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HomeMy WebLinkAbout1995-2109.Tilden.00.09.07 Decision o NTARW EMPU) YES DE LA COURONNE CROW"! EMPLOYEES DE L '()NTARW . . GRIEVANCE COMMISSION DE SETTLEMENT REGLEMENT BOARD DES GRIEFS 180 DUNDAS STREET WEST SUITE 600 TORONTO ON M5G 128 TELEPHONBTELEPHON~ (416) 326-1388 180 RUE DUNDAS OUEST BUREAU 600, TORONTO (ON) M5G 128 FACSIMILBTELECOPIE. (416) 326-1396 GSB #2109/95 2110/95 2111/95 2112/95 OPSEU #96D046 96D047 96D048 96D049 IN THE MATTER OF AN ARBITRATION Under THE CROWN EMPLOYEES COLLECTIVE BARGAINING ACT Before THE GRIEVANCE SElTLEMENT BOARD BElWEEN Ontano Pubhc ServIce Employees Umon (Tilden) Grievor - and - The Crown m Right of Ontano (Mimsm of MumcIpal Affairs and Housmg) Emplover BEFORE N DISSanayake Vice Chalf FOR THE Ahcl Ryder Q C (CoIDlsel) GRIEVOR Ryder Wnght BlaIr & Doyle Barnsters & SohcItors FOR THE LIane Brossard (Counsel) EMPLOYER Legal ServIces BraIlch Management Board Secretariat HEARING Februan 3 March 10 and August 22 2000 2 SUPPLEMENTARY DECISION The Board issued its decision in this matter on October 19, 1998, wherein it concluded that the employer had, inter alia, contravened the collective agreement by failing to asslgn the grlevor to an available position for which he had qualifications The Board directed that the employer appoint the grlevor to the position retroactively to the time when he should have been assigned and to compensate him for all losses The Board was reconvened to deal with certain disputes between the parties as to the appropriate amount payable to the grievor pursuant to the award The evidence indicates that after the grlevor was surplus sed by the employer he made certain attempts at finding suitable employment, while at the same time pursulng his grlevance When he had no success, he set up his own business as a consultant In his area of expertise, l e landscape architecture In the period November 15, 1995 to November 16, 1998, this business generated a revenue of $ 23,842 10 In 2 3 compensating the grlevor pursuant to the Board.s award, the employer treated this amount as mitigation of damages, and that amount was deducted from the amount of loss to be compensated The dispute, however, arlses from the fact that the grlevor claimed that while his business had a revenue of $ 23,842 10, In generating that revenue he incurred expenses In the amount of $ 34,542 95 Therefore, according to the grlevor, his business resulted In a net loss of $ 10,700 85 In calculating damages, the employer did not take into account any of these expenses, but did consider the gross revenue of $23,842 10 as income which mitigated its liability to the grlevor The unlon claims that Slnce the grievor.s business expenses exceeded his business revenue, the employer was not entitled to deduct that revenue from the amount of damages owed to the grlevor It lS submitted that the employer lS entitled to deduct only the net revenue from the business and not the gross Since the net revenue was a negative, the unlon seeks an order that the employer pay to the grlevor the amount of $23,842 10, which it had deducted from the compensation 3 4 The employer does not allege that the grlevor failed to comply with his duty to mitigate his losses per se However, it has refused to recognlze the business expenses the grlevor incurred in the course of mitigating his losses The employer-s challenge lS two-fold First, it lS submitted that some of the -business expenses- claimed by the grlevor are lmproper and unreasonable, and should not be allowed Second it lS submitted that it was unreasonable for the grlevor to have continued the money losing business for as long as he did The employer suggests that the grlevor should have ceased his business and looked for alternate sources of lncome once it became clear that his business was resulting In a net loss The parties also were In dispute as to the grievor-s entitlement to a -tax top-up- However, they agreed to defer that lssue, pending the disposition of an appeal filed by the grievor with Revenue Canada Also, the employer was prepared to accept the amount of $ 23,842 10 as the amount of revenue generated by the grievor-s business during the period In question, subject to an agreement by the parties that it may re- open the case if contrary evidence subsequently came to light 4 5 1 The propriety/reasonableness of specific items of expenses (1 ) Home Office Expenses The grievor-s evidence was that he conducted his business out of a -home office-, which occupied exclusively the whole third floor attic and involved the partial use of certain other areas of his family home He estimated that approximately 1/3rd of the home was devoted to the business He therefore allocated an annual -rent- of $ 4,800 00 for his home office and treated it as a business expense In addition, he apportioned 1/3rd of his property taxes, heating, water/sewage and electricity expenses as business expenses The total home office expenses claimed amounted to over $ 14,000 00 for the period from November 1995 to November 1998 Employer counsel takes the position that an expense, to be allowed, must be both real and reasonable In her view the home office expenses claimed here are artificial and unreasonable She points out that the grlevor had always lived In that home and incurred those expenses To allow those expenses In calculating damages and mitigation, In her Vlew, results In a windfall to the grlevor 5 6 Employer counsel did not challenge the 1/3rd apportionment of expenses as unreasonable In fact, she agreed that if home office expenses are to be allowed, she had no quarrel with the apportionment However, her position was that no home office expenses should be allowed, because these were expenses the grlevor had even before, and quite apart from, his business Counsel recognized that Revenue Canada allows reasonable expenses incurred In operating a -home office- However, she submitted that In doing so Revenue Canada was motivated by a desire to encourage small businesses That motivation does not exist In a dispute involving mitigation of losses The unlon submitted that the employer would have had no argument if the grlevor had rented commercial office space to operate his business For a 3 year period, rent for commercial office space and overhead costs would have far exceeded the $ 14,000 claimed Counsel submitted that the Board had no basis to depart from the universal recognition that reasonable home office expenses may be deducted from the gross revenue The recognition of expenses incurred In operating a home office, lS a recognition that home space, which otherwise would 6 7 have been available for the personal enjoyment of family members, lS dedicated for the purposes of operating a business The Board has no basis to doubt the gr i evo r.s testimony as to how space in his home was used for business purposes There lS no allegation that the apportionment of the expenses between home and office lS unfair The Board finds no reason not to recognlze the home office expenses as an allowable expense In calculating the gr i evo r.s revenue for purposes of mitigation Therefore, the employer must consider the home office expenses as claimed, for purposes of calculating damages (2 ) Secretarial serVlces The grlevor claimed as expenses attributable to his business, the amount of $ 800 00 he had paid to his wife and his teenaged son as remuneration for secretarial and clerical serVlces provided over the 3 year period The employer refuses to accept this as a reasonable business expense Counsel submits that family members often help each other In their work without fee She submits that it makes no sense requlrlng the employer In effect to pay family members for helping In the gr i evo r.s work 7 8 It lS common knowledge that Revenue Canada routinely allows as business expenses amounts paid to family members for serVlces rendered, provided that the serVlces were In fact provided and that the amounts paid were reasonable I have no reason to disbelieve the grievoros testimony that his wife and son provided serVlces and were paid the amounts claimed There lS no suggestion that the amounts paid were disproportionate to what the grlevor may have had to pay for the same serVlces outside his family The Board directs In the circumstances, that the amounts claimed as secretarial expenses be taken into account In calculating the amount payable to the grlevor (3 ) Cost of leasinq computer At the time he was surplus sed the grievor owned a computer However, he testified that when he started his consultation business he needed an upgraded computer for his work He obtained such a computer on a -lease to own-plan He paid a monthly amount and In 1997 he owned the computer outright His total costs for the computer amounted to $ 3,364 00, which he claimed as a business expense 8 9 The employer-s prlmary position lS that it was completely unreasonable for the grlevor to obtain a new computer before satisfying himself that he would have sufficient work to justify such an expenditure He should have, says the employer, used a copy centre until he had obtained sufficient work On that basis, it lS submitted that this expense should be disallowed In total In the alternative, counsel submits that if the Board disagrees, it should only allow a portion of the total cost incurred, because to allow it In full would result In the grlevor getting a new computer for good and paid for by the employer The grlevor chose a short 3 year payment plan It resulted In higher monthly payments, but he owned the computer In 3 years The employer should not be required to bear the whole cost When a person lS launching a new business there are many judgements and decisions to be made as to how best it lS to be done One has to decide between many alternative ways of doing things The grlevor lS the expert In the field of the business he started Presumably he knows more than the Board, as to how 9 10 best the business lS to be done Therefore it lS lmproper for the Board to lightly replace its judgement to that of the gr ievor-s or to second guess his decision in hind-sight As long as the grievor-s decision was not totally unnecessary or unconnected to the well-being of his business goals, the fact that I may have acted otherwise lS irrelevant Applying that principle here, I cannot conclude that obtaining a computer on a lease to own plan when starting a business as a consultant In landscape architecture was so obviously unnecessary Therefore that expense was a legitimate business expense However, I find merit in the employer-s alternate argument To illustrate, assume that the grlevor did not own a car, but a car became necessary once he commenced his consultation business If he spends $ 25,000 00 to purchase a car, surely he would not be entitled to claim the full purchase prlce as a legitimate business expense to be set off against his revenue In the 3 year period The allowable expense lS not the capital value of the vehicle, but a reasonable amount to reflect the use of it for business purposes Eventhough, the illustration lS less striking because of the relatively lesser value of a computer, the principle still must apply The allowable expense 10 11 lS not the whole purchase price, but an amount to recognlze the usage of the grievops computer for business purposes during the period In question In the circumstances I accept the employeros submission that only $ 2,000 00 of the expenses incurred towards the computer should be allowable This recognlzes that the grlevor received the benefit of ownlng an updated computer to be used as he wished following the cessation of his business (4 ) Promotion costs The grlevor has claimed $ 700 00 for 1995, $ 150 00 for 1996, $ 1997 and $ 200 00 for 1998 as promotional costs Some of this represented incidental expenses In travelling to trade shows There lS no lssue about the legitimacy of these Beyond that, the evidence lS unclear as to what exactly the specific expenses for each year represent However, based on two receipts produced by the grlevor, it lS clear that some of the claimed -promot ional- expenses represent expenses the grlevor incurred on behalf of his business In sponsorlng and assisting the Mississauga Hornets Bantam -M- hockey team One receipt In the amount of $ 200 00 was for the gr i evo res -generous contribution in the amount of $ 200 00 to our hockey teams fund- 11 12 ralslng effort S. The other receipt was for $ 200 00 for a donation for the purpose of sponsorship of the hockey team The grlevor testified that In consideration his .company logo. was placed on the Jerseys worn by the hockey players For an expense to be a reasonable .promotional. expense, it must have the goal of promoting the grievor.s business, l e generating work for the business Under cross-examination the grlevor was asked whether he sent any material to municipalities, real estate development companles or other potential sources of landscape architectural work to promote his business His response was that he did not because he had no money for promotion Particularly In light of that evidence, I agree with the employer that the money spent on the hockey team cannot be allowed as a legitimate promotional expense There was no explanation glven as to how the grlevor expected to generate any landscape architectural contracts by assisting a midget hockey team and carrYlng his company logo on the team Jerseys As the donee recognlzes In the receipts, the grlevor engaged In a generous charitable gesture However commendable his generosity was, it had no promotional content The employer 12 13 should not be required to bear the costs of the grievor-s charitable acts As indicated, the evidence lS not clear as to what the exact amounts spent towards the hockey team were It lS my finding that the grlevor lS only entitled to the promotional expenses claimed, other than those incurred In sponsorlng and assisting the hockey team (5) Transportation expenses The dispute relates to the gr i evo res mileage claim He submitted a log he had maintained in which his business related travel was recorded He testified that the log was accurate While employer counsel stated . . that the -log not In passlng lS proof that the mileage claimed was actually travelled-, she did not suggest what other proof was required There lS no basis for the employer or the board to question the claimed mileage The real dispute between the parties lS the rate at which the mileage expenses have been claimed The grlevor has calculated his expenses at 36 cents per kilometre for all of the 20,024 kilometres travelled The employer submits that the grlevor should be entitled to claim expenses only at the rates 13 14 specified In the collective agreement which governed at the time This collective agreement allowed 30 cents for the first 4000 kilometres travelled In a year and progressively lower rates for additional kilometres travelled The unlon made no submissions as to why the employer-s reasonlng was not valid I find the employer~ position to be valid The grlevor lS only entitled to mileage expenses at the rates specified In the collective agreement(s) which applied at the time His mileage expense claim should accordingly be recalculated 2 The reasonableness of continuinq the business The grlevor persisted with his consultation business for approximately 3 years On his own evidence it was not a very successful business in that over the period the grlevor incurred a net loss It lS the employer-s position that it was unreasonable and imprudent for the to continue . . grlevor lncurrlng business expenses, particularly the home office expenses, to carryon a money losing business for as long as he did It must be remembered that once the grlevor lost his job with the Mini s try, he had a duty to mitigate his losses by 14 15 seeking alternate means of lncome When his attempts to secure a job as an employee failed, he commenced his own business In the field of his expertise At the time, he would not have known whether or not he would be reinstated In the OPS pursuant to his grlevance Therefore he was entitled to treat his business as a long term venture In any business, particularly a one-person business marketing specific skills and services, it lS not unreasonable to expect that there will be losses initially It takes time before such a business lS established and begins to generate profits Employer counsel recognized this and conceded that it was reasonable for the grievor to have persisted for a -reasonable period- Her position was that 3 years was not a reasonable period In hindsight, it lS easy to second guess the grievor-s decision However, at any given time the grlevor could not have known whether the business would turn around, and if so, when that would happen In making that judgement he was required to consider what alternatives were available In order to comply with the duty he had to mitigate his losses In all of the circumstances the Board cannot conclude that the grievor-s persistence with the business over a 3 year period was 15 16 unreasonable The emp1oyer-s objection In this regard lS therefore rejected Summary It follows from the foregoing that the Board concludes that it was not unreasonable for the grlevor to have persisted with his business as he did despite the apparent lack of profits The Board has disallowed certain portions of specific items of expenses claimed by the grlevor The parties are hereby directed to calculate the allowable expenses In accordance with this decision If the result lS a net profit for the grievor-s business, that amount of net profit shall be considered as mitigation reducing the employer-s liability If on the other hand, the allowable expenses still exceed the revenue of $ 23,842 10, no reduction of the employer-s liability lS appropriate The employer lS directed to compensate the grlevor In accordance with the results of the recalculation The Board remalns seized for the purposes of dealing with any disputes In implementing this award and In the event the parties are unable to resolve -tax top-up- lssue following the decision In the Revenue Canada appeal 16 17 Dated at Hamilton, Ontario this 7th day of September 2000 Nimal V Dissanayake 17