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Citation: 2003TCC448
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Date: 20030630
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Docket: 2002-2324(EI)
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BETWEEN:
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XINCON TECHNOLOGY (CANADA) 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
BONNER,
T.C.J.
[1] These
appeals are brought under the provisions of the Canada Pension Plan and
the Employment Insurance Act. They raise the question whether
77 individuals who worked during the period January 1, 2000 to August 31,
2001 as instructors at the Appellant's school did so under contracts of service
or contracts for services.
[2] By
Notices of Assessment dated December 19, 2001, the Appellant was assessed for
failure to remit Canada Pension Plan contributions and Employment Insurance
premiums, in respect of a group which included 77 individuals whose names are
listed in Schedule A to the Notice of Appeal. The assessments also included
related penalties and interest. Following appeals to the Respondent the
assessments, so far as they related to the 77 individuals, were confirmed. The
present appeals ensued. The appeals were heard together on common evidence.
[3] During
the period the Appellant operated a private school offering computer training
courses, primarily certification courses in information technology. Some of the
courses were offered on a full-time basis, others part‑time.
[4] The
school was not operated on conventional lines in which the school designs the
programme and fixes course content. Each course offered was a stand-alone unit
intended to train individuals to attain levels of competence in the operation
of a software program designed by a software producer. The level of skill which
must be attained, the course content and the examination required to secure
certification were all fixed by the software maker.
[5] The
Appellant set the fees charged to the students. The instructors were not
involved in any aspect of the operation of the school save for the teaching of
their respective courses.
[6] The
Appellant did not keep instructors on staff for an indeterminate period. Each
was engaged to teach a single course and when that task was completed the
relationship was at an end, at least until a new contract was made for a
separate project. The Appellant maintained a list of individuals who were able
and willing to undertake the task of teaching the skills involved in a
particular course. When it concluded that sufficient demand existed to justify
offering a course it advertised the course and contacted a person from its list
of qualified instructors. The Appellant then negotiated a contract limited to
the teaching of that course.
[7] Typically
the main topics for negotiation when an instructor was engaged were fee and the
time when the course was to be taught. The latter was important because most
instructors had other work and had to fit the teaching project into their
schedules. The parties negotiated the number of hours required to teach the
course, and they agreed on an hourly rate on which the course fee was based.
[8] At
times student enrolment in a course fell below expectations. In such cases the
Appellant attempted to reach an agreement with the instructor to reduce the
hourly rate on which the course fee was based. The duration of the various
courses ranged from three weeks to three months. Instructors completed and
submitted to the Appellant time sheets which recorded teaching time and formed
the basis for periodic payment of fees.
[9] Fringe
benefits were not made available to the instructors.
[10] The courses were taught on the Appellant's premises. Students used the
Appellant's computers and, in some cases, a projector. Instructors, when
teaching, used the Appellant's computers. The Appellant did not furnish the
instructors with reference materials or office space or equipment required to
prepare for and teach the course. The instructors worked at home when preparing
to carry out their teaching assignments. In preparing, the instructors used
their own computer software, reference manuals and other supplies and equipment.
[11] The Appellant called a total of six witnesses at the hearing. They
included Ying Qiu who managed the school during part of the period and
five other individuals who worked as instructors at the school. None of them
suggested that the Appellant possessed or purported to exercise a right to
control the manner in which the instructors taught their courses. Some
indicated that student satisfaction was measured by survey conducted by the
Appellant. If the survey suggested the existence of a problem it was brought to
the attention of the instructor but he was not told how to rectify it.
[12] Two individuals who had worked as instructors were called by the
Respondent. One of them, Anil Sinha, suggested that a manager sat in on one or
two classes during a 14-week course and offered some feedback. I view that
experience as a departure from the norm. The Respondent's second witness did
not recall that the Appellant ever had a supervisor present during classes.
[13] There were minor differences among witnesses on the question whether
the instructors were permitted to hire substitutes. The witness Sinha stated
that instructors could not do so but admitted on cross-examination that the
question had never arisen. The witness Gill stated that he arranged to have another
instructor take his class when he was ill. I have concluded that the use by
instructors of substitutes was permitted only by way of exception to the
general rule. This conclusion rests primarily on evidence regarding the
Appellant's insistence on ensuring before hiring instructors that they were
properly certified and qualified.
[14] It would seem that few expenses were encountered by the instructors in
carrying out their teaching duties. To the extent that expenses were
encountered virtually all were borne by the instructors. Some instructors
prepared handouts for their students. Some were permitted to use the
Appellant's photocopy machine for this purpose. Some had to pay 10 cents per
page and some nothing at all. To the extent that manuals were required by the
instructors in order to prepare for and teach the courses, the cost was borne
by the instructors.
[15] Several of the witnesses expressed the opinion that they had been
retained by the Appellant as independent contractors. One said his relationship
to the Appellant was "business to business". He operated his own
business under the name Electronic Consulting Services Company.
[16] I note that there were minor inconsistencies among witnesses in
matters of detail. Those inconsistencies were, in my
view, attributable primarily to differences in the experiences of the witnesses
and also to the frailties of memory. The witnesses were, after all, attempting
to describe the terms of an oral contract and the events on which their
descriptions were based may have varied somewhat from one to another.
[17] A decision whether a contract between a worker and a person who has
engaged him or her is a contract of service (or, to use the more current
expression, a contract of employment) or a contract for services must depend on
an overview of the relevant features of the relationship. While it is necessary
and helpful to review the authorities, a mechanical process of totalling
factors relied on by the courts in previous cases must be avoided.
[18] Thus, in Wiebe Door Services v. M.N.R., [1986] 2 CTC 200, the
Federal Court of Appeal referred to a fourfold test involving (1) control, (2)
ownership of tools, (3) chance of profit and (4) risk of loss. The Wiebe
decision was referred to with approval in 671122 Ontario Ltd. v. Sagaz
Industries Canada Inc., [2001] 2 S.C.R. 983. At paragraphs 39, 47 and 48 of
the Reasons, Major J., speaking for the Court noted:
"[39] An early attempt to deal with
the problems of the control test was the development of a fourfold test known
as the "entrepreneur test". It was set out by W. O. Douglas (later
Justice) in "Vicarious Liability and Administration of Risk I"
(1928-1929), 38 Yale L.J. 584, and applied by Lord Wright in Montreal
v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 (P.C.), at p. 169:
"In earlier cases a single test, such
as the presence or absence of control, was often relied on to determine whether
the case was one of master and servant, mostly in order to decide issues of
tortious liability on the part of the master or superior. In the more complex
conditions of modern industry, more complicated tests have often to be applied.
It has been suggested that a fourfold test would in some cases be more
appropriate, a complex involving (1) control; (2) ownership of the tools; (3)
chance of profit; (4) risk of loss. Control in itself is not always
conclusive."
...
[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."
[19] Generally speaking, a person who has hired an independent contractor has
bargained for the performance of a task. In contrast, in the case of
employment, the worker is expected to place his services at the disposal of the
employer who directs not only what is to be done but the manner in which it is
to be done. In the present case, each worker was engaged to teach a specialized
course with a view to preparing the students for a certification examination.
The contract between the Appellant and the instructors was result-oriented. The
Appellant does not appear to have had the right to control the manner in which
the instructors taught the students. It seems likely that the Appellant did not
possess the expertise necessary to evaluate the instructors' work with a view
to the exercise of control over how it was done. As I see it, the Appellant, by
surveying student satisfaction did not attempt to exercise control. It simply
attempted to evaluate outcome as is often done by a person who has hired an
independent contractor.
[20] The ownership of tools factor also points to the existence of an
employment relationship. The instructors were retained to teach a course and
were furnished with virtually nothing to assist them in doing so except a
computer in the classroom. The instructors were obliged to use their own
manuals. The fact that the Appellant equipped the classroom with computers for
student use is beside the point. The contracts in question were related to the
instructors' obligations to teach and not to the Appellant's obligation to its
students to furnish a properly equipped classroom.
[21] No doubt the instructors were exposed to a minimum of financial risk
in carrying out their contracts. Little in the way of investment in a lasting
business structure was involved. The only costs the instructors were likely to
encounter in earning their fees were the costs of home office use in preparing
for class and the costs of manuals and office supplies. However, the conduct of
knowledge‑based work, even when performed by an independent contractor,
may involve only minor outlay or risk. This factor is therefore of limited
assistance here.
[22] As noted above, a contract of service usually contemplates the
employee putting his own services at the disposal of the employer for a period
of time. The right to hire helpers to perform the contract is generally
inconsistent with an employment relationship. Ordinarily, the use of assistants
or substitutes was not in contemplation in the contracts here. While this
consideration points to an employer-employee relationship, it is not
determinative. A contract which precludes the use of assistants is not
invariably a contract of service.
[23] Finally I note that the Appellant and many, if not most, of the
instructors who testified were of the view that the instructors were
independent contractors. Fringe benefits were not provided. The classification
of a contract by the parties is not determinative of course but the
understanding of the parties, where genuine, cannot be overlooked.
[24] On an overall view the answer to the
"central question" is that the instructors were engaged as
"persons in business on their own account" to perform, in each case,
an isolated task for a fee applicable to that task alone. They were independent
contractors. The appeals will be allowed and the assessments referred back to
the Minister of National Revenue for reassessment.
Signed at
Toronto, Ontario, this 30th day of June 2003.
T.C.J.
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