Kids Count Consultants Corporation Ltd. o/a Sylvan Learning Centre Brampton v. M.N.R.

Kids Count Consultants Corporation Ltd. o/a Sylvan Learning Centre Brampton v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-02-02 Neutral citation 2005 TCC 99 File numbers 2003-2354(EI) Judges and Taxing Officers Cameron Hugh McArthur Subjects Employment Insurance Act Decision Content Docket: 2003-2354(EI) 2003-2361(CPP) BETWEEN: KIDS COUNT CONSULTANTS CORPORATION LTD. o/a SYLVAN LEARNING CENTRE BRAMPTON, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. ____________________________________________________________________ Appeals heard on November 3, 2004, at Toronto, Ontario, by The Honourable Justice C.H. McArthur Appearances: Agent for the Appellant: H. Goran Skalin Counsel for the Respondent: H. Annette Evans and Jeremy Streeter ____________________________________________________________________ JUDGMENT The appeals pursuant to subsection 103(1) of the Employment Insurance Act and section 28 of the Canada Pension Plan are allowed and the decision of the Minister of National Revenue on the appeal made to him under section 92 of the Act is vacated and the determination of the Minister on the application made to him under section 27.1 of the Plan is vacated on the basis that the workers set out in Schedule "A" hereto, were not engaged in insurable employment or pensionable employment by the Appellant for the period March 1, 2001 to October 31, 2002. Signed at Ottawa, Canada, this 2nd day of February, 2005. "C.H. McArthur" McArthur J. Citation:2005TCC99 Date: 20050202 Docket: 2003-2354(EI) 2003-2361(CPP) BETWEEN: KIDS COUNT CONSULTANTS CORPORATION LTD. o/a SYLVAN LEARNING CENTRE BRAMPTON, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. 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. "C.H. McArthur" McArthur J. APPENDIX "A" Nasreen Ahmed Kalpesh Lad Jamie Charle bois Jennifer Mota Nuruddin Chherawala Miguel Pereira Joan Chong Sandra Polito Carol Christmas Nina Powlette Fay Davidson Calvin Preddie Alda Elhalwagy Anita Serpe Fahima Elhalwagy Susan Tesar Harriet Finlay Stephen Wickett Wynford Godard Anita Wong Maise Jean Green H. Goran Skalin Mike Guest Johanna Skalin Dellorene Hall CITATION: 2005TCC99 COURT FILE NO.: 2003-2354(EI) and 2003-2361(CPP) STYLE OF CAUSE: Kids Count Consultants Corporation Ltd. o/a Sylvan Learning Centre Brampton and the Minister of National Revenue PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: November 3, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice C.H. McArthur DATE OF JUDGMENT: February 2, 2005 APPEARANCES: Agent for the Appellant: H. Goran Skalin Counsel for the Respondent: H. Annette Evans and Jeremy Streeter COUNSEL OF RECORD: For the Appellant: Name: N/A Firm: N/A For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada [1] [2003] T.C.J. No. 788. [2] [1986] 3 F.C. 553 (F.C.A.) [3] [2001 2 S.C.R. 983.] [4] Exhibit R. 4. [5] Exhibit R-3, page 10. [6] [2001] T.C.J. No. 241.