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Citation: 2007TCC280
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Date: 20070614
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Dockets: 2006-1123(CPP)
2006-1124(EI)
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BETWEEN:
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QUANTUM FITNESS INC.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The
Appellant was incorporated under the laws of the Province of Saskatchewan.
[2] The
shares of the Appellant were owned by John Pearce and his wife Catherine
Pearce. Catherine Pearce was the Manager of the Appellant.
[3] The
Appellant owned and operated two fitness centres in the City of Saskatoon.
[4] The
Appellant entered into a license agreement with "Body Training System" ("B.T.S."). Body Training System, an organization
based in the United States, granted license agreements to various
fitness facilities in the United States and Canada.
[5] The
Appellant was the only licensed facility in Saskatoon that used the B.T.S. system.
[6] The
Appellant solicited and obtained the customers for the fitness facilities.
[7] The
customers were members of the Appellant’s fitness facilities.
[8] The
Appellant hired individuals to teach various fitness programs (the "Workers").
[9] Each
of the Workers was qualified as a B.T.S. fitness instructor.
[10] The Workers were hired as B.T.S. instructors, fitness instructors,
aerobic instructors, personal fitness trainers and group fitness instructors.
[11] Several of the Workers also performed administrative duties such as
scheduling, monitoring classes, and working at the front desk at the Appellant’s
facilities.
[12] The Workers were restricted by the terms of the Agreement with B.T.S. The
B.T.S. Agreement provided that the Workers could only provide B.T.S. instruction
at the Appellant’s two facilities in Saskatoon.
[13] The Workers were paid a set amount per class taught on the following
basis:
- One Worker received $14.00 per class;
- 15 Workers received $15.00 per class;
- Three Workers received $20.00 per class;
- Two Workers received $22.00 per class.
[14] Several Workers provided personal trainer services. These Workers received
a percentage of the fees charged for personal training.
[15] The Appellant arranged the classes and prepared the class schedules
for the clients and the Workers.
[16] The Workers kept a record of the number of classes that they taught.
[17] The Appellant paid the Workers based on the Appellant’s records.
[18] The Workers could be replaced by another Worker. If there was a
replacement, the Appellant paid the replacement Worker. However, the
replacement Worker had to be someone who worked for the Appellant.
[19] The Appellant provided a furnished work location, gym and training
equipment, a dance studio, a stereo, a microphone, mats and chorography.
[20] The Workers provided their own shoes, fitness apparel and frequently
their own music.
B. ISSUES
[21] The issues to be decided are whether the Workers were employed by the
Appellant for the purposes of the Employment Insurance Act (the "Act") and whether the Workers were pensionable
for the purposes of the Canada Pension Plan (the "Plan") for the period January 1, 2003 to April
30, 2005 (the "Period").
C. ANALYSIS AND DECISION
[22] Approximately 25 Workers provided fitness training services at the
Appellant’s two locations. Each of the 25 Workers has been treated by the
Canada Revenue Agency (the "CRA") as employees for the purposes of the Act
and the Plan.
[23] The appeals were heard in Saskatoon, Saskatchewan. During the hearing, Counsel for the Respondent
called three of the Workers to give evidence. (Sharon Courtney, Angeline
Crozier and Kim Tam)
[24] In order to determine if the Workers were employees of the Appellant,
I have referred to a number of Court decisions.
[25] In 671122 Ontario Limited v. Sagaz Industries Canada, ("Sagaz") [2001] S.C.J. No. 61, the Supreme Court of
Canada dealt with the issue.
[26] Justice Major, speaking for the Court,
reviewed the various tests for determining whether a person is an employee or
an independent contractor. Justice Major said that he agreed with the statement
by MacGuigan J.A. of a four‑in-one test as set out in Wiebe Door
Services Ltd, v. M.N.R., 87 DTC 5025.
[27] In Sagaz, Justice Major said at paragraphs 44, 46, 47 and 48:
44. According
to MacGuigan J.A., the best synthesis found in the authorities is that of Cooke
J. in Market Investigations Ltd v. Minister of Social Security, [1968]
3 All E.R. 732 (Q.B.D.), at pp. 737-38 (followed by the Privy Council in Lee
Ting Sang v. Chung Chi-Keung, [1990] 2 A.C. 374, per Lord Griffiths, at p. 382):
The
observations of LORD WRIGHT, of DENNING L.J. and of the judges of the Supreme
Court in the U.S.A. suggest that the fundamental test to be applied
is this: "Is the person who has engaged himself to perform these
services performing them as a person in business on his own account?" If
the answer to that question is "yes", then the contract is a contract
for services. If the answer is "no" then the contract is a contract
of service. No exhaustive list has been compiled and perhaps no
exhaustive list can be compiled of considerations which are relevant in
determining that question, nor can strict rules be laid down as to the relative
weight which the various considerations should carry in particular cases. The
most that can be said is that control will no doubt always have to be
considered, although it can no longer be regarded as the sole determining
factor; and that factors, which may be of importance, are such matters as
whether the man performing the services provides his own equipment, whether he
hires his own helpers, what degree of financial risk he takes, what degree of
responsibility for investment and management he has, and whether and how far he
has an opportunity of profiting from sound management in the performance of his
task. [Emphasis added]
…
46. In
my opinion, there is one conclusive test which can be universally applied to
determine whether a person is an employee or an independent contractor. Lord
Denning stated in Stevenson Jordan, supra, that it may be impossible to
give a precise definition of the distinction (p. 111) and, similarly, Fleming
observed that "no single test seems to yield an invariably
clear and acceptable answer to the many variables or ever changing employment
relations …" (p. 416). Further, I agree with MacGuigan J.A.
in Wiebe Door, at p. 563, citing Atiyah, supra, at p. 38, that what must
always occur is a search for the total relationship of the parties:
[I]t is exceedingly doubtful whether the search for
a formula in the nature of a single test for identifying a contract of service
any longer serves a useful purpose… The most that can profitably be done is to
examine all the possible factors which have been referred to in these cases as
bearing on the nature of the relationship between the parties concerned.
Clearly not all of these factors will be relevant in all cases, or have the
same weight in all cases. Equally clearly no magic formula can be propounded
for determining which factors should, in any given case, be treated as the
determining ones.
47. Although
there is no universal test to determine whether a person is an employee or an
independent contractor, I agree with MacGuigan J.A. that a persuasive approach
to the issue is that taken by Cooke J. in Market Investigations, supra.
The central question is whether the person who has been engaged to perform the
services is performing them as a person in business on his own
account. In making this determination, the level of control the
employer has over the worker's activities will always be a factor. However,
other factors to consider include whether the worker provides his or her own
equipment, whether the worker hires his or her own helpers, the degree of
financial risk taken by the worker, the degree of responsibility for investment
and management held by the worker, and the worker's opportunity for profit in
the performance of his or her tasks
48 It
bears repeating that the above factors constitute a non-exhaustive list, and
there is no set formula as to their application. The relative weight of each
will depend on the particular facts and circumstances of the case.
[28] It should be noted that Justice Major has indicated that the central
question to be decided in cases such as these is whether the person who has
been engaged to perform the services is performing them as a person in business
on his own account or is performing them in the capacity of an
employee. In order to make this determination the four criteria set
out in Wiebe Door (supra) are factors to be considered.
[29] I will comment upon the four factors set out by Mr. Justice MacGuigan
in Wiebe Door (supra).
1. Control
[30] The evidence that was before me indicated as follows:
(a) The Workers were subject to the general
supervision of Catherine Pearce, the Manager of the Appellant and one of the
shareholders of the Appellant.
(b) The Appellant arranged the classes and
prepared the class schedules for the Workers.
(c) The Appellant paid the Workers based on the
Appellant’s records.
(d) The evidence also indicated that the Workers
could be replaced by another Worker but the Worker had to be certified by
B.T.S.
(e) If there was a replacement Worker, the
Appellant paid the replacement Worker i.e. the Workers did not pay for their
replacement.
(f) The Workers worked at the Appellant’s
premises on the fitness and gym equipment owned by the Appellant.
(g) The three Workers who testified said they
were required to attend staff meetings without any payment for the time
involved in attending the meetings.
(h) The three Workers who testified understood
that if they worked for the Appellant they could not work in any other fitness
facility. (In other words the Appellant dictated what the Workers could do when
they were not working for the Appellant.)
(i) Two business cards were filed by Counsel
for the Respondent. (See Exhibits R-2 for Nanette Kowalski and Exhibit R-3 for
Sharon Courtney) These business cards indicate that the individuals
mentioned were associated with the Appellant. The business cards did not show
that the two Workers were independent contractors.
[31] Based on the evidence presented to me, I have concluded that the
Workers were effectively controlled by the Appellant in the same manner that
employees are controlled by an employer.
2. Ownership of Tools
[32] As noted above the Appellant provided a furnished work location, gym
and training equipment, a dance studio, a stereo, a microphone, mats and
choreography. The only items provided by the Workers were their shoes, their
gym apparel and their music.
3. Chance of Profit and Risk of Loss
[33] As indicated above the Workers were paid based upon the classes that
they taught. The evidence indicates the Workers did not have any of the "day‑to‑day" costs of running a business. For
example, the Workers did not have to sign a lease with a landlord or deal with
bad debts from customers. The Workers did not have to collect money from the
customers who used the facilities. In my opinion, the evidence established that
the Workers did not have an opportunity to share in the profits of the
Appellant nor did the Workers have the risk of suffering a loss.
4. Intent of the Parties
[34] Mr. Pearce, the agent of the Appellant and one of the Appellant’s
shareholders said that each of the Workers signed agreements which indicated that
the Workers were independent contractors. However, no copy of the agreement was
produced and the three Workers who testified as witnesses were somewhat vague
as to the nature of the agreement between them and the Appellant. In this
connection, one of the witnesses, Ms. Crozier, said that she accepted the
agreement but that she did not understand very much about it. Another witness appeared
to be vague with respect to the existence of the agreement.
[35] In Royal Winnipeg Ballet v. M.N.R., 264 D.L.R. (4th) 634,
2006 DTC 6323, Madam Justice Sharlow of the Federal Court of Appeal quoted from
the decision of Décary J.A. in Wolf v. M.N.R., 2002 DTC 6853 at
paragraph 60:
60. … One principle is that
in interpreting a contract what is sought is the common intention of the
parties rather than the adherence to the literal meaning of the words. Another
principle is that in interpreting a contract, the circumstances in which it was
formed, the interpretation which has already been given to it by the parties or
which it may have received, and usage, are all taken into account. The
inescapable conclusion is that the evidence of the parties understanding of
their contract must always be examined and given appropriate weight.
[36] Madam Justice Sharlow said at paragraph 61:
61. I emphasize again, that
this does not mean that the parties’ declaration as to the legal character of
their contract is determinative. Nor does it mean that the parties’ statement
as to what they intended to do must result in a finding that their intention
has been realized. To paraphrase Desjardins J.A. (from paragraph 71 of the lead
judgment in Wolf), if it is established that the terms of the contract,
considered in the appropriate factual context do not reflect the legal
relationship that the parties profess to have intended, then their statement
will be disregarded
[37] I have
concluded that the comments made by Madam Justice Sharlow in the Royal
Winnipeg Ballet case (supra) are very important. However, I do not
believe that the comments contained in the Royal Winnipeg Ballet case (supra)
would apply to this case because, in my opinion, there was no clear, common
understanding as to the nature of the relationship between the Appellant and
the Workers. In the Royal Winnipeg Ballet case there was what might be
described as "informed intent". That is not the case here. Furthermore, as noted,
a copy of the agreement could not be located. In summary, it comes down to a
question of credibility. I do not accept the statements made with respect to
the agreement.
[38] I have also
reviewed the decision of Justice McArthur of this Court in 557755 BC Ltd
v. M.N.R., 2005 TCC 663. In that case Justice McArthur reviewed the Wiebe
Door case (supra) and the Sagaz Industries case (supra)
and held that a fitness instructor was an employee not an independent
contractor. I agree with the conclusion of Justice McArthur.
[39] In order to
deal with the various points noted above, I believe that it is useful to again refer
to the comments made by Justice Major in Sagaz Industries case (supra) where he indicated that the central question
to be decided in cases such as these is whether the person who has been
engaged to perform the services is performing them as a person in business on
his own account or is performing them in the capacity of an employee.
(underlining added) (See also Nametco Holdings Ltd v. Minister of
National Revenue 2002 FCA 474 where Justice Strayer relied on the same
quotation from Justice Major)
[40] In deciding
whether the Workers were carrying on their own business I note the following
points:
(a) None of the Workers were registered for
G.S.T. purposes.
(b) None of the Workers carried their own
insurance.
(c) None of the Workers had their own personal
business card i.e. the two business cards presented indicated that the Workers
were "connected with" the Appellant.
(d) The Workers did not have to locate their own
customers.
(e) The Workers did not pay for any advertising
on the radio, on the television or in newspapers.
D. CONCLUSION:
[41] On the
evidence before me I have concluded that it cannot be said that the Workers
were performing their services as a person carrying on their own business.
[42] Based on
the evidence before me and based upon an analysis of the various court
decisions I have concluded that the Workers were performing their services as
employees of the Appellant.
[43] The appeals
are dismissed, without costs.
Signed at Calgary,
Alberta, this 14th day of June 2007.
Little
J.
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