Citation: 2006TCC534
Date: 20061002
Docket: 2005-1677(EI), 2005-1678(CPP),
2005-1680(EI), 2005-1681(CPP)
2005-1682(EI), 2005-1683(CPP), 2005-1695(EI),
2005-1696(CPP)
2005-1697(EI), 2005-1698(CPP, 2005-1699(EI),
2005-1701(CPP)
BETWEEN:
VIDA WELLNESS CORPORATION DBA VIDA WELLNESS SPA,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Miller J.
[1] Vida Wellness
Corporation DBA Vida Wellness Spa (Vida) appeals six Employment Insurance and
six Canada Pension Plan decisions of the Minister of National Revenue
(Minister). The Minister determined that six massage therapists were Vida
employees engaged in insurable and pensionable employment. Vida maintains the
workers were, as stipulated by their written contracts, independent
contractors. This is the first case I have heard on this issue since the decision
of the Federal Court of Appeal in Royal Winnipeg Ballet v. Canada. It was not unexpected
that the Appellant's opening salvo in argument was how critical it is now to
consider the un-refuted intention of the parties to the contract, in
determining the true nature of the relationship. The traditional approach set
forth in the decision of the Supreme Court of Canada in 671122 Ontario Ltd.
v. Sagaz Industries Canada Inc.
of weighing a number of factors, primary amongst them being the control
factor, is now to be pursued in the context of whether such factors support the
contracting parties' stated intention. Certainly, if the parties are not agreed,
as is often the case, this preliminary inquiry is of limited value. What is
interesting about this case is that Vida contracted with some massage
therapists on the basis of an employment arrangement, and some on the basis of
an independent contractor arrangement. In fact, the massage therapists were
given a choice by Vida as to which they wanted to be. Only those who chose to
be independent contractors are in issue before me.
Facts
[2] The status of the
following six individuals is at issue in these appeals: Danielle Guetta, Nancy
Frame, Courtney Edy, Yvonne Dobrowolski, Garrick Cheung and Shahin Azha
(collectively the "workers"). All but Shahin Azha, who is out of
the country, testified, as did Ms. Allison Hegedus, the regional director of Vida
and Ms. Peggy Bereza, the president of the College of Massage Therapists in British Columbia.
[3] For the period in
question, 2002 to September 2004, Vida operated two spas, one at the Fairmont in Whistler and the
other at the Sheraton in Vancouver. While the spas provided a number of services, these
appeals deal only with the massage therapists, specifically the workers. In
2004, Vida had between 50 and 60 massage therapists under contract; a few
contracted as employees, but most contracted as independent contractors. The
"Contract for Services Agreement" for all six workers stated in part:
A. Status of Contractor
1) As an
independent contractor, the Contractor shall provide services to the Company.
The Contractor shall not be deemed an employee of the company for any purpose,
nor will the Contractor be entitled to any wages, salary, paid holidays,
pension allowance, medical or dental insurance or any other collateral benefits
whatsoever from the Company. The contractor shall not use the name of the
company to create or assume obligation whether expressed or implied.
B. Obligation of the
Contractor
6. The Contractor
agrees to provide the Company with proof of Certificates, Registration Numbers
and a Business Number, practicing within the municipality of British Columbia. The Contractor is solely responsible
for arranging its own Liability Insurance for itself and if applicable its
employees. The Contractor shall provide the Company with proof of Liability
Insurance.
8. As an
independent Contractor, the Contractor is solely responsible for and agrees to
pay all statutory deductions including Employment Insurance, Provincial and
Federal Taxes and Canada Pension Plan, Workplace Safety and Insurance with
respect to the Contractor's Business, to the proper authorities, and agreed to
make timely payments of the above amounts. The Contractor agrees to submit a
copy of these deductions to the Company.
G. Termination
With Notice
1. The contract
may be terminated at any time. Both the Contractor and Company agree to provide
two weeks written notice to the other party. The Contractor authorizes the
Company to deduct any monies owing to the Company by the Contractor to be taken
from the Contractor's final pay. Monies owing may constitute purchases,
advances, loans, or damage to any Company property by the Contractor.
H. Terms of
Agreement
3. During the
terms of this Agreement, the Contractor may engage in other business
activities, providing such business that does not conflict with the
Contractor's obligations to utilize the Company, and agreed to by the
Contractor and the Company.
[4] The workers who
testified confirmed that, in signing their contracts they were voluntarily
agreeing to be independent contractors and not employees. Some had previous
experience as employees and appreciated the distinction. None of the workers
expressed any intention to be an employee. Ms. Frame, having started at Vida as
an employee, switched to a contract for services as she no longer required
employee benefits, but felt her better option was to take greater deductions as
an independent contractor.
[5] Of the five workers
who testified, two were registered massage therapists in British Columbia, while the other three
had extensive training in a variety of forms of massage. All had spent many
thousands of dollars and significant hours of training in attaining their
qualifications. It was also common to continue to take upgrading courses. The
workers were required to pay for any such continuing massage therapy education,
including courses offered by Vida itself.
[6] The workers were
paid in accordance with their contracts. Pursuant to their written agreement they received a
percentage of the fee charged by Vida to the customer. It appears the
percentage was based on an hourly rate, so, for example, for Mr. Cheung his
agreement stipulated:
C. Fee:
1) Based on the service performed, the Company will pay the
Contractor a rate between 27.5% and 47%. The Contractor shall receive 15% of
retail sold. The Contractor agrees that if the price of a service or retail has
been discounted, then deductions will be taken from the Contractor's rate in
accordance with the discounted service price. The Contractor will receive their
contract percentage based on the discounted price. The Company may amend the
service or retail price from time to time.
|
Duration
|
Price
|
Therapist
%
|
Therapist
Rate
|
|
|
|
|
|
|
30 min
|
$65.00
|
34%
|
$22.10
|
|
30 min
|
$80.00
|
27.5%
|
$22.00
|
|
60 min
|
$112.50
|
39%
|
$43.89
|
|
60 min
|
$140.00
|
31.5%
|
$44.10
|
|
90 min
|
$165.00
|
40%
|
$66.00
|
|
90 min
|
$180.00
|
37%
|
$66.60
|
|
120 min
|
$187.50
|
47%
|
$88.13
|
|
120 min
|
$240.00
|
36.5%
|
$87.60
|
Rather
than fixing an hourly rate, the agreement called for a percentage split of the
fee between Mr. Cheung and Vida. If fees were discounted, as they occasionally
were (for example, for British Columbia residents), Mr. Cheung would not receive the
approximate $44.00 hourly rate, but would receive his percentage cut of the
discounted fee. The worker also received an extra $10.00 for an ensuite massage
and an extra $10.00 for a deep tissue massage. The massage therapists would
also receive a commission on spa products sold by them.
[7] If the workers showed
up for a shift and had no customers, the workers did not get any remuneration.
If it appeared a shift might be slow, the workers could choose to remain on call
and not show up unless called. The workers could keep cash tips, but a percentage
of credit card tips were pooled for credit card administration and staff who
worked in the dispensary.
[8] The workers scheduled
their shifts three or four times a year for three or four months at a time. The
workers could slot in as many or as few shifts as they wanted. There were two
shifts a day. They were able to schedule shifts based on their own requirements
vis-à-vis other opportunities to provide massage therapy elsewhere, family
demands, whether it was a high season or low season, who else was on shift (too
many senior therapists may mean less work as customers were assigned on a
seniority basis, unless they requested a particular massage therapist), and
whether a shift was likely to have discounted customers. As Mr. Cheung put
it, he never had to work when he did not want to. If a worker was unable to
make a shift, he or she could arrange for another massage therapist to go in
his or her place provided such massage therapist was approved by Vida. The
workers could also refuse to work on someone.
[9] All the workers were
able to provide massage therapy services other than at Vida. Some took greater
advantage of this than others. The workers could, and some did, advertise by
the distribution of both Vida business cards (with the workers' name on the
card) and personal business cards, though they could not attempt to attract
Vida customers away from Vida.
[10] Vida required the
workers to wear black pants and shirts to provide some consistency. Vida
supplied tables, linens and oils for the performance of the services on the
premises. Some workers, when performing ensuite massages, would take their own
mobile tables. Most of the workers had their own table and oils but indicated
it was more convenient, when working at Vida to use Vida's. Indeed, this was
what they were paying for in splitting the fee. Vida looked after the billing
and collecting of payments from customers. It was clear that if Vida did not
get paid by a customer, the workers would not get paid.
[11] Ms. Hegedus and the
workers described some inherent risks in providing massages. Particular
attention had to be paid to massages of pregnant women, avoiding certain parts
of the body and even avoiding certain oils. Similarly, if a customer displayed
any pre-existing condition or contra-indication the workers would proceed
cautiously. For these reasons, it was important that the workers obtain a
fairly detailed medical history prior to providing a massage. The workers were
required by their governing body to carry insurance. Vida did not pay for the
workers' coverage.
[12] Vida had a
Comprehensive Policy and Procedure Guide for massage therapists. The copy
provided at trial was dated after the relevant period. Some of the workers had
not seen the guide; some had, but paid little attention to it. Vida had a
therapist supervisor who looked after scheduling of the massage therapists, and
served as a liaison between the massage therapists and the organization. The workers
did not view the supervisor as someone they reported to. There was some
discrepancy amongst the workers as to how often there would be staff meetings.
I conclude that they were infrequent and attendance was not compulsory.
Issue
[13] Were the workers
independent contractors, or employees of Vida engaged in insurable and
pensionable employment?
Analysis
[14] In the Supreme Court of
Canada's decision of Sagaz, Justice Major described the analysis for
determining the issue of employee versus independent contractor as follows:
47 Although
there is no universal test to determine whether a person is an employee or an
independent contractor, I agree with MacGuigan J.A. that a persuasive approach
to the issue is that taken by Cooke J. in Market Investigations, supra. The
central question is whether the person who has been engaged to perform the
services is performing them as a person in business on his own account. In
making this determination, the level of control the employer has over the
worker's activities will always be a factor. However, other factors to consider
include whether the worker provides his or her own equipment, whether the
worker hires his or her own helpers, the degree of financial risk taken by the
worker, the degree of responsibility for investment and management held by the
worker, and the worker's opportunity for profit in the performance of his or
her tasks.
48 It
bears repeating that the above factors constitute a non-exhaustive list, and
there is no set formula as to their application. The relative weight of each
will depend on the particular facts and circumstances of the case
[15] A significant gloss
has been added by the Federal Court of Appeal to this approach. This was
evident in the case of Wolf v. Canada,
the year following Sagaz, wherein Justice Décary states, after referring
to the cases of Wiebe Door Services Ltd. v. Canada and Sagaz:
… one ends up in the final analysis, in
civil law as well as in common law, looking into the terms of the relevant
agreements and circumstances to find the true contractual reality of the
parties.
And further he states:
… I say, with great respect, that the courts,
in their propensity to create artificial legal categories, have sometimes
overlooked the very factor which is the essence of a contractual relationship,
i.e. the intention of the parties.
… When a contract is genuinely entered
into as a contract for services and is performed as such, the common intention
of the parties is clear and that should be the end of the search.
Justice Noël in the same case
concludes in his brief judgment:
123
My assessment of the applicable legal tests to the facts of this case is
essentially the same as that of my colleagues. I view their assessment of the
control test, the integration test and the ownership of tool tests as not being
conclusive either way. With respect to financial [page442] risk, I respectfully
agree with my colleagues that the appellant in consideration for a higher pay
gave up many of the benefits which usually accrue to an employee including job
security. However, I also agree with the Tax Court Judge that the appellant was
paid for hours worked regardless of the results achieved and that in that sense
he bore no more risk than an ordinary employee. My assessment of the total
relationship of the parties yields no clear result which is why I believe
regard must be had to how the parties viewed their relationship. [My
emphasis]
I
have previously referred to Justice Noël's approach as a tie-breaker approach,
though Justice Sharlow in Winnipeg Ballet stated that:
… In my view,
those reasons are not authority for that proposition. …
She
went on to say:
… One
principle is that in interpreting a contract, what is sought is the common
intention of the parties rather than the adherence to the literal meaning of
the words. …
Again
at paragraph 61 she states:
I
emphasize, again, that this does not mean that the parties' declaration as to
the legal character of their contract is determinative. Nor does it mean that
the parties' statements as to what they intended to do must result in a finding
that their intention has been realized. To paraphrase Desjardins J.A. (from
paragraph 71 of the lead judgment in Wolf), if it is established that
the terms of the contract, considered in the appropriate factual context, do
not reflect the legal relationship that the parties profess to have intended,
then their stated intention will be disregarded.
[16] This leads to the penultimate question posed by Justice
Sharlow:
… The judge should have considered the Wiebe Door
factors in the light of this uncontradicted evidence and asked himself whether,
on balance, the facts were consistent with the conclusion that the dancers were
self-employed, as the parties understood to be the case, or were more
consistent with the conclusion that the dancers were employees. …
She
concludes:
… Therefore,
the elements of control in this case cannot reasonably be considered to be
inconsistent with the parties' understanding that the dancers were independent
contractors.
The
same can be said of all of the factors, considered in their entirety, in the
context of the nature of the activities of the RWB and the work of the dancers
engaged by the RWB. In my view, this is a case where the common understanding
of the parties as to the nature of their legal relationship is borne out by the
contractual terms and the other relevant facts.
[17] I conclude that if it is established the parties to a
contract have a clear understanding that they were independent contractors,
then the traditional factors must be analyzed on the basis of whether such
factors are consistent with that understanding. If so, then the parties'
understanding of their contracts prevails.
[18] Following this approach, was there a clear understanding
between Vida and the workers as to the nature of the contract? Yes, there was.
There was a written agreement which stated unequivocally the workers were
independent contractors. Yet, a clear statement of intention alone is not
determinative. For example, if the parties to a contract simply want to avoid
the employer making source deductions, they insert a provision stipulating the
worker is an independent contractor and is responsible for looking after his or
her own source deductions. This is evidence of an intention that the employers
not make source deductions: it is not evidence of an independent contractor
relationship. In this case, however, I am satisfied the parties' intention to
create a contract of independent contractor is clear. The Respondent argued
that there was not so much a clear intent to be independent contractors, as
there was an indifference to their status. There was no evidence to suggest any
of the workers would have preferred employment status. They all knew what was
being offered, appeared to have understood the implications (for example, no
minimal wage) and certainly willingly signed an agreement proclaiming their
independent contractor status. While the circumstances do not reflect an
insistence by the worker on the independent contractor status (except perhaps
for Ms. Frame), they do reflect something more than indifference.
[19] I turn now to the factors of control, risk of loss,
chance of profit and ownership of tools, to determine whether those factors are
consistent with the parties' stated intention of independent contractor.
[20] It is important to distinguish at the outset between
the identifying elements of employee versus independent contractor, as opposed
to the results of the finding of employee or independent contractor. For
example, in attempting to identify the difference between employed massage
therapists and those massage therapists opting for independent contractor
status, Ms. Hegedus suggested the following:
- employee received 4% vacation pay;
- employee received time and one-half on
statutory holidays; and
- employee was entitled to severance.
These,
however, are differences arising as a result of being an employee. They are not
factors that go to identifying an employment relationship. The identifying
factors are those I have listed earlier.
[21] How fine the line can be between employment and
independent contractor cannot be any better demonstrated than by this
situation. The workers can choose to take the benefits that flow from
employment, or reject them for the benefits that flow from being self-employed.
That choice, willingly agreed to by Vida, cannot be ignored for purposes of the
analysis. Indeed, it sets the stage for the analysis.
Control
[22] While the control test may have some shortcomings, it
remains a factor that must always be considered. One of the shortcomings arises
in dealing with professionally trained workers. Can the employer ever control
"how" they conduct their work? As was indicated by all the workers
who testified, there was never anyone else in the room observing, commenting or
advising on how to give the treatment. I do not conclude that this means a
message therapist can never be an employee. It is important to always look at
each factor in the context of the overall relationship. In this case, did the
workers exercise freedoms more consistent with someone in business on their own
account, or did Vida impose controls, other than how to perform treatment,
clearly of an employment nature?
[23] Vida did have several guidelines to be followed by the
workers; in fact, Vida published a staff guide for the massage department. The
evidence was that the workers were either not aware of the guide, or paid
little attention to it. Yet, I find there was a consistency of approach by the
workers (for example, candles in the room, walking the customer to the door,
wearing black pants and shirt) but more as a result of simply being present on
the premises, than as a result of the guide, infrequent staff meetings or
occasional emails. Yet, certainly this is some level of control.
[24] But there were considerable freedoms for the workers as
well: the freedom to not show up but to be on call, the freedom to choose as
few or as many shifts as the worker wanted depending on other commitments, the
freedom to carry on message therapy elsewhere, the freedom to find a
replacement (albeit from Vida approved message therapists) if unable to make a
shift, the freedom to decline customers for whatever reason. I find the control
of the trappings of the environment by Vida is outweighed by the lack of
control in these other areas. Overall this element is consistent with the
relationship the parties agreed to.
Ownership of tools
[25] Once again I am faced with an argument that the
workers' main tool was a part of the workers' body, in this case, the hands.
This is not a factor that distinguishes an employee from an independent
contractor, as regardless of the legal nature of the relationship, the
importance (and "ownership") of this so‑called tool always
remains with the worker. So, I must look to more traditional tools: in the case
of a massage therapist that would be, primarily, a table, linens and oils. Vida
provided these, which would at first blush suggest a greater consistency with
employment. Yet three factors counter that conclusion. First, the workers only
received a portion of what the customer paid, the balance ostensibly going
towards paying for the use of the table, linens and oils. Second, many of the
workers have their own table, linens and oils but as a matter of convenience it
was preferable to use Vida's, though some workers did use their own table for
ensuite massages. Third, this is not a tool-intensive business. For example,
some treatments require no tools at all. For these reasons, I put little
emphasis on this factor as being any more consistent with employment than with
independent contractor status.
Chance of profit
[26] Did the workers
have any latitude for maximizing profits? Yes, I believe they did. The worker
could do a number of things to maximize profits at Vida:
- Arrange shifts at
times known to be busy, including double shifting;
- Arrange
not to take shifts at slow times;
- Arrange shifts when
fewer senior therapists were on shift, as customers who did not request a
particular massage therapist were assigned on a seniority basis;
- Promote ensuite and
deep tissue massages;
- Decline discounted
customers in favour of full paying customers; and
- Aggressively promote
products.
[27] Further, though not maximizing profits at Vida, the
worker, consistent with being in business on his or her own account generally,
and not just in connection with Vida, could schedule the Vida versus the
non-Vida massage therapy work to maximize profits at both. The worker could
also promote him or herself by distributing both Vida business cards, featuring
the worker's name, or personal business cards for the non-Vida work. These are
all indications of an arrangement consistent with the workers' and Vida's
understanding of an independent contractor relationship.
Risk of Loss
[28] A business loss can arise in at least three ways;
first, the business' ordinary expenses outstrip the business' regular income;
second, there can be a catastrophic event arising from harm done by the operation
of the business; and third, the source of business income can dry up.
[29] The workers did incur some expenses, for example,
cellular telephone, updating and training (including the cost of courses
offered by Vida itself), and insurance. It is unlikely though that such
expenses would surpass their income, although for a particularly slow period
with few or no customers, there may have been some slight risk. Recall, no
customers – no remuneration.
[30] The possibility of risk from causing harm however was
very real. The witnesses explained the potential danger of treating pregnant
women or those with pre-existing conditions. Results can be harmful to the
point of being lethal. For this reason, the workers were required by the
governing body to carry insurance. Vida did not cover the workers' insurance.
It was their responsibility.
[31] Finally, the possibility of losing Vida as a source of
income was also very real. There was no security. The contract could be
terminated on two weeks' notice for any reason, with no remuneration. I would
characterize these circumstances as accepting a significant risk of loss
consistent with someone in business on his or her own account.
[32] Reviewing the traditional factors in light of the
parties' understanding of the nature of their contract has satisfied me that
the contract does accurately represent the legal relationship of a contract for
services. The workers intended to be and were independent contractors.
[33] The appeals are allowed and referred back to the
Minister on the basis that the workers were independent contractors and not in
insurable or pensionable employment.
Signed at Ottawa, Canada, this 2nd day of October 2006.
"Campbell J. Miller"
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