Date: 20001024
Docket: 1999-3662-EI
BETWEEN:
SONIA DUCHESNE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Dussault, J.T.C.C.
[1] This is an appeal from a decision by the Minister of National Revenue ("the Minister") that the appellant did not hold insurable employment with the payer, Omer Bouchard et Fils (Le Spécialiste des Petits Moteurs) Inc. ("the company" or "the payer"), from September 19 to December 18, 1997, and from June 10 to October 9, 1998.
[2] The Minister's decision is based on the application of paragraph 5(2)(i) and subsection 5(3) of the Employment Insurance Act ("the Act"). In paragraph 8 of the Reply to the Notice of Appeal, the Minister submits that the appellant and the payer were not dealing with each other at arm's length and concludes that the terms and conditions of employment would not have been similar if they had been dealing with each other at arm's length.
[3] In making his decision, the Minister relied on the assumptions of fact set out in subparagraphs (a) to (o) of paragraph 5 of the Reply to the Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) The payer was incorporated on December 21, 1995.
(b) Martin Bouchard was the payer's sole shareholder.
(c) The appellant is Martin Bouchard's de facto spouse.
(d) The payer operated a business selling parts for and repairing small engines for such things as lawn mowers, snowblowers, garden tractors and boats.
(e) The business was located behind the couple's home.
(f) The appellant's work involved serving customers and keeping the payer's books.
(g) The business's hours were:
8:00 a.m. to 5:30 p.m. Monday to Friday; and
8:00 a.m. to noon on Saturday.
(h) The appellant provided services to the payer without pay from April to June 1996.
(i) The business's quarterly sales in 1997 were:
January to March 1997 $35,563.32
April to June 1997 $51,698.04
July to September 1997 $32,219.81
October to December 1997 $25,999.86
(j) In 1997, the appellant provided services to the payer from September 19 to December 18, the least busy time of the year.
(k) The business's quarterly sales in 1998 were:
January to March 1998 $32,918.79
April to June 1998 $34,110.78
July to September 1998 $29,159.91
October to December 1998 $6,807.71
(l) In 1998, the appellant provided services to the payer from June 10 to October 9, that is, during part of the least busy time of the year.
(m) The payer paid the appellant $297.50 a week, by cheque.
(n) The entries in the payer's sales journal were made by the appellant all year round.
(o) The appellant provided services to the payer without pay outside the periods at issue.
[4] Subparagraphs (b), (j), (k) and (l) were denied. Subparagraphs (f), (h), (n) and (o) were admitted subject to clarification, and the other subparagraphs were simply admitted.
[5] I do not know why the appellant's agent denied subparagraph (b), since all the documents adduced in evidence clearly indicate that Martin Bouchard, the appellant's de facto spouse, was the payer's sole shareholder, director and officer during the periods at issue. The reason is probably that no shares of the company's capital stock were issued when it was incorporated in December 1995, the only issue of shares in the capital stock to Martin Bouchard having taken place on May 31, 1996.
[6] In actual fact, the payer's business was initially owned by Aline Lavoie Bouchard, the mother of the payer's sole shareholder, Martin Bouchard. She owned it until the end of 1996. It was her spouse, Omer Bouchard, who managed the business during that time. Martin Bouchard, who wanted to purchase the business but did not have the necessary funds, decided to use the payer, the company incorporated as Omer Bouchard et Fils (Le Spécialiste des Petits Moteurs) Inc., to lease his mother's business as of July 16, 1996.
[7] Omer Bouchard died on July 21, 1996. Around the end of that year, the payer purchased from Aline Lavoie Bouchard the business it was already operating under a lease.
[8] Omer Bouchard was apparently the one who initially hired the appellant in April 1996 to replace him as counter clerk to serve customers on the premises and over the telephone, to sell parts and to draw up invoices. Mr. Bouchard was very ill at the time. In April and May 1996, he and his son Martin apparently gave the appellant some basic training, as it were, in such things as the identification of mechanical parts, the drawing up of invoices and partial bookkeeping. The appellant was then hired and paid from June 6 to December 13, 1996.
[9] When they testified, both the appellant and Martin Bouchard said that the appellant was employed during the busiest time of the year, which was generally from June to October of each year.
[10] In actual fact, the appellant was officially employed from June to December in 1996. In 1997, she was employed from September 19 to December 18. In 1998, she worked from June 10 to October 9. She also worked another four weeks in December 1998, although those weeks are not currently at issue.
[11] In his testimony, Martin Bouchard explained that the appellant's employment did not end until December in 1996 because of his father's death in July of that year and the fact that he himself was often away settling the estate and seeing to the transfer of the business owned by his mother, which since July had been operated under a lease by the company he had himself incorporated a year earlier.
[12] In 1997, the arrival of two new competitors was what prompted him not to hire the appellant in June as he had done the previous year. He said that over the summer he himself handled the sale of parts and did the bookkeeping in addition to doing mechanical work. He said that, although he did not have fewer customers in the summer of 1997, profits were down because of the need to adjust to the competition. Thus, according to his testimony, he himself worked a great deal more during the summer of 1997 since he was, so to speak, combining his duties as a mechanic and those of a parts clerk, although another mechanic who was there during that time was able to help him with parts sales. The appellant was nevertheless employed from September to December mainly for the purpose of telephone solicitation to offer snowblower tune-ups in preparation for winter. According to Mr. Bouchard, the winter before had been exceptional and it was a matter of contacting customers who had been invoiced during the previous years to offer them that tune-up service.
[13] In 1998, the appellant worked during the usual summer season and for four weeks in December. As I noted earlier, those four weeks are not at issue.
[14] Martin Bouchard explained that there was more business in the summer although the mechanical jobs were smaller during that period because they involved minor repairs to small engines. He said that the snowblower repair and maintenance jobs done in the winter were bigger.
[15] Both the appellant and Mr. Bouchard said that, when the appellant was not employed by the payer, all she did was make entries in what is called the [TRANSLATION] "sales book". In other words, using the invoice booklets, she transcribed the sales for the purpose of calculating taxes (GST and QST). That activity required only four or five hours a month. Aside from that, the appellant went to the business's premises only occasionally during her periods of unemployment, and she provided no services to the payer on such occasions. She merely engaged in conversation with the customers.
[16] Mr. Bouchard also testified that he had had a trainee each year who worked 30 to 40 hours a week from the end of September or the beginning of October until the end of the school year. It was unpaid, on-the-job training for young people who did not show much interest in school. According to Mr. Bouchard, the presence of a trainee who could do some repairs under his supervision and according to his instructions gave him more time to serve customers, which meant that he could do the appellant's work himself during the period he referred to as the [TRANSLATION] "least busy", which was mainly from January to May of each year.
[17] Mr. Bouchard said that, during the last few years his father ran it, the business was usually closed from the end of January until the beginning of June. He said that he therefore received unemployment insurance benefits in a number of years.
[18] For 1996, the payroll journal (Exhibit A-2) starts in June. It shows that a mechanic, Réjean Gagnon, was employed for all the rest of the year and that an apprentice mechanic, Stéphane Thibeault, was employed from June until the end of October only.
[19] In 1997, the mechanic Réjean Gagnon was employed for the entire year while a mechanic's helper, Michaël St-Pierre, worked in June, July and August only.
[20] In 1998, Réjean Gagnon worked from the end of May until the end of the year. Michaël St-Pierre was employed for only one week in November and three weeks in December.
[21] Finally, in 1999, Réjean Gagnon was employed for just five weeks in January and February while Michaël St-Pierre worked for four weeks in January and then from May until the end of December. He continued working in January and until the beginning of March 2000. He then resumed working in early May and continued until at least the date on which this case was heard.
[22] On cross-examination, Mr. Bouchard admitted that he had spoken with Dyane Fortin, an appeals officer, about the application of the Employment Insurance Act and said he had answered her questions. However, he said that he had not told her that the reason he employed the appellant until December 1996 was the time required to settle his father's estate. Nor had he referred to the assistance given by trainees during the years at issue to explain why the appellant's presence was unnecessary during certain periods.
[23] Ms. Fortin testified concerning her investigation of the appellant's work. Her CPT-110 report and all the documents she consulted were adduced in evidence (Exhibit I-1). In carrying out her investigation, she spoke on the telephone with the appellant and Martin Bouchard, who were in the presence of Lyne Poirier, the appellant's agent. She also contacted another of the payer's employees, Michaël St-Pierre.
[24] In her report, Ms. Fortin noted that, according to the information obtained from the Human Resources Branch, the appellant worked 556 hours in 1997 and 722 hours in 1998, while 420 hours were needed to be eligible for employment insurance benefits for those years.
[25] Ms. Fortin next looked at the circumstances surrounding the appellant's employment and concluded that she had performed her work under a genuine contract of service. However, since the payer and the appellant were related persons, she concluded on the basis of the criteria set out in paragraph 5(2)(i) of the Act that the terms and conditions of the appellant's employment would not have been [TRANSLATION] "the same" if the parties had been dealing with each other at arm's length.
[26] Although Ms. Fortin felt that the appellant's wages of $7.00 an hour were reasonable given the work she did and that the other terms and conditions, including her work schedule, seemed normal and similar to those of the other employees, she noted certain incongruous factors that led her to decide that the employment was excluded from insurable employment.
[27] Thus, with regard to the appellant's remuneration and the duration of her employment, she noted that the appellant had spent four or five hours a month outside her work periods helping the payer out without being paid. Indeed, this has been admitted by the appellant.
[28] Moreover, since the appellant was paid in cash for the first four weeks she worked in 1998, Ms. Fortin raised the possibility that no wages had in fact been paid for those weeks of work. As well, the fact that the appellant was paid by cheque for the other weeks, that she endorsed the cheques and that they were deposited in the account of her spouse, who gave her the money she needed to cover her expenses while keeping the rest for the family's needs, was viewed very negatively. On page 6 of her report, Ms. Fortin noted the following in this regard:
[TRANSLATION]
Her wages were cashed and shared with the payer's shareholder, which enabled him to pay himself less and which directly benefited the payer.
[29] The appellant is Mr. Bouchard's de facto spouse and has two children. In his testimony, Mr. Bouchard explained that the appellant paid her share of the family's expenses and that her endorsing the cheques and their using his bank account was just their way of doing things. The appellant said that she did not drive a car and that she did not have time to go to the bank herself to cash her cheques.
[30] Another aspect emphasized by Ms. Fortin in her report concerns the appellant's periods of employment. On that point, despite the explanations given by Mr. Bouchard regarding the business's level of activities during the years at issue, Ms. Fortin concluded that [TRANSLATION] "the periods during which the appellant was paid bear no relation to the payer's activities". In this regard, she examined the number of transactions, sales and repairs for each month in 1997 and 1998 and found that there were as many if not more transactions during certain months when the appellant was not paid.
[31] Moreover, subparagraph 5(h) of the Reply to the Notice of Appeal states that the appellant provided services to the payer without pay from April to June 1996.
[32] Ms. Fortin testified that she did not take account of that fact in making her decision because that period was not at issue. She said that she simply read an earlier report in which that period of work without pay prior to a work period was not viewed unfavourably because the appellant had no experience at that time (Exhibit I-1, Tab L).
[33] Ms. Fortin also testified that, during her investigation, Martin Bouchard had not told her that trainees were present at certain times each year or that in 1997 the appellant had been employed from September on to do telephone solicitation of customers.
[34] Moreover, it should be noted that Ms. Fortin also contacted another employee, Michaël St-Pierre, on July 7, 1999. Mr. St-Pierre apparently confirmed that the appellant worked during the busy periods and did not work at the shop during her periods of unemployment.
[35] Commenting on the nature and importance of the appellant's work, Ms. Fortin noted the following on page 6 of her report:
[TRANSLATION]
After the periods during which she was paid, the appellant was replaced by the shareholder, who performed her work and carried out her duties without this costing the payer anything more (as the shareholder still received the same salary).
She noted the following in the next paragraph:
[TRANSLATION]
Although the parties claim that the appellant provides services to the payer for only four or five hours a month outside the periods during which she is paid, this is implausible given the information (fact J) that there were as many if not more transactions outside the periods at issue and, as the shareholder mentioned, there was more work for him as a mechanic repairing lawn mowers, yet the appellant did not start working until mid-September in 1997.
The periods during which the appellant was paid bear no relation to the payer's activities.
Ms. Fortin concluded her analysis as follows:
[TRANSLATION]
Although we acknowledge that services were provided by the appellant, it is our view that what was involved was more a sharing of work and skills by spouses to ensure the profitability and efficient operation of the business.
In light of the facts gathered and based on the criteria in paragraph 5(2)(i) of the Employment Insurance Act, the same terms and conditions of employment would not have existed if the parties had been dealing with each other at arm's length. The employment is therefore excluded from insurable employment.
[36] In the opinion of the appellant's agent, the Minister hastily and wrongly concluded that the appellant's employment was excluded from insurable employment without thoroughly analysing the facts concerning the type of business being operated and the customers it served. She stated that the appellant's terms and conditions of employment were the same as those of the other employees and that the few hours of work she did every month outside the periods at issue making entries in the sales book are not an important enough factor to exclude the employment from insurable employment. In her view, the testimony heard would have led the Minister to a different decision.
[37] In the opinion of counsel for the respondent, the decision made is reasonable in the circumstances despite the new facts brought forward by the appellant and Martin Bouchard in their testimony. According to counsel, Ms. Fortin's investigation was exhaustive. Counsel for the respondent noted in particular the fact that the appellant was not paid during certain periods when the volume of activity was just as high as during her periods of paid employment.
[38] To begin with, it is important to remember the limits of an appeal to the Tax Court of Canada in cases where the Minister has exercised a discretion in the area of employment insurance. In Ferme Émile Richard et Fils Inc. v. Minister of National Revenue et al. (1995), 178 N.R. 361, the Federal Court of Appeal set out those limits with reference to the application of subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act—the equivalent provision to the current paragraph 5(3)(b) of the Employment Insurance Act—in the following terms in paragraph 4:
As this Court recently noted in Tignish Auto Parts Inc. v. Minister of National Revenue, July 25, 1994, A-555-93, F.C.A., not reported, an appeal to the Tax Court of Canada in a case involving the application of s. 3(2)(c)(ii) is not an appeal in the strict sense of the word and more closely resembles an application for judicial review. In other words, the Court does not have to consider whether the Minister's decision was correct: what it must consider is whether the Minister's decision resulted from the proper exercise of his discretionary authority. It is only where the Court concludes that the Minister made an improper use of his discretion that the discussion before it is transformed into an appeal de novo and the Court is empowered to decide whether, taking all the circumstances into account, such a contract of employment would have been concluded between the employer and employee if they had been dealing at arm's length.
[39] In Canada (Attorney General) v. Jencan Ltd., [1998] 1 F.C. 187, the Federal Court of Appeal, per Isaac C.J. as he then was, restated these principles in the following terms in paragraphs 36-37:
Thus, by limiting the first stage of the Tax Court's inquiry to a review of the legality of ministerial determinations under subparagraph 3(2)(c)(ii), this Court has merely applied accepted judicial principles in order to strike the proper balance between the claimant's statutory right to have a determination by the Minister reviewed and the need for judicial deference in recognition of the fact that Parliament has entrusted a discretionary authority under this provision to the Minister.
On the basis of the foregoing, the Deputy Tax Court Judge was justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii) only if it was established that the Minister exercised his discretion in a manner that was contrary to law. And, as I already said, there are specific grounds for interference implied by the requirement to exercise a discretion judicially. The Tax Court is justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii)—by proceeding to review the merits of the Minister's determination—where it is established that the Minister: (i) acted in bad faith or for an improper purpose or motive; (ii) failed to take into account all of the relevant circumstances, as expressly required by paragraph 3(2)(c)(ii); or (iii) took into account an irrelevant factor.
[40] It hardly needs to be pointed out that it is the appellant who bears the burden of proving on a balance of probabilities that the Minister's decision was made in a manner contrary to the Act.
[41] In the case at bar, although the appellant's terms and conditions of employment generally were not different from those of the other employees, two specific factors seem to have had a considerable impact on Ms. Fortin's decision to exclude the appellant's employment from insurable employment. Those factors are the sharing of the appellant's pay with her de facto spouse, Martin Bouchard, and the work done by the appellant for the payer outside the periods during which she was paid.
[42] Regarding the first factor, it is important to remember that the appellant is Mr. Bouchard's de facto spouse and that she has two children who are now 15 and 16 years old. In his testimony, Mr. Bouchard explained that the appellant paid her share of the family's expenses and that her endorsement of the cheques she received from the payer and the use of his bank account were a practical way of doing things. As well, the appellant said that she did not drive a car and did not have time to go to the bank after work to cash her cheques. I personally can see nothing negative about this practice. The important thing, it seems to me, is not how a person uses his or her pay; it is, rather, that the person is genuinely paid for his or her work. I would add that it is not abnormal either—quite the contrary—for two people who live together to share the family's financial responsibilities, each according to his or her means. This seems all the more natural in the instant case when one considers the fact that the appellant's two children are not Mr. Bouchard's. Thus, as I see it, allowing this aspect to have a negative impact on the decision concerning the insurability of the appellant's employment is to take into account an irrelevant factor.
[43] The second factor calls for a number of comments. To begin with, subparagraph 5(h) of the Reply to the Notice of Appeal states that account was taken of the fact that the appellant had provided services to the payer without pay from April to June 1996. First of all, that fact was considered for the purposes of a previous decision and was not held against the appellant because she was being trained at the time since she had no experience in the field. After that initial period, she was paid in a normal fashion. Second, although that temporary situation involved a previous year and Ms. Fortin said she did not take account of it, the fact remains that it is mentioned in the Reply to the Notice of Appeal as a basis for the decision.
[44] Moreover, Ms. Fortin's comments on the nature and importance of the appellant's work—as reproduced in paragraph [35]—are puzzling, since she states that "[a]fter the periods during which she was paid, the appellant was replaced by the shareholder, who performed her work and carried out her duties without this costing the payer anything more". In the next paragraph, she states that it is "implausible" that the appellant provided services to the payer for only four or five hours a month outside the periods during which she was paid, given the number of transactions during those periods. Either the appellant was replaced in her work and duties by Mr. Bouchard when she was not being paid or she was not so replaced and she worked during those periods. Although the two propositions are at least partly contradictory, subparagraph 5(o) of the Reply to the Notice of Appeal states that "[t]he appellant provided services to the payer without pay outside the periods at issue". That subparagraph was admitted solely as regards the four or five hours a month that the appellant spent making entries in the sales book.
[46] This brings me to the conclusion stated by Ms. Fortin in her report, which I will reproduce again for the sake of convenience:
[TRANSLATION]
Although we acknowledge that services were provided by the appellant, it is our view that what was involved was more a sharing of work and skills by spouses to ensure the profitability and efficient operation of the business.
In light of the facts gathered and based on the criteria in paragraph 5(2)(i) of the Employment Insurance Act, the same terms and conditions of employment would not have existed if the parties had been dealing with each other at arm's length. The employment is therefore excluded from insurable employment.
[47] First of all, concluding that "what was involved was more a sharing of work and skills by spouses to ensure the profitability and efficient operation of the business" highlights the contradiction noted above.
[48] Second, that observation in itself is not at all relevant for the purposes of subparagraph 5(3)(b) of the Act.
[49] Third, the issue to be determined having regard to all the circumstances of the employment is not whether the terms and conditions would have been "the same" but rather whether it is reasonable to conclude that the parties would have entered into "a substantially similar contract of employment" if they had been dealing with each other at arm's length. No doubt, this may be thought to be but a subtle distinction. So be it. The fact remains that the distinction exists and must be taken into account. In this regard, I am of the opinion that the analysis was not carried out using the test as stated in the Act, which, in my view, amounts to taking into account an irrelevant factor.
[50] It is my opinion that the Court is entitled to interfere in respect of the two factors identified, since the Minister's decision was made in a manner contrary to the Act.
[51] With regard to the merits of the question, the only factor that could possibly lead one to conclude that the parties would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length is the unpaid work done outside the periods at issue. However, despite Ms. Fortin's testimony and her analysis of the number of transactions by the payer during the various months of 1997 and 1998, I am far from convinced that the appellant actually worked outside the periods during which she was paid for more than the four or five hours a month she says she spent making entries in the sales book. Her testimony and that of Martin Bouchard are to that effect, and the explanations given at the hearing seem credible to me. It should be emphasized here that another employee with no relationship to the payer also confirmed to Ms. Fortin during a telephone conversation on July 7, 1999, that the appellant did not work at the shop during her periods of unemployment. Yet in her report, Ms. Fortin gave no reason for not accepting that evidence.
[52] Given the presence of trainees and the other employees, some of whom did not work for all of 1997 and 1998 either, I consider it extremely difficult to determine on the basis of the number of the payer's transactions the periods during which the appellant's services should have been required. In the circumstances, such a speculative exercise leads only to rather vague inferences.
[53] As for the four or five hours a month the appellant spent making entries in the sales book without being paid, it is my view that that factor alone is not sufficient. All the other factors, including the remuneration paid, the appellant's terms and conditions of employment and the duration, nature and importance of the work performed, must be taken into account to establish that the appellant and the payer would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. It is true that a third party would perhaps not have given those few hours to the payer without being paid. However, I consider this a very minor factor given all of the circumstances, and it is something for which allowances can be made in light of the words "substantially similar contract of employment".
[54] As a result of the foregoing, the appeal is allowed and the Minister's decision is varied on the basis that the appellant held insurable employment from September 19 to December 18, 1997, and from June 10 to October 9, 1998.
Signed at Ottawa, Canada, this 24th day of October 2000.
|
"P. R. Dussault" |
J.T.C.C.
Translation certified true
on this 30th day of November 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-3662(EI)
BETWEEN:
SONIA DUCHESNE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on August 16, 2000, at Chicoutimi, Quebec, by
the Honourable Judge P.R. Dussault
Appearances
Agent for the Appellant: Lyne Poirier
Counsel for the Respondent: Yanick Houle
JUDGMENT
The appeal is allowed in accordance with the attached reasons for judgment and the minister's decision is varied on the basis that the appellant was engaged in insurable employment from September 19 to December 18, 1997, and from June 10 to October 9, 1998.
Signed at Ottawa, Canada, this 24th day of October 2000.
|
"P.R. Dussault" |
J.T.C.C.
Translation certified true
on this 30th day of November 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]