Driving instructor was not an employee
This case before the Tax Court of Canada involves an appeal from a decision of the Minister of National Revenue relating to the nature of services provided by Neil Neumann. The issue was whether Mr. Neumann, in providing services as a driving instructor in the Manitoba High School Driver Education Program, was an employee working under a contract of service or whether he was retained under a contract for services as an independent contractor.
The program was set up and organized by the Manitoba Public Insurance Corporation (MPIC) which entered into arrangements with various schools in the province to coordinate and run these programs. Mr. Neumann was one of the instructors contracted by MPIC to coordinate a program, provide in-class training as well as behind-the-wheel instruction.
He had done this for a number of years while employed as a teacher and continued when he retired in June 1995. It was after his retirement that his status as an instructor came into question with the Minister of National Revenue.
Once he retired, Mr. Neumann sought a ruling from Revenue Canada as to the status of his employment under the Canada Pension Plan and the Unemployment Insurance Act. He received a ruling in April 1996 that he was employed in pensionable employment per the Canada Pension Plan and insurable employment per the Unemployment Insurance Act. MPIC appealed the ruling and on Jan. 3, 1997, the chief of appeals at Revenue Canada ruled on behalf of the minister that Mr. Neumann was in insurable employment as an employee of MPIC and in pensionable employment as an employee of MPIC. The Norwood School Division No. 8 was the deemed employer for purposes of calculating his earnings and paying, deducting and remitting the premiums and contributions payable thereon.
This decision was appealed to the Tax Court. The issue before the Court was the status of Mr. Neumann and whether he was an employee or an independent contractor. The tests used by the Court to determine Mr. Neumann’s status were:
a) the degree or absence of control exercised by the alleged employer;
b) ownership of tools;
c) chance of profit and risk of loss; and
d) integration of the alleged employee’s work into the alleged employee’s business.
With respect to the first test, the Court held that, although Mr. Neumann was given the curriculum to be taught, he had considerable latitude in how, when and where he taught it. The control aspect was indicative of an independent contractor relationship. With respect to the ownership of tools test, Mr. Neumann was provided with a car for the in-car instruction. The school provided the classroom for the in-class instruction by an arrangement with MPIC, along with all the audio/visual equipment needed. The provision of the car by MPIC is more indicative of an employer/employee relationship.
As to the chance of profit or risk of loss, there was no chance of his making extra profit by working efficiently, as he was paid by the hour for the in-vehicle and in-class instruction. However, there was no chance of coming to the end of his instruction and being in a loss position because he really had no expenses during his teaching periods. This is more indicative of an employee than an independent contractor. However, there was no restriction on Mr. Neumann as to working only for MPIC. He could have taken on other students or given additional instruction. This is normally restricted in an employer/employee relationship.
With respect to the final test, the Court considered that it was really up to Mr. Neumann in connection with the school as to whether there would be a course at any particular time. MPIC merely provided the program. If Mr. Neumann did not approach the school about putting on the program, there would be no program. MPIC merely provided the opportunity and Mr. Neumann picked up that opportunity to put on a course. As such, the Court held that this was more in line with a contract for services, not a contract of service.
Having considered all of the four tests combined, the Court found that on a balance, the arrangement between Mr. Neumann and MPIC amounted to a contract for services rather than a contract of service. Mr. Neumann had a sufficient degree of independence both with respect to what he did and whether and how he did it that it is consistent with the intention to create a contract for services. Therefore, he was not in insurable or pensionable employment with MPIC and the appeal was allowed.
For more information:
• Manitoba Public Insurance Corp. v. Minister of National Revenue, Tax Court of Canada, Docket No. 97-480 (UI), 97-29 (CPP), Oct. 26/98.
The program was set up and organized by the Manitoba Public Insurance Corporation (MPIC) which entered into arrangements with various schools in the province to coordinate and run these programs. Mr. Neumann was one of the instructors contracted by MPIC to coordinate a program, provide in-class training as well as behind-the-wheel instruction.
He had done this for a number of years while employed as a teacher and continued when he retired in June 1995. It was after his retirement that his status as an instructor came into question with the Minister of National Revenue.
Once he retired, Mr. Neumann sought a ruling from Revenue Canada as to the status of his employment under the Canada Pension Plan and the Unemployment Insurance Act. He received a ruling in April 1996 that he was employed in pensionable employment per the Canada Pension Plan and insurable employment per the Unemployment Insurance Act. MPIC appealed the ruling and on Jan. 3, 1997, the chief of appeals at Revenue Canada ruled on behalf of the minister that Mr. Neumann was in insurable employment as an employee of MPIC and in pensionable employment as an employee of MPIC. The Norwood School Division No. 8 was the deemed employer for purposes of calculating his earnings and paying, deducting and remitting the premiums and contributions payable thereon.
This decision was appealed to the Tax Court. The issue before the Court was the status of Mr. Neumann and whether he was an employee or an independent contractor. The tests used by the Court to determine Mr. Neumann’s status were:
a) the degree or absence of control exercised by the alleged employer;
b) ownership of tools;
c) chance of profit and risk of loss; and
d) integration of the alleged employee’s work into the alleged employee’s business.
With respect to the first test, the Court held that, although Mr. Neumann was given the curriculum to be taught, he had considerable latitude in how, when and where he taught it. The control aspect was indicative of an independent contractor relationship. With respect to the ownership of tools test, Mr. Neumann was provided with a car for the in-car instruction. The school provided the classroom for the in-class instruction by an arrangement with MPIC, along with all the audio/visual equipment needed. The provision of the car by MPIC is more indicative of an employer/employee relationship.
As to the chance of profit or risk of loss, there was no chance of his making extra profit by working efficiently, as he was paid by the hour for the in-vehicle and in-class instruction. However, there was no chance of coming to the end of his instruction and being in a loss position because he really had no expenses during his teaching periods. This is more indicative of an employee than an independent contractor. However, there was no restriction on Mr. Neumann as to working only for MPIC. He could have taken on other students or given additional instruction. This is normally restricted in an employer/employee relationship.
With respect to the final test, the Court considered that it was really up to Mr. Neumann in connection with the school as to whether there would be a course at any particular time. MPIC merely provided the program. If Mr. Neumann did not approach the school about putting on the program, there would be no program. MPIC merely provided the opportunity and Mr. Neumann picked up that opportunity to put on a course. As such, the Court held that this was more in line with a contract for services, not a contract of service.
Having considered all of the four tests combined, the Court found that on a balance, the arrangement between Mr. Neumann and MPIC amounted to a contract for services rather than a contract of service. Mr. Neumann had a sufficient degree of independence both with respect to what he did and whether and how he did it that it is consistent with the intention to create a contract for services. Therefore, he was not in insurable or pensionable employment with MPIC and the appeal was allowed.
For more information:
• Manitoba Public Insurance Corp. v. Minister of National Revenue, Tax Court of Canada, Docket No. 97-480 (UI), 97-29 (CPP), Oct. 26/98.
