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Citation:2005TCC99
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Date: 20050202
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Docket: 2003-2354(EI)
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2003-2361(CPP)
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BETWEEN:
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KIDS COUNT CONSULTANTS CORPORATION LTD.
o/a SYLVAN LEARNING CENTRE BRAMPTON,
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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
McArthur J.
[1] These appeals under the
Employment Insurance Act and the Canada Pension
Plan are from decisions of the Minister of National Revenue
that 22 teachers (workers) were employed by the Appellant in
pensionable and insurable employment from March 1, 2001 to
October 31, 2002 (the period).
[2] There are 25 workers listed in
Appendix "A" of the Reply to the Notice of Appeal. Of
these, three of them, Maise Jean Green, Nina Powlette and Calvin
Preddie are not included in this appeal. I believe Green and
Powlette have settled with the Respondent and by a Judgment dated
September 24, 2003, Preddie's appeal was allowed, determining
he was not an employee of the Appellant.
[3] The situation is unusual in that I
am called on to make a decision as to the pensionable and
insurable status of 22 workers, none of whom were present or gave
evidence at the hearing. They provided tutoring sessions in
school-related subjects to students from the elementary level up
to the university level. Hugh Cullaton, an appeals officer
for the Minister, had some teachers complete a detailed
worker's questionnaire. From the answers he received, he
concluded that teachers were employees. He never met any of them
and the Appellant had no opportunity to cross-examine them with
respect to their answers. While Cullaton's research was
extensive, the weight I give it is limited.
[4] Before dealing with the issue, a
brief background may be helpful. Goran Skalin and his wife,
Johanna Skalin, testified for the Appellant, while Cullaton and a
former employee of the Appellant, Marlene Dos Santos were the
Respondent's witnesses.
[5] Goran and Johanna Skalin are the
owners and operators of the Appellant (Sylvan). Johanna Skalin
had 22 years' teaching experience prior to becoming
Sylvan's director of education. Goran Skalin had business
experience prior to becoming the director of the overall
operation. Sylvan is a franchise having its parent company in the
United States. The Skalins invested over $500,000 in their
franchise. They have experienced serious financial difficulties
with Sylvan over the years. Marlene Dos Santos was an impressive
witness and was well-informed with respect to the day-to-day
operation, the hiring of teachers and the Sylvan method of
teaching. Although she was let go because of the Appellant's
financial difficulties, she spoke very highly of the Sylvan
system and the positive benefits its students received. While she
was the Respondent's witness and was disappointed with the
manner in which she was terminated, she added that it was the
best job she has ever had. I infer that she found it very
satisfying to be part of a teaching system from which the
students greatly benefited.
[6] Sylvan attracted students at many
levels, including those with learning difficulties through to
gifted ones. The students had their own individual binders and
received individual attention with no more than three students
for each session which was held usually in the early evenings or
on Saturdays. For the most part, the teachers were retired
educators, very familiar with the traditional school curriculum
in which their students required special tutoring.
[7] The assumptions of fact pleaded by
the Respondent include the following:
6. In making
his decision, the Respondent relied on the following assumptions
of fact:
(a) The Appellant
provides tutoring sessions in various school-related subjects,
from elementary aged children, hereinafter referred to as the
"students", all the way up to university level;
(b) The Appellant
operates as a franchise, and the franchiser, hereinafter referred
to as the "franchiser" is a corporation located in the
United States;
(c) At all material
time, Johann Skalin and her husband H. Goran Skalin were the
shareholders of the Appellant and controlled more than 40% of the
Appellant's shares;
(d) The Workers were
hired by the Appellant as instructors to tutor the students;
(e) The Workers'
duties were performed on the Appellant's premises;
(f) The
Workers were paid an hourly rate by the Appellant, which was
based on the Workers' experience and training;
(g) The Workers rate of
pay was determined by the Appellant;
(h) The Workers
recorded the hours they worked, which were subsequently submitted
to the Appellant;
(i) The
Workers mainly performed their services on a part-time basis;
(j) The
services were performed by the Workers for an indeterminate
period of time;
(k) The Workers
performed the services personally for the Appellant, and any
replacements had to be approved by the Appellant;
(l) The
Workers were required to adhere to the Sylvan Learning Plan as
developed by the franchiser;
(m) The Appellant provided
the Workers with a place to work, and the necessary materials
including books, paper and pens;
(n) The Appellant
paid the Franchiser for the Sylvan trademarks and educational
systems and materials;
(o) The Appellant
was required to purchase updated and improved programs from the
Franchiser, at a cost of several thousand dollars;
(p) The hourly rate
charged to the students, which was established at approximately
$45 per hour, was determined and collected by the Appellant;
(q) Apart from
providing their own transportation to and from the
Appellant's premises, the Workers did not incur any expenses
in the performance of their duties;
(r) The Appellant
did not withhold employment insurance premiums from the
Workers' remuneration.
Most of these facts are more or less accurate yet many have no
relevance or do not support the Respondent's position over
that of the Appellant. Assumptions 6(a), (b), (c), (d), (h),
(i), (j) support the Appellant's position and (l), (n), (q)
and (r) are neutral.
[8] The following assertions taken
from the Notice of Appeal are accurate:
(a) Teachers engaged
by Sylvan are highly educated and experienced professionals who
have specialized qualifications as educators. Sylvan does not
have the expertise in all specific areas of education and the
teachers can therefore not be supervised by Sylvan directors.
(b) Sylvan materials
and methods are not always available. At the Sylvan centre in
Brampton this applies specifically to Canadian Senior Mathematics
(different from U.S. version); Calculus; Statistics; Science;
Biology; French; Spanish and German Language. A very significant
percentage of Sylvan Brampton students have been identified with
a variety of learning exceptionalities where specific Sylvan
programmes are not available and the Applicants must rely upon
Educational Consultants selected to provide their expertise.
Consultants in the above noted specialized academic subjects
provide their own materials and plan their lessons on their own
time. All consultants plan their work on an hour-by-hour basis by
a professional evaluation of the student's progress upon
which the required adjustments are made to reflect the
student's progress and mastery of the particular academic
subject.
(c) Sylvan provides
help for students of all age groups and with a wide variety of
abilities from severe learning disabilities to extremely gifted,
many of whom have been unable to get help elsewhere.
(d) The student mix
varies continuously and is unpredictable as is the need for
teachers who have relevant expertise.
(e) All of the
Sylvan Brampton teachers have specialized qualifications and
deliver their lessons without supervision and or interference by
the Applicants who are not qualified to do so. Based upon the
teachers' expertise, some of the Sylvan Brampton students
that have been unable to get help in Toronto travel to Brampton
once or twice a week.
[9] Calvin Preddie was a teacher
engaged by Sylvan who appealed the Minister's determination
that he was an employee rather than a self-employed
teacher. I heard his appeal and in September 2003, found that he
was skilled and needed no control. His fee was a bargained amount
and both parties referred to the relationship as one of
independent contractor. All of the teachers engaged by Sylvan are
highly skilled and selected based upon their expertise and
personalities as was Mr. Preddie. The relevant facts in the case
of Preddie v. The Queen[1] for the most part apply to all teachers
engaged by the Brampton Sylvan centre.
[10] The Respondent's position is that
the workers were engaged by the Appellant in insurable
employment, within the meaning of paragraph 5(1)(a) of the
Act and pensionable employment within the meaning of
paragraph 6(1)(a) of the Plan for the period, as
there was a contract of service between the workers and the
Appellant.
The Appellant's Position
[11] The Appellant's position is that
the teachers are engaged as self-employed educational consultants
under contracts and blanket purchase orders to provide their
services on a (i) "when available" and (ii) "as
and when required" basis. Many of the teachers are providing
tutoring and/or other services elsewhere and may be unavailable
to the applicants from time to time. The teachers are required to
sign a confidentiality agreement and the fact that they may
provide their services elsewhere is therefore not of significant
importance. Teachers request fees for their services and those
fees are obviously negotiable. If a teacher requests a fee that
is unaffordable, the teacher obviously stands to lose the
contract or his or her number of hours of work would be
minimized.
Analysis
[12] The question as to whether workers were
employed under a contract of service or a contract for service
has been litigated perhaps more than any other issue before this
Court. The decisions go both ways. The cases most often referred
to are Wiebe Door Services Ltd. v. M.N.R.[2]and 671122 Ontario Ltd.
v. Sagaz.[3]
[13] What is unique about the present case
is that none of the workers testified, but for the Skalins. The
Respondent relies on the comprehensive questionnaires of Canada
Revenue Agency[4]
mailed to 25 workers, 13 of whom replied. The Respondent's
witness, Cullaton explained the results of his survey and his
application of the Wiebe Door criteria to the 13 workers
answers: (i) the level of control the employer has over the
worker's activities will always be a factor; (ii) whether the
worker hires his or her own helpers; (iii) the degree of
financial risk taken by the worker; (iv) the degree of
responsibility for investment and management held by the worker;
and (v) the worker's opportunity for profit in the
performance of his or her tasks. These are briefly summarized as:
(i) control; (ii) ownership of tools; (iii) chance of profit;
(iv) risk of loss; and (v) integration.
[14] Exhibit R-3 is a broad review of the
research completed by Cullaton. He applied the tests to the
answers he obtained in the 13 questionnaires and concluded
in part as follows:
(i) control:[5]
... Based on these facts, it is reasonable to conclude
that by nature of a franchise agreement, the payor was directed
on how the "Sylvan System" program was to be
run, and in turn, it would be reasonable to expect that they
would require their instructors/tutors to comply with these
directions.
The test of control is indicative of a contract of service.
This conclusion is supported by a fairly recent (June 8, 2001 Tax
Court decision). In that Tax Court decision rendered on the appal
of The Learning Loft Ltd. v. M.N.R., Honourable Judge G.J.
Rip stated the following, when he decided that those tutors were
self-employed:
The appellant, as far as the evidence reveals and common sense
dictates got the student and Worker together and once their
relationship was established moved out of the way. The appellant
exacted a charge from the tutor for providing the service. But it
was the tutor who determined (with the student) who would be
taught, how the lesson would be taught, when the lesson would be
taught, and where the lesson would be taught. These were not the
appellant's decisions. There was no master-servant
relationship between the Worker and the appellant ....
In the current case, the payor set and collected the
hourly rate paid by their clients, determined the tutor/student
ratio, determined what and how the client would be taught based
on the Sylvan system, set the tutorial times in
conjunction with the client's and the tutor's
availability, and provided the premises at which the tutoring
sessions took place.
(ii) Ownership of
tools:
- physical tools were limited to text books, paper, pens, etc.
The majority of workers who responded detailed that these were
provided by the payor as were the work space at which the
tutoring sessions took place. The payor also provided testing and
the initial lesson "prescription", which was completed
under the Sylvan system.
- the workers provided their education and prior teaching
experience
- as per facts #21 and #57, the payor and only two workers
stated that the workers provided some of their own education
materials.
The test of ownership, particularly the payor's licensing
as a Sylvan Learning Centre, is indicative of a contract of
service.
(iii) Chance of Profit and/or (iv) Risk of Loss:
- the workers were all paid an hourly rate of pay, for the
time they spent tutoring, and preparing the post-tutorial
write-up. As indicated under Control, the workers were
able to decide how frequently they agreed to provide services for
the payor, but that was more reflective of their availability to
work around their personal schedules. The vast majority only
worked part-time.
- With the exception of two workers, the remainder stated that
they were not required to maintain their own office. If the vast
majority considered that an office in-the-home was not necessary,
it is not unreasonable to conclude that the decision to maintain
an office in the home, was more a personal choice, rather than a
requirement of the job. As per fact #25, the payor considered
that the workers' hourly rate of remuneration included the
workers use of a work station, at their business location.
- the majority of workers stated that their only expenses were
the cost of bus fare or vehicle expenses incurred to attend at
the payor's place of business.
- the payor was responsible for bad debts, resolved customer
complaints, and was responsible for administering the pre-agreed
re-testing after 36 lessons.
(v) Integration
- as per the payor's various statements and documentation,
a Sylvan Learning Centre, obtained clients, administered skills
assessments, "our specially trained certified teachers,
deliver a program tailored just for him or her". The
payor's hourly rate was on average, $45.00 per hour. The most
common hourly rate paid to the instructors was $15.00 per hour.
The payor's business integrated all phases of the Sylvan
system, and hence the services provided by the workers, were
integral to the payor's business.
- the payor noted that a number of the workers were employees
of various school boards. This is not indicative of an individual
who was "in business for themselves". As noted above,
aside from their own personal development, the workers had
invested nothing in a "business". It is acknowledged
that at least one tutor had his own business cards, but he was
the exception rather than the rule and a substantial number of
workers did not. That worker's business card advertised that
he also provided other Human Resource related services. However,
business cards were not required in order to perform services for
the payor, nor was it required that the workers were in business
for themselves. The workers were paid for the 3 to 4 hours shifts
they worked as often as they chose, and/or as often as their
services were required. Any tutoring they may have undertaken on
their own, was not subject to the Sylvan name and the use of the
Sylvan system. Workers such as worker #19 who had their own
"business" could very well have been self-employed for
services they provided for their own students, but
for any of the Sylvan students they tutored, their services were
performed under a contract of service.
The test of integration indicates the existence of a contract
of service.
The above formed the basis of the Respondent's
determination.
[15] In the Preddie appeal referred
to earlier, I found that Mr. Preddie was in the business on
his own account, there is no need to quote from it, but much of
the analysis and application of the Sagaz tests apply
equally to the present case:
[16] As stated by Bowman J. in
Academyof Artisans v. M.N.R.,[6] there is a danger in
over-utilizing the five elements, forgetting to determine
the true nature of the overall relationship. The direction of
Major J. in Sagaz is to answer the question "Whose
business is it?". The 22 relevant teachers are included as
one. They were retired tutors probably all from the public school
system who taught when they wanted during evenings and on
Saturdays using their own expertise under the personalized Sylvan
method. They taught what they wanted, when they wanted and how
they wanted. It was their business carried on under the
Sylvan-method umbrella.
[17] Giving credence to the evidence of Mr.
and Mrs. Skalin and accepting the application of the tests found
in Preddie, I find that the workers were not engaged by
the Appellant in insurable employment or pensionable employment
as there was no contract of service between the workers and the
Appellant. Little reference was made to the Skalins'
situation but it is clear that their employment is excluded under
subsection 5(2) of the Act.
[18] The appeals are allowed.
Signed at Ottawa, Canada, this 2nd day of February, 2005.
McArthur J.
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