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 SETTLEMENT BOARD

BETWEEN

Ontario Public Service Employees Union

(Tilden)

Grievor

• and -

The Crown in Right of Ontario

(Ministry of Municipal Affairs and Housing)

Employer

BEFORE N. Dissanayake Vice Chair

FOR THE Alick Ryder Q.C. (Counsel)

GRIEVOR Ryder Wright Blair & Doyle

Barristers & Solicitors

FOR THE Liane Brossard (Counsel)

EMPLOYER Legal Services Branch

Management Board Secretariat

HEARING February 3, March 10 and August 22, 2000.

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 assign the grievor to an available position for which he had qualifications. The Board directed that the employer appoint the grievor 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 grievor was surplussed by the employer he made certain attempts at finding suitable employment, while at the same time pursuing his grievance. When he had no success, he set up his own business as a consultant in his area of expertise, i.e. landscape architecture. In the period November 15, 1995 to November 16, 1998, this business generated a revenue of $ 23,842.10. In compensating the grievor 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, arises from the fact that the grievor 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 grievor, 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 grievor. The union claims that since 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 grievor. It is submitted that the employer is entitled to deduct only the net revenue from the business and not the gross. Since the net revenue was a negative, the union seeks an order that the employer pay to the grievor the amount of $23,842.10, which it had deducted from the compensation.

The employer does not allege that the grievor failed to comply with his duty to mitigate his losses per se. However, it has refused to recognize the business expenses the grievor incurred in the course of mitigating his losses. The employer’s challenge is two-fold. First, it is submitted that some of the ‘business expenses’ claimed by the grievor are improper and unreasonable, and should not be allowed. Second it is submitted that it was unreasonable for the grievor to have continued the money losing business for as long as he did. The employer suggests that the grievor should have ceased his business and looked for alternate sources of income 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 issue, 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.

The propriety/reasonableness of specific items of expenses

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 grievor had always lived in that home and incurred those expenses. To allow those expenses in calculating damages and mitigation, in her view, results in a windfall to the grievor.

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 grievor 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 union submitted that the employer would have had no argument if the grievor 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, is a recognition that home space, which otherwise would have been available for the personal enjoyment of family members, is dedicated for the purposes of operating a business. The Board has no basis to doubt the grievor’s testimony as to how space in his home was used for business purposes. There is no allegation that the apportionment of the expenses between home and office is unfair. The Board finds no reason not to recognize the home office expenses as an allowable expense in calculating the grievor’s revenue for purposes of mitigation. Therefore, the employer must consider the home office expenses as claimed, for purposes of calculating damages.

Secretarial services

The grievor 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 services 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 requiring the employer in effect to pay family members for helping in the grievor’s work.

It is common knowledge that Revenue Canada routinely allows as business expenses amounts paid to family members for services rendered, provided that the services were in fact provided and that the amounts paid were reasonable. I have no reason to disbelieve the grievor’s testimony that his wife and son provided services and were paid the amounts claimed. There is no suggestion that the amounts paid were disproportionate to what the grievor may have had to pay for the same services 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 grievor.

Cost of leasing computer

At the time he was surplussed 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.

The employer’s primary position is that it was completely unreasonable for the grievor 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 is 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 grievor getting a new computer for good and paid for by the employer. The grievor 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 is launching a new business there are many judgements and decisions to be made as to how best it is to be done. One has to decide between many alternative ways of doing things. The grievor is the expert in the field of the business he started. Presumably he knows more than the Board, as to how best the business is to be done. Therefore it is improper for the Board to lightly replace its judgement to that of the grievor’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 is 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 grievor 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 price as a legitimate business expense to be set off against his revenue in the 3 year period. The allowable expense is not the capital value of the vehicle, but a reasonable amount to reflect the use of it for business purposes. Even though, the illustration is less striking because of the relatively lesser value of a computer, the principle still must apply. The allowable expense is not the whole purchase price, but an amount to recognize the usage of the grievor’s computer for business purposes during the period in question.

In the circumstances I accept the employer’s submission that only $ 2,000.00 of the expenses incurred towards the computer should be allowable. This recognizes that the grievor received the benefit of owning an updated computer to be used as he wished following the cessation of his business.

Promotion costs

The grievor 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 is no issue about the legitimacy of these. Beyond that, the evidence is unclear as to what exactly the specific expenses for each year represent. However, based on two receipts produced by the grievor, it is clear that some of the claimed promotional expenses represent expenses the grievor incurred on behalf of his business in sponsoring and assisting the Mississauga Hornets Bantam AA hockey team. One receipt in the amount of $ 200.00 was for the grievor’s generous contribution in the amount of $ 200.00 to our hockey teams fund-raising efforts. The other receipt was for $ 200.00 for a donation for the purpose of sponsorship of the hockey team. The grievor 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, i.e. generating work for the business. Under cross-examination the grievor was asked whether he sent any material to municipalities, real estate development companies 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 given as to how the grievor expected to generate any landscape architectural contracts by assisting a midget hockey team and carrying his company logo on the team jerseys. As the donee recognizes in the receipts, the grievor engaged in a generous charitable gesture. However commendable his generosity was, it had no promotional content. The employer should not be required to bear the costs of the grievor’s charitable acts.

As indicated, the evidence is not clear as to what the exact amounts spent towards the hockey team were. It is my finding that the grievor is only entitled to the promotional expenses claimed, other than those incurred in sponsoring and assisting the hockey team.

Transportation expenses

The dispute relates to the grievor’s 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 in passing that the log is not proof that the mileage claimed was actually travelled, she did not suggest what other proof was required. There is no basis for the employer or the board to question the claimed mileage.

The real dispute between the parties is the rate at which the mileage expenses have been claimed. The grievor has calculated his expenses at 36 cents per kilometre for all of the 20,024 kilometres travelled. The employer submits that the grievor should be entitled to claim expenses only at the rates 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 union made no submissions as to why the employer’s reasoning was not valid.

I find the employer’s position to be valid. The grievor is 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 continuing the business

The grievor 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 grievor incurred a net loss. It is the employer’s position that it was unreasonable and imprudent for the grievor to continue incurring business expenses, particularly the home office expenses, to carry on a money losing business for as long as he did.

It must be remembered that once the grievor lost his job with the Ministry, he had a duty to mitigate his losses by seeking alternate means of income. 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 grievance. 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 is not unreasonable to expect that there will be losses initially. It takes time before such a business is 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 is easy to second guess the grievor’s decision. However, at any given time the grievor 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 unreasonable. The employer’s objection in this regard is therefore rejected.

Summary

It follows from the foregoing that the Board concludes that it was not unreasonable for the grievor 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 grievor. The parties are hereby directed to calculate the allowable expenses in accordance with this decision. If the result is 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 is appropriate. The employer is directed to compensate the grievor in accordance with the results of the recalculation.

The Board remains 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 issue following the decision in the Revenue Canada appeal.

Dated at Hamilton, Ontario this 7^th day of September 2000