BETWEEN:
JANET COATHUP,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
The appellant is appealing the Minister of
National Revenue’s decision that Ms. Grace Pham Vanstone
(the “Worker”) was engaged in insurable and pensionable employment with the appellant
under a contract of service, within the meaning of paragraph 5(1)(a) of
the Employment Insurance Act, S.C. 1996, C. 23 (the “EIA”)
and paragraph 6(1)(a) of the Canada Pension Plan, R.S.C., 1985,
c. C-8 (the “CPP”), for the period of September 6, 2014 to May 3, 2015 (the
“Period”).
[2]
In determining the Worker was engaged in
insurable and pensionable employment with the appellant for the Period, the
Minister of National Revenue relied on the following assumptions of fact:
(a)
the Appellant operated a music school that
provided music lessons for The Music for Young Children Program (“MYC”) as well
as private piano lessons; (admitted)
(b)
the Appellant was under contract to manage a
music studio on behalf of MYC; (admitted)
(c)
the Appellant operated as a sole proprietorship;
(admitted)
(d)
the Appellant operated out of a studio at
Renaissance Music School, and at Lancaster Public School; (admitted)
(e)
the Appellant’s business hours were determined
by the enrolment of the Appellant’s students; (admitted)
(f)
the Appellant’s website is www.myckingston.com;
(admitted)
(g)
the Appellant controlled the day-to-day
operations and made the major business decisions for the business; (admitted)
(h)
the Appellant was bound by the polices and
guidelines set out by “The MYC Studio Management Contract’ which required her
to:
(i) hire teachers who were trained in the MYC program; (admitted)
and
(ii) utilize MYC books and curriculum; (admitted)
THE WORKER
(i)
the Worker and the Appellant entered into a
verbal agreement formed and accepted in Ontario; (admitted)
(j)
the Worker was hired by the Appellant as a music
teacher; (admitted)
(k)
the Worker was required to have specific qualifications
in music, as well as a certification from the MYC program; (admitted)
(l)
the Worker had a Bachelor of Music and a
Bachelor of Education; (admitted)
(m)
the Worker was a certified MYC teacher; (denied)
(n)
the Worker performed the following duties:
(i)
prepared and taught piano lessons in group
sessions and to individuals; (admitted)
(ii)
taught one-on-one piano lessons; (admitted)
(iii)
prepared and participated in recitals; (admitted)
(iv) collected payments from the students and submitted them to the
Appellant; (admitted) and
(v)
confirmed student attendance for the Appellant; (denied)
(o)
the Worker provided lessons during the school
year, from September to June; (denied)
(p)
the Worker performed her duties at Renaissance
School of Music and Lancaster Public School; (admitted)
(q)
the Appellant rented the spaces where the Worker
performed her duties; (admitted)
(r)
the Appellant determined the Worker’s schedule; (denied)
(s)
the Worker’s weekly schedule was generally:
(i)
Monday: 1:30 p.m. to 5:30 p.m.; (admitted)
(ii)
Tuesday: 9:00 a.m. to 12:00 p.m. and 3:30 p.m.
to 8:00 p.m.; (admitted)
(iii)
Wednesday 9:30 a.m. to 10:30 a.m. and 4:00 p.m.
to 7:30 p.m.; (admitted)
(iv) Thursday: 9:30 a.m. to 10:30 a.m. and 4:00 p.m. to 8:00 p.m.; and
(v)
Saturday: 9:00 a.m. to 1:00 p.m.; (admitted)
(t)
the Worker was expected to have her schedule
completely open in order for the Appellant to schedule the students; (denied)
(u)
the Worker was required to record her hours and
the students’ attendance on a log sheet provided to her by the Appellant; (denied)
(v)
the Appellant coordinated the students’
registration; (admitted)
(w)
the Appellant determined how many students the
Worker was assigned to teach; (admitted)
(x)
the Appellant had specific expectations
regarding how the Worker was to interact with the students and their parents; (denied)
(y)
the Appellant expected the Worker to decorate
the studio to reflect each season; (admitted)
(z)
the Appellant required the Worker to communicate
with her in a timely manner; (denied)
(aa)
the Appellant required the Worker to communicate
homework lessons via the Appellant’s website; (admitted)
(bb)
the Appellant contacted the students’ parents to
request feedback on the Worker’s performance; (denied)
(cc)
the Worker was required to follow the basic MYC
curriculum in order to teach the MYC students; (admitted)
(dd)
private students chose what they wanted to learn
and the Worker would teach them accordingly; (admitted)
(ee)
the Worker was expected to accept all work from
the Appellant; (denied)
(ff)
the Worker was required to inform the Appellant
if she was going to be absent; (denied)
(gg)
the Appellant provided the required tools and
equipment, which included, keyboards, piano and teaching materials, at no cost
to the Worker; (admitted)
(hh)
the Appellant had a contractual obligation to
provide the proper equipment and space under the MYC program; (admitted)
(ii)
the Worker was required to provide her services
personally; (denied)
(jj)
the Worker was not permitted to send a
substitute or replacement worker; (denied)
(kk)
if the Worker could not perform her duties, the
Appellant provided the services herself; (denied)
(ll)
the Worker did not pay the Appellant for
replacing her; (admitted)
(mm) the Worker was paid $36.00 per hour; (admitted)
(nn)
the Worker did not negotiate her rate of pay; (denied)
(oo)
the Appellant determined the Worker’s rate of
pay; (admitted)
(pp)
the Appellant determined the frequency and
method of payment to the Worker; (admitted)
(qq)
the Worker was paid on a monthly basis; (admitted)
(rr)
the Worker received the following payments from
the Appellant during the Period: (denied)
|
Date
|
Amount
|
|
October 1, 2014
|
$2,610.20
|
|
November 1, 2014
|
$2,610.20
|
|
December 1, 2014
|
$2,685.20
|
|
January 1, 2015
|
$2,685.20
|
|
February 1, 2015
|
$2,685.20
|
|
March 1, 2015
|
$2,685.20
|
|
April 1, 2015
|
$2,685.20
|
|
May 1, 2015
|
$2,685.20
|
(ss)
the Appellant paid the Worker by cheque; (admitted)
(tt)
the Worker was paid in her personal name; (admitted)
(uu)
the Appellant did not deduct Employment
Insurance premiums or Canada Pension Plan contributions from the Worker’s pay; (admitted)
(vv)
the Worker was paid the hourly rate regardless
of whether the student attended the lesson; (admitted)
(ww) the Appellant provided the guarantee on the work performed by the
Worker; (denied)
(xx)
the Appellant advertised the business online and
the students contacted the Appellant directly for the services; (denied)
(yy)
the Worker did not manage her own staff; (denied)
(zz)
the Worker did not have her own students; (denied)
(aaa) the students were those of the Appellant; (admitted)
(bbb) the Appellant leased both locations where the music lessons took
place; (admitted)
(ccc) the Worker did incur expenses in the performance of her duties; (admitted)
(ddd) the Worker reported her income from the Appellant as other
employment income on her 2014 T1 personal income tax return; (denied)
(eee) the Worker did not have a business bank account; (ignored) and
(fff)
the Worker did not have a registered business
name or trade name. (ignored)
[3]
The only issue to be decided is whether the
Worker was engaged in insurable and pensionable employment with the appellant
during the Period within the meaning of paragraph 5(1)(a) of the EIA
and paragraph 6(1)(a) of the CPP.
File History
[4]
The Worker requested a ruling on the status of
her employment with the appellant for the Period.
[5]
By letters dated July 9, 2015, the CPP/EI
Rulings Officer notified the appellant and the Worker that it had been
determined that the Worker was engaged in insurable and pensionable employment
with the appellant as she was employed under a contract of service (the
“Ruling”).
[6]
By letter dated August 13, 2015, the appellant
appealed the Ruling to the Minister of National Revenue (the “Minister”) and by
letter dated December 16, 2015, the Minister informed the appellant and the
Worker that the Ruling had been confirmed.
[7]
On July 17, 2015, the Worker filed a claim with
the Ministry of Labour of the Province of Ontario alleging that she performed
work as an “employee” of the appellant, rather than as an independent
contractor from or around September 6, 2014 to May 3, 2015 and that the appellant
was in violation of: (i) unpaid wages of $3,263.40; (ii) public holiday
pay of $388.80; (iii) vacation pay of $1,083.08; (iv) termination pay of $972; (v)
deductions from wages for rent (3 months); and (vi) wage statements not
provided and ESA poster not provided/posted.
[8]
After reviewing the usual “Four-fold test” used
to determine whether a person is an employee or an independent contractor, that
is (i) the control; (ii) the ownership of tools; and (iii) the chance of profit
and; (iv) the risk of loss, the Employment Standards Officer in charge of the
file concluded that the Worker would be considered an “employee” for the
purposes of the Employment Standards Act, 2000 of Ontario.
Background
Information
[9]
The appellant operates a music program under the
name Music for Young Children (“MYC”) in a music studio located at 730
Amaryllis Street in Kingston, Ontario. The appellant taught music for 22 years
and two other teachers worked at the school with her. The appellant dispensed
the MYC program and she also had private students at the Lancaster Public
School (“Lancaster”) and at the Renaissance Music School (the “Renaissance
Studio”) where she was renting a studio. The appellant retired in June 2014 and
wanted to spend the winter of 2015 in Florida. In early 2014, she started to
look for a teacher to replace her.
[10]
The Worker was referred to the appellant by a
teacher who worked at the Renaissance Studio where the Worker taught piano for
three years on a part-time basis. The Worker has a Bachelor of Music and a
Bachelor of Education from Queen’s University and she has a certified Level One
MYC training entitling her to teach Level One MYC students.
Witnesses
[11]
The appellant testified at the hearing and she
was a credible witness although she had a tendency to colour her testimony to
favour her position. The appellant called Ms. Jennifer Allan, a self-employed
piano teacher at the appellant’s school. I found her to also be credible.
Finally, Mrs. Grace Pham Vanstone testified at the hearing and her testimony
was also credible. The issue in this case is not one of credibility of the
parties but is strictly based on the appreciation of the facts.
Ms. Janet
Coathup
[12]
Ms. Coathup explained that she has 40 years of experience
and that she had decided to retire at the end of June 2014. She did not agree
with the Canada Revenue Agency’s (“CRA’s”) ruling concerning the status of the Worker
and she did not appeal the Ministry of Labour’s decision because she thought
that it would have no impact on the CRA’s ruling.
[13]
She explained that the Worker was treated the
same way as the other workers and she was paid the same hourly rate although
she has a lot less experience. The Worker has only a Level One MYC certificate
while the two other music teachers have a Level Two and a Level Three MYC
certification.
[14]
The appellant affirmed that she had a verbal
agreement with the Worker and that the Worker had to sign a MYC teacher
contract. She filed as evidence a sample of an unsigned contract and said that
a signed copy of the contract exists but that it cannot be provided for
confidentiality purposes.
[15]
The appellant further explained how the lessons
were scheduled. Usually, she would ask the teachers to indicate their
availability by the end of May of each year and the proposed schedule is given
to MYC office. The students can register between the months of May and
September. It is only after the registration period has ended the teachers’ schedules
are finalized. No guarantee can be given to the teachers as to the number of
students they will each have nor the number of classes they will teach.
[16]
According to the appellant’s testimony, the
teachers can accept or refuse the students or the proposed classes. The
teachers are free to seek other work on their own and to have private students.
[17]
Concerning the private students, the appellant
confirmed that she registers them but after that, she lets the teachers deal
directly with the parents to organize the location and the timing of the
lessons. The parents pay the appellant for the lessons and the teachers were
allowed to recruit and develop a program for their students.
[18]
Ms. Coathup stated that the e-mails she had with
the Worker were for administrative issues only, such as scheduling,
registration of students, tuition payments, housing and other business issues.
[19]
The Worker had a limited number of Level One
classes. For private students, the cost was $46 per hour of which $36 went to
the teacher and $10 for the rental of the studio.
[20]
At the Renaissance Studio, the pianos were
provided to all piano teachers and were not for the exclusive use of the
appellant.
[21]
MYC required that all studios across the country
be equipped with six keyboards, rhythm instruments, musical games and puppets.
The appellant paid for all this equipment in order to be able to dispense
lessons in the studios. The two studios used by the appellant are fully
equipped and the appellant provided her teachers with the books used for the private
lessons. The Worker had her own computer, printer and telephone.
[22]
When a teacher knows he will be absent, he then
has the option to reschedule the class or hire a replacement. In the latter
situation, the appellant can help find a qualified replacement. If a substitute
teacher is hired, the teacher then has to pay the substitute teacher. The
appellant stated that the Worker had never retained the services of a
substitute teacher because she did not want to pay the substitute teacher.
[23]
The appellant recognized that the expenses incurred
by the Worker to dispense her lessons are not significant but she pointed out
that the MYC organization requires the teachers to pay an advertising fee in
the local territory where the school operates. The first year is free but
thereafter a $50 payment is required from the teachers.
[24]
The appellant explained that the Worker was paid
if a student did not show up but if the Worker was absent for whatever reason
and a class is cancelled, the Worker was not paid. The Worker can teach more
hours to increase her income but if she loses students, her income decreases.
Generally speaking, the Worker does not have to invest money to earn income and
she is not responsible to pay the rent of the studio.
[25]
The appellant filed as evidence the termination
letter of the Worker dated May 3, 2015. Here is an extract of the said letter:
. . . I will no
longer require your services to teach the music students under contract to me.
This includes both MYC students as well as private students at Lancaster and my
studio at Renaissance. The termination of your services is effective Monday,
May 4, 2015. I will make my own arrangements to provide the remainder of their
lessons.
[26]
To justify the termination, the appellant gave
the following reasons:
•
you have missed deadlines despite numerous
reminders;
•
your communication with me in terms of response
time, identifying issues in a timely manner and accurate record keeping has not
been acceptable;
•
your comments to others regarding my music
program and personal relationship with you have been inappropriate;
•
your failure to provide me with information and
payments from students in a timely manner cannot be tolerated.
Jennifer Allan
[27]
Ms. Allan is a self-employed piano teacher who
has been working for the appellant for 11 years. She is a MYC certified teacher
for all levels. Teaching music is her primary occupation and she has her own
music studio and also works for the appellant on a part-time basis.
[28]
She stated that, for scheduling purposes, the appellant
gives priority to MYC students. Her schedule is determined with the appellant
and depends on students’ enrolment. When registration is completed, her
schedule is then finalized. During the Period, she had four private students.
[29]
She also explained that she follows the MYC
program and that if she cannot teach on a certain day, she reschedules the
lessons or the appellant finds a substitute teacher but, in such a case, she
has to pay the substitute teacher.
[30]
She stated that she maintains a log of the students’
attendance but that she does not have to report the hours worked to the
appellant.
[31]
She is paid $36 per hour and earns less than
$30,000 per year. She did not register her business for Goods and Services Tax
purposes. She has accepted to be paid on a fee basis and files her tax returns
as self-employed without claiming any business expenses.
Grace Pham Vanstone
[32]
Before teaching at the appellant’s school, Mrs.
Vanstone worked at the Renaissance Studio as a self-employed music teacher and
taught one or two days a week.
[33]
While she taught at the appellant’s school, she
used the MYC guidelines for her group lessons but she had to prepare her own program.
In the course of her teaching activities, she changed her teaching style and
started to use a bulletin board for posting the lessons. This was well accepted
by the parents but the appellant took it down when she came back from Florida
at Easter.
[34]
Mrs. Vanstone explained that the appellant was
not accommodating regarding her working hours. For example, one day she had a
ticket to attend a concert and when she asked to be replaced, the appellant
refused and she could not attend the concert. Another example was when Mrs.
Vanstone asked to work less hours on Mondays, the appellant refused and told
her she would lose her job if she did not work on Mondays.
[35]
According to Mrs. Vanstone, the appellant
exercised tight control on how she should perform her job. The appellant
controlled her teaching schedule and expected Mrs. Vanstone to respond to her numerous
e-mails while she was in Florida, almost immediately or by the end of the same
day and even controlled the decoration of her classroom for Christmas,
Valentine’s Day, Easter, etc.
[36]
The appellant had also asked Mrs. Vanstone to do
some administrative duties for her such as depositing the money received from
the parents for the music lessons in the appellant’s bank account. In
consideration of these administrative duties, the appellant offered her to stay
in her house at a cost of $400 per month. Mrs. Vanstone stated that she stayed
in the appellant’s home only when she was teaching as it was closer to her
place of work.
[37]
Mrs. Vanstone confirmed that she filed her 2014
tax return as a self-employed person as she did not receive any document from
the appellant to file with her tax return. Upon the recommendation of her
accountant, she filed her tax return as an independent contractor to avoid the
penalty for late filing and knowing that she can file an amended return later.
She did not register her business for Goods and Services Tax. She did not
advertise her services nor did she invoice the appellant for her services. She
also never sub-contracted out her music lessons. The appellant owned all the
equipment she used in the performance of her duties and all the decorations for
the studio.
The Law
[38]
There are well-established principles for
distinguishing a contract of service (employment) from a contract for services
(independent contractor). The main principles of law applicable have been
reviewed in numerous court decisions, including the Federal Court of Appeal
decisions in 1392644 Ontario Inc. v. Minister of National Revenue, 2013
FCA 85 (“Connor Homes”) and in Wiebe Door Services Ltd. v. Minister
of National Revenue, [1986] 3 F.C. 553 (“Wiebe Door”) and the
Supreme Court of Canada’s decision in 671122 Ontario Ltd. v. Sagaz Industries
Canada Inc., [2001] 2 S.C.R. 983 (“Sagaz”).
[39]
In Sagaz, the Supreme Court of Canada
stated at paragraph 17 that the essential question to answer is whether the worker
was performing her services as a person in business on her own account.
[40]
In Connor Homes, the Federal Court of
Appeal enunciated a two-step test. Under the first step, the Court must
consider the subjective intent of each party to the work relationship. Under
the second step, the Court must analyze the work relationship between the
parties in order to ascertain whether their work relationship was consistent
with their intention. The factors developed in Wiebe Door, i.e. control,
ownership of tools, chance of profit and risk of loss, are to be used for the
second step of the test.
Intention
[41]
In the present case, the CRA’s appeal officer
concluded in his report that there was no common intent between the appellant
and the Worker. The appellant considered the Worker to be self-employed while
the Worker considered herself to be an employee. The appellant disagrees with
this conclusion.
[42]
The appellant testified that she had discussions
with the Worker concerning her tax status and that she intended to treat the
Worker the same way as the other teachers who were self-employed. Furthermore,
at the time she hired the Worker, the Worker had been working at the
Renaissance Studio for three years as an independent contractor.
[43]
The appellant also mentioned the fact that the
Worker filed her income tax return for the 2014 taxation year as an independent
contractor and that she claimed a deduction for business expenses. The
appellant also pointed out that she had sent the Worker an undated income tax
receipt for 2014 showing that she was paid $12,340.80 for her services for the
period from September 6, 2014 to December 31, 2014. No source deductions for
income tax purposes were made from the amount paid to the Worker.
[44]
There is no other concrete evidence of the
appellant’s intention. There is no formal written contract between the
appellant and the Worker. A blank unsigned MYC Teacher Contract was filed as
evidence but I cannot give any weight to this unsigned document. No invoices
were issued by the Worker and the Worker did not advertise her business, nor
did she register her business for Goods and Services Tax. She did file her 2014
tax return as a self-employed person because she had not received a T-4 slip on
time from the appellant.
[45]
Contrary to the
appellant’s testimony, the appellant specifically referred to the relationship with
the Worker as being one of employer/employee. In an e‑mail to the Worker
dated January 9, 2015 at 11:11 a.m., the appellant made the following
statement:
. . . Your failure
to even respond to my concerns could easy [sic] be interpreted as being
insubordinate to our employer/employee relationship and even appears that you
are undermining my existing policies. Neither of these are acceptable and
cannot be tolerated. I believe it is fair for me to expect an immediate and
sustained correction to these concerns or I will need to be more progressive in
my actions to deal with them.
[46]
Based on the foregoing, I conclude that the
appellant and the Worker did not show the same intention with respect to their
work relationship.
Control
[47]
The appeal officer concluded that this factor is
indicative of a contract of service because the appellant had a clear
expectation of subordination over the Worker.
[48]
The evidence is to the effect that the appellant
did not instruct the Worker on how to provide her services. The Worker was a
trained Level One MYC teacher, was proficient in music and played the piano.
She did not require instructions from the appellant on how to perform her
duties. However, the appellant did have specific expectations from her. She
controlled how the Worker was to interact with clients, how the Worker’s
schedule was to be set, how the classroom should be decorated and that the
Worker should reply and communicate with the appellant in a timely manner.
[49]
The appellant registered all MYC and private
students. Based on the registrations and the teachers’ availability, she
prepared the schedules. Priority was given to the MYC students. The Worker was
required to teach the students at the Lancaster Public School and the Renaissance
Studio in accordance with the arrangements made between the clients and the
appellant. The Worker was required to work on Mondays due to availability of
the studio.
[50]
The termination letter to the Worker shows that
the MYC students and the private students at the Lancaster Public School and the
Renaissance Studio were students of the appellant and not the Worker.
Furthermore, the said termination letter also indicates that the Worker had
deadlines to meet, had to respond to the appellant’s enquiries in a timely
manner and had to keep accurate records.
[51]
Based on the foregoing, it is clear to me that
the objective reality of the control that the appellant exercised over the
Worker does not support the appellant’s intention for the Worker to be an
independent contractor.
Ownership
of tools
[52]
The appeal officer concluded that this element
is also indicative of a contract of service. I agree with his conclusion since
both locations leased by the appellant to dispense music lessons, were equipped
with the required tools to provide her services for the MYC program. The
appellant provided the equipment and had her teaching materials readily
accessible for use by the Worker in the studios.
Subcontracting
Work
[53]
The Worker never used the services of a
subcontractor to replace her during the Period but, on one occasion, she
notified the appellant that she was going to be absent and the appellant
provided the services as the Worker’s replacement without being paid for
replacing her. In the case of her absence, the Worker had the obligation to
find a replacement supplied by the appellant or reschedule the classes or
cancel them and not get paid.
[54]
The facts relating to this element is indicative
of a contract of service because the Worker was generally required to provide
her services personally. She was hired for her experience and for her Level One
MYC certification. Occasionally and in special circumstances, the Worker could
have used substitute teachers supplied by the appellant. Under no
circumstances, did the Worker have the ability to earn more money by subcontracting
her teaching duties.
Chance of
Profit and Risk of Loss
[55]
The arrangement between the appellant and the
Worker did not give the Worker any possibility to increase her profit. The only
way that the Worker could increase her earnings was by working more hours which
does not amount to a chance of profit.
[56]
The appellant stated that the Worker was
permitted to teach students privately outside of the Lancaster Public School
and the Renaissance studio but these arrangements would be separate from the
contracts made with the appellant.
[57]
The Worker’s pay was not negotiable and was set
at a rate that was the same for all music teachers working for the appellant.
[58]
The appellant coordinated the registration of
the students at no cost to the Worker. The appellant advertised the business
online and the clients contacted the appellant for services. The Worker was
paid whether a student attended a lesson or not.
[59]
The appellant provided the Worker with the tools
required to perform her services at no cost. Both locations and the equipment
were leased by the appellant. The Worker did not have any real risk of
financial loss. The Worker did not have any capital expenditures to make and
the only expense appears to be the cost of purchasing music sheets.
[60]
The facts relating to the chance of profit and
risk of loss clearly support an employer/employee relationship.
[61]
All things considered, I conclude that a
comparison of the factors in this case applied with the case of Wiebe Door,
supports the Worker’s intention to be an employee. The appellant’s intention for
the Worker to be an independent contractor is not consistent with the evidence
presented at the hearing.
[62]
For these reasons, I dismiss the appeal.
Signed at Ottawa,
Canada, this 6th day of April 2017.
“Réal Favreau”
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