Date: 20020523
Docket: A-33-01
Neutral Citation: 2002 FCA 214
CORAM: LÉTOURNEAU J.A.
NADONJ.A.
PELLETIERJ.A.
BETWEEN:
ATTORNEY GENERAL OF CANADA
Applicant
and
ACIER INOXYDABLE FAFARD INC.
Respondent
Hearing held at Montréal, Quebec, on May 21, 2002.
Judgment delivered at Montréal, Quebec, on May 23, 2002.
REASONS FOR JUDGMENT: LÉTOURNEAU J.A.
CONCURRED IN BY: NADON J.A.
PELLETIER J.A.
Date: 20020523
Docket: A-33-01
Neutral Citation: 2002 FCA 214
CORAM: LÉTOURNEAU J.A.
NADONJ.A.
PELLETIERJ.A.
BETWEEN:
ATTORNEY GENERAL OF CANADA
Applicant
and
ACIER INOXYDABLE FAFARD INC.
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
[1] Was the employment of France Letendre Fafard with Acier Inoxydable Fafard Inc., the respondent, from January 1, 1997, to December 31, 1997, insurable employment within the meaning of paragraph 5(1)(a) of the Employment Insurance Act, S.C. 1996, c. 23? The deputy judge of the Tax Court of Canada answered in the negative, thereby overturning the determination made by the Minister of National Revenue that the employment of Ms. Letendre Fafard met the requirements of a contract of service. Both the applicant and the respondent took issue, in their own way and for differing reasons, with the decision rendered.
[2] The essence of the decision of the Tax Court of Canada is found in the following two excerpts:
[TRANSLATION] We have in this case a family business and ... the essentiel issue is whether the appellant discharged its burden of proving that there was no relationship of subordination between the employee and the appellant during the period in dispute.
Having regard to all of the facts in this case, including the testimony of the witnesses who testified openly and honestly-testimony that I accept in its entirety-and the admissions, I am satisfied that the appellant was successful in establishing by a preponderance of evidence that the worker did not hold insurable employment with the payer, who is also the appellant, during the period in dispute.
[3] The applicant contended that that decision was erroneous in law since the judge, for one thing, misconstrued the concept of control by finding that there was no relationship of subordination between Ms. Fafard and the respondent, and for another, failed to recognize that the respondent had a separate legal personality. The applicant relied on the decision of this Court in Attorney General of Canada v. Groupe Desmarais Pinsonneault and Avard Inc. by Mr. Justice Noël dated April 18 of last year, docket A-38-01.
[4] The relevant excerpts, found at paragraphs 4 to 7 of the decision on which her argument was based, are reproduced:
In concluding that there was no relationship of subordination between the workers and the defendant, the trial judge does not appear to have taken into account the well-settled rule that a company has a separate legal personality from that of its shareholders and that consequently the workers were subject to the defendant's power of supervision.
The question the trial judge should have asked was whether the company had the power to control the way the workers did their work, not whether the company actually exercised such control. The fact that the company did not exercise the control or that the workers did not feel subject to it in doing their work did not have the effect of removing, reducing or limiting the power the company had to intervene through its board of directors.
We would add that the trial judge could not conclude there was no relationship of subordination between the defendant and the workers simply because they performed their daily duties independently and without supervision. The control exercised by a company over its senior employees is obviously less than that exercised over its subordinate employees.
If the trial judge had recognized that the defendant had a separate legal personality, as he should have done, and analyzed the evidence in light of the applicable rules (Wiebe Door Services v. M.R.N., [1986] 3 C.S. 553), he would have had no choice but to conclude that a contract of service existed between the defendant and the workers.
[5] With respect, I am satisfied that the applicant's argument is sound. There was enough evidence in the record that Ms. Letendre Fafard was performing office work (working as a receptionist, producing reports and handling correspondence, bookkeeping, and payroll) for the respondent for which, as the majority shareholder François Fafard himself admitted, [TRANSLATION] "the company paid Ms. Fafard a salary": Applicant's Record, pp. 49, 53
and 54.
[6] I believe that the trial judge was also confused about the dual role that Ms. Letendre Fafard played within the company-as an employee to perform certain duties and as a director-shareholder to perform others: Doyle and Attorney General of Canada, A-499-89, March 21, 1990 (F.C.A.); Roxboro Excavation Inc. v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.A. No. 799 (F.C.A.). Had it not been for that confusion, the judge would have recognized that Ms. Letendre Fafard, although a shareholder and director of the respondent, "exercised, under the supervision of the payer, duties that were such that there was in reality a relationship of subordination": Roxboro Excavation Inc., supra.
[7] Counsel for the respondent criticized the judge of the Tax Court of Canada for leading him, against his will, to the issue of a relationship of subordination, which was prejudicial for his client, when that was not at all the argument that he intended to make. Rather, the respondent was citing the restriction in paragraph 5(2)(b), which excludes from insurable employment the employment of a person who controls more than 40% of the voting shares of the company for which that person works:
|
(2) Insurable employment does not include (a) ... (b) the employment of a person by a corporation if the person controls more than 40% of the voting shares of the corporation; |
(2) N'est pas un emploi assurable :
a) [...] b) l'emploi d'une personne au service d'une personne morale si cette personne contrôle plus de quarante pour cent des actions avec droit de vote de cette personne morale; |
[8] And, for all intents and purposes, the judge refused to hear his arguments regarding paragraph 5(2)(b): see the Applicant's Record, transcript, pp. 131 and 132. In fact, in his decision, the judge did not rule on the application of paragraph 5(2)(b) in this case. The issue was therefore raised for the first time before this Court.
[9] Counsel for the respondent essentially argued that, after the respondent company was restructured in order to "crystallize" its assets and to protect the initial investment for tax purposes, Ms. Letendre Fafard, who is the spouse of Mr. Fafard, was issued shares and given de facto control of the company, and this in fact resulted in her holding, within the company, more than 40% of the company's voting shares. With respect, I believe that the respondent confused the administrative control of the company with the control of its voting shares.
[10] In Sexton v. M.N.R., [1991] F.C.J. No. 417 (F.C.A.), Mr. Justice Hugessen noted at
page 2 that one must be careful not to make an error of that kind in interpreting and applying paragraph 5(2)(b):
The appellants are the ones who continued to be the mainstays and who, de facto, controlled the new company (Record, p. 150). In my view, the judge made an error of law in considering only the administrative or operational control of the company. What the regulatory provision speaks of is 40 per cent control of the voting shares of the company, which is not at all necessarily the same thing.
A person who has administrative or operational control of a company does not necessarily control its shares; in fact, it often happens in the modern business world that those responsible for managing a company have few of its shares or none at all.
In the case at bar the Tax Court of Canada judge concluded that the applicants, who each held 17 per cent of the company's voting shares, actually controlled it. While this conclusion may be correct it in no way determines the control of voting rights to the 33 per cent of the shares held by each of the applicants' children. As the judge himself said, Michel and Charlène Sexton "were owners and held the de jure power to control the new company", and there is no basis in the evidence for concluding that they ever gave up their voting rights to the shares owned by them or in any way interfered with the free exercise of that right.
[11] In this case, Mr. Fafard repeatedly claimed throughout his testimony that he and his spouse had, in his words, [TRANSLATION] "always worked together and made the decisions together, on a 50-50 basis": Applicant's Record, pp. 32 and 33.
[12] The testimony of Mr. and Ms. Fafard clearly shows that the equality or parity that they spoke of was an equality in managing the company's operations-in short, that they had in fact adopted and implemented a principle of joint management of the company: Applicant's Record, Testimony of Mr. Fafard, pp. 34, 35 and 38:
[TRANSLATION]
Q. So, after the restructuring, after the freeze, what were you facing in terms of the management and operation of the company? In your view, who were the shareholders and who was managing the company?
A. The two of us were managing it. If you will, it was more official, but ... It was to formalize the management and work-sharing, but our duties never changed. I had my duties, France had hers, and the two of us always made the decisions together. If not, things don't work out.
Q. Okay. Apart from the bookkeeping, correspondence, payroll, production of reports and supervision of employees, what does Ms. Fafard do?
A. It's all the decisions that we make together, the administrative decisions, the company decisions on whether something could be an investment.
[13] Nevertheless, an indisputable fact remains: Mr. Fafard held 99% of the company's voting shares while his wife controlled only 1%, and by no means did Mr. Fafard give up his voting right in the shares for the benefit of his wife. As a result, the requirements for applying paragraph 5(2)(b) were never satisfied. Ms. Letendre Fafard therefore held insurable employment within the respondent's business during the period in dispute.
[14] For these reasons, I would allow the application for judicial review with costs, I would set aside the decision of the deputy judge, and I would refer the matter back to the Chief Judge of the Tax Court of Canada or to a judge designated by him for redetermination on the basis that the respondent's appeal must be dismissed.
"Gilles Létourneau"
J.A.
"I concur,
M. Nadon J.A."
"I concur
J.D.Denis Pelletier J.A."
Certified true translation
S. Debbané, LLB
FEDERAL COURT OF APPEAL
SOLICITORS OF RECORD
DOCKET: A-33-01
STYLE OF CAUSE:ATTORNEY GENERAL OF CANADA
Applicant
- and -
ACIER INOXYDABLE FAFARD INC.
Respondent
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: May 21, 2002
REASONS FOR JUDGMENT: Létourneau J.A.
CONCURRED IN BY: Nadon J.A.
Pelletier J.A.
DATE OF REASONS: May 23, 2002
APPEARANCES:
Marie-Andrée Legault/
Annick Provencher FOR THE APPLICANT
Serge Fournier FOR THE RESPONDENT
SOLICITORS OF RECORD:
Morris Rosenberg
Deputy Attorney General of Canada
Montréal, Quebec FOR THE APPLICANT
Brouillette Charpentier Fortin
Montréal, Quebec FOR THE RESPONDENT