s Commissions and Bonuses Schedules and Remuneration Rules, adjusted from time to time, which form an integral part of this contract.
The Agent acknowledges that the remuneration paid into the fund following the sale of a contract shall only become vested when the insurance contract has been in force for a certain period, as provided for in the Commissions and Bonuses Schedules and Remuneration Rules, subject to any adjustments to be made.
In the event of termination of a contract before the related remuneration is vested by the Agent, the Company debits a negative charge in the Agent’s fund. This charge is a percentage of the commission and bonus, as established by the Commissions and Bonuses Schedules and Remuneration Rules.
The balance of the Agent’s fund is obtained by calculating the commissions and bonuses paid, and deducting the charges, weekly advances and other fees, expenses and commitments make [sic] in the performance of his/her duties. The Agent remains liable to the Company, even after the termination of the contract, for any negative balance in the establishment fund. Hence, in the event where the advanced remuneration would not be reimbursed from the vested commissions, the Agent will accumulate a debt towards the Company which he/she will have to repay.
Individual Life Insurance, Individual Disability Insurance and Group Insurance
The commissions and bonuses payable to the Agent for premiums under these contracts are determined in accordance with the schedules in effect on the date on which the insurance becomes effective.
Individual Annuities and Group Pensions
The commissions and bonuses payable to the Agent for premiums under these contracts are determined in accordance with the schedule in effect when a premium is received, when a premium or interest credit is reinvested or when the premiums received and the credited interest are applied to the payment of an annuity.
Other Products and Financial Services
The commissions and bonuses payable to the Agent for other types of contracts and financial services are determined in accordance with the schedules in effect when the Company is remunerated by the supplier of such products or services.
4- STATUS AND FEES
The Agent is an independent contractor and this contract must not be interpreted as establishing an employer-employee relationship between the Company and the Agent. As such, the Agent agrees to pay all expenses incurred in the exercise of his/her duties.
Without limiting the generality of the foregoing, the Agent agrees to pay the following fees and expenses:
- obtaining or renewing the licenses necessary to exercise his/her duties;
- obtaining or renewing professional civil liability insurance;
- membership dues in professional or other associations;
- his/her business office, including secretarial fees and office supplies;
- information systems, long-distance calls and facsimiles;
- travel, solicitation and publicity;
- training and upgrading.
If the Agent operates his/her own company, he/she must provide the Company with all information that this latter deems necessary to evaluate it, such as the names of shareholders and the number of shares held by each one and the names of directors. The Agent must also annually provide the Company with a copy of his/her company’s insurance certificate. The Agent must be the only person authorized to sell insurance products in the name of his/her company. As a director and shareholder, the Agent remains responsible for the company.
The Company reserves the right to terminate the Agent contract when a change occurs in the management or control of the Agent’s company.
5- MINIMUM PRODUCTION
The Company reserves the right to set minimum production and business persistency standards for the Agent and to amend these standards from time to time.
. . .
7- RULES AND POLICIES
The Agent agrees to comply with all laws, rules and codes of ethics applicable to the performance of his/her duties. The Agent also agrees to comply with all Company policies, which include the Market Conduct Standards and the Policy for Using Electronic Communications. The goal of these policies is to standardize administrative procedures, reduce the time taken to process a request and ensure that everyone respects the regulations of the life and health insurance industry.
8- MODIFICATIONS
Subject to a written notice of seven (7) days that must be sent to the Agent, the Company may modify the Commissions and Bonus Schedules and Remuneration Rules, the Market Conduct Standards, the Policy for Using Electronic Communications, as well as any other provision of this contract. The modifications take effect when the seven (7) days notice expires.
9- PERMITS AND INSURANCE
The Agent agrees to obtain the licenses required by legislation of the province in which he exercises his/her duties and maintain professional liability insurance in force. The Agent agrees to provide proof of the validity of his/her license(s) and professional liability insurance at the Company’s request.
10- RECEPTION OF AMOUNTS
The Agent must immediately remit to the Company any amount that he/she receives on behalf of the Company.
The Agent must inform the Company in writing of the opening (and of all subsequent changes) of a trust account for the performance of his/her duties. The Agent agrees to provide the Company with all information that this latter deems necessary to evaluate the sound management of the trust account. The Agent authorizes the Company to verify the transactions in the trust account(s) with the financial institution. The Company shall send the Agent a written notice seven (7) days before checking with the financial institution concerned.
The Agent who pays into a trust account any amount of money that he/she receives on behalf of the Company, shall remit the entire amount to the Company within the required timeframe. The Company reserves the right to terminate the Agent contract due to inappropriate management of the trust account.
The Agent must not grant a premium rebate to clients by paying the amount requested by the Company or authorized entity in full or in part.
11- ASSIGNMENT
a) Assignment
The Agent acknowledges that the Company has right of preference on all amounts payable to the Agent or to any person making a claim for him/her or on his/her behalf under the present contract, as security for any amount that might be owing by the Agent to the Company. The signing of the present contract by the Agent shall in fact constitute an assignment of these amounts. The Agent agrees to refrain from assigning, transferring, pledging or in any other way disposing of any amounts owing to him/her or that might be payable to him/her under the present contract.
b) Assignment of Right of Representation
The Agent may sell or otherwise dispose of his/her right to represent Company clients with respect to individual life insurance, guaranteed investment or segregated fund contracts