Date: 20000225
Docket: 96-814-UI, 96-815-UI
BETWEEN:
ROBERT FOREST,
FERME DES PEUPLIERS INC.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
AND
Docket: 96-816-UI, 96-817-UI
ROBERT FOREST,
AGRISEM INC.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasonsfor Judgment
Garon, C.J.T.C.C.
[1] These are four appeals against two decisions by the Minister of National Revenue, both dated April 22, 1996, finding that the employment of Robert Forest ("the individual appellant") was not insurable under paragraph 3(2)(c) of the Unemployment Insurance Act ("the Act") during the periods covered by the decisions. One of the decisions concerns the period from November 18 to December 28, 1990. The other concerns the periods from May 27 to December 27, 1991, May 25 to November 20, 1992, and May 17, 1993, to January 21, 1994.
[2] The four appeals were heard on common evidence.
[3] The assumptions made by the Minister of National Revenue with regard to the individual appellant's employment during the period from November 18 to December 28, 1990, are substantially the same in both the individual appellant's file (96-814(UI)) and the file of Ferme des Peupliers Inc. ("the appellant Ferme des Peupliers") (96-815(UI)). I will reproduce only paragraph 5 from the individual appellant's file (96-814(UI)). It reads as follows:
[TRANSLATION]
5. In making his decision, the respondent Minister of National Revenue relied, inter alia, on the following facts:
(a) the payer was incorporated in 1975;
(b) André Forest, Rita Morin and Claude Forest are the payer's shareholders;
(c) they own 98 percent, 1 percent and 1 percent, respectively, of the voting shares issued by the payer;
(d) the appellant is André Forest's brother;
(e) the payer operates a business that specializes in the growing of corn and soybeans;
(f) the appellant's work on the farm involved preparing the land for sowing, applying herbicides and doing the harvesting;
(g) when he was not working on the farm, the appellant also provided services to the hardware store run by Agrisem inc., whose sole shareholder was Rita Morin, André Forest's spouse;
(h) the appellant was paid $750 a week;
(i) the remuneration paid to the appellant was not reasonable given the nature of the work done by him;
(j) since August 1994, the appellant has been working for Agrisem inc. year-round and has been paid $350 a week;
(k) the appellant and the payer are not dealing with each other at arm's length within the meaning of the Income Tax Act;
(l) the payer would never have hired a person with whom it was dealing at arm's length on terms the same as those offered to the appellant, much less for such remuneration;
(m) from May 7 to November 17, 1990, there was a contract of service between the appellant and the payer.
[4] With the exception of subparagraphs (i) and (l), which were denied, all the subparagraphs of paragraph 5 of the Reply to the Notice of Appeal in the individual appellant's file (96-814(UI)) were admitted, in some cases with an explanation, on behalf of the individual appellant and the appellant Ferme des Peupliers.
[5] The Replies to the Notices of Appeal in the individual appellant's file 96-816(UI) and the file of Agrisem Inc. ("the appellant Agrisem") (96-817(UI)) concern the individual appellant's employment during the following three periods: May 27 to December 27, 1991, May 25 to November 20, 1992, and May 17, 1993, to January 21, 1994.
[6] The assumptions taken into account by the Minister of National Revenue in finding that the individual appellant's employment was uninsurable are substantially the same in these latter two files. Those assumptions are set out in paragraph 5 of the Reply to the Notice of Appeal in the individual appellant's file (96-816(UI)), which reads as follows:
[TRANSLATION]
. . .
(a) the payer was incorporated in February 1986;
(b) Rita Morin is the payer's sole shareholder;
(c) the appellant is Rita Morin's brother-in-law;
(d) the payer operates a hardware store and also sells seed and construction materials;
(e) the payer carries on its activities year-round;
(f) the appellant's work mainly involved making deliveries to customers, which took up about half of his time, and receiving goods;
(g) the appellant also provided certain services to the farm operated by Ferme des peupliers inc., 98 percent of the shares of which were owned by André Forest, who is Rita Morin's spouse and the appellant's brother;
(h) the appellant was paid $750 a week during the first two periods at issue and $500 during the third;
(i) the remuneration paid to the appellant was not reasonable given the nature of the work done by him;
(j) the payer claims that, during a good part of each of the periods at issue, the appellant worked only every other week even though he was the only person who had the licence required to drive the payer's delivery truck;
(k) since August 1994, the appellant has been working year-round for the payer and has been paid $350 a week;
(l) the payer claims that the appellant worked 22 weeks during the first period at issue, 14 weeks during the second and 20 weeks during the third;
(m) the weeks allegedly worked by the appellant do not correspond to the payer's busy periods;
(n) the appellant and the payer are not dealing with each other at arm's length within the meaning of the Income Tax Act;
(o) the payer would never have hired a person with whom it was dealing at arm's length on terms the same as those offered to the appellant, much less for such periods of time and such remuneration.
[7] Subparagraphs (a) through (e), (h), (k), (l) and (n) of paragraph 5 of the Reply to the Notice of Appeal were admitted on behalf of the individual appellant and the appellant Agrisem. Subparagraphs 5(f), (g), (i), (j), (m) and (o) were denied.
[8] The individual appellant and his brother, André Forest, gave evidence during the hearing of these appeals. Rita Morin, the appellant Agrisem's sole shareholder, testified briefly at the respondent's request.
[9] André Forest testified that he has owned a farm in St-Célestin since 1974, when he purchased it from his father. In 1975, he incorporated the appellant Ferme des peupliers. That corporation ran a dairy farm until 1982, when the dairy operation was liquidated. The farm was then used to grow corn and soybeans. During the periods at issue, it was a very large farm as a result of the acquisition of certain lands. The appellant Agrisem was incorporated in 1985 and started selling small farm equipment, such as grain silos and maple "cleaners". It purchased a small hardware store in the same municipality, St-Célestin.
[10] The same witness said that he hired the individual appellant in 1990. The individual appellant had previously been a bulldozer, power shovel and drainage tube layer operator, and he drove trucks. The witness said that he was the only person who ran the appellant Ferme des Peupliers. The appellant Agrisem was in the business of selling seed and construction materials. It operated out of the premises of the appellant Ferme des Peupliers, which was thus able to obtain seed and herbicides at the wholesale price.
[11] André Forest said that the individual appellant had lost his job in 1989. He offered to hire him through the appellant Ferme des Peupliers to perform very specific work—such as levelling and draining the land—on the farm every other week, having first told him that he could not pay him at the same rate he had received from his former employer in 1989. The individual appellant did not work at the hardware store in 1990. The work on the farm, such as operating a laser drainage tube layer, required special skills. André Forest said that he himself was unable to operate such a machine.
[12] In May, June, July, August and September 1990, the individual appellant was paid every two weeks for one week of work. The witness said that the individual appellant worked every week from November 18 to December 28, 1990. In 1990, he was paid $675 a week by the appellant Ferme des Peupliers.
[13] André Forest provided the following information on the weeks worked by the individual appellant in 1991:
[TRANSLATION]
JEAN-PIERRE HINSE:
Q. So in 1991, Mr. Forest, did your brother work only every other week?
A. We redid . . . it all depended on the work that had to be done . . . in May, June, July and August, he worked every other week.
Q. Yes.
A. In September too.
Q. Yes.
A. And in October, November and December, he worked regularly, every week.
(Transcript, page 33, lines 24-25, and page 34,
lines 1-10.)
[14] With regard to 1992, André Forest noted that the individual appellant did not work in May, June, July, August and December but stated that his services were used for one week in September and all of October and November. Incidentally, according to that witness, the period during which the individual appellant worked for the corporate appellants in 1992 does not correspond to his 1992 period of employment at issue in this case.
[15] André Forest was adamant that he was the one who decided which weeks the individual appellant was to work after taking into account his own cash situation and that of the corporate appellants.
[16] André Forest explained that, in early 1993, he and the individual appellant met to discuss the work to be done for the corporate appellants. He told the individual appellant that his wages had to be reduced because of the serious financial problems the two corporations in question were having. He also said that there was less work to be done on the farm and that the appellant Agrisem's activities had decreased to some extent. The discussions led to the individual appellant's wages being reduced and his work weeks being spread out.
[17] In 1991 and 1992, the individual appellant was paid $750 a week. His wages were reduced to $500 a week for the weeks he worked in 1993. The individual appellant worked more at the hardware store. In the spring of 1994, he was paid $920 for one week and $500 for the other two weeks. During those three weeks, when André Forest was out of the country, he had full responsibility for the business run by André Forest. Starting in August 1994, the individual appellant was employed at $350 a week. He provided services on the farm and at the hardware store in 1994. André Forest testified that he himself did not receive a salary in 1994. He added that he hired the individual appellant because he had work to be done.
[18] Mr. Forest also said that Mr. Vignault, a person unrelated to him, performed work on the farm and was paid $800 a week, or $20 an hour; Mr. Vignault worked six weeks in 1991.
[19] For 1994, the individual appellant was hired in the fall at $350 a week and stopped working for the two corporate appellants in January 1995 because, according to André Forest, he [TRANSLATION] "couldn't manage on those wages" given his family responsibilities. The payer was unable to pay him enough. The witness thereafter looked after the hardware store himself and had the work that his brother had performed done by strangers at a flat rate. He said that the work done at a flat rate cost him [TRANSLATION] "much more" at that time than during the period when work was done with the machines owned by one of the corporate appellants and when the payer was using the individual appellant's services. He referred, inter alia, to a price of $165 an hour to obtain a combine with the services of a driver.
[20] As regards the work done for the appellant Agrisem, the individual appellant delivered goods, as did André Forest and his children occasionally. The payer also hired other people from time to time. The work at the hardware store had become more demanding.
[21] André Forest confirmed that the individual appellant did in fact work during the weeks in question. He was hired to do work that had to be done. André Forest gave explanations regarding the services provided by the individual appellant during the periods at issue to an employee of the department involved in administering the Unemployment Insurance Act, who, according to the witness, refused to understand.
[22] According to the individual appellant's pay stubs for 1987, when he was employed by Les Pavages de Nicolet Inc., which were filed, his gross employment income exceeded $700 a number of times and could even be as high as $1,000 a week. However, André Forest said that he did not know the number of hours per week that the individual appellant might have worked for that former employer. He said that in 1990 the individual appellant worked 11 or 12 hours a day, six or sometimes seven days a week. He worked slightly fewer hours in 1991 and 1992, about 55 or 60 hours a week. The witness said that it would have been difficult to find an employee—a stranger—who would have agreed to work such a high number of hours. If a stranger had agreed to do so, he would have given that person the same wages.
[23] On cross-examination, André Forest confirmed that he did not have the impression that he was paying his brother too much. On his own initiative, without his credibility having been questioned by counsel for the respondent and without being pressed by his questions, he added that a power shovel and bulldozer operator was paid $10 to $12 an hour at that time; yet during his direct examination, he had stated that a bulldozer or power shovel operator earned about $16 to $18 an hour.[1] He also confirmed that the individual appellant worked every other week in the spring. When asked [TRANSLATION] "Why every other week? Why not blocks of weeks?", he answered as follows:
[TRANSLATION]
A. It was because the work was done that way and it enabled me to see, because I always did things myself at our place.
Q. In actual fact, he was paid every other week. Did he really work every other week, or could things be shifted around?
A. I wouldn't want to tell you a lie. I'm not telling you . . . weeks being shifted around, no . . . I'm not telling you that he didn't perhaps come take a look in the morning sometimes when he wouldn't have been supposed to be working. I wouldn't go . . . I wouldn't claim . . . But I can tell you one thing: we tried as much as possible to make sure there were no irregularities with the pays.
First reason: when I hired him, my brother was thirtysomething, after all, and I was, I don't recall . . . it was, 1990, that's 20 years. I'm 52. He was 32. He had responsibilities, after all, and I had responsibilities. I didn't go eat at their house and he didn't come eat at ours just because he was my brother. You know, we each had our own things going on. And I didn't hire him out of charity. He was already earning those wages somewhere else. I don't know whether he had enough love to come work for me for $300 less a week, I can't . . . .
(Transcript, page 70, line 7, to page 71,
line 9.)
. . .
The week he didn't work, I was able to go round my fields and see, well, that there was a ditch to be straightened out, a fence to be taken down, a hedge to be removed, and I could combine my work. Otherwise, I would have had to go do that work myself in the evenings or have it done by other people.
And I estimated at the time that it cost me less to have it done by someone, especially since I had it done at my own pace. Whereas . . . the best example, one example, is when you have a ditch to be dug, a ditch 200 feet long. If you bring in a bulldozer, the guy's going to charge you for two hours of transportation, and then he's not interested in coming to work for 10 hours. He wants to come work for a week because the basic costs are still there. But if I felt like having 100 feet of ditch dug, I had 100 feet dug and then we stopped and we did something else.
. . .
. . . Whereas we were doing it ourselves . . . as soon as a little money came in, as soon as we saw that we could pay, we did a bit. And we've done it slowly, a little at a time, right up to this moment.
(Transcript, page 73, line 13, to page 74, line 7,
and page 74, lines 15-19.)
[24] André Forest said that the individual appellant was paid by the week; the weekly rate was not reduced to take account of rainy days, which were not [TRANSLATION] "made up" the following week. The same witness also explained that, near the end of a work period in any given year, the individual appellant worked uninterruptedly each week because the bulk of the work on a grain farm must be done at the end of the fall. He explained that the fall work could continue very late, sometimes until the Christmas holiday period. He said that the grain's moisture level has a significant impact on its quality and on the time it should be harvested.
[25] André Forest explained that the appellants Ferme des peupliers and Agrisem are two closely related corporations that are in effect run by the same person, namely him. The appellant Agrisem sold seed and farm equipment. When the individual appellant worked for that corporation, he mainly delivered seed and wood.
[26] André Forest was not clear about why the individual appellant's wages, which were $675 a week in 1990, were increased to $750 a week in 1991. After noting that the annual sales of the two businesses had increased to over $1 million at that time, he said that the wage increase may have been attributable to extra work.
[27] Incidentally, it was stated by counsel for the appellants—and not disputed by counsel for the respondent—that a special licence is required to drive a truck weighing more than 4,500 kilograms. The truck used for the business of each of the corporations weighed only 2,700 kilograms. André Forest explained that he was not sure whether he knew at the time that he was allowed to drive the truck in question.
[28] The appellant Agrisem had $652,619, $703,056, $612,434 and $689,112 in sales in 1991, 1992, 1993 and 1994 respectively. Its net income for 1992, 1993 and 1994 was $8,630, $1,097 and $7,668 respectively. Its fiscal year ended on February 28 of each of those years.
[29] The individual appellant testified quite briefly.
[30] He began by saying that he had worked for Drainage Richelieu as a heavy equipment operator before 1989. Immediately prior to his employment with the appellant Ferme des Peupliers, he had worked for Les Pavages de Nicolet Inc., where he was paid at two different rates: he earned $12 an hour as a truck driver and just over $21 an hour as a heavy equipment operator. He stopped working for Les Pavages de Nicolet Inc. in the fall of 1989.
[31] The individual appellant was unemployed when he started negotiating the terms of his contract with André Forest, the representative of the corporate appellants. He offered him his services for a fixed salary. He corroborated André Forest's version of the circumstances of his employment for both of the corporate appellants. In particular, he said that he worked an average of 60 to 70 hours a week in 1990 and about 60 hours a week in 1991, 1992 and 1993. He had his qualification [TRANSLATION] "cards" from the Commission de la construction du Québec as a heavy equipment operator. As the holder of a class I licence, he was authorized to drive trucks, buses, taxis and all other vehicles. He confirmed that he did not need a special licence to drive the corporate appellants' truck during the years at issue.
[32] He said that, in 1991, 1992 and 1993, he worked mainly for the appellant Ferme des Peupliers and occasionally made deliveries for the appellant Agrisem. He confirmed that he did in fact work during the weeks he noted down on the cards. He sent that information to the unemployment insurance office.
[33] He stated that in 1999 he worked for a firm in Ste-Victoire de Sorel as a heavy equipment operator and was paid $15 an hour. He filed pay stubs for the period from May 6 to August 5, 1999, showing that he was paid $15 an hour as a heavy equipment operator and that he worked 52 hours a week. He did 10 hours of overtime a week, since the normal work week was 42 hours. He thus earned $850 a week.
[34] He said that, if he had worked for a stranger, he would not have agreed to work so many hours for the same wages. He added that he would have asked to be paid more. His home was adjacent to his brother's. He worked every other week because his brother was unable to pay the wages he wanted. He admitted that, by working every other week, he received unemployment insurance benefits for the week he did not work.
[35] The testimony of Rita Morin, the individual appellant's sister-in-law, did not contribute anything significant.
Analysis
[36] In light of the facts of these appeals, I must first determine the lawfulness of the two decisions by the Minister of National Revenue at issue in these appeals. In short, did the Minister of National Revenue properly exercise the discretion conferred on him by paragraph 3(2)(c) of the Unemployment Insurance Act, that is, did he do so in a non-arbitrary manner and by taking into account all of the relevant facts?
[37] Before starting to analyse the facts of these appeals, I note that I observed the behaviour of André Forest and the individual appellant and they seemed to me to be honest people. I accept their version of the facts.
[38] A number of the allegations of fact relied on by the Minister of National Revenue in support of his decisions were not disputed, as has already been noted.
[39] The dispute related in particular to the reasonableness of the remuneration paid to the individual appellant by the two corporate appellants Ferme des Peupliers and Agrisem during the four periods at issue. In his argument, counsel for the respondent did not claim that the individual appellant was paid too much or too little. He pointed to the many fluctuations in his remuneration during the four periods at issue. On the subject of remuneration, the respondent, in paragraph 5 of the Reply to the Notice of Appeal in each of the four files, simply stated that "the remuneration paid . . . was not reasonable given the nature of the work done by [the individual appellant]". This statement is made with respect to the periods during which the individual appellant was paid $675 and $750 a week as well as to the period during which he was paid $500 a week.
[40] The individual appellant's work during the periods at issue had two components: he worked as both a heavy equipment operator and a hardware store employee. The evidence as a whole shows that, in 1990, 1991, 1992 and 1993, he worked mainly on the farm as a heavy equipment operator. This is especially true for the first periods at issue. As a heavy equipment operator, his weekly rate, taking into account the number of hours he worked, is equivalent to about $12 or $13 an hour at the most for the periods prior to 1993. As a heavy equipment operator, the individual appellant was a specialized, highly qualified worker. Immediately before the first employment period at issue, the rate he was paid by another employer was substantially higher than the $12 or $13 referred to for a certain type of work and about the same for another type. As for the component of his work involving services provided at the hardware store—a component that was less important during the periods at issue—it cannot have any significant impact on the rate of remuneration that would normally have been payable to a heavy equipment operator during the years in question.
[41] The testimony of the individual appellant and André Forest has persuaded me that the individual appellant's remuneration was reasonable during each of the periods at issue. It may even have been a little low, especially during the period when he was paid $500 a week. The corporate appellants' difficult financial situation accounted, at least in part, for that reduction. The nature of the work to be done in 1993 may have played a role. In his argument, counsel for the respondent noted that the individual appellant was paid $350 a week starting in August 1994. That rate of remuneration is also referred to in paragraph 5 of each Reply to the Notice of Appeal. In this regard, I must point out that that weekly rate of $350 applies to none of the four periods at issue but applies rather to a period after the last period at issue. Moreover, no evidence was adduced by the respondent in support of the allegations concerning the individual appellant's remuneration set out in subparagraph 5(i) of each Reply to the Notice of Appeal. The appellants have proved that the individual appellant's rate of remuneration was reasonable, as they had the burden of doing.
[42] I conclude that the Minister of National Revenue's assumption that the individual appellant's remuneration "was not reasonable given the nature of the work done by him" is unfounded and not based on a serious, objective review of all the circumstances.
[43] The allegation made in paragraph 5 of each of files 96-816(UI) and 96-817(UI) that "the [individual] appellant's work mainly involved making deliveries to customers . . . and receiving goods" is also unfounded. The individual appellant's work, especially during the work periods in 1991 and 1992, was mainly work done on the farm.
[44] The assumption relied on by the Minister of National Revenue in files 96-816(UI) and 96-817(UI) that "the weeks allegedly worked by the [individual] appellant do not correspond to the payer's busy periods" has also been refuted by the evidence. For example, in the fall of each of the years at issue in those two appeals, there was a great deal of work to be done on a grain farm and the individual appellant worked uninterruptedly for several weeks at that time of year.
[45] The allegation in subparagraph 5(j) in files 96-816(UI) and 96-817(UI), on which the Minister of National Revenue relied, is also incorrect, since it has been shown—and this is not disputed by the respondent—that a special driver's licence was not required at the relevant times to operate the vehicle used to make deliveries for one of the corporate appellants.
[46] It can be seen from the foregoing that the Minister of National Revenue incorrectly assessed certain facts whose importance cannot be questioned and thus improperly exercised the discretion conferred by paragraph 3(2)(c) of the Act. His decision is accordingly unlawful.
[47] I must therefore form my own opinion after reviewing the relevant facts. Given the evidence as a whole, it is likely that, in a situation similar to the one involved in these appeals, an employer and an employee who were strangers would have entered into contracts substantially similar to those with which we are concerned in this case. On the matter of remuneration, the terms of the contract between the individual appellant and each corporate appellant seem reasonable to me. It is true that the number of hours of work is unusual, but taking all of the circumstances into account, I am inclined to believe that a substantially similar contract could have been entered into by a payer and an employee dealing with each other at arm's length.
[48] All things considered, I conclude that the individual appellant's employment was insurable during the four periods at issue.
[49] For these reasons, the appeals are allowed.
Signed at Ottawa, Canada, this 25th day of February 2000.
"Alban Garon"
C.J.T.C.C.
Translation certified true on this 28th day of September 2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
96-814(UI)
96-815(UI)
BETWEEN :
ROBERT FOREST,
FERME DES PEUPLIERS INC.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeals heard on common evidence with the appeals of
Robert Forest (96-816(UI)) and Agrisem Inc. (96-817(UI))
on August 17, 1999, at Drummondville, Quebec, by
the Honourable Chief Judge Alban Garon
Appearances
Counsel for the Appellants: Jean-Pierre Hinse
Counsel for the Respondent: Yanick Houle
JUDGMENT
It is ordered and adjudged that the determination of the question be reversed and that the employment of the appellant Robert Forest with the appellant Ferme des Peupliers Inc. is insurable for the period from November 18 to December 28, 1990, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 25th day of February 2000.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 28th day of September 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
96-816(UI)
96-817(UI)
BETWEEN :
ROBERT FOREST,
AGRISEM INC.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeals heard on common evidence with the appeals of
Robert Forest (96-814(UI)) and Ferme des Peupliers Inc. (96-815(UI))
on August 17, 1999, at Drummondville, Quebec, by
the Honourable Chief Judge Alban Garon
Appearances
Counsel for the Appellants: Jean-Pierre Hinse
Counsel for the Respondent: Yanick Houle
JUDGMENT
It is ordered and adjudged that the determination of the question be reversed and that the employment of the appellant Robert Forest with the appellant Agrisem Inc. is insurable for the periods from May 27 to December 27, 1991, from May 25 to November 20, 1992, and from May 17, 1993, to January 21, 1994, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 25th day of February 2000.
|
"Alban Garon" |
C.J.T.C.C.
Translation certified true
on this 28th day of September 2001.
Erich Klein, Revisor
[1] Compare the following passages from the transcript at page 57, lines 13-19, page 69, lines 3-8, and page 91, lines 17-24.