http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/127226/index.do
Andrew Peller Limited v. M.N.R. (December 16, 2015 – 2015 TCC 329, Campbell J.).
Précis: The appellant operated a pooled gratuity policy at its restaurant whereby all tips were collected and pooled among staff in accordance with a formula determined by the appellant. It argued that the tips did not form part of the wages of its employees for EI and CPP purposes. Its position was that it simply collected and distributed the tips. The Tax Court rejected the appellant’s position holding that it had control of the manner in which the tips were distributed making the distribution part of the employees’ wages.
Decision: The appellant’s argument that its system of pooled gratuities did not constitute wages ran afoul of an earlier Supreme Court of Canada decision:
[45] Canadian Pacific Limited v Attorney General of Canada (Minister of National Revenue), [1986] 1 SCR 678, is the leading case on the treatment of tips and gratuities for the purposes of calculating premiums under employment insurance legislation. The issue before the Supreme Court of Canada in that case was similar to the issue before me, even though it dealt with the predecessor legislation, the Unemployment Insurance Act, to the present EIA. The issue before the Court in Canadian Pacific was whether, in calculating premiums due under that legislation, it was necessary to include tip amounts given to the employer for distribution to the employees. The Court held that those tips, under the legislation, were subject to premiums. The Court also noted that the term “insurable earnings” is a broader term than, for example, salary and wages and that the term can include a tip that is received by the employer for distribution to its employees. Of particular note for the appeals before me, Justice La Forest, at page 687, went on to state that the word “paid” can “… equally well mean mere distribution by the employer or payment of a debt owing by [the employer to employees] …”, for example, salary and wages. (Emphasis added).
[46] In the Court’s view, only those tips that are “received personally” by the employee would remain outside the scope of the term “insurable earnings”. This view is chiefly for administrative purposes and concerns due to the difficulty of dealing with levying premiums on tips that are received personally by employees. Although the Supreme Court of Canada did not define or elaborate on the meaning of “received personally”, it would be logical to conclude that the Court was referring to those tips and gratuities where the employer’s degree of involvement is so insignificant that he/she would never be able to ascertain the amount of the gratuity that the employee received in order for that employer to be in a position to withhold and remit an amount under the legislation.
The Court held that the appellant was not a mere “collector” of the tips but took possession of them and determined the manner in which they would be allocated:
[52] The Appellant has submitted that it did not “pay” the tips but, instead, that it was a mere facilitator or agent in collecting the tips and returning those amounts to the employees. While property and title rights are not part of the applicable test, even if that were the case, the Appellant still engaged in distribution of all of the gratuities in order to fulfil its Gratuity Program. The Appellant’s actions went beyond the basic test of “mere collection” and beyond “mere distribution” of the money. For example, in implementing its Gratuity Program, the Appellant treated the gratuities as its own in order to fulfil its contractual legal obligations and its own goals regarding incentive-based compensation for some of its key salaried employees. In those cases, the Appellant contracted with some employees for a percentage of net revenue to be paid out of collected and pooled gratuity amounts as part of its gratuity incentive program. Although the Supreme Court of Canada in Canadian Pacific concluded that “mere distribution” would be sufficient to bring such amounts within the definition, the facts in these appeals support a conclusion that the Appellant was using the pooled gratuities, which it controlled, to fund its legally binding contractual obligation to pay some key full‑time salaried employees as well as function sales coordinators. These amounts were paid first from the tips and gratuities before the formula was applied to the balance in order to determine each of the tip amounts that was owed to a worker.
As a result the appeals were dismissed, without costs.