[OFFICIAL ENGLISH TRANSLATION]
2001-935(EI)
BETWEEN:
NOËLLA POIRIER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
CHARLES-GUY LANGFORD
LES BATEAUX MADELEINE ENR.,
Intervenor.
Appeal heard on August 20, 2001, at Îles de la Madeleine, Quebec, by
the Honourable Judge Alain Tardif
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Simon-Nicolas Crépin
For the Intervenor: The Intervenor himself
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 26th day of October 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 21st day of February 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 20011026
Docket: 2001-935(EI)
BETWEEN:
NOËLLA POIRIER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
CHARLES -GUY LANGFORD s/n
LES BATEAUX MADELEINE ENR.,
Intervenor.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] Charles-Guy Langford appeared as intervenor in his quality of employer who issued the record of employment on which the instant appeal is based.
[2] This is an appeal from a decision dated December 15, 2000, concerning work performed by the appellant for and on behalf of the intervenor, her spouse, from June 19 to July 14, 2000.
[3] The work described on the record of employment was excluded from insurable employment because of the non-arm's length relationship between the appellant and the payer, the appellant's spouse, in accordance with the Employment Insurance Act (the "Act").
[4] The respondent relied on paragraph 5(2)(i), subsection 5(3) and subsection 93(3) of the Employment Insurance Act and on sections 251 and 252 of the Income Tax Act.
[5] The respondent also found that there had been an arrangement between the appellant and her spouse for the purpose of qualifying the appellant for employment insurance benefits.
[6] In support of the decision, the respondent relied on the following facts:
[TRANSLATION]
(a) Charles-Guy Langford had operated a boat building business for 20 years;
(b) the payer operated his boat building business on a seasonal basis from April to June;
(c) Charles-Guy Langford is the spouse of the appellant;
(d) the payer had a workshop located 75 feet from the residence of the payer and the appellant;
(e) for the year 2000, the payer's gross income totalled approximately $20,000, that is, the sale of 2 boats, one for $6,200 and the other for $5,000, blade sharpening for $5,000 and the sale of boat accessories for $1,000;
(f) in the year 2000, the payer had sold his 2 boats, that is, on May 24, 2000, and June 13, 2000, before hiring the appellant;
(g) the appellant was a part-time adult education teacher;
(h) for the period at issue, the appellant had been hired as a secretary and receptionist;
(i) the appellant's duties consisted of answering the telephone and handling the correspondence;
(j) the payer's telephone was the same as the home telephone;
(k) before the period at issue, the payer had never hired a secretary;
(l) the payer performed the duties of the appellant before and after the period at issue;
(m) the appellant received an alleged gross income of $400 per work week, or $10 an hour for 40 hours;
(n) the appellant was allegedly paid in cash;
(o) in reality, with the exception of some receipts signed by the appellant, there is no evidence that the appellant was paid a salary;
(p) on August 18, 2000, the payer issued a record of employment to the appellant for the period beginning on June 19, 2000, and ending on July 14, 2000, that indicated 160 insurable hours and total insurable earnings of $1,600;
(q) for the year 2000, the appellant had received from the Commission Scolaire des Îles [the Islands school board], two records of employment totalling 284 insurable hours;
(r) the appellant needed 420 insurable hours to qualify for employment insurance benefits;
(s) in view of the payer's low income and the nature of the operations, the appellant's employment was an employment of convenience;
(t) the payer and the appellant made an arrangement in order to qualify the appellant for employment insurance benefits.
[7] At the outset of the hearing, the appellant and her spouse-intervenor had strong recriminations over the manner in which they had been treated when their case was being studied. They argued that, on some occasions, they had been discriminated against, while on others, they had had to deal with total indifference and a lack of co-operation.
[8] After voicing their very harsh criticisms and grievances, the appellant explained that she generally worked part-time teaching adults for and on behalf of a school board.
[9] In the year 2000, she had accumulated 284 insurable hours with the Commission Scolaire des Îles, as a result of which she was issued a record of employment that did not make her eligible for employment insurance benefits.
[10] She submitted that the number of hours she was missing in order to qualify for benefits had not been a determining factor when she agreed to work for her spouse. According to her, the needs of the business alone were the reason she had been hired.
[11] She explained that her duties, during the period at issue, had consisted of answering the telephone, handling the correspondence, doing the ordering, answering customers and being responsible for the various tasks involved in paper work and bookkeeping.
[12] At the end of the period, that is, on July 14, 2000, a record of employment indicating 160 hours of work was issued, which resulted in her qualifying for employment insurance benefits.
[13] After the record of employment had been issued, she said she waited six weeks before submitting her claim for benefits. Her claim resulted in the issue of a few cheques, following which she also claimed the benefits to which she would have been entitled had she submitted her claim within the prescribed time period.
[14] Following this claim, the benefits stopped and she was sent a request for the recovery of the benefits previously paid, to which a stiff penalty of $801 was added (Exhibit A-4) and, in addition, a number of hours was added to the number required to requalify for benefits in the future. The whole had the effect of disqualifying her claim after her former employer, the Commission Scolaire des Îles, called her back for work.
[15] The evidence also revealed that the appellant and her spouse had sought information regarding the appellant's employment insurance status; this clearly emerges from the contents of the letter dated July 11, 2001, which read as follows: (Exhibit A-2)
[TRANSLATION]
. . .
Further to our telephone conversation of this afternoon, this is to inquire whether, as an employer, I must deduct employment insurance premiums for my spouse? She has worked for the last four weeks as a secretary/receptionist, on a 40-hour a week schedule in the company's office. I want to point out that she has no shares in this company.
I would appreciate receiving a reply this week since the deductions must be paid on Friday, July 14.
. . .
[16] Jean-Claude Favron, an investigations officer with the Department of Human Resources Development Canada (the "Department") moreover confirmed that the appellant and her spouse, the intervenor, had actually appeared to be in good faith and had wanted to find out the extent of their rights and duties with respect to employment insurance as a result of the duties performed by the appellant for and on behalf of her spouse.
[17] Mr. Langford said that the investigation arising from the appeal for reconsideration had been quite brief and that he estimated that the telephone interview had lasted a few minutes. To the knowledge of the appellant and her spouse, the telephone interview was the only initiative as far as they knew behind the determination that is the subject of this appeal.
[18] Although Parliament excluded from insurable employment any work performed by a person not dealing at arm's length with the employer, it also provided that the exclusion could be set aside and the work could become insurable if, after assessing and analysing all the terms and conditions and circumstances, the Minister of National Revenue (the "Minister") was satisfied that the work was performed under a contract of employment similar and comparable to the contract that would have been entered into by persons dealing with each other at arm's length.
[19] Analysis and assessment are part of the discretionary authority conferred by Parliament on the Minister.
[20] This Court cannot intervene where that discretionary authority has been properly exercised. In other words, it is essential to show, on the balance of evidence, that in exercising his discretion, the respondent acted in an arbitrary or unreasonable manner.
[21] The evidence also showed that most of the facts relied on were true; however, the conclusions stated in subparagraphs (s) and (t) are completely inappropriate and unreasonable.
[22] Did the respondent nevertheless exercise his discretion irreproachably and in a just and equitable manner? I do not think so.
[23] Subparagraphs (s) and (t) illustrate very clearly the animus towards the appellant. This severity is also clear from the contents of Exhibit A-4, which is indeed part of the appellant's file. Neither her testimony, the testimony of the intervenor or the testimony of Mr. Favron, the officer responsible for the investigation at the first level¾-the only person who conducted a field investigation¾-allow or warrant the conclusion, stated in this letter, that the appellant knowingly made a false representation, as a result of which a penalty of $801 was added to the overpayment of $1,187.
[24] The severity of the penalty is definitely unreasonable having regard to the circumstances and the evidence available at the time. In my view, this element is more than sufficient to show malice towards the appellant, or at the very least, feelings at odds with the objective handling of her case.
[25] The severity of the penalty explains beyond a shadow of a doubt the lack of cooperation experienced by the appellant and her spouse when their case was being processed. Nothing in the evidence allowed or warranted such a disproportionate reaction to facts that, in the circumstances, had nothing unusual about them.
[26] The evidence showed that the appellant did not have enough hours to be entitled to employment insurance benefits. Her spouse operated a small business and it was completely legitimate and reasonable to think that she could make up the missing hours by working for her spouse's business.
[27] The balance of the evidence shows that the appellant was not given an adequate, reasonable and proper investigation and, therefore, I claim the right to re-assess the facts.
[28] The evidence showed that the intervenor was the owner of a very small business that in the past, and only on a few occasions, had hired an employee for very brief periods. It has also been shown that the boat building took place during a very specific period of the year, namely, in the wintertime. The income from the business was minimal and, as the evidence showed, did not warrant hiring a person at a time when the boat building season was nearly finished, as the interested parties themselves admitted. At the time of the period at issue, the intervenor was and could be available to perform the duties described by the appellant, especially since he did this work when the appellant was not available.
[29] As she herself testified, the appellant did not have the knowledge to advise, guide and answer the customers whose needs and concerns were very technical. The payer-intervenor was or had to be available to perform the work described by the appellant.
[30] The evidence also established that the appellant was paid in cash. I understand that there is no duty on an employer to pay his employees by cheque. It is, however, a bad idea to pay a person in cash where the person's status may be a problem and where an astute analysis may be made as to whether a true contract of service exists, especially if the facts and circumstances have already aroused some suspicion.
[31] On the whole, I do not think that a third party in similar circumstances would have received a substantially similar contract of employment. In the light of the evidence, I believe that the appellant could indeed have performed work for and on behalf of her spouse. I do not believe, however, that the work was as intense and demanding as the description on the record of employment. The explanations concerning the terms and conditions of payment and the appropriateness of and justification for the length of the employment were not very convincing and certainly insufficient to discharge the burden of proof that fell on the appellant and her spouse.
[32] Consequently, I am of the opinion that the balance of evidence, the burden of which fell on the appellant, did not establish that there would have been a similar contract of employment were it not for the non-arm's length dealing. In other words, I believe that many factors unrelated to those that should make up a genuine contract of service were considered in making the contract of employment. A genuine contract of service essentially originates in a business' basic need to have some work performed by a qualified person in return for a salary consistent with the market for the length of time that is needed.
[33] In the case at bar, the facts are not at all unusual and occur very frequently, particularly when a person is excluded from receiving benefits because of too few insurable hours.
[34] When a relative of such a person is the owner of a business, it is not unlawful to consider working for pay to obtain the missing hours as long as it is not part of a scheme.
[35] When a business has no real need for labour, it does not hire, even if a close relative is involved. If a business has a real need, it hires someone for as long as is needed at a salary consistent with the quality and quantity of the work that is required and performed; nothing more, nothing less.
[36] Any contract of employment that does not meet these strict criteria, which are essentially economic in nature, will most likely not be considered a genuine contract of service.
[37] In the case at bar, it has not been shown on the balance of evidence that there was a contract of service, since the work performed by the appellant was not absolutely essential and fundamental in properly running the business. The business had a very limited ability to pay a salary. The facts and circumstances surrounding the performance of the work strongly support the conclusion that it was an employment of convenience, which does not mean that the appellant did not perform any work at all.
[38] It was never established on this balance of evidence, however, that the appellant and her spouse had made a concerted plan to act illegally. The contents of the letter dated July 11, 2000, totally disprove such an interpretation.
[39] Accordingly, there was no reason to penalize the appellant and, as a result, I very strongly recommend that her case be the subject of an administrative review to take into account that lack of bad faith and what appears to me to be grossly exaggerated, having regard to the facts and circumstances surrounding this case.
[40] I am aware, however, that this recommendation goes beyond the jurisdiction conferred on me, which prevents me from enforcing this decision (104(2)).
[41] The analysis of the facts supporting a finding that unrelated parties would not have entered into a similar contract of employment, although warranted and appropriate, does not automatically amount to a finding of bad faith, of concerted action and abuse that would warrant heavy penalties. In the case at bar, the facts in no way warranted the penalties assessed, although these show clearly the approach that was taken.
[42] With regard to the merits of the appeal, it must be dismissed since it has not been shown on the balance of evidence that persons not dealing with each other at arm's length would have entered into a substantially similar contract of employment.
Signed at Ottawa, Canada, this 26th day of October 2001.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 21st day of February 2003.
Sophie Debbané, Revisor