Date: 20010910
Docket: 2000-5076-EI
BETWEEN:
PHILIPPE POLLET,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Somers, D.J.T.C.C.
[1] This appeal was heard at Montréal, Quebec, on July 12, 2001.
[2] The appellant is appealing from the decision by the Minister of National Revenue ("the Minister") that his employment with the payer, 9031-3107 Québec Inc. o/a Distribution Pollpex, during the periods at issue, namely from March 4, 1996, to January 31, 1997, and from November 1, 1997, to July 31, 1999, was not insurable because it did not meet the requirements for a contract of service and because there was no employer-employee relationship between the payer and him.
[3] Paragraph 5(1)(a) of the Employment Insurance Act ("the Act") reads as follows:
Subject to subsection (2), insurable employment 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.
[4] The burden of proof is on the appellant, who must show on a balance of probabilities that the Minister's decision is wrong in fact and in law. Each case turns on its own facts.
[5] In making his decision, the Minister relied on the following facts, which were either admitted or denied:
[TRANSLATION]
(a) the payer was incorporated on February 14, 1996; (admitted)
(b) the payer carried on business under the firm name Distribution Pollpex; (admitted)
(c) the payer specialized in industrial thermal insulation sales and consulting; (admitted)
(d) according to the corporate register, the payer's alleged shareholders are: (denied)
Sébastien Pollet 62% of the voting shares
the appellant 38% of the voting shares
(e) the appellant is Sébastien Pollet's father; (admitted)
(f) Sébastien Pollet was a student when the company was incorporated; (admitted)
(g) Sébastien Pollet did not pay for his shares or invest anything in the payer; (admitted)
(h) Sébastien Pollet did not know what the appellant's periods of employment, his activities and his salary were, and he never discussed the company with his father; (denied)
(i) the payer did not have any corporate life following its incorporation; (denied)
(j) Sébastien Pollet admitted to the respondent's official that he was a nominee; (denied)
(k) the business's offices were in the appellant's home; (admitted)
(l) the appellant was the business's only employee; (admitted)
(m) the appellant was the sales manager and was responsible for consulting with customers; (admitted)
(n) the appellant made all the decisions alone; (denied)
(o) the appellant determined his own salary and decided himself when he would be hired and laid off; (denied)
(p) the appellant alone signed the business's cheques; (admitted)
(q) the appellant was in charge of the business, and no one controlled him. (denied)
[6] The payer was incorporated on February 14, 1996, as a company specializing in industrial thermal insulation sales and consulting.
[7] According to the company register, the shareholders are Sébastien Pollet and the appellant, who own 62 percent and 38 percent, respectively, of the voting shares. The appellant is Sébastien Pollet's father.
[8] When the payer was incorporated in 1996, the appellant wanted to get his two sons involved in the family business by giving them each a third of the voting shares. Only Sébastien Pollet agreed to be part of the business.
[9] The appellant's accountant suggested that 62 percent of the voting shares be allotted to Sébastien Pollet, while the appellant would own a third of those shares.
[10] Before the payer was incorporated, the appellant worked for another company. He was the sales manager and was responsible for consulting with customers.
[11] At the time the payer was incorporated, Sébastien Pollet, who was 23 years old, was a student and took little interest in the company's operations. He received 62 percent of the voting shares without investing a cent.
[12] Sébastien Pollet testified that he is still a shareholder in the company but is not active in the family business. He informed his father of his intention not to get involved in the company's operations. He was interested in being a graphic artist.
[13] Initially, he was kept informed about the company's operations, but later he lost interest. The company's minutes duly signed by the directors each year show that the appellant was appointed as its president and Sébastien Pollet as its secretary.
[14] The appellant gave his son a quick look at the financial statements, but his son was not particularly interested in them.
[15] On cross-examination, Sébastien Pollet said that he worked for the company while he was a student without being paid or receiving any dividends. He added that he did not really work; he said he did sales, but admitted that he did not have much experience. He replaced the appellant in 1996 or 1997 when the appellant was ill.
[16] Sébastien Pollet stated that he was not consulted about the purchase of the vehicle or the furniture and that he does not even know the make of the vehicle. He does not remember any of the decisions that were made. He was not involved in determining the appellant's salary. The appellant supervised himself without any involvement by his son. He is not aware of his father's working hours or the quality of his work. The appellant himself determined when he would be laid off.
[17] The appellant testified that his son was informed about the company's operations but in no great detail.
[18] The appellant said that he was the company's only employee and that he worked about 45 to 50 hours a week, although sometimes up to 70 hours. He did not record his working hours. He determined his own salary.
[19] The company's office was in the appellant's home. The company did not pay rent but did pay 40 percent of the electricity costs, taxes, etc. The vehicle was owned by the company.
[20] On cross-examination, the appellant admitted that he did not have a work schedule or any vacation and that he was not supervised. He admitted that he had provided services to the company while receiving employment insurance benefits and said that he reported this to the Employment Insurance Commission and that his benefits were changed accordingly.
[21] The financial statements show investments of $20,000 and $5,000 in the company but the appellant could not explain the source of those investments. His salary for the annual period from March 1, 1996, to February 28, 1997, was $27,853. His salary from March 1, 1997, to February 28, 1998, was $8,407.00, while his salary from March 1, 1998, to February 28, 1999, was $22,023.00. He said that his salary probably fell because there was less work.
[22] The appeals officer questioned the appellant and Sébastien Pollet. The latter apparently told her that he did not know how many shares he owned, that the appellant ran the company from A to Z and that the two shareholders did not hold any business meetings. Being unfamiliar with the term "nominee", he simply said that he was part of the company in name only.
[23] The Court has carefully read the case law submitted by both parties. In applying the tests for determining whether there is a contract of service, account must be taken of the specific circumstances establishing the contractual relationship between the parties. Each case turns on its own facts.
[24] It is true that the payer is a legal entity separate from its shareholders. The relationship of subordination criterion for determining whether a contract of employment exists must be considered.
[25] In Scalia v. Canada (Minister of National Revenue - M.N.R.), [1994] F.C.J. No. 798, Marceau J.A. of the Federal Court of Appeal stated the following:
On analysing the evidence, however, we find that the applicant had such ascendancy over the company, its activities and the decisions of its board of directors, which was composed of himself, his nephew and his sister-in-law, that there could not have been the independent relationship between himself and the company that is necessary to the creation of a true subordinate relationship.
[26] In Dalcourt v. Canada (Minister of National Revenue - M.N.R.), [1996] F.C.J. No. 882, Marceau J.A. of the Federal Court of Appeal reiterated this view, writing as follows:
... He correctly concluded that, as in Scalia, the applicant had "such influence [over the payer] that there could not exist between him and the company that relation of independence that is necessary to create a true relationship of subordination."
[27] In Bouillon v. Canada (Minister of National Revenue - M.N.R.), [1996] F.C.J. No. 742, Desjardins J.A. of the Federal Court of Appeal concluded the judgment as follows:
The perplexing situation thus described casts serious doubt on the payer's existence as an entity distinct from its main shareholders, Bruno Bouillon and Ghislain Bélanger. These two have acted as if the third "shareholder" did not exist, even to the point of excluding him from the dividend. They had complete control over the payer, which played only a role of convenience and served as a screen for their activities. I find that no agreement whatsoever existed between the applicant and the payer, let alone a contract of service. I conclude that the applicant worked for himself during the relevant periods.
[28] It is true that a shareholder may act in two capacities in a company, namely as a director and as an employee; however, what must be considered is the role played by the appellant in the case at bar.
[29] The appellant explained that he wanted to form a company to get his two sons involved in the family business. According to the appellant, his accountant advised him to divide the shares between himself and his two sons by allotting a third to each, but his elder son, an engineer by profession, did not agree to be part of the company.
[30] The accountant suggested that 62 percent of the shares be allotted to the appellant and 38 percent to his son Sébastien. The company's annual minutes show that the appellant was its president and his son its secretary.
[31] The appellant's son, Sébastien Pollet, who was a university student in 1996, did not invest any money in the company even though he owned 62 percent of its shares. He received no dividends or profits from the company during the periods at issue. He even replaced his father when he was ill in 1996 or 1997 without being paid. He said that he did not contribute much to the company's efficient operation.
[32] The evidence showed that the son lost interest in the company and had no experience with that type of business.
[33] The son stated that his father gave him a quick look at the financial statements, adding that this was not important to him. He said that his father suggested giving him 62 percent of the shares but that he did not understand [TRANSLATION] "much" about it.
[34] He does not remember any of the company's decisions and has no recollection of its profits or financial losses, since his father was the one who ran the company. He did not know his father's salary or even why that salary decreased. The son was not involved in managing the company and knew nothing of his father's working hours and vacation time or of his lay-offs.
[35] The son did not receive any profits from the company. The financial statements show investments of $20,000 and $5,000 in the company. The son did not invest anything in it and the appellant could not explain where those amounts came from.
[36] Based on what was stated by the Federal Court of Appeal in the above-mentioned cases, the appellant was the company's directing mind, there was no true relationship of subordination between the appellant and the payer and no genuine contract of service existed.
[37] The appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of September 2001.
"J. F. Somers"
D.J.T.C.C.
Translation certified true on this 20th day of June 2002.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-5076(EI)
BETWEEN:
PHILIPPE POLLET,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on July 12, 2001, at Montréal, Quebec, by
the Honourable Deputy Judge J. F. Somers
Appearances
Counsel for the Appellant: Grégoire Cadieux
Counsel for the Respondent: Vlad Zolia
JUDGMENT
The appeal is dismissed and the decision of the Minister is confirmed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 10th day of September 2001.
|
"J. F. Somers" |
D.J.T.C.C.
Translation certified true
on this 20th day of June 2002.
Erich Klein, Revisor