written on behalf of Feigenbaum Law
The modern workforce has seen a rise in contract work. For an employer, there can be benefits to hiring contract workers instead of full-time employees, such as fewer tax and benefit obligations. For employees, contract work provides greater autonomy than the traditional employer-employee relationship.
In a recent decision from the Tax Court of Canada, the Canada Revenue Agency (“CRA”) held that two of an employer’s yoga instructors should have been considered employees and not independent contractors. The decision provides a great summary of how courts might determine whether someone is an employee or a contractor regardless of what an employment agreement might state.
The appellant was the founder, owner, manager, and sole shareholder of a business that operated in part as a yoga studio while also providing massage therapy, workshops, yoga classes, retail services, and a tea bar. The business operated from 2012 to 2018. During the 2015 to 2016 fiscal year, the CRA determined that three of its workers should have been considered employees entitled to both Employment Insurance and Canada Pension Plan payments.
The central issue in the decision was the characterization of the working relationship between the two yoga instructors and the employer. We will refer to them as “MB” and “MF.” MB worked with the employer for only a short time, teaching one evening per week. MF taught yoga for a longer period of time and with more frequency. She also managed the scheduling and availability of all of the yoga instructors.
The court stated that the core issue to be decided was whether the workers were performing their services as their own businesses on their own accounts. To do this, the court had to follow a two-step analysis. The first step looks at the subjective intent of the worker and the employer. The second step compares the subjective assessment of the worker and employer to the objective realities absent their personal impressions.
Some of the factors the court considered in this process include the degree of control the workers had over their own activities (whether they decided what they wanted to do), whether tools and materials the workers needed to do their jobs were provided to them or if they had to supply their own, as well as the financial risks and opportunities the workers were subject to in the course of their work.
The owner of the business stated that she set out to employ one or more yoga instructors when she opened the business in 2012. She said this would allow her to enjoy more control, predictability, and stability in how she managed her business. However, she said the yoga instructors she originally hired had no interest in becoming employees and all elected to work as independent contractors. She said the yoga instructors wanted to exercise independence and control of their schedules.
The testimony of MF also stated that she “absolutely intended” to be an independent contractor and had always considered herself to be one. She had her own business name and offered her services in locations other than with the employer involved in this matter. MB was less clear on this. She said she assumed at first that she was an employee, but in looking back at things believes she was always working as a contractor. The court was satisfied that, subjectively, all of the parties involved understood that the yoga instructors were independent contractors.
The court began the second step of the analysis by considering the degree of control the employer had over the workers. The court noted that this is the most significant portion of the analysis and would be a determining factor.
In reviewing the facts, the court found the relationships favoured that of independent contractors in lieu of employees. Some of the reasons the court relied on were:
- The yoga instructors were able to and did work at other yoga studios.
- The yoga instructors had agreed they would not be employees.
- The employer would let the yoga instructors know what availability there was for them to hold classes.
- If they were unable to work, the yoga instructors would find their own replacements.
- The yoga instructors sent the employer invoices for their work.
- The yoga instructors promoted their own classes.
- The employer exercised more management and control over the daily activities of other employees of the business than with the yoga instructors.
- The yoga instructors were responsible for their own training.
Following its analysis, the court determined the yoga instructors were properly considered independent contractors by the employer. The court, therefore, allowed the appeal.
At Feigenbaum Consulting, we work with corporate clients on tax planning and compliance, helping our clients ensure they are meeting their tax obligations while also taking advantage of any opportunities to lessen their tax burden. We also help businesses in Canada who wish to expand into the United States or vice versa. To find out how our team, led by Mark Feigenbaum, can help you, please contact us at 1-877-275-4792 or via email today.