REASONS
FOR JUDGMENT
Favreau J.
[1]
This is an appeal from the decision of the
Minister of National Revenue (the “Minister”) dated October 1, 2014
regarding the pensionability and insurability of the following 13 workers of
the appellant (the “Workers”):
1.
Matthew Creelman
2.
Cynthia Goguen
3.
Michelle D. Juurlink
4.
Chris Moule
5.
Sebastian O’Malley
6.
Amanda Thalmann
7.
Daniel F. Thompson
8.
Erin Andrews
9.
Daniel Borg
10. Emily Walsh
11. Michael Landry
12. Lizzie Bolton
13. James Skinner
Background
Information
[2]
The Employer Services Section of the Canada Revenue
Agency (the “CRA”) requested rulings on the pensionablity and insurability of the
Workers’ and Yoko Irisawa’s employment with the appellant, that is a total of
14 workers.
[3]
The Canada Pension Plan/Employment Insurance
(the “CPP/EI”) Rulings division decided on the insurability of a sampling of the
following four workers’ (the “Ruling Workers”) employment for the following
periods (the “Ruling Periods”):
|
RULING WORKERS
|
EMPLOYMENT
|
RULING PERIODS
|
|
Erin Andrews
|
teacher
|
Jan. 1, 2012 to Dec. 31, 2012
|
|
Amanda Thalmann
|
teacher
|
Apr. 23, 2012 to Dec.31, 2012
|
|
Michelle Juurlink
|
teacher
|
Apr. 23, 2012 to May 25, 2012
|
|
Yoko Irisawa
|
receptionist
|
Jan. 3, 2012 to Dec. 31, 2012
|
[4]
By letters dated May 22, 2014, May 27, 2014, May
28, 2014, and May 30, 2014, the CPP/EI Rulings division notified the appellant
and the Ruling Workers that it had been determined that they were employees of
the appellant and their respective employment was pensionable within the
meaning of paragraph 6(1)(a) of the Canada Pension Plan (the
“CPP ”) and insurable within the meaning of paragraph 5(1)(a)
of the Employment Insurance Act (the “EIA”) during the Ruling
Periods.
[5]
By letter dated June 20, 2014, the appellant
filed an appeal to the Minister:
i. agreeing with the ruling of Yoko Irisawa;
ii. disagreeing with the ruling of Michelle
Juurlink;
iii. disagreeing with the ruling of Erin Andrews (“Erin”) in part;
▪
disagreeing that Erin
was under a contract of service from January 1, 2012 to April 20, 2012; and
▪
agreeing that Erin was
under a contract of service from April 21, 2012 to December 31, 2012; and
iv. disagreeing with the ruling of Amanda Thalmann (“Amanda”) in part:
▪ disagreeing that Amanda was under a
contract of service from April 23, 2012 to August 31, 2012; and
▪ agreeing that Amanda was under a contract
of service from September 1, 2012 to December 31, 2012.
[6]
As a result of the rulings on the employment
status of the Ruling Workers, a Trust Accounts Examination (the “Trust Exam”)
was requested on the appellant’s payroll records.
[7]
As a result of the Trust Exam, the Minister
assessed the appellant for CPP contributions of $8,432.88 payable on
pensionable earnings and EI premiums of $5,361.16, payable on insurable
earnings, both paid to the Workers and Yoko Irisawa for the 2012 taxation
year.
[8]
The appellant was notified of the assessment by the
Notice of Assessment dated June 5, 2014 (the “Assessment”).
[9]
By letter dated July 11, 2014, the appellant objected
the Assessment to the Minister, for all the assessed Workers except for Yoko
Irisawa, on the grounds that the Workers had performed their services as
independent contractors under contracts for services.
[10]
By letters dated October 1, 2014, the
Minister informed the appellant and the Workers that the rulings and Assessment
under objection are confirmed, because the Workers were employed in pensionable
and insurable employment by virtue of paragraph 6(1)(a) of the CPP,
paragraph 5(1)(a) of the EIA and subsection 2(1) of the Insurable
Employment and Collection of Premiums Regulations (the “Regulations”).
[11]
In determining
that the Workers were engaged in pensionable and insurable employment while
working for the appellant, the Minister relied on the following assumptions of
fact:
The Appellant
(a) the Appellant operated a second language school in the
province of Nova Scotia;
(b) the Appellant incorporated on January 26, 2004;
(c) the Appellant’s T2 reporting to the Agency indicated
Haiyan Sun owned 49% of shares, Ruiyan Yang owned 25% of shares, and Sandy Ho
owned the remaining 25% of shares:
The Workers
(d) the Appellant engaged the Workers as English language
teachers;
(e) the
Appellant engaged all the Workers except Amanda (sic) under verbal
contracts entered into in the province of Nova Scotia;
(f) the
Appellant engaged Amanda under a written contract, entered into in the province
of Nova Scotia, for the period from April 23, 2012 to June 15, 2012;
(g) the
Appellant continued to engage Amanda after June 15, 2012 under substantially
the same terms and conditions established in the written contract;
(h) the
Workers’ duties included teaching scheduled classes, lesson preparation,
student evaluations, attending student conferences, and student/staff
interactions;
(i) the
Workers performed their duties at the Appellant’s business location at 156
Dresden Row, Suite 800, Halifax, Nova Scotia.
(j) the
Workers’ work schedules were determined by the Appellant;
(k) the
Workers’ actual work hours were recorded by the Appellant;
(l) the
Workers’ required the Appellant’s permission in order to take time off from
work;
(m) the
Appellant determined the Workers’ class curriculums;
(n) the
Appellant determined the Workers’ deadlines;
(o) the
Workers’ were required to seek approval from the Appellant prior to performing
certain actions, such as organizing field trips;
(p) the Workers
were required to attend meetings;
(q) the Workers
were required to submit reports to the Appellant;
(r) the
Appellant observed the Workers when they performed their duties;
(s) the Workers
could tutor students, in addition to teaching their classes, but only under
arrangements by the Appellant;
(t) the
Appellant determined the Workers’ rates of pay;
(u) the Workers
were paid $22.00 per hour, with the exception of Daniel Thompson, who was paid
$23.00 per hour;
(v) the Workers
were paid for their teaching hours in class and for tutoring hours;
(w) some of the
Workers were paid an additional 10% of teaching hours as remuneration for the
duties performed outside of teaching hours, such as grading student work;
(x) the Workers
were paid bi-weekly by cheque;
(y) the
Appellant paid the Workers even when no students attended a scheduled class;
(z) the Workers
did not receive any employment benefits or vacation leave;
(aa) the
Appellant provided the major tools and equipment necessary for the Workers to complete
their duties;
(bb) some of the
Workers provided some inexpensive supplies, such as prizes for classroom
activities, but it was not a requirement;
(cc) the Workers
did not incur any fixed or ongoing expenses in order to complete their duties;
(dd) the Workers
did not have the ability to subcontract their work or hire an assistant;
(ee) the
Appellant hired and paid for replacements when the Workers could not perform
their duties;
(ff) the Workers
did not invoice the Appellant;
(gg) the Workers
did not charge the Appellant for Harmonized Sales Tax on payments for their
services;
(hh) the Workers
did not have registered business accounts with the Agency during the Period;
(ii) the
Appellant did not make deductions for CPP contributions, EI premiums, or income
tax (the “employment deductions”) on payments made to the Workers, with the
exception of Amanda and Erin, during the Period;
(jj) the
Appellant did not make employment deductions on payments made to Amanda for the
period from April 23, 2012 to August 31, 2012;
(kk) the
Appellant did not make employment deductions on payments made to Amanda for the
period from September 1, 2012 to December 31, 2012;
(ll) the
Appellant submitted a T4 slip to the Agency which reported Amanda’s earnings
and employment deductions for the period from September 1, 2012 to December 31,
2012;
(mm) the Appellant
engaged Amanda under substantially the same terms and conditions in the period
from April 23, 2012 to August 31, 2012 and in the period from September 1, 2012
to December 31, 2012;
(nn) the
Appellant did not make employment deductions on payments made to Erin for the
period from January 1, 2012 to April 20, 2012;
(oo) the
Appellant did make employment deductions on payments made to Erin for the
period from April 21, 2012 to December 31, 2012;
(pp) the
Appellant submitted a T4 slip to the Agency which reported Erin’s earnings and
employment deductions for the period from April 21, 2012 to December 31, 2012;
(qq) the
Appellant engaged Erin under substantially the same terms and conditions in the
period from January 1, 2012 to April 20, 2012 and in the period from April 21,
2012 to December 31, 2012;
(rr) the
Appellant’s intent was that:
i. the
Workers, except for Amanda and Erin, were independent contractors during the
Period;
ii. Amanda
and Erin were independent contractors for the periods from April 23, 2012 to
August 31, 2012 and January 1, 2012 to April 20, 2012 respectively; and
iii. Amanda
and Erin were employees for the periods from September 1, 2012 to December 31,
2012 and April 21, 2012 to December 31, 2012 respectively; and
(ss) the
intent of the majority of the Workers were that they were employees.
Other Material Facts
[12]
The Minister relies on the following additional
assumption of fact:
(a) the Appellant did not report the Workers’ income on T4A
slips during the Period.
[13]
Mr. Pillay testified at the hearing. He denied
paragraphs (c), (i), (j), (l), (m), (n), (o), (r), (s), (t), (y), (aa), (dd)
(mm), (qq) and (ss) of the Reply to the Notice of Appeal.
[14]
He explained that the appellant had two campuses
in 2012 and employed up to twenty teachers where between 60 to 80 students
received English lessons.
[15]
Mr. Pillay had the responsibility to interview
the candidates who applied for a teaching position. He said that he interviewed
all the Workers, except for Sebastian O’Malley, Emily Walsh and James Skinner
who were already attending the school.
[16]
He explained that the successful candidates were
offered two types of contract: a teaching sub-contract or an employment contract.
A sample of each contract was filed as Exhibit A-1. All Workers except for Erin
Andrews, had signed a written contract but the appellant did not keep a copy of
any of the contracts. According to Mr. Pillay, the practice of the appellant
was to offer a first contract for one to two months which can be renewed for
two other successive periods. After approximately six months of satisfactory
services as an English language instructor, the workers were made an offer to
become employees of the appellant with employment benefits such as dental,
health and life insurance after the six-month waiting period.
[17]
From the list of Workers, only Amanda Thalmann
became an employee after six months of employment with the appellant. Erin
Andrews also became an employee but after a few years of employment. James
Skinner remained a contractor for more than two years. All the other Workers
were on a part-time basis and/or worked for a term of six months or less.
[18]
Mr. Pillay explained that no exclusivity was
required from the Workers. In case of sickness, the Workers were not paid and
the appellant had to find a replacement. The appellant provided the teaching materials
and the program’s guidelines. Complaints from students or parents were dealt
with by the appellant. The Workers were required to fill daily timesheets and
were subject to an evaluation by the students every two months. The contracts signed
by the Workers could be terminated by either party on a two-week notice.
[19]
Two of the Workers, Erin Andrews and
Michelle Juurlink, testified at the hearing. Ms. Andrews worked for the
appellant from the fall of 2011 to June 2014. She does not remember if she
signed a contract when she started working for the appellant and she did not
have it with her. She stated that she had been hired on probation for six
months during which time, she was not entitled to any dental or health care
benefits and there was no payroll deduction from her remuneration. She does not
recall if she signed another contract after her initial six-month contract. She
was teaching English grammar from level 1 to 3, according to the needs of the
appellant. The classes were assigned by the appellant. The teaching materials
were provided by the appellant. Ms. Andrews was on duty from 9 a.m. to 4 p.m.
with one hour for her lunch break and a 15‑minute break in the morning
and in the afternoon. She was paid bi-weekly by cheque at a rate of $22 per
hour. She stated that her remuneration was determined by the appellant without
any negotiation. Her working schedule as well as the dates for examination were
determined by the appellant. She prepared the final examination at the end of a
course and was responsible for marking the various examinations. She had a desk
and a chair in the staff room. In case of illness, the appellant had to find a
replacement. She considered herself an employee despite the fact that there was
no source deduction on her pay cheques. She thought that she would pay the tax
when she would file her tax returns.
[20]
Mrs. Yuurlink worked for the appellant for only
four weeks - from April to May 2012. She said that she thought she signed a
contact but did not have a copy. She taught level 4 English. Her teaching
program was based on textbooks provided by the appellant. She had to evaluate
the students and she participated in some staff meetings. Her work schedule was
determined by the appellant and there was no flexibility to switch her lunch
time. She earned $22.50 per hour and was paid every two weeks. She stated that
the program’s guidelines were provided by the appellant who also supplied the
textbooks needed by the students. All teaching materials (internet, fax,
laptop) were provided by the school. Deadlines for essays or examinations were
set by the appellant. Complaints were dealt with by the appellant. Replacements
were found by the appellant. In performing her duties, she did not incur any
expenses on her own. She did not send invoices to the appellant for her
services nor did she charge goods and services sales tax. She considered
herself an employee.
The Legislative
Framework
[21]
The definition of “insurable employment” under
the EIA is set out in paragraph 5(1)(a), which reads as follows:
employment in Canada
by one or more employers, under any express or implied contract of service or
apprenticeship, written or oral, whether the earnings of the employed person
are received from the employer or some other person and whether the earnings
are calculated by time or by the piece, or partly by time and partly by the
piece, or otherwise;
. . .
[22]
The definition of “pensionable employment” under
the CPP is set out in paragraph 6(1)(a), which reads as follows:
(1) Pensionable employment – Pensionable
employment is
(a) employment in Canada that is not excepted employment;
. . .
[23]
Subsection 2(1) of the Regulations determines
the earnings from insurable employment for the purposes of the definition of
“insurable earnings” in subsection 2(1) of the EIA. Subsection 2(1) of the
Regulations reads as follows:
For the
purposes of the definition “insurable earnings” in subsection 2(1) of the Act
and for the purposes of these Regulations, the total amount of earnings that an
insured person has from insurable employment is
(a) the total of all amounts, whether wholly or partly pecuniary,
received or enjoyed by the insured person that are paid to the person by the
person’s employer in respect of that employment, and
(b) the amount of any gratuities that the insured person is required to
declare to the person’s employer under provincial legislation.
Analysis
[24]
The appellant relies essentially on the contractual
relationship that exists between itself and the employees and its presumption
that the Workers’ intentions are to be hired as independent contractors. These
factors were definitely a premise to their employment and were keys to the
remuneration that was offered to them.
[25]
The Workers considered themselves to be
employees. This was clearly spelt out by two of the Workers who testified in
this appeal.
[26]
Case law has established a series of tests to
determine whether or not workers are employed under a contract of service (as
employees of the payor) or were performing their services under a contract of
services (as self-employed individuals). The tests considered by the Courts
include the following elements: the intention of the parties and the
contractual arrangements, the degree of control exercised by the payor over the
workers, the ownership of tools, the financial risks – the chance of profit or
risk of loss, the degree of responsibility, the ability to hire assistants or
subcontract the work, and any other relevant factors applicable to a particular
industry. There is no single element that is decisive and all the elements must
be considered in appreciating the relationship between the parties and in
determining whether the relationship as a whole supports the intention of the
parties.
Intention of
the Parties and the Contractual Arrangements
[27]
Only one signed and dated contract was filed in Court.
The said contract is between Amanda Thalmann (referred to in the agreement as
the “sub-contractor”) and the appellant (referred to in the agreement as the
“Company”) and is dated April 23, 2012. The intention of the parties to the
agreement is clearly indicated in the following paragraphs:
WHEREAS the Company desires to engage the English Language
Instructor to provide services to the Company as s sub-contractor for the term
of this Agreement and the sub-contractor has agreed to provide such services,
all in consideration and upon the terms and conditions contained herein:
. . .
The
Sub-contractor will receive a payment of $22 per hour during the contract
period, which will be paid bi-weekly and will not be subject to statutory
deductions. The Sub-contractor is responsible for all applicable taxes.
[28]
Despite what appears to be the clear intention
of the parties to the agreement, there is some doubt concerning the true nature
of the relationship that existed between the Worker and the appellant because the
contract refers in many paragraphs to the Worker as being an employee. Here are
a few examples of this. The paragraph titled “Renewable of contract’ reads as
follows:
This contract may
be renewed on the same terms and conditions upon written notification by the
company to the employee, prior to the termination of the contract.
The second paragraph of the termination clause reads as follows:
Upon termination
of the employment contract, the Employee agrees to deliver to the Company all
Company property including computers, documents, manuals, keys, records,
reports and notes and copies thereof which are in the Employee’s possession and
which related in any way to the business of the Company and its clients.
The non-solicitation clause reads as follows:
The Employee
agrees that during the course of the employment, and for a period of one (1)
year after the Employee ceases to be an employee of the Company for any reason,
the Employee will not, in any capacity whatsoever, directly or indirectly
solicit students from the company.
[29]
Amanda Thalmann signed the agreement as being an
employee.
[30]
As shown above, the contract is poorly drafted
and contains many technical deficiencies concerning the legal status of one of
the signatories.
[31]
In 1392644 Ontario Inc. v. Minister of
National Revenue, 2013 FCA 85, Mainville J.A. stated at the end of
paragraph 37 that “the legal status of independent
contractor or of employee is not determined solely on the basis of the parties’
declaration as to their intent. That determination must also be grounded in a
verifiable objective reality. For this purpose, the factors considered in Wiebe
Door Services Ltd. v. Minister of National Revenue, 87 D.T.C. 5012 and 671122
Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, such as the
degree of control, the ownership of tools, the right to sub-contract, the
chance of profit and the risk of loss, are relevant.
Control
[32]
Based on a review of the
facts, it is clear that the appellant exercised a high level of control over
the duties performed by the Workers and the manner in which these duties were
carried out. The element supporting the existence of a contract of service
includes the following:
•
the duties were performed on
the appellant’s premises during the business hours of the appellant;
•
the appellant determined the
Workers work schedule, the timing and duration of their lunch break, the number
of working hours with the possibility to work overtime or to work at
non-regular working hours in response to business demands of the school;
•
workers were required to
attend teaching staff meetings;
•
the appellant determined the
deadlines for the work and provided the program’s guidelines;
•
an evaluation of each
student’s progress had to be made following the program and written reports had
to be submitted to the appellant for review before they were sent to the
students by the appellant.
Ownership of Tools
[33]
This element also supports the existence of a
contract of service, as the appellant provided at no cost, all the major tools
and equipment necessary for the Workers to execute their duties including a
laptop computer.
Right to
Subcontract the Work or to Hire a Replacement
[34]
The Workers did not have the ability to
subcontract their work or to hire an assistant. In the case of absence of a
worker, the appellant had the responsibility to find a replacement. This
element supports the existence of a contract of service.
Chance of
Profit or Risk of Loss
[35]
The Workers had no financial interest or
investment in the business. They were paid by the hour at a pre-determined rate
for the time they worked. They did no incur any significant amount of expenses
in carrying out their duties.
[36]
The Workers did not have the ability to hire any
replacement or substitute workers to increase their profitability.
[37]
The risk of loss was minimal. If some students
did not show up for class, the Workers were still paid their hourly rate as
long as the appellant was paid and the Workers performed other related duties.
[38]
The preceding facts also support the existence
of a contract of services. The Workers did not conduct themselves as if they
were carrying on a business on their own account. They did not obtain any
registration for income tax and goods and services tax purposes and they did
not invoice the appellant in order to be paid for their services. There is no
evidence that the Workers did report their income as an independent contractor
and claimed expenses in respect of their business activities.
Other Relevant
Factors
[39]
The terms and conditions of the Workers’
employment were the same whether the Workers were self-employed or employees of
the appellant, with the exception that the Workers could participate in the
appellant’s benefit plan and were required to work exclusively for the
appellant once they were considered to be employees. The duties performed by
the Workers were essentially the same whether they were self-employed or
employees.
Conclusion
[40]
Despite the intent of the appellant to
characterize its relationship with the Workers as independent contractors, the
facts of this case suggest otherwise. Based on the facts, I cannot conclude
that the Workers were providing their services to the appellant as
self-employed contractors running their own business. The significant degree of
control that the appellant exercise over the Workers in the execution of their
duties, the unlikeliness for the Workers to make a profit or incur a loss clearly
shows that the Workers were employees of the appellant.
[41]
For all these reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this
5th day of May 2016.
“Réal Favreau”
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