Widdows v. M.N.R., docket 98-486-UI

Date: 19990219

Dockets: 98-486-UI; 98-84-CPP

BETWEEN:

JOHN WIDDOWS O/A GOLDEN EARS ENTERTAINMENT,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

JOANNE J. FERRARI,

Intervenor.

Reasons for judgment

Rowe, D.J.T.C.C.

[1] The appellant appealed from a decision by the Respondent dated January 21, 1998 which found the intervenor, Joanne Ferrari, to have been in insurable and pensionable employment with the appellant for the periods June 4 to July 25, 1996, August 27 to August 29, 1996, September 10 to December 19, 1996, January 7 to March 13, 1997 and March 25 to June 5, 1997. The decision was issued pursuant to section 93 of the Employment Insurance Act and subsection 6(1) of the Canada Pension Plan and was based on paragraph 5(1)(a) of the Employment Insurance Act and paragraph 3(1)(a) of the Unemployment Insurance Act.

[2] The parties agreed the result in the within appeal would apply to the appeal of the appellant - 98-84(CPP) - and the intervention, therein, of Joanne J. Ferrari.

[3] The appellant testified he resides in Maple Ridge, British Columbia and, in March, 1988, began operating a music business under the trade name, Golden Ears Entertainment. The business consisted of approximately 2,500 square feet located in a strip mall in Maple Ridge. From that space, the appellant sold guitars, drums, amplifiers, brass and woodwind accessories and rented sound and lighting equipment. In addition, the premises had studios which were used for music instruction featuring 13 different instruments. The lessons were taught by various teachers, including Joanne Ferrari who began teaching at Golden Ears in 1991. The appellant stated the rates charged for the lessons were set by him and the school administrator employed by Golden Ears after consulting the teachers. He stated Ferrari had advised him of the amount she wished to receive for her instruction and the rates for the lessons were structured according to the nature of the program. Filed as Exhibit A-1, was a brochure of Golden Ears Music issued for 1998. The appellant stated Golden Ears collected the tuition from the students and/or their parents and the rates charged for the lessons had to be competitive with those offered by individuals who provided lessons by using a studio in their own homes. The rate paid to Joanne Ferrari and other teachers was $10.00 per half-hour and, for teaching theory, $6.00 per student. The classes in music theory might have four students and would last one hour. In the event a parent was not satisfied with the instruction received by a child and a refund was given or if a cheque was not honoured by the bank or if payment was not made for some lessons, then any amounts resulting from these occurrences were deducted from the next cheque paid to a teacher. The music school part of the business - involving 160 students - was administered by the school administrator and the appellant concentrated on the retail aspect of the business which was operated out of the front of the store. Prior to opening the store, the appellant had worked as a tenor and is still active as a performer. The appellant stated his premises had a studio equipped with a piano but the teachers brought some of their own books and material which were used in teaching lessons. One teacher used her own accordion to teach lessons. There was a weekly schedule of instruction which fluctuated due to cancellations and students moving in and out of the area. A teacher was paid only if a student had actually received instruction and payment had been made to Golden Ears Music for that lesson. During the summer, excluding August, the appellant stated Joanne Ferrari taught one or two hours per week. However, commencing in September, she would teach 33 students one-half hour lessons for a total of 16.5 hours per week. An attendance book containing a list of students was maintained and it was used as a billing aid. The teachers did not submit invoices to Golden Ears as the attendance book was used for purposes of payment and the appellant stated he merely multiplied the hours taught by a particular teacher by the agreed rate. Filed as Exhibit A-2, was a cheque dated November 28, 1996 paid to Joanne Ferrari in the sum of $335.50 which represented 26 hours @ $10.00 per hour, 5 music theory students @ $6.00 and teaching 13 children in a Discovering the Arts class @ $3.50 per student. The appellant filed - as Exhibit A -3 - a letter dated January 2, 1999 in which Linda Armstrong - the office administrator of Golden Ears Music School - set out details of the method of operation as it pertained to the music teachers, including Joanne Ferrari. The appellant stated the letter accurately set forth the policies of his business as it related to the teachers and added the teachers would handle substitution of teaching sessions in a variety of ways. On occasion, the teacher would attempt to find a substitute and if that was not possible the school administrator would be advised and she would undertake efforts to locate a replacement. The appellant explained it was much easier to substitute instruction early on in a program but as the relationship developed between the teacher and the student it was more practical to re-schedule lessons so as to maintain the contact between the parties. The appellant stated the nature of the music instruction business, as carried on by him under the trade name Golden Ears Music School, was flexible and he did not operate on the basis of "my way or the highway". He stated Joanne Ferrari taught other students in her own home and also taught at a school and for the Parks and Recreation Department at Maple Ridge. The issue whether she could have taught music lessons concurrently at a competitor's school never arose. The appellant advised the music school produced $85,000 revenue out of a total of $220,000 and he is currently considering whether he should discontinue offering music instruction as part of his business. In earlier years, the retail revenue had been in greater proportion to the teaching income. He stated he never issued any T4 slips to any teacher but - out of courtesy - they were provided with a print-out of earnings for the previous year. When Revenue Canada conducted an audit, he provided a list of teachers who had taught students at Golden Ears Music. Joanne Ferrari had begun teaching at his school in 1991 and worked until June 5, 1997. He stated no teacher had ever requested to rent the studio on a separate basis and none of them wanted to deal with collecting tuition for the lessons or to be involved with re-scheduling or other administrative duties. There were three employees for whom the usual deductions were made from salary, including Linda Armstrong, the school administrator. There was no incentive offered to teachers to bring in their own students although Ferrari, upon termination of their working relationship, declared she was taking some of her "students" with her and some did, in fact, leave Golden Ears. The appellant advised he continues to operate his business on the same basis and the question of Goods and Services Tax does not arise as music lessons are an exempt supply. The teachers set the curriculum in accordance with the wishes of the student/parent and it is of no concern to him what particular form of study is being undertaken by a student. He did not set the number of students per class and relied on the professional experience of the teachers. Although he had done some teaching in the past, he did not feel he was nearly as qualified as the teachers engaged by his school. He categorized the working relationship between himself - as owner of the business - and all the teachers as being one which was governed by a "gentleman's agreement".

[4] In cross-examination, the appellant stated the school administrator prepared a weekly schedule based on one-half hour lessons which was common in the industry. He stated it was Joanne Ferrari who determined the appropriate length of the music discovery class for children would be 45 minutes. Many of the teachers were familiar with rates charged at other music schools and he relied on input from them before setting rates. In order to increase the rates of payment to his teachers, he would have to increase the rate charged to the student or, on occasion, would absorb the extra cost even in the face of shrinking profit margins. Usually, parents would deal directly with a teacher concerning matters involving music instruction but any financial issues were handled by himself. Even though Golden Ears sold music books, many students used materials which had been purchased elsewhere. He did not provide Ferrari with any instructional material. He explained he set up a card system to record attendance and also developed an evaluation process to provide parents with some information as to progress but not for the purpose of identifying levels of achievement. The concept was that it would serve as a medium by which information could be relayed to a parent and some teachers utilized the Progress Report - Exhibit R-1- while others did not. He had been operating the business for two or three years before Joanne Ferrari was hired as a teacher and he cannot recall details of their meeting. The period of engagement was indeterminate but it was on the basis the teaching season ended in June and started again in September of each year. The appellant stated he did not recall any discussions with Ferrari concerning deductions for unemployment insurance or Canada Pension Plan but it was apparent that no deductions were ever taken from her cheques. He never offered any advice to the teachers on income tax matters and advised that - in 12 years - only Joanne Ferrari had ever - ultimately - complained of the working arrangement between his business and themselves. He accepted he had - at all times - the authority to fire Ferrari and did terminate her engagement at the school. She had given notice of her intention to leave and a teacher was hired to replace her in order to carry on instruction for the remaining four or five students. The cancellation policy in effect was that if a student did not attend a scheduled session, then a make-up lesson was scheduled and the teacher taught that session without any payment. The school utilized the services of 10 or 11 teachers to provide music instruction to approximately 160 students. There are a total of seven rooms used for teaching. Throughout their working relationship, he never regarded Ferrari as an employee even though he had used that term when writing letters of reference - Exhibits R-2 and R-3 - on her behalf when she was seeking admission to Washington State University and he did not put any thought to using the word "employee" in any legal sense as the intent was merely to advise an interested party about Ferrari's abilities and work habits.

[5] The appellant - by way of re-examination - testified he had paid Ferrari once a month for many years and recalled that during one period of financial trouble when one cheque did not clear the bank in September, 1995 she confronted him and was very angry. As a result, he began paying her once a week - in cash - for her instruction. He explained the problem with the payment by cheque on that occasion - and one other - was rectified promptly and she suffered no loss.

[6] Joanne Ferrari testified that, since age 14, she had worked as a music teacher. She began working at Golden Ears in 1990 and prior to that had been working at Coquitlam Music. She had taken a resumé‚ to Golden Ears store after she and her family had started construction of a house in Maple Ridge. She worked one day a week - as a kindergarten teacher - at a Montessori school and also taught music to students in her own home. In addition, she taught a class for the Arts Council of Maple Ridge and did so on the basis of purporting to be an independent contractor pursuant to an agreement she had signed. She stated the appellant had informed her he was looking for a teacher to fill in during an absence of another instructor but it would result in a permanent position for her. He advised her the pay was $10.00 per one-half hour and she was to file her income tax on the basis of being self-employed. At Coquitlam Music, she had been paid on the basis of being an employee and the usual deductions were taken from her pay cheques. Her method of working at both places was fundamentally the same as was the method used to calculate her pay. She stated she asked the appellant a "couple of times" to take employee deductions from her cheque and he replied that it involved too much bookkeeping. She advised the Montessori school did not take any deductions from her cheque on the basis that she was only "temporary" and worked only one day per week. Ferrari stated the students were the students of Golden Ears and payment for their lessons was made directly to the school. She was requested to prepare progress reports for her students and did so. Throughout her working relationship with Golden Ears, she reported income on the basis of being self-employed with income from several different sources and took the usual deductions available to those who are operating a business including some expenses for using her home to teach students. When the appellant advised her the business was not producing adequate revenue, she suggested organizing a class for small children to teach music discovery and he agreed. When their relationship ended, he asked her to continue for a specified time and she agreed but a new teacher was assigned by him to sit in on her class. Then, another dispute arose and she left but did not take any students with her. Later, when some parents requested that she teach their children she did so from her home.

[7] In cross-examination by the appellant, Joanne Ferrari stated she teaches private lessons currently and does so in the homes of the students. No deduction is made from her cheque by any payor and she regards herself as self-employed. While at Golden Ears, Ferrari stated the rates were set by the appellant and that she had a degree from the University of Washington and had also worked as a kindergarten teacher for 10 years. During her 7 years at Golden Ears, she thought there had been some students who had come to the music school - to be taught by her - as a result of word-of-mouth referral. When teaching for the Arts Council, she merely walked into the class and taught the established course as the equipment and instruments had all been provided by the Council. At Golden Ears, she agreed to bring in some rhythm instruments for teaching young children and the school provided the drum, sticks and pad. Ferrari stated she had requested T4 slips from the appellant but none were ever issued to her.

[8] The appellant submitted he had an ongoing operation which was carried out - without any hassle - on the basis the teachers were self-employed individuals engaged in carrying on the business of providing music instruction to students at his school and elsewhere as they chose. They had a high degree of control over their schedule and total autonomy in content of the lessons.

[9] Counsel for the respondent submitted a review of the evidence would reveal the nature of the working relationship was such that Joanne Ferrari was clearly an employee working under a contract of service during the relevant periods and the decision of the respondent was correct.

[10] In Wiebe Door Services Ltd. v. M.N.R., 87 DTC 5025, the Federal Court of Appeal approved subjecting the evidence to the following tests, with the admonition that the tests be regarded as a four-in-one test with emphasis on the combined force of the whole scheme of operations. The tests are:

1. The Control Test

2. Ownership of Tools

3. Chance of Profit or Risk of Loss

4. The Integration Test

[11] The worker, Joanne Ferrari, was a qualified music teacher with many years experience and, as a kindergarten teacher, was accustomed to teaching young children. The appellant was extremely knowledgeable in various aspects of the music business and has also taught music lessons although he did not see himself as well qualified as Ferrari or the other teachers. There was not a high degree of control exercised over the worker or the other teachers and one would not expect it in the context of the services being provided. While the appellant was a benign taskmaster and seemed to operate on the basis of consensus, wherever possible, he was the sole proprietor of the music business which had, as one of its facets, a music school with 160 students. As the owner of the business, he was the person who determined the overall structure pertaining to delivery of the music lessons and calculated the amount that had to be charged as fees in order to have the total business - the retail space and the music school - continue to function as a profitable entity. All matters involving money as it related to tuition or refunds to students or collecting outstanding amounts were dealt with by him and not the worker. The policy of requiring a teacher to make up a missed lesson - without compensation -was one set by him. The scheduling and arrangements for substitute teaching, if necessary, was done by the school administrator who was an employee of the appellant, although there was considerable input from the teachers and efforts were made to accommodate their wishes.

[12] Although the worker brought in her own teaching materials, the remainder of the necessary tools, including a piano and related equipment, were provided by the appellant and the studios in which lessons were taught were an integral part of the premises operated by the appellant as a business having a significant retail component.

[13] The worker was paid at a rate fixed - albeit by negotiation - with the appellant and the only relevant aspect of risk of loss lay in the requirement that a teacher be responsible - temporarily, at least - for the amount of any N.S.F. cheque that may have been given to Golden Ears for payment of a lesson. One cannot transform a relationship into that of independent contractor by unilaterally imposing a condition that would probably violate a provision of the relevant labour legislation applicable to an individual having the status of employee. As the concept of chance of profit is used in these matters, there was none for the worker within the structure of her working relationship with the appellant. She was paid a set price per unit of work or an amount based on a calculation derived from the number of pupils in a class.

[14] In terms of integration, there is no doubt the business being carried on was the business of the appellant operating as a sole proprietor. When a student or a parent of a child wanted music lessons, all arrangements to that end were made with the appellant or his school administrator. The hostility surrounding the termination of the working relationship of the appellant and the worker which had endured for more than 7 years was due largely to the apprehension of the worker that the appellant was attempting to take with her certain students as though they were her students and not individuals who were bound by contract to his business operating as Golden Ears Music School. The teaching of lessons was carried out within the same premises as the retail store and the selling of instruments and music supplies constituted the overall business of the appellant and he integrated these revenue-producing components into the total structure. It would be completely illogical to regard the teaching of a student by the worker under the circumstances revealed by the evidence as the furtherance of Ferrari's own business in a school bearing the name of the appellant's sole proprietorship in premises leased by him in a commercial centre when all financial aspects of the teacher-student relationship were conducted directly with the appellant. There was a lot more to the music instruction business than what transpired in a studio during a half-hour session although it is clear the instruction was an integral part of the revenue-producing component of the business which relied on charging fees to students. The school administrator was not engaged to merely co-ordinate activities of a dozen independent contractors who were retained to provide music lessons each within the context of a separately owned business. Again, one must look at the overall nature of the business organization operated by the appellant and the interplay between that operation and the services provided by the worker.

[15] What the parties thought their relationship was will not change the facts. In the case of The Minister of National Revenue v. Emily Standing 147 N.R. 238, Stone J.A. at pages 239-240 stated:

"There is no foundation in the case law for the proposition that such a relationship may exist merely because the parties choose to describe it to be so regardless of the surrounding circumstances when weighed in the light of the Wiebe Door test."

[16] In the case of Whistler Mountain Ski Club v. M.N.R., unreported, 95-1723(UI), August 2, 1996, the Honourable Judge Sobier, Tax Court of Canada, heard the appeal from assessments against the appellant, a Society, who had hired persons to coach alpine events and had done so on the understanding the coaches were independent contractors pursuant to a written contract. Judge Sobier found, inter alia, the following facts:

- the coaches were not supervised and were entitled to hold other jobs and work for others outside the time they were coaching for the appellant;

- the coaches supplied their own equipment and accessories;

- classes were assigned to them and they were teaching classes to improve alpine racing skills;

- the coaching schedule was closely tied to the racing schedule which was determined by an outside authority prior to the beginning of each season;

- the coaches were paid a fixed amount on a per diem or monthly basis and invoiced the appellant twice per month for the number of days worked during those periods but the rate did not change depending on the number of persons in the class;

- the coaches could not subcontract out their duties but could make some alternate arrangements with the appellant's permission;

- the coaches were able to take courses to improve or upgrade their qualifications, generally at their own expense.

[17] After referring to the decision in Wiebe Door, supra, Judge Sobier, at p. 6, stated:

"The tests set out by MacGuigan J. are tests which had been used before. It is how they were to be examined which led him to the conclusion arrived at. The tests are control, ownership of tools, chance of profit and risk of loss. In themselves, these tests are not conclusive. He said at page 5029 of Wiebe Door Services Ltd. (supra):

I am inclined to the same view, for the same reason. I interpret Lord Wright's test not as the fourfold one it is often described as being but rather as a four-in-one test, with emphasis always retained on what Lord Wright, supra, calls "the combined force of the whole scheme of operations", even while the usefulness of the four subordinate criteria is acknowledged.

He was also remarking on the fact that the control tests alone shall not be applied. At page 5029, he referred to Morren v. Swinton & Pendlebury Borough Council [1965] 1 W.L.R. 576, where

...Lord Parker stated that the control test was perhaps an over-simplification. His Lordship added that: "clearly superintendence and control cannot be the decisive test when one is dealing with a professional man, or a man of some particular skill and experience." Thus the courts started modifying and transforming the test into "common sense" test. [Somervell L.J. in Cassidy v. Minister of Health [1975] 2 K.B. 343] or "multiple" test [Mocatta J. in Whittaker v. Minister of Pensions & National Insurance [1967] 1 Q.B. 156].

Supervision or control of how a professional or expert performs his functions cannot be said to be control since the professional generally knows more about his functions than his employer. He can however exercise control over his employee by setting his hours of employment, his place of employment, whether he can come and go at his own wish.

I am in agreement with the reference made at page 5030 of Wiebe Door Services Ltd. (supra), to Professor P.S. Atiyah when he said:

It 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. The plain fact is that in a large number of cases the court can only perform a balancing operation, weighing up the factors which point in one direction and balancing them against those pointing in the opposite direction. In the nature of things it is not to be expected that this operation can be performed with scientific accuracy.

I conclude that the four tests must be kept in mind but they are not fixed and immutable tests which must be examined as if they were shapes which one must fit into the appropriate holes. They are tools and not the end in themselves. This of course was shown in the paragraph above concerning control.

In the case at bar the coaches were told who they would instruct, when and where the instruction was to be given. They were not able to come and go as they pleased. It is an entrepreneur who takes risks, not an employee. An entrepreneur may say: "If I work hard and long, my efforts will be rewarded". He will say: "The more people I coach, the more I will earn". On the other hand, compensation on piece work or commission basis does not determine self-employment if the employer sets the other standards and otherwise controls the employee. Here, the coach cannot earn more than his per diem or per month rate. If his group shrinks because of non-attendance of athletes, his rate is not reduced. Here, no matter how few or how many hours worked, no matter how few or how many athletes he coached, he earns the same amount. The coaches are assigned groups and told when to coach them. He may not include outsiders into his group. He risks no loss."

[18] After an analysis of the effect of a purported assignment of status pursuant to written contract, Judge Sobier then continued, at p. 8, as follows:

"Because one is engaged on a part-time basis does not mean that one is not an employee. One may have several part-time jobs and still be an employee in all of them.

When one asks the question - "Whose business is it?", counsel for the Appellant invites the Court to say that ski coaching is the business of the coach and if the coach does not produce results, he will loose [sic] his client - the ski club. However, this argument is just as applicable, if not more so, to the argument that the ski club's business was that of producing racers and the coaches are its employees.

The coaches are not permitted any of the leeway or latitude afforded independent contractors. They cannot coach others at the same time as they coach members of the club. Their first duty is to the ski club and not themselves. They do not provide the sophisticated equipment required for use in coaching. The club owns and provides this equipment."

[19] In the cases of Jannine Puri v. M.N.R. - 96-2519(UI) - and Rae Anne Hesketh v. M.N.R. - 96-2520(UI) - I dealt with the appeals of two figure skating coaches who were teaching certain classes in the arena under a contract with The Campbell River Skating Club, a non-profit society. The workers there also derived income from other sources including teaching students on a private basis without any connection to the Skating Club but this occurred only after the requirements of the contract between the coaches and the Club had been satisfied. I found they were employees of the Club and were, therefore, in insurable employment notwithstanding the wishes of all parties for them to be considered as independent contractors while teaching lessons within the structured programs offered by the Club. In that judgment, at page 11, I observed:

"The reality of the modern workplace is that people often have a mixture of income-producing activities arranged in a variety of permutations and combinations. Some have a full-time job and one or more part-time jobs and others have five or six part-time or casual, non-repeating, sources of income, all of which are on the basis of being an employee. Still others are an employee - either full time or part time at one or more jobs - and also operate a business or provide a service as an entrepreneur. In recognition of the changing workplace, Parliament enacted the Employment Insurance Act which was assented to on June 20, 1996. Under the new legislation, the insurance system is changed from one based on weeks of work - with a weekly minimum and maximum on insurance coverage - to a system based on total earnings and total hours worked in which every dollar earned, from the first hour on the job, is counted. The intent was to move to a system which is more compatible with the current labour market. The rules for determining status of an individual within a working relationship, however, remain the same. It is extremely confusing for persons - whether employers or employees - to know where they stand in situations where it is not a simple black-and-white case of categorizing the services provided. There is a natural tendency to look at the overall income earned during a year and to assign a status to a working relationship based on the amount of revenue generated from providing that particular service. Then, there is the pervasive urban myth - regrettably extending to high levels in both the public and private sectors - in which it is believed a person discharged from a position, occupied for years as an employee, and then hired back "on contract" to sit at the same desk and do the same work is no longer an employee but has been magically transformed into an independent contractor."

[20] Having regard to all of the evidence and applying the tests in the manner directed by the Federal Court of Appeal in Wiebe, supra, I conclude the worker, Joanne Ferrari, was an employee of the appellant during the relevant period and was providing services pursuant to a contract of service. The within appeal is dismissed together with appeal 98-84(CPP) and the decision of the Respondent is hereby confirmed.

Signed at Sidney, British Columbia, this 19th day of February 1999.

"D.W. Rowe"

D.J.T.C.C.