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Citation: 2005TCC69
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Date: 20050127
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Dockets: 2004-92(EI)
2004-93(CPP)
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BETWEEN:
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951992 ONTARIO LTD. o/a THE STUDIO,
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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
MacLatchy, D.J.
[1] These appeals were heard on common
evidence at Toronto, Ontario on November 23, 2004.
[2] By Notices of Assessment dated
October 3, 2002; the Appellant was assessed for failure to remit
employment insurance premiums in respect of different workers in
the amount of $3,202.14, $2,798.38 and $1,424.17 and for Canada
Pension Plan contributions in the amount of $3,915.60, $3,970.46
and $2,288.60 and for related penalties and interest for the
years 2000, 2001 and 2002.
[3] The Appellant appealed to the
Respondent for reconsideration of the assessments for the
taxation years 2000, 2001 and 2002 and, the Respondent confirmed
the assessments only for the taxation years 2001 and 2002, by
letter dated September 15, 2003.
[4] Furthermore, by letter dated
September 15, 2003 the Respondent decided to administratively
cancel the assessments for the taxation year 2000 as it was
raised contrary to the Respondent's policy.
[5] To reach his decision the
Respondent relied on the following assumptions of fact, most of
which were admitted by the Appellant with some exceptions as
noted:
(i) the
Workers involved in the appeal were Ann Bettolnvil, Gracinda
Borges, Kristi Breen, Susie McColl, Gord Murray and Terri
Turai-Gill;
(ii) the
Appellant operates a "Dance Studio" which provides
dance instruction to its students. (The Appellant's
corporation ("The Studio") was formed on August 1,
1991, primarily as a vehicle to rent space suitable for dance
instruction so that shareholders/instructors and other
instructors could have a common facility to teach dance).
(iii) the Appellant's
shareholders were as follows:
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prior to
August 1, 2000
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as of
August 1, 2000
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Ann Bettolnvil
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24%
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26.97%
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Gracinda Borges
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11%
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12.34%
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Kristi Breen
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24%
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26.97%
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Mary Suzanne McColl
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6%
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6.74%
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Terri Turai-Gill
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24%
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26.97%
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Gordon Murray
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11%
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0%
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(iv) the Workers are all
shareholders and are not related to each other;
(v) major business
and management decisions, including classes to be offered, class
size, rates to be charged to students, and amounts to be paid to
instructors, are made by consensus of the Appellant's
shareholders;
(vi) the Workers are
highly skilled dance instructors and are members of the Canadian
Dance Teachers Association;
(vii) the Appellant offers
different classes such as Ballet, Jazz, Tap, Acrobatics, Hip Hop,
Ballroom and also Ballet / Jazz / Tap Exam classes, Drama and
Vocal;
(viii) the Appellant also holds
3 recitals each year;
(ix) the students range in
age from 3 years to adult, beginner to advanced;
(x) the students
enter into contracts with the Appellant for dance instruction and
then the Appellant contracts with various instructors to provide
the dance instruction to the students;
(xi) the Appellant offers
a specified rate per class hour based on instructor
qualifications and the type of dance class;
(xii) the Workers were paid a
fixed rate per class, by cheque on a periodic basis;
(xiii) the Workers had to
invoice the Appellant in order to be paid and the invoice
included the number of classes and the total hours worked every
day; (The words "every day" were not admitted. Evidence
revealed that some instructors would complete the invoice as
required weekly or bi-weekly, as they saw fit. There was no rigid
requirement to complete any record or invoice on a daily
basis).
(xiv) the Workers established when
they are available and then the Appellant fixed the class hours
into a class schedule;
(xv) the Workers are responsible
for their own training and for keeping current in their field of
dance; (The Appellant stressed that such training, etc. was at
the instructors' own expense).
(xvi) the Workers provided their own
shoes and clothing, music books, CD's and CD players;
(xvii) the Appellant provided the
dance studios, without charging any cost to the Workers;
(xviii) the Appellant is responsible for the
publication distributed to the general public;
The remaining assumptions of fact were not admitted.
[6] The questions to be answered by
the Court is whether the workers were employed under a contract
of service, during the relevant period, within the meaning of
both the Employment Insurance Act (the
"Act") and the Canada Pension Plan (the
"Plan"). Further, whether the workers were
dealing at arm's length with the Appellant within the meaning
of the Act.
The Law
[7] The Court will follow the
direction of the Federal Court of Appeal as stated in Wiebe
Door Services Ltd. v. M.N.R., 87 DTC 5025 regarding
the tests that should be used by the Court to determine "the
total relationship of the parties". The four-in-one test
includes control, ownership of tools, chance of profit or risk of
loss and the organization or integration test. This latter test
is now being interpreted by the Appeal Courts as difficult to
apply and inconclusive in result. In Sagaz Industries Canada
Inc., [2001] 2 S.C.R. 983, Major, J. stated as follows:
[46] In my opinion, there is no
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, ...
([1952] 1 The Times L.R. 101) 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 of
ever changing employment relations..." (p. 416) Further, I
agree with MacGuigan J.A. in Wiebe Door, at p. 563, citing
Atiyah, ...(Vicarious Liability in the Law of Torts. London:
Butterworths, 1967) 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, ... ([1968] 3 All. E.R. 732). 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.
[8] The Federal Court of Appeal in
LawrenceWolf v. Her Majesty the Queen, 2002 DTC
6853, as articulated in the judgment of Desjardins J.A. followed
the conclusions of Major, J. in Sagaz, supra, as indicated
above, and instructed himself as follows:
[61] These words dictate the
investigation I must embark on. The factors traditionally
developed by the case law have not been discarded. They remain
valid, although somewhat reformulated.
[62] I therefore plan to examine
the level of control Canadair exercised over the appellant's
activities, the ownership of the equipment necessary to perform
the work, whether the appellant hired his own helpers, and the
degree of financial risk and of profit, as they relate to
circumstances such as these, where an individual with specialized
skills is hired by an employment agency to perform work for a
third party. I will then assess whether these factors were
properly applied by the Tax Court judge in light of all the
circumstances of this case.
and later at paragraph 93:
Both Canadair's work and the appellant's work were
integrated in the sense that they were directed to the same
operation and pursued the same goal, namely the certification of
the aircraft. Considering, however, the fact that the integration
factor is to be considered from the perspective of the employee,
it is clear that this integration was an incomplete one. The
appellant was at Canadair to provide a temporary helping hand in
a limited field of expertise, namely his own. In answering the
question "whose business is it?" from that angle, the
appellant's business stands independently. Once
Canadair's project was completed, the appellant was, so to
speak, ejected from his job. He had to seek other work in the
market place. He could not stay at Canadair unless another
project was under way.
Décary, J.A., concurring in the decision of Madam
Justice Desjardins, stated:
[117] The test, therefore, is whether,
looking at the total relationship of the parties, there is
control on the one hand and subordination on the other. I say,
with great respect, that the courts, in their propensity to
create artificial legal categories, have sometimes overlooked the
very factor which is the essence of a contractual relationship,
i.e. the intention of the parties. Article 1425 of the Civil Code
of Quebec established the principle that '[t] he common
intention of the parties rather that the adherence to the literal
meaning of the words shall be sought in interpreting a
contract'. Article 1426 C.C.Q. goes on to say that '[i] n
interpreting a contract, the nature of the 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'.
[9] The question of the control test
has been found to be less important than was originally thought.
If control was established to be with the Appellant, little else
was as important. But the decisions in Sagaz and
Wolfe have shown the difficulty in modern business
relationships of applying that test. Freedom to come and go in a
business relationship with no real connection between the parties
other than remuneration paid for a specific performance of a
worker's skill and abilities does not indicate control.
[10] The intention of the parties has become
an area that must be looked at and evaluated. The parties cannot
merely agree to opt out of the requirements of legislation by
stating what their relationship should be called but the relevant
circumstances surrounding the relationship (as established in
evidence), can assist to establish what the true nature of that
relationship was at the relevant time. Noël, J.A., in
concurring judgment in Wolfe, supra, stated :
[122] I too would allow the appeal. In my
view, this is a case where the characterization which the parties
have placed on their relationship ought to be given great weight.
I acknowledge that the manner in which parties choose to describe
their relationship is not usually determinative particularly
where the applicable legal tests point in the other direction.
But 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 cannot be disregarded.
[123] My assessment of the applicable legal
tests to the facts of this case is essentially the same as that
of my colleages. I view their assessment of the control test, the
integration test and the ownership of tool tests as not being
conclusive either way. With respect to financial risk, I
respectfully agree with my colleagues that the appellant in
consideration for a higher pay gave up many of the benefits which
usually accrue to an employee including job security. However, I
also agree with the Tax Court Judge that the appellant was paid
for hours worked regardless of the results achieved and that in
that sense he bore no more risk than an ordinary employee. My
assessment of the total relationship of the parties yields no
clear result which is why I believe regard must be had to how the
parties viewed their relationship.
[124] This is not a case where the parties
labelled their relationship in a certain way with a view of
achieving a tax benefit. No sham or window dressing of any sort
is suggested. It follows that the manner in which the parties
viewed their agreement must prevail unless they can be
shown to have been mistaken as to the true nature of their
relationship. In this respect, the evidence when assessed in the
light of the relevant legal tests is at best neutral. As the
parties considered that they were engaged in an independent
contractor relationship and as they acted in a manner that was
consistent with this relationship, I do not believe that it was
open to the Tax Court Judge to disregard their understanding
(Compare Montreal v. Montreal Locomotive Works Ltd., [1947] 1
D.L.R. 161 at 170).
Control
[11] The workers, in this instance, were
responsible for providing their skill and expertise as dance
teachers at times as arranged between themselves and the Studio
unfettered by any direction or supervision by the Appellant. The
contract (Exhibit, R-1) signed between the instructor and the
Studio had a list of "responsibilities" that, on first
blush, would appear to have elements of control in favour of the
Studio but as the evidence adduced clearly showed that these
"responsibilities" were only housekeeping items which
were not enforced or adhered to by the workers or the Appellant.
These items ensured the smooth operation of the instruction
process for all concerned. It was a business relationship that
worked for the advantage of both the Studio and the workers. The
requirement to invoice the Appellant for the hours performed by
the workers was an accounting procedure to ensure that correct
payment to the workers was made and not a method of controlling
the workers' time. The workers would look after their own
classes, using their own equipment, monitor the students'
attendance for purposes of costuming and their progress to the
final stages of the year's teaching. The workers, performance
was not monitored or evaluated by the Studio. If the workers
could not take a class as scheduled, it was their responsibility
to replace themselves with another teacher with the talent and
experience to take the class or reschedule the missed class, as
the worker could determine. Evidence disclosed that if a worker
was to be absent because of a higher paying opportunity presented
itself to him/her, he/she could hire a qualified replacement for
whatever classes were to be missed and the worker would pay that
replacement. The Appellant, in these circumstances, wanted to be
informed of the replacement to ensure smooth relations with
students and parents.
[12] The workers could work for other dance
studios, as they wished, without interference by the Appellant.
The workers could and did absent themselves for more lucrative
employment and for opportunities of advancement in their
profession.
[13] Overall, the evidence supported the
test of control indicating a relationship between workers and the
Appellant as independent contractors and not as a master and
servant arrangement.
Tools
[14] The workers were highly skilled and
well educated in their respective areas of expertise. The various
workers that gave evidence usually had 15 to 20 years
experience starting as a child in dance school through three and
four year courses at Colleges and Universities. Many
performed on a regular basis in various shows across Canada and
all had the necessary instructor's certificates from the
Canadian Dance Instructors Association. The most important tool
provided by the worker is his/her skill and ability to perform
and to teach. Years of experience together with trained physical
prowess are qualities peculiar to the individual. It is not a
skill or a talent available to anyone. The workers must maintain
their physical conditioning by attending gym classes for
flexibility, strength and endurance.
[15] The workers must be up-to-date in their
chosen style of dance. All of these requirements are paid for by
the workers and are not inconsiderable over the years. The
workers must provide their own shoes for their discipline of
choice, the cost of which can be quite substantial. Dance
clothing comes at a high cost as does the music requirements for
the teaching class which include C.D.'s, C.D. players,
tapes and books. The written music and relevant books required
for putting on a student performance all are at the expense of
the worker. Not only are the above items expensive to purchase
but continued maintenance is necessary.
[16] On the other hand, the Studio provides
the dance classroom and some stage facility at no cost to the
workers. Overall, the cost of this item may be greater than that
expense paid by each worker but the workers' expenses cannot
be brushed aside.
[17] As far as the tools are concerned it
would appear to be a wash.
Chance of profit and risk of loss
[18] The profit factor depends on the
worker's skill, experience, ability and time expended. The
workers have the opportunity to improve their skills and become
involved in higher paid positions. The hourly rate for the
workers depends on their skill and experience and is negotiated
with the Studio from time to time.
[19] The risk of loss is most concerning for
the workers. No benefits are payable by the Studio. Sickness and
accident occurrences are at the risk of the workers. The evidence
disclosed the frequency of broken bones, dislocations and other
injuries suffered by and at the sole expense of the workers.
These expenses relate directly to a loss by the workers for which
there is no recompense other than that which the workers may have
arranged.
[20] The workers are free to negotiate not
only with the Studio for a higher pay scale but can and do go in
the open market in order to increase their income. There was no
arrangement concerning overtime payments, health insurance
coverage, or pension plan considerations.
[21] All of the above favours the appearance
of a relationship of independence between the Appellant and the
workers.
[22] The question of "whose business is
it?" can be shown to go both ways. The Appellant
"Studio" runs a dance school and operates in a manner
to continue that endeavour while the workers operate
independently from the Appellant and run their own business as
dance professionals and instructors. Each is independent, but
each avails themselves of the others' business opportunities
to run their own show. Once again a relationship of independence
is evident.
[23] The Appellant and the workers regarded
each other as independent business operators. The Studio would
engage a worker to perform as an instructor when it required that
service but not otherwise. The worker would accept the position
only if it fitted into his/her schedule and at an hourly rate
negotiated to his/her satisfaction. The worker could come and go
as desired subject to performing the service for which a contract
had been negotiated. The Appellant and workers not only believed
that a contract for service existed but acted in such a manner of
independence as was shown by the facts introduced in
evidence.
[24] This Court has considered the following
cases referred to it by the Respondent: Widdows (c.o.b. Golden
Ears Entertainment v. Canada(Minister of National
Revenue - M.N.R.), [1999] T.C.J. No. 119, Gastown
Actor's Studio Ltd. v. Canada(Minister of
National Revenue - M.N.R.), [2002] T.C.J. No. 126
and Stages Performing Arts School Ltd. v.
Canada(Minister of National Revenue -
M.N.R.), [2001] T.C.J. No. 369. Each can be differentiated
based on the facts in each instance. These types of cases are
fact driven and each must be considered in light of the evidence
presented.
[25] It is not necessary to deal with the
Appellant's other ground of appeal concerning whether the
instructors/shareholders were dealing with the Appellant at
arm's length. The issue is moot.
[26] Overall, this Court could reach no
other conclusion after weighing the evidence heard and applying
the law as it has been interpreted. The workers provided the
Appellant with independent personal services.
[27] These appeals are allowed and the
assessments are vacated.
Signed at Toronto, Ontario, this 27th day of January 2005.
MacLatchy, D.J.
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