Date: 19971216
Docket: 95-2778-UI; 95-2780-UI; 95-2777-UI; 95-2779-UI
BETWEEN:
BOIS DE CHAUFFAGE J.R.H. INC.,
HERVEY MICHAUD,
JACQUES ALBERT MICHAUD,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Tremblay, J.T.C.C.
[1] These appeals were heard on common evidence on October 14, 1997, at Chicoutimi, Quebec.
Issue
[2] The issue is whether the appellants J.A. Michaud and Hervey Michaud held insurable employment within the meaning of the Unemployment Insurance Act (“the Act”) with Bois de chauffage J.R.H. Inc., hereinafter referred to as “the payer”, from August 2 to September 10, 1993, and from December 6 to 24, 1993.
[3] According to the respondent, there was no genuine contract of employment between the workers and the payer, inter alia because there was no control over their work. The workers maintain that there was a genuine contract of employment within the meaning of the Act.
Burden of proof
[4] The appellant payer bears the burden of showing that the respondent’s assessments are unfounded. This burden of proof derives from a number of judicial decisions, including that of the Supreme Court of Canada in Johnston v. Minister of National Revenue.[1]
[5] In Johnston, the Supreme Court held that the facts assumed by the respondent to support assessments or reassessments are presumed to be true until proven otherwise. In the case at bar, the facts assumed by the respondent are set out in subparagraphs (a) to (s) of paragraph 5 of the Reply to the Notice of Appeal. Paragraph 5 reads as follows:
[TRANSLATION]
5. In making his determination, the respondent Minister of National Revenue (“the Minister”) relied, inter alia, on the following facts:
(a) The payer, which was incorporated on July 9, 1993, operates a commercial timber harvesting business. (admitted)
(b) The payer generally sells its wood to Consolidated, the Gauthier sawmill, Abitibi Price or the Chambord sawmill. (admitted)
(c) According to the payer’s minute book, the shareholders were:
- Jacques Albert Michaud, the appellant’s father;
- the appellant [Hervey Michaud];
- Régine Tremblay-Michaud, the appellant’s mother [and Jacques Albert Michaud’s spouse]. (admitted)
Each shareholder had 500 shares or 33 1/3 percent of the payer’s shares. (admitted)
(d) The payer’s minute book states the following:
- On July 28, 1993, the payer borrowed $10,000 from Régine Michaud with repayment terms and interest. (admitted)
- On July 31, 1993:
- the payer acquired a woodlot worth $30,000 from Régine Michaud; (denied)
- the payer acquired a woodlot worth $5,000 from the appellant; (denied)
- the payer borrowed $5,000 from the appellant without repayment terms or interest; (admitted with an explanation)
- the payer acquired a woodlot worth $30,000 from Jacques A. Michaud; (denied)
- the payer borrowed $30,000 from Jacques A. Michaud without repayment terms or interest; (admitted with an explanation)
- the payer leased a skidder (1974 Timberjack) from Jacques A. Michaud for $1 and assumed the cost of insurance and repairs; (admitted) and
- the payer leased a skidder (1972 Timberjack) from the appellant for $1 and assumed the cost of insurance and repairs. (admitted)
(e) The payer never paid for the land purchased from the three shareholders. (admitted)
(f) In fact, the payer did not have to pay for anything at all, and Régine Michaud is the only shareholder who “officially” invested in the payer’s business. (denied)
(g) One document states that the payer’s income is to be distributed among the shareholders not according to the percentage of shares owned by each of them, but in proportion to the income generated by each from their lots, which were as follows:
- Jacques A. Michaud: 9,878 metres
- the appellant: 2,389 metres
- Régine Michaud: 2,389 metres
(admitted)
(h) Régine Michaud is not an employee of the payer, and she stated that the board of directors (made up of the three shareholders) had not met since July 1993. (denied)
(i) Régine Michaud is not involved in the payer’s day-to-day activities, and she stated that her involvement was for the most part limited to a financial contribution. (admitted)
(j) Régine Tremblay said that she did work for the payer without pay when necessary (seeking contracts and answering the telephone). (admitted)
(k) The appellant, working with his father, did logging work for the payer using his skidder. (admitted)
(l) The appellant did more or less the same work as his father; they generally worked together on the same timber harvests. (admitted)
(m) The appellant leased his skidder to the payer for $1; he said that he would not have agreed to such an arrangement with strangers. (admitted)
(n) The appellant also made his tools, including his saws, available to the payer; he was responsible for maintenance and repairs. (admitted, that is, did mechanical work — but paid for the saw)
(o) The appellant and his father were listed on the payroll as being paid $500 a week for 40 hours of work, even though they often worked 50 to 60 hours a week. (admitted)
(p) The appellant and his father made their decisions together, and no one had control over their working hours or their duties. (denied)
(q) The appellant assumed financial risks in the payer’s business and acted as his father’s partner in operating that business. (admitted)
(r) The appellant actually owned the machinery and all the tools used in his work and did maintenance on them himself without any compensation. (admitted with clarifications)
(s) During the periods at issue, there was no genuine express or implied contract of service or apprenticeship, written or oral, between the appellant and the payer. (denied)
[6] The notices of appeal of Jacques Albert Michaud (95-2779(UI)) and the payer, Bois de chauffage J.R.H. Inc. (95-2778(UI) and 95-2780(UI)), contain basically the same allegations.
Facts in evidence
[7] Further to the above admissions, the factual evidence was completed by the testimony of the two appellants concerning the facts alleged in the Reply to the Notice of Appeal.
[8] The two witnesses confirmed the following in relation to allegation 5(d):
(a) the payer repaid Régine Michaud $10,000, plus $500 in interest, when the company was dissolved;
(b) the payer did not purchase woodlots from Régine Michaud, Hervey Michaud or J.A. Michaud. Those individuals sold only the standing timber found on the lots. Hervey Michaud received his lot as a gift from his father when he was 18 years old;
(c) the payer actually purchased two woodlots worth $25,000, including the standing timber, of course, from one Marcellin Gagné in late 1993 or early 1994. The payer paid that amount after obtaining a loan from a credit union secured by $25,000 deposited in the credit union by Régine Michaud. The payer repaid the credit union in full. The payer’s $5,000 loan from Hervey Michaud and $30,000 loan from Régine Michaud to purchase the standing timber were repaid as well.
[9] The two woodlots purchased from Mr. Gagné were purchased after the 1993-94 holidays, which meant that the trees could be felled the following winter. Felling is less expensive in the winter because the roads are made of snow.
[10] Brush cutting is always the first step in harvesting the timber. The appellants, who worked as loggers for a number of employers, said that brush cutting, at Abitibi Price inter alia, took 12 to 13 weeks.
[11] Previously, contracts had been actively sought. The father and son had a 12-week brush cutting contract with Piéca Enr., which was owned by one Jean Brochu. Mr. Brochu had obtained a contract from the government. Once the work was done, several months passed before they were paid. They said that Piéca Enr. (Jean Brochu) still owes them $2,500.
[12] The decision to establish J.R.H. Inc. was made because the government grants timber rights only to large companies, such as Consolidated Abitibi Price and Scierie Saguenay, for 10- to 15-year periods. This means that it is necessary to work as an employee to obtain subcontracts from those large companies. Hervey Michaud had worked stacking lumber for Scierie Arthur Gauthier for three and a half years, but had been obliged to quit that job because the work hurt his back. Therefore, after discussing the matter with his parents, and given the possibility of purchasing standing timber, a decision was made to form a company that would operate a timber harvesting business; this was done to build up working capital for such harvesting.
[13] The witnesses said that the board of directors did not hold any formal meetings. Meetings were informal, but they did occur: discussions were held at supper time, in the evening or at other times.
[14] During the periods at issue, the appellants worked together, initially doing brush cutting on the lots containing the standing timber that had been purchased. According to Hervey Michaud, [TRANSLATION] “the worst wood is done first”. The week began on Monday morning and ended Friday at noon. On Friday afternoon, the road was cleaned. They sometimes also worked on Saturday. The same was true when they had worked earlier for other employers. In 1994, the payer had a contract for tree removal and saw timber in the Parc des Laurentides, aspen for Scierie de Chambord and pressed wood shavings for U.P.A.
[15] Their gross weekly salary was $500. It was allegedly then raised to $600 a week for two or three weeks. When Hervey Michaud had worked for Scierie Arthur Gauthier, he had earned $500 a week gross. The payer also hired one Marc Gagnon, who worked for 12 weeks harvesting timber within sight of the road. He earned $500 a week.
[16] J. Albert Michaud, aged 55, a logger by trade who started as a logger when he was 14, testified that they had 25 weeks of work at first because of the standing timber that had been purchased.
[17] He noted that to put together the company's assets his spouse had invested $10,000, while he and his son had each invested their machinery. Leasing the “timber” (the skidder) to the company for $1 a year was a way of investing in the company, especially since the company paid for the permit and for replacement parts.
[18] J. Albert Michaud testified that the reason his spouse was able to advance the company $10,000 and then deposit $25,000 in the credit union to secure the loan was that he had once sold Cantel a portion of one of his lots that consisted of a mountain for $42,000 so that it could install a collecting telephone tower. He had then given the $42,000 to his spouse. Mr. Michaud said that he has never been on social assistance. The company was allegedly shut down in 1995.
[19] Hervey Michaud allegedly then continued his studies to finish Secondary III and later become a qualified cement worker. He has never been on social assistance either. They do not want to sponge off society. The capital investments were allegedly returned to the shareholders: $10,000 to Ms. Michaud and the machinery to the other two shareholders.
Act
[20] Paragraph 3(1)(a) of the Act is the provision at issue in this case. It reads as follows:
3(1) Insurable employment is employment that is not included in excepted employment and is
(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise . . . .
[21] The following cases were cited:
1. Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 F.C. 553, A-531-85;
2. Suzanne Eckel v. Minister of National Revenue, F.C.A., A-98-93;
3. Carmelo Scalia v. Minister of National Revenue, F.C.A., A-222-93;
4. Françoise Bellehumeur v. Minister of National Revenue, F.C.A., A-525-94;
5. Jean-Claude Rousselle v. Minister of National Revenue, F.C.A., A-1244-88.
Analysis
[22] The Court would like to begin this analysis by pointing out, as counsel for the respondent did, that the credibility of the two witnesses is not in question. According to counsel, their testimony is consistent with their declaration to the investigators from Revenue Canada and the unemployment centre. In short, the issue is whether there was an employer-employee relationship between the payer and the appellants according to the tests established by authors and the courts.
[23] In Wiebe Door Services Ltd., the Federal Court of Appeal wrote the following at page 556:
Case law has established a series of tests to determine whether a contract is one of service or for the provision of services. While not exhaustive the following are four tests most commonly referred to:
(a) The degree or absence of control, exercised by the alleged employer.
(b) Ownership of tools.
(c) Chance of profit and risks of loss.
(d) Integration of the alleged employees [sic] work into the alleged employers [sic] business.
Let us now subject the evidence to each of the above tests.
Degree or absence of control exercised by the alleged employer
[24] The appellants worked together, so it was easy for them to exercise control over each other. Moreover, the evidence shows that this type of work, for which payment was received weekly, involved more than the usual 40-hour week. As for the amount of timber cut into four-foot lengths, it was the purchaser that controlled this on delivery.
[25] It can be seen from Lee v. Lee’s Air Farming Ltd., [1960] 3 All E.R. 420, that the sole shareholder of a company can be considered an employee of the company. They are two separate legal entities. Once this fact is acknowledged, the right to give orders and the right to control cannot de denied. Obviously, paragraph 3(2)(d) of the Act means that such a worker (a sole shareholder) could not be considered an employee in Canada, because he or she would own more than 40 percent of the voting shares of the company.
[26] In the case at bar, both the workers owned 33 1/3 percent of the shares, and the payer was a separate legal entity from the workers. It therefore cannot be denied that the payer had a right to control. Moreover, in the absence of direct control, subordination may be sufficient to establish a contract of service (Castonguay, NR 1020, January 8, 1982, Décary J.A.)
Ownership of tools
[27] The appellants used their own power saws. They had also leased the payer their skidders, which they used in their work. That was their investment in the company. Leasing the machinery at $1 a year amounted to giving up a rental amount equal to their investment. Moreover, it is true that although the courts have stated that the ownership of tools test is not decisive in itself (Goulet, NR 963, August 14, 1981, Dubé J.; M.A. Maintenance, NR 943, July 31, 1981, Dubinsky J.; etc.), it should be considered as part of the overall picture. In this case, the payer paid for the yearly permit for the machinery and for the parts purchased to do repairs.
[28] The fact that the parties were members of the same family was no doubt central, for it created a context conducive to a sham, but paragraph 3(2)(c) of the Act could not be in issue for that reason alone. Moreover, the respondent did not rely on paragraph 3(2)(c) to support his determination. The appellants obtained a loan from a credit union to purchase land worth $25,000. That loan was secured by a deposit of the same amount of money by the third shareholder. The source of that money was explained in paragraph 18. Everything was repaid. In any event, the fact that a shareholder guarantees a loan to the company does not in itself affect the chance of profit and risk of loss test (Navennec, A-1037-90). Furthermore, nothing in the evidence shows that the company was ever in any financial difficulty. In my view, there was a genuine legal relationship between the appellants and the payer.
Integration of the alleged employees’ work into the alleged employer’s business
[29] Assumption 5(a) in the Reply to the Notice of Appeal, which was admitted, states that the payer operates a commercial timber harvesting business. As can be seen from the evidence, the standing timber purchased from the shareholders on their own lots, and the woodlots purchased from Mr. Gagné (including the land and, of course, the standing timber), together with the work done on those lots show that the work was integrated into the employer’s business. The harvested timber was sold to various purchasers, sawmills, etc. (subparagraph 5(b)).
[30] Once again, when considered in overall terms, there was a legal relationship between the appellants and the payer.
Conclusion
[31] The appeal is allowed.
Signed at Québec, this 16th day of December 1997.
"Guy Tremblay"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 9th day of October 1998.
Stephen Balogh, Revisor