[OFFICIAL ENGLISH TRANSLATION]
97-244(UI)
BETWEEN:
LES INDUSTRIES J. S. P. INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on June 22, 1999, at Joliette, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Agent for the Appellant: Sylvain Viau
Counsel for the Respondent: Anne Poirier
JUDGMENT
The appeal is dismissed and the Minister's decision is confirmed, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 15th day of July 1999.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 16th day of September 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 19990715
Docket: 97-244(UI)
BETWEEN:
LES INDUSTRIES J. S. P. INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] In this case, the Department of National Revenue determined that the work performed by Serge Perreault, Yoland Perreault, Pierre Perreault and Marie-Claude Perreault for Les Industries J. S. P. Inc. ("the appellant company") during the period beginning on June 26, 1995, constituted insurable employment.
[2] In reaching his decision dated November 15, 1996, the Minister of National Revenue ("the Respondent") relied on the following assumptions of fact:
(a) the payor company was incorporated on May 5, 1969;
(b) the holders of voting shares in the payor company are Jacques Perreault holding 1,000 shares, Serge Perreault holding 40 shares, Pierre Perreault holding 15 shares, Yoland Perreault holding 15 shares, and Marie-Claude Perreault holding 30 shares;
(c) Serge Perreault, Pierre Perreault and Marie-Claude Perreault are Jacques Perreault's children;
(d) Yoland Perreault is Jacques Perreault's brother;
(e) the payor company operates a business specializing in building and selling furniture;
(f) the payor company's business employs between 45 and 50 employees;
(g) Serge Perreault is the president of the payor company; his duties include being responsible for customer service and, in co-operation with the industrial designer, planning the payor company's production;
(h) Yoland Perreault is the director of the payor company's plant; his duties in this capacity include, in particular, managing the payor company's production unit and co-ordinating the various departments;
(i) Pierre Perreault is the purchasing director and the person responsible for computers; his duties include, in particular, managing the payor company's inventories and its computer system;
(j) Marie-Claude Perreault is the payor company's sales and marketing director; her duties are to develop the payor company's sales and advertising materials and to manage the office employees;
(k) Serge, Pierre and Marie-Claude Perreault were paid a gross salary of $600 per week;
(l) Yoland Perreault was paid a gross salary of $700 per week;
(m) the family members also received a year-end bonus depending on the payor company's profits;
(n) during the period at issue, there was a contract of service between the payor company and the female family member.
[3] The appellant company was represented by Sylvain Viau, its accountant.
[4] Marie-Claude Perreault testified and gave a number of examples to describe and explain her interest, enthusiasm and fervour and that of her brothers with respect to the interests of the appellant company, which operates in the difficult and highly competitive field of furniture building.
[5] Sharing major strategic responsibilities in the company controlled by Jacques Perreault, who holds 1,000 voting but non-participating shares, Marie-Claude Perreault and her brothers left nothing to chance in ensuring the company's well-being and development.
[6] Each family member was paid more than a reasonable salary and, at year end, received a bonus that varied depending on the economic performance of the company and the quality of the work performed.
[7] Major decisions were made jointly and by consensus. The family members each devoted at least 60 hours [per week] to their respective duties for the company.
[8] The balance of evidence, therefore, was that the Perreault family members dedicated themselves totally and entirely to the company's business. They invested in it most of their available time (at least 60 hours [per week]) to ensure that the company could succeed in a difficult market where competition is stiff.
[9] The family members affected by the Minister's decision held important, essential positions and were paid salaries probably lower than those the company should have paid to third parties for performing similar duties. This fact alone led the agent for the appellant company to state and conclude that their employment was excluded from insurable employment under paragraph 3(2)(c) of the Unemployment Insurance Act ("the Act").
[10] Sylvain Viau argued, rightly, that work performed by related persons should be excluded from insurable employment, not only where the persons concerned received profits and advantages greater than those that third parties might receive, but also where the persons involved received lower salaries or were disadvantaged because they were related to those who controlled the company.
[11] When a person occupies a strategic, executive position in a business, it is customary and normal for the job description to be very difficult to define. A partner or an individual taking part in the management of a business can hardly hope for a clearly defined, specific, limited job description.
[12] Contributing to and being a partner in the management, administration or development of a business, particularly a small business, means that a person's job description is strongly marked by responsibilities characteristic of those often fulfilled by actual business owners or persons holding more than 40 per cent of the voting shares in the company employing them. In other words, in assessing remuneration, at this level of responsibility, caution must be exercised when a comparison is made with the salaries of third parties; often there are advantages that offset the lower salaries.
[13] In this case, the work performed by Marie-Claude Perreault and her brothers was in many respects comparable to the work performed by business owners. That fact alone is not decisive or sufficient to exclude their work from insurable employment, particularly since the company employing them never waived its power to exercise control over their work.
[14] It is possible and common for individuals, particularly in executive positions, to dedicate themselves totally to the business of the company employing them. Motivation, the desire to develop the business, and pride in contributing to the business's prosperity are all reasons for some individuals' fervour and enthusiasm for their work. One often encounters situations in which persons invest themselves totally in the business and pay is not based essentially on the hours worked.
[15] Dedication and enthusiasm are often recognized and compensated when a business is successful. It is always very difficult to draw comparisons among the advantages and disadvantages relating to a strategic position in a business. In addition to this difficulty, there is the further interest resulting from the ownership of participating shares. The tests set out in the case law become very helpful in identifying the nature of the employment contract.
[16] In this case, the evidence has established that the appellant company never waived its power to exercise control over the work performed by the Perreault family members. Nor did these persons have any chance of profit or risk of loss. They worked with equipment provided to them by the company. Lastly, their work was fully integrated into the company's activities.
[17] Essentially, the agent for the appellant company relied on paragraph 3(2)(c) of the Act. He also referred to the Federal Court of Appeal decision in Raymonde Bérard v. Minister of National Revenue (January 16, 1997), Montréal A-487-96, in which Hugessen J.A. wrote as follows:
According to counsel, a teleological interpretation of this provision requires that only those employments of which the conditions are inordinately favourable to the employee be excepted. We disagree. Nothing in either the provision or the context suggests such an interpretation. The clear purpose of the legislation is to except contracts of employment between related persons that are not similar in nature to a normal contract between persons dealing with each other at arm's length. It is in our view clear that this abnormality can just as well take the form of conditions unfavourable to the employee as of favourable conditions. In either case, the employer-employee relationship is abnormal and can be suspected of having been influenced by factors other than economic forces in the labour market.
[18] Relying on paragraph 3(2)(c) of the Act and the decision in Bérard, the agent for the appellant company argued that the work performed by Marie-Claude Perreault and her brothers should be excluded from insurable employment since, to some extent, the terms and conditions of their work penalized them and subjected them to a number of disadvantages because they were related to the person who controlled the company.
[19] This Court, while respecting that interpretation, does not necessarily agree with it. Indeed, the Court is not authorized to draw any conclusion whatsoever from the facts shown by the evidence, since it has not been established that the assessment forming the basis for the Minister's determination was made in a manner contrary to law.
[20] The Federal Court of Appeal has heard a number of cases that dealt with the scope of the Tax Court of Canada's powers regarding insurability, determined on the basis of paragraph 3(2)(c) of the Act.
[21] The most important decisions are undoubtedly the following:
Tignish Auto Parts Inc. v. Minister of National Revenue (1994), 185 N.R. 73;
Ferme Émile Richard et Fils Inc. v. Minister of National Revenue (1994), 178 N.R. 361 (F.C.A.);
Canada (Attorney General) v. Jolyn Sport Inc. (1997), 214 N.R. 314;
Canada (Attorney General) v. Jencan Ltd. (C.A.), [1998] 1 F.C. 187; and
Bayside Drive-In Ltd. v. Her Majesty the Queen (1997), 218 N.R. 150.
[22] In this case, no evidence has been adduced that the respondent exercised his discretion improperly; no reproach has been made concerning the manner in which the Minister's discretion was exercised. In her testimony, Marie-Claude Perreault acknowledged that all the persons affected by the Minister's decision had answered a number of questions, for example, about their pay and how the work was performed.
[23] The conclusions reached following the Minister's assessment are indeed not what the company expected and, as a result, the company has appealed. It was nevertheless essential to establish on the balance of evidence that the Minister's discretion was exercised improperly or lacked thoroughness. Since it has not been established that the Minister's discretion was exercised in a manner contrary to law, I have no choice but to dismiss the appeal.
Signed at Ottawa, Canada, this 15th day of July 1999.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 16th day of September 2003.
Sophie Debbané, Revisor