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Citation: 2005TCC338
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Date: 20050525
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Dockets: 2004-495(EI)
2004-496(CPP)
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BETWEEN:
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VITEK WINCZA,
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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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and
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PATRICIA BIRCH, LAUREN CHO, KATE DAVIES, SU DING,
PATRICIA DYDNANSKY, ROLAND FIX, MARTA GREDA‑-KICEK,
ROBERT HORVATH, JANINE HUNT, LEONID KARAN, KATERINA KOLBAS,
TOMISLAV LAVOIE, WARREN NICHOLSON, ELIZABETH PICKETT,
MICHELE RICCI,
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Intervenors.
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____________________________________________________________________
REASONS FOR JUDGMENT
O'Connor, J.
[1] The
issue in these appeals is whether in the period January 1, 2002 to April 29,
2003, Patricia Birch, Lauren Cho, Kate Davies, Su Ding,
Patricia Dydnansky, Roland Fix, Marta Greda-Kicek, Robert Horvath,
Janine Hunt, Leonid Karan, Katerina Kolbas, Tomislav Lavoie, Warren Nicholson,
Elizabeth Pickett, Michele Ricci, (together the "Workers" or
"teachers"), were engaged in insurable employment pursuant to paragraph 5(1)(a)
of the Employment Insurance Act and in pensionable employment pursuant
to subsection 6(1) of the Canada Pension Plan, in their relationships
with the Appellant. The list of Workers appended to the Reply to the Notice of
Appeal indicates that Patricia Birch's situation relates only to
Employment Insurance.
[2] The
Minister of National Revenue (the "Minister") determined that the Workers
were engaged in insurable employment and pensionable employment on the basis
that they were hired under contracts of service as opposed to contracts for
services (independent contractors) and assessed the Appellant accordingly.
[3] This
issue comes before this Court frequently and, as is well known, has generally been
resolved on the basis of a four-fold test. The tests are:
(1) control,
(2) ownership of tools,
(3) chance of profit and risk of loss,
(4) the integration test.
[4] In
my opinion the following are the most important facts in the determination of
the issue in question:
1. The Appellant
owns and is the Artistic Director of the Hamilton Conservatory for the
Arts ("the Conservatory"), a building in the City of Hamilton which he acquired in 1997 and which was the former
Royal Conservatory of Music.
2. The Conservatory
in the period in question offered the opportunity for students to register for
private lessons or group classes in various types of dance, voice and musical
instruments. The Conservatory is open to all members of society. Programs are
offered for all ages from 3 to 93. The Workers were hired as teachers to
provide their professional expertise in teaching students at the Conservatory.
The staff of the Conservatory handled all administrative matters including
registration of the students and established a certain Code of Conduct for
students while attending the Conservatory.
3. Practically all
lessons given by the Workers were given at the Conservatory. The Workers
established all their own rates of pay and hours of work with the students. The
payments were collected by the Conservatory staff from the students on the
basis of invoices which the Workers submitted to the Conservatory.
4. The Conservatory
charged each Worker $10.00 per a one hour lesson of a student; $4.00 from this
$10.00 was retained to cover certain services of the Conservatory and its staff
and $6.00 was retained by the Conservatory as income. For example if the
student paid $40.00 per hour, the Conservatory, after receiving the relevant
invoice would retain $10.00 and remit the remaining $30.00 to the Worker.
5. In addition to
the payment of the Workers' rates, students paid a $25.00 registration fee.
This registration fee covered insurance and other administrative expenses,
printing of newsletters, use of the Recital Hall and parking. The insurance was
to protect the Workers against liability should a student be injured.
6. The Conservatory
provided no employee benefits nor holiday pay.
7. The teachers paid
for their own personal advertising designed to attract students. In addition to
the personal advertising by the teachers the Conservatory put out a flyer
stating the experience and talents of the various teachers. That flyer is filed
as Exhibit R-1.
[5] The
Appellant pointed out that the Letter of Understanding ("Letter"), a
sample of which was filed as Exhibit A-1, was worked out between the Appellant
and the Workers, without professional advice. The Appellant attempted to
explain that this is the reason why some of the provisions of the Letter were
inadequate in attempting to make it clear that the contract between the parties
was that of an independent contractor. The Letter refers to the Conservatory as
HCA, meaning Hamilton Conservatory for the Arts. The Letter reads substantially
as follows:
Letter of Understanding
Between
The Hamilton Conservatory for the
Arts
And
_______________________________
Teacher
For the Academic Year September 1,
20 ___ to June 30, 20 ___
I, _____________________________, being a
self-employed professional music teacher, undertake an association with the HCA
under the terms and conditions following:
1. In
all my professional dealings as a musician and teacher with the HCA, the well
being of each student and HCA will take precedence.
2. In
principle, I will adhere to the policies and practices of HCA as outlined in
the current Handbook for Teachers, and which may be announced from time to
time, and will be guided by the direction and advice of the Artistic Director
Vitek Wincza or his designate. I will also adhere to the Registration &
Invoicing Policies/Procedures HCA has outlined.
3. I
agree that I am free to choose my own professional fees for private lessons in
consultation with the HCA Artistic Director, Vitek Wincza. We have agreed upon
the rate of _____________ per 1/2 hour of private instruction (longer lessons
to be calculated on that basis) to be paid to the Hamilton Conservatory for the
Arts by the student. $10.00 per teaching hour will be retained by the
Conservatory, resulting in my being paid _______________ per teaching hour. I
understand this fee must be applied to ALL students assigned to me. My
attendance sheet(s) will be left in my personal slot at all times, as they are
the property of the HCA.
4. I
understand that I am to begin teaching a student only after I have received a
confirmation slip from HCA administration and I have signed it and returned it
to HCA administration.
5. I
understand that any cancelled lessons are to be made up within 30 days. I
understand that I must inform HCA administration of the agreed
(teacher/student) date and time of the make-up lesson and in return,
administration will schedule a room for the lesson to take place. No make-up
lesson will be allowed without the HCA being notified in advance.
6. I
understand that in case of an emergency (ex. snow storm) and there is a
cancellation of lessons, it is the responsibility of HCA to phone any students
to advise them of the cancellation. HCA will also be responsible for scheduling
a convenient time, day, and studio for the make-up lesson to take place.
7. I
understand that students (and their parents) registered with HCA who were not
my students before I became a member of the faculty and who come to me as a
result of advertising and promotion by the Conservatory, are its
clients/customers and are therefore students of the Conservatory. In respect of
this formal relationship, I agree that I will not offer HCA students to study
with me outside the Conservatory, either during my tenure as a teacher for the
HCA or for a period of two years after the termination of my tenure as an HCA
teacher.
8. I
understand that during my employment with the Hamilton Conservatory for the
Arts, I will teach those students appointed to me by the HCA at the
Conservatory only. No lessons will be taken elsewhere (ex. in my home). If HCA
is notified that lessons are being taken other than at the Conservatory, HCA
has the right to immediately terminate this agreement, and the students
appointed to me will be placed by HCA to other teachers.
9. I
understand that the first 15-minute consultation with a new student, which is
always held at the Conservatory, will not be subject to any fees. I agree that
I will not invoice the HCA for this consultation.
10. I
agree to submit my available teaching schedule to HCA so they may register
students. It is the responsibility of HCA to allocate studio space and
equipment, and, in consultation with the teacher, to schedule lesson times. HCA
agrees to consult teachers in advance of any decisions taken which will affect
teaching arrangements made under this agreement.
11. I
agree that after HCA has left a message or had a conversation concerning the
possibility of scheduling a student with me and there has been no response made
by me to HCA in 24 hours, HCA may call another teacher for this student.
12. I
understand that I should have an appropriate method of receiving messages
(answering machine, fax, etc) for HCA to contact me. If not, HCA may
immediately phone another teacher for the student.
13. I
agree to be expected to maintain a student body of 75% of all students
appointed to me. I understand that there will be follow up calls directed to
cancelling students to find out the reasons for their cancellation. This is to
help improve HCA services.
14. I
understand that when using HCA premises, equipment, and teaching facilities, it
is my responsibility to ensure 1) proper and adequate security against loss,
theft, or damage of HCA property and 2) as much as lies within my power, to
ensure the safety of individuals while on the premises.
15. I
understand that the use of HCA facilities and equipment is normally restricted
to members of the teaching faculty, and HCA registered student (along with
parents or musical associates such as accompanists and ensemble partners). I
will admit others to the building ONLY with the prior approval of the Artistic
Director, Vitek Wincza, or his designate.
16. HCA
agrees to provide and maintain a reception and accounting office to assist in
communication with students and parents and also with the bookkeeping necessary
for each teacher/student relationship. In addition, HCA will provide leadership
in developing group programs, recitals, workshops, and other activities. HCA
will also work in cooperation with teachers, to undertake public
elation/marketing efforts to further enhance the stature and reputation of the
Conservatory, its teachers and students.
17. I
understand that as a faculty member/staff teacher, I agree to attend 3
quarterly department meetings per teaching year.
18. I
understand that each student must have a performance class for their families
after every (12 – week) session of instruction. I also acknowledge that I will
appoint one (1) or more students to join in the celebration days held at the
HCA with all of the departments of the Conservatory.
19. I
authorize HCA to use my name, academic and professional qualifications,
photographs (as approved by me), and other relevant details from my
biographical file in any communication or promotional material related to HCA
programs and activities.
20. Both
parties shall honour the terms and conditions expressed in this Letter of
Understanding for the full period covered therein. However, this agreement may
be terminated by either party for reasonable and just cause upon thirty (30)
days notice in writing. In this event, HCA retains the right and responsibility
to make alternative lesson arrangements for the students of the departing teacher.
[6] The
testimony of the Appellant and of the three Workers who testified made it clear
that the intention between them, notwithstanding any of the provisions in the
Letter, was that the relationship between the Appellant and a Worker was that
of an independent contractor.
[7] Counsel
for the Minister, in cross-examination of the Appellant referred to the Letter and
the following summarizes Counsel's principal questions and the answers thereto of
the Appellant in this regard. Counsel quoted paragraph 7 of the Letter (see
above) and referred to other paragraphs of the Letter, then the following
exchanges, inter alia, took place:
Q. I'm just wondering, you have indicated that
this is -- this letter is a statement of your relationship and the evidence you
have given us today about your relationship tells us that there is something
different there. So I'm wondering if you could explain that.
A. Okay.
Again, because we made a, and I
wish we could have a little bit more professional help and this is a lesson to
learn, this was indicated to the students. Let's say the teacher moves to Nova
Scotia and we have twenty students left and the students would like to continue
the class at the Conservatory, then we assign, if we need a new teacher to
replace the teacher, we will indicate -- we will create a relationship with
that new teacher and in this situation the teacher will provide the service.
But there were other people who
brought those teachers -- the students into the Conservatory. So that relates
to that particular situation. That if the teacher leaves for the reasons or
something and leaves twenty students, the teacher -- the hired teacher for the
services, the independent contractor for the services cannot just come and work
for one week and take those twenty students with them.
Q. Well, that statement doesn't say that though,
does it? It says that the students are the Conservatory's students and the
teachers can't take them with them.
A. For that particular situation.
Q. Now the students come to the Conservatory
because of the advertising that's sent out in the community.
A. For several reasons. We do have activities in
an education and we are very involved in education. We have over 300 schools
participating in the Conservatory offering the art classes, and teachers teach
-- Conservatory teachers are hired to do some programmes in Conservatory and
outside Conservatory and many times word goes around. But basically, through
the teachers' activities beyond a private teaching and also the website and
also what the Conservatory stands for it. So you can see quite often in the
media the programmes we offer and concerts we offer.
So we establish already quite
reputable, over the seven or eight years, quite a reputation and that attracts
people to be. And again what stipulates our relationships, our Code of Conduct
and the way we operate the classes through the letter of understanding, it pays
off in the long run.
Q. So you are saying that some of the students
you get will be through programmes that your teachers run in schools?
A. At schools outside.
Q. So they are going out there and they're saying
that "We work at the Hamilton Conservatory for the Arts", and then
that will draw...
A. In some cases, yes.
Q. So that will draw students in. So when they're
going out in the community they are saying "We are with the Conservatory
for the Arts".
...
Q. But you do advertising as well in the
community?
A. Yes. That's a letter advertising. I mean we
have our brochure once a year. We print a Conservatory prospectus which
outlines all the programmes we have and we distribute them throughout the
community.
Q. And you have your website as well?
A. That's right.
Q. And the students are registered through the
Conservatory.
A. Yes, for the insurance purpose.
Q. So the Conservatory carries the insurance?
A. Yes. $25.00 registration fee paid by the
student carries the insurance for the teachers. So in case there is legal
problems, if the student fell from the stairs, they are insured.
Q. And the students pay their tuition through –
A. On top of it.
Q. -- through the Conservatory. So they will pay
the Conservatory and then the Conservatory will –
A. On behalf of the teachers. The Conservatory
administration team arrange all the whole operation, the financial operation,
for the teachers on behalf of the teachers.
Q. So the Conservatory runs all the financial
aspects of things.
A. Well, runs, yeah, administration on behalf of
the teacher.
Q. So the student would pay the Conservatory and
then the Conservatory would pay the teacher?
A. That's right.
Q. And this was the relationship that the
Conservatory had with all its teachers?
A. Yes.
...
Q. I guess I'm asking what happened in the period
from we're looking at January 1st, 2002 to April 29th, 2003 when say the
academic year ended in June of 2002 and started again in September of 2002,
would a new letter be signed in 2002?
A. Not necessarily. It depends.
Q. But the agreement would continue? The
understanding of the terms would continue?
A. Yes. Well, if, for example now we are in the process
of establishing -- I mean there's a lot of corrections there we realize right
now, but it's not that we didn't comply with it. We want to comply with the
basic principle that the teacher was self-employed.
...
Q. Now at paragraph 3 it does say that the worker
would choose their fee in consultation with yourself. So they would discuss
this with you in terms of what?
A. Sometimes teachers -- sometimes teachers, especially
new teachers coming from Toronto or other places, don't know what's going rate
because again, as I mentioned in my statement, there was one teacher who
charged $60.00 and couldn't have students for two years. And so in some cases
the Conservatory helps them to tell them what's the market. Obviously Toronto will have different rates. Oakville will have
different rates and Hamilton will have different rates. Not knowing
those rates, sitting on the rates, the Toronto
rates, the teacher may lose the income, not knowing the market and the value of
the lessons.
But at the bottom line we may
suggest it to them, but they are the ones who finalize the rate, what they want
to negotiate in.
...
Q. I'm just looking at paragraph 8 of Exhibit A-1
and I read there:
"I understand that during my
employment with Hamilton Conservatory for the Arts I will teach those students
appointed to me by the HCA..."
So there are a couple of
points here.
"...at the Conservatory only. No
lessons will be taken elsewhere, for example in my home."
And it goes on to say that:
"If HCA is notified that lessons are
being taken other than at the Conservatory, HCA has the right to immediately
terminate this agreement and the students appointed to me will be placed
with..."
A. Yes. That is another fine line. This applies
-- as I said, if there is a rule and the teacher is available to teach the
particular classes, well, we would like to see that class continue because
there is a student which is there. But if it's only one class, one half-hour
class and the teacher has to come from far to teach half-hour, it will take
them one-and-a-half hour to get to the Conservatory, obviously we are staying
out of rule and we acknowledge that.
But if there is three
teachers available to teach at the Conservatory and offer services to the
Conservatory and there is a possibility to have that student at the
Conservatory, the student should be taught at the Conservatory and nowhere
else.
Q. You are saying it's a fine line. That paragraph
doesn't read like a really fine line.
A. Yeah. I wish to take the law in my past but I am
principally an artist and we are making mistakes in not clarifying. But we are –
Q. I am just thinking these points, in terms of
who the students belong to, where they can be taught and who they are appointed
to, the particular teacher, these are fairly important points. And you are
saying that it's not always the case; but you are also saying that the workers
collectively came up with this agreement.
So I'm assuming that you
would agree with me that these are points that would be very important to the
workers in terms of who owns the students, and the fact that where they can
teach and this sort of thing. And it certainly reads that these are the
Conservatory students.
A. They are not Conservatory students.
Q. So even though it says that, even though everyone came
up with this agreement, according to your evidence –
A. It's a co-op. It's a co-op at the Conservatory. And at
the time when the services -- the co-op, it protects their own because if one
teacher decides to teach somewhere else that other teacher protects their
income, being available to teach.
Q. Now there is nothing in this agreement that speaks to
-- the word "cooperative" is never used in terms of describing the
relationship between the teachers and the Conservatory.
A. It's in the process.
Q. I'm sorry?
A. It's in the process as we are learning through this
and, as I said, we will be still improving our relationship and making more
clear it complies with the rules and regulations of the government.
Q. In this document that refers to the time period that
we're talking about, there's no discussion about any cooperative relationship
that was in Exhibit A-1.
A. Yes and no. In a general sense. It depends how you
read it.
Q. Nowhere does it describe the Conservatory as a
cooperative, does it?
A. No, I can't see it.
Q. And if a teacher ceased working at the Conservatory
for whatever reason, there is a two year -- basically a two year
non-competition period where they couldn't teach the students that they once taught?
A. Yes, they can teach. They can teach anywhere they...
Q. Well, the students I'm asking. They couldn't teach
students that belonged to the Conservatory for a two year period after they
left.
A. If they belong to the co-op. If there are
teachers in the co-op who can offer the same services and a teacher is leaving
the Conservatory, they should be part of the co-op and be assigned to the co-op
teachers. If they are not, they can take them.
Q. What I am reading here in paragraph 7 is it's
basically a non-competitive agreement, that the teacher won't take any students
with them from the Conservatory for two years.
A. Well, where that refers? Can you...
Q. Paragraph 7, the last sentence:
"In respect of this formal
relationship I agree that I will not offer HCA students to study with me
outside the Conservatory either during my tenure as a teacher for the HCA or
for a period of two years after the termination of my tenure as a HCA
teacher."
A. Yes, that applies to -- that is to protect the
co-op for their benefit. Because there is choices you make. If you have four
teachers and you are assigned a student you could assign to either of these or
that one. And you just go on the rotation basis or whatever.
But assigning a student to
one of the teachers, it may hurt another teacher who was not assigned. So
therefore if this teacher leaves the Conservatory, the student, if they wish,
usually, as I said, usually a student goes with the teacher, but we have no
control of that. We can't tell the student not to go and take the classes with
that particular teacher. It is up to the student because they are the ones who
engage.
Q. Now when you were saying that the teachers own
their own instruments, those are the instruments that the teachers would use;
is that correct?
A. Mm-hmm.
Q. And the students would generally show up with their
own instruments.
A. With their own.
Q. And that if there was a need for a large instrument at
the facility, such as a piano or something like that for voice lessons or
whatever, that would be provided?
A. Yeah. There's those three I mentioned out of my hand,
the harpsichord, organ and piano. It would be difficult for the teacher to
bring each time to the Conservatory when they teach. So in this case it has
become part of the agreement with the co-op that this will be part of the
$10.00 service fee.
Q. How many rooms are there in the Conservatory?
A. There is 21 music rooms, private music rooms and six
group -- six group larger rooms, and a recital hall.
Q. You have said that some teachers would work eight to
twelve hours a week, some teachers would work less.
A. That is an average.
Q. And you would set these rooms aside for the
whole...
A. Well, usually the teachers, as I've said before, they
decorate their own, they create their own, like their own home, their own
environment. Some like the green colour, some like a picture on it. So they
will bring.
These are the rooms which
usually they will teach if available. But, if not, it was first come, first
served. If that room -- that particular room is already taken by another
teacher, because some rooms are used by two or three teachers and some rooms
are used by one teacher. So if there is available, they will still continue
teaching in that room and that will usually happen. But, if not, they will
choose their own room, if it's available. It's on a first come available basis.
Q. So there is no actual lease or rental agreement.
A. That's right.
Q. There wasn't one.
A. No. This is all part of that.
...
[8] The
Conservatory provided its building for purposes of the lessons. However, the
testimony of the Appellant was that the Workers in many cases chose their own
rooms and actually painted and decorated them to their own liking. The
Conservatory also supplied the major instruments of piano, organ and harpsichord.
The principal item here was the piano. The other instruments were not used
frequently. All other instruments, papers, materials were supplied by the
Workers and in some cases students have their own instruments.
[9] With
respect to control, the Appellant exercised very little control over the work
of the Workers. The Workers fixed their own rates and hours with the students.
They invoiced the Conservatory. The input of the Appellant was principally from
an administrative point of view, handling registrations, running the
Conservatory, providing the rooms for the lessons in the Conservatory,
collecting the teachers pay on behalf of the teachers from the students and
deducting the $10.00 fee mentioned above and remitting the balance to the
teachers at the periods of time chosen by the teacher. The Letter contemplates
certain aspects of control but not that stringent. The Appellant and the Workers
testified that the Letter was not to alter the independent contractor relationship.
Also the Letter refers to the Worker as a "self-employed" professional
who undertakes an "association" with the Conservatory. Thus on
balance the control test would appear to point to an independent contractor
relationship as opposed to a contract of service.
[10] With respect to tools, as mentioned, the Appellant owned the
Conservatory and made that available to the Workers. However the Workers, in
many cases, occupied their own rooms and decorated them. The Conservatory also
owned the three major instruments, piano, organ and harpsichord. It was
explained that this arose because it would be impossible for the teachers to
bring these heavy instruments to the Conservatory. As to other tools consisting
of instruments such as violins, cellos, flutes, guitars, saxophones and others
(about 30 in all) and books, tapes and other materials, these were supplied by
the teachers who owned 99% of the particular instruments and in some cases the
students themselves brought their own instruments. Consequently the test of ownership
of tools would appear to point in both directions (i.e. contract of service and/or
contract for services or independent contractor.
[11] With respect to the chance for profit, since the Workers fixed their
own rates and hours they did have a chance for profit. In other words they were
not on a fixed salary basis as would be usually the case with most employees.
Here again this test points to a contract for services.
[12] With respect to risk of loss I do not see how the Workers had any risk
of loss other than that arising from the fact that if they failed to give the
lesson they had contracted for, they would not be paid and thus suffer a loss.
In my view the test of risk of loss would tend to point to a contract of
service but that test is not that important in the overall context of the
relationship.
[13] As to integration, which is to be looked at from the point of view of
the Worker, the evidence indicates that because of the advertising and the
connections through the Conservatory and the works of administration for the
teachers by the Conservatory I believe the integration test tends to point to a
contract of service.
[14] Because some tests point in one direction and others point in the opposite
direction, it is important to give effect to the intention of the parties.
Moreover although the basic understanding between the parties does not
necessarily establish a presumption nor definitely determine the issue, it is a
prime consideration. Specifically, see Wolfe v. Canada, [2002] 4 F.C. 396,
(FCA) where Noël, J. stated as follows:
...This was a case where the characterization placed
by the parties on their relationship ought to be given great weight. In a close
case such as the present one, where the relevant factors point in both directions
with equal force, the parties' contractual intent, and in particular their
mutual understanding of the relationship could not be disregarded. As the
parties considered that they were engaged in an independent contractor
relationship and as they acted in a manner consistent with this relationship,
it was not open to the Tax Court Judge to disregard their understanding.
Analysis
and Conclusion
[15] I find firstly that the Minister did not consider all the factors or
did not give sufficient importance to certain factors. With respect to all the
tests, see my above comments.
[16] I find secondly that the testimony of both the Appellant and the three
Workers called to testify was entirely credible, an important consideration in
cases of this nature.
[17] What must be examined is the total relationship between the parties.
Doing that in the context of the tests analyzed above, I conclude on a balance
of probabilities that what existed were contracts for services, i.e.
independent contractor relationships.
[18] Consequently, the appeals are allowed and the decisions of the
Minister are vacated.
Signed at Ottawa, Canada, this 25th day of May, 2005.
O'Connor,
J.
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