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Docket: 2003-2236(EI) |
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BETWEEN: |
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CONSTRUCTION ST-ANSELME LTÉE, |
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Appellant, |
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and |
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THE MINISTER OF NATIONAL REVENUE, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
Appeal heard on November 24, 2003, at Québec, Quebec
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Before: The Honourable Deputy Judge S.J. Savoie |
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Appearances: |
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Agents for the Appellant: |
Valérie Belle-Isle Joanne Richard |
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Counsel for the Respondent: |
Stéphanie Côté |
____________________________________________________________________
JUDGMENT
The appeal is dismissed, and the Minister's decision is confirmed, in accordance with the attached Reasons for Judgment.
Signed at Grand-Barachois, New Brunswick, this 13th day of April 2004.
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"S.J. Savoie" |
Savoie D.J.
Certified true translation
Colette Dupuis-Beaulne
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Citation: 2004TCC257 |
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Date: 20040413 |
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Docket: 2003-2236(EI) |
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BETWEEN: |
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CONSTRUCTION ST-ANSELME LTÉE, |
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Appellant, |
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and |
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THE MINISTER OF NATIONAL REVENUE, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Savoie D.J.
[1] This appeal was heard at Québec, Quebec, on November 24, 2003.
[2] This is to determine whether Ms. Josée Bourassa, the worker, was employed by the Appellant in an insurable employment, within the meaning of the Employment Insurance Act (the "Act"), during the period at issue, namely, from January 1, 2000, to March 2, 2003.
[3] On June 12, 2003, the Minister of National Revenue (the "Minister") informed the Appellant of his decision whereby the worker's employment was insurable, because it met the requirements of a contract of service, given that an employer-employee relationship existed between the Appellant and the worker.
[4] The Minister determined that it was reasonable to conclude that, considering the remuneration paid, the duration and terms of employment, and the nature and importance of the work performed, the Appellant would have concluded a substantially similar contract of service with the worker, had an arm's-length relationship existed.
[5] In rendering his decision, the Minister relied on the following assumptions of fact which were admitted or denied by the Appellant, or concerning which the Appellant had no knowledge:
(a) The Appellant, incorporated on December 5, 1977, operated a construction business and an equipment, materials, and tool rental business until June 15, 2002. (admitted)
(b) The Appellant's shareholders were:
Gestion Joseph-Eugène Bourassa Inc.: 88 %
Joseph Bourassa: 11 %, the worker's father
Mariette Lemelin: 1 %, the worker's mother. (admitted)
(c) The sole shareholder in Gestion Joseph-Eugène Bourassa Inc. until May 1, 2002, was Joseph Bourassa. (admitted)
(d) Beginning on May 1, 2002, the shareholders of Gestion Joseph-Eugène Bourassa Inc. were: Joseph Bourassa (50%), Mariette Lemelin (17%), and Josée Bourassa (33%). (admitted)
(e) Following the death of Joseph Bourassa on June 15, 2002, the shareholders of the Appellant were: Gestion Joseph-Eugène Bourassa Inc. (99%) and Mariette Lemelin (1%). (admitted)
(f) As of December 31, 2002, Gestion Joseph-Eugène Bourassa Inc. and Construction St-Anselme Ltée merged pursuant to the provisions of the Canada Business Corporations Act. (admitted)
(g) The name of the resulting new legal entity is Construction St-Anselme Ltée. (admitted)
(h) The shareholders of this new legal entity are: Mariette Lemelin (67%) and Josée Bourassa (33%). (admitted)
(i) The worker has been rendering services for the Appellant at the rental business since 1999. (admitted)
(j) Joseph Bourassa handled the construction business, and Mariette Lemelin handled everything relating to the rental business. (Appellant had no knowledge)
(k) Following the death of Joseph Bourassa, the Appellant abandoned its construction activities to focus solely on the rental business. (admitted)
(l) During the period at issue, the worker's duties consisted of managing the rental business. (denied)
(m) The worker renders services for the Payor's rental business and usually performs administrative work from her home. (denied)
(n) The worker can establish her own work schedule on the basis of the Payor's needs. (denied)
(o) She usually works from 7:30 a.m. to 5:30 p.m., from Monday to Friday, and from 7:30 a.m. to 12:00 noon on Saturdays. (denied)
(p) In addition to Sundays, the worker generally takes one day off during the week, as does the other employee of the Appellant. (denied)
(q) In 2000, the worker was remunerated at a fixed weekly amount of $400, which is equivalent to $10 to $12 per hour. (Appellant had no knowledge)
(r) The remuneration paid to the worker was comparable to the remuneration paid to the other employees of the Appellant, which ranges from $10.50 to $16 per hour. (denied)
(s) The worker's remuneration was paid regularly through direct deposit, as was the other employees' remuneration. (admitted)
(t) The worker, like the other employees of the Appellant, is entitled to two or three weeks of vacation annually. (denied)
[6] The Appellant admitted all the assumptions of fact set out in paragraphs (a) to (i), (k), and (s). She denied the assumptions set out in paragraphs (l) to (p), (r), and (t), and was unaware of the information contained in paragraphs (j) and (q).
[7] With respect to the assumptions of fact that were denied by the Appellant, the evidence showed that the worker managed the rental business. She placed the orders with suppliers, and she managed the employees. She handled the accounts and invoices, and authorized and signed cheques. She had the authority to incur liabilities on behalf of the Appellant, and she was authorized to hire and dismiss employees. As a member of the Board of Directors, the worker held the position of Secretary. She learned her trade from her father, with whom she held a number of discussions, in a family setting and as a member of the Board of Directors, about the business's operations. Her mother, the majority shareholder, still handles some duties in the business, but she is now less involved; she is preparing to retire, and leaves the management of the business to her daughter, whom she replaces in case of sickness.
[8] It was determined that the worker established her own work schedule. She takes Sundays off, because the business is closed. She works on Saturdays, because it is often a more difficult day. She tries to take one more day off, when it is possible. She can, however, adjust her schedule according to the needs of the business and her own personal needs. Usually, she starts working at 7:30 a.m. and ends at 5:30 p.m.
[9] At the hearing, the worker stated that she preferred to take her vacation during the winter because the business is much less busy during that time. She added that when she took her vacation, she ensured that the business could still operate. Even during her vacation, she would communicate with the Appellant's employees to ensure that all was going well.
[10] The Appellant hired the worker in 1999.
[11] The management position she holds with the Appellant was previously held by an employee who committed fraud. Mariette Lemelin, the worker's mother, stated that they wanted to replace the undesirable worker with someone from the family. Ms. Lemelin stated that, had the worker not been her daughter, she would not have hired her. Ms. Lemelin stated that she was keeping the company for her daughter, who holds a management position and who does what she wants and makes her decisions; the company operates smoothly.
[12] Ms. Lemelin is the majority shareholder of the Appellant, and she has a voice in the business. She stated that she has the authority to dismiss her daughter, and if her daughter were to drain the Appellant's account, she would intervene. However, the worker is authorized to sign the bank papers and contract loans on behalf of the company.
[13] At the hearing, the worker stated that she worked 40 hours per week, and sometimes she worked 48 hours or more, based on her own decisions. She would establish her own work schedule and her wages were flexible. This contradicts the balance of the documentary evidence. She specified that the other employees punched a time clock, but that she did not.
[14] The Board of Directors does not hold formal meetings. Because the worker lives with her mother, they discuss business matters at home, the way things are done in a family business.
[15] While her father was living, the worker accompanied him on buying trips for the Appellant at the spring exhibition in St-Hyacinthe. She now attends the exhibition alone and concludes transactions and makes the purchases she deems necessary.
[16] The worker earns $480 per week, and this amount is paid to her through direct deposit, as is done for the other employees. She receives the same wages regardless of the number of hours worked. For a number of years, she kept track of her hours, but she stopped doing so, because she worked a substantial number of hours on a regular basis. She has received bonuses in the past. She recalls having received three payments of $300 in 2002. From the outset, she has always been paid the same wages that had been established on the basis of her needs; the amount was more than she earned previously, and she had more freedom.
[17] The worker claimed that, with her signing authority at the bank, she could conclude the transactions she considered important without consulting with her mother. However, this situation did not arise. This statement seems to contradict her mother's statement whereby she has a voice as the majority shareholder with the authority to intervene, if necessary, in the decisions made by her daughter.
[18] At the end of his investigation, the Minister concluded that the worker's employment was insurable, because it met the requirements of a contract of service, given that an employer-employee relationship existed between the worker and the Appellant. The Minister concluded that this employment was not excluded, even though the parties had a non-arm's length relationship in accordance with the Income Tax Act, further to exercising his discretion under paragraph 5(3)(b) of the Employment Insurance Act.
[19] In Roxboro Excavation Inc. v. Canada (Minister of National Revenue - M.N.R.), [1999] T.C.J. No. 32, Tardif J. of this Court analyzed facts that are largely similar to the ones in this case and concluded that the employments of the co-shareholders and the workers were insurable, despite the non-arm's length relationship that existed between them and the employer. This decision by Tardif J. was confirmed by the Federal Court of Appeal ([2000] F.C.J. No. 799).
[20] In Roxboro, supra, Tardif J. stated the following:
The evidence showed that Roxboro had two main lines of business: industrial and commercial excavation and snow removal during the winter.
[...]
In exercising their respective responsibilities, the Théorêt brothers had a fair degree of independence and managed their own areas of activity quite freely. They did not have to ask for permission when deciding when to take vacations; they could be absent without having to give anyone an explanation. They each received more or less the same salary, part of which was paid through consecutive weekly cheques for the same amount; the other part of their remuneration was paid in the form of a bonus whose amount varied based on the financial performance of Roxboro and/or the other companies.
[...]
The key issue in this case is basically whether there was in 1996 a relationship of subordination between the company paying the remuneration and the interveners. In other words, did the company have the power to control and influence the work done by the Théorêt brothers?
In this regard, I consider it important to point out that the courts have often said that it is not mandatory or necessary that the power to control actually be exercised; in other words, the fact that an employer does not exercise its right to control does not mean that it loses that power, which is absolutely essential to the existence of a contract of service.
The power to control or the right to influence the performance of work is the main component of the relationship of subordination that lies behind a genuine contract of service.
Assessing whether or not a relationship of subordination exists is difficult when the individuals who hold authority by virtue of their status as shareholders and/or directors are the same individuals who are subject to a power to control or to the exercise of authority in respect of specific work. Put differently, it is difficult to draw a clear line when a person is an employee and in part an employer all at the same time.
In such cases, it is essential to draw a very clear distinction between what is done as a shareholder and/or director and what is done as a worker or non-management employee. In the case at bar, that distinction is especially important
[...]
I do not think that it is objectively reasonable to require a total, absolute separation between the responsibilities that result from shareholder status and those that result from worker status. The wearing of both hats normally-and this is perfectly legitimate-creates greater tolerance and flexibility in the relations arising out of the two roles. However, combining the two roles produces effects that are often contrary to the requirements of a genuine contract of service.
[...]
[...] Rather, their status as shareholders explains certain differences, which are moreover not so significant as to vitiate those elements that are fundamental and essential to the existence of a genuine contract of service.
Furthermore, it is fairly common to see co-shareholders who, because of their status, discipline themselves in the interest of the company in which they are shareholders.
[21] In rendering his decision, the Minister relied on subsection 5(3) and paragraph 5(1)(a) of the Act. In Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553, the Federal Court of Appeal listed four tests to be used in determining whether a contract of service exists: (a) the degree or absence of control exercised by the employer; (b) ownership of tools; (c) chance of profit and risk of loss; and (d) degree of integration.
Degree or absence of control exercised by the employer
[22] In the case at bar, Mariette Lemelin is the majority shareholder and holds 67% of the shares in the business. In fact, she has not waived her right or authority to control. She did not waive the rights associated with her shares.
[23] The evidence has shown that Mariette Lemelin remained the majority shareholder, with 67% of the shares, during the period at issue.
[24] It was determined that the meetings of the Board of Directors were held informally, at home, at the residence of Ms. Lemelin, between mother and daughter, where the important decisions were made by the two shareholders.
[25] Ms. Lemelin reiterated that she had the authority to dismiss her daughter and that she would intervene if her daughter, the worker, were to drain the company's bank accounts. Control was nonetheless exercised through regular analysis of the financial results.
[26] In Groupe Desmarais Pinsonneault & Avard Inc. v.Canada (Minister of National Revenue - M.N.R.), [2002] F.C.J. No. 572, Noël J. of the Federal Court of Appeal said the following:
In concluding that there was no relationship of subordination between the workers and the defendant, the trial judge does not appear to have taken into account the well-settled rule that a company has a separate legal personality from that of its shareholders and that consequently the workers were subject to the defendant's power of supervision.
The question the trial judge should have asked was whether the company had the power to control the way the workers did their work, not whether the company actually exercised such control. The fact that the company did not exercise the control or that the workers did not feel subject to it in doing their work did not have the effect of removing, reducing or limiting the power the company had to intervene through its board of directors.
We would add that the trial judge could not conclude there was no relationship of subordination between the defendant and the workers simply because they performed their daily duties independently and without supervision. The control exercised by a company over its senior employees is obviously less than that exercised over its subordinate employees.
If the trial judge had recognized that the defendant had a separate legal personality, as he should have done, and analyzed the evidence in light of the applicable rules [...], he would have had no choice but to conclude that a contract of service existed between the defendant and the workers.
Ownership of tools
[27] The only evidence provided with respect to ownership of tools is the Minister's, filed by the Appeals Officer, who concluded that the all the tools were owned by the Appellant.
Chance of profit or risk of loss
[28] As a shareholder, the worker's chance of profit or risk of loss was limited to her interest in the company, namely, 33% of the shares.
[29] As an employee, the worker assumed no risk of loss and had no chance of profit. She had not invested any money in the company or provided any personal sureties for the Appellant's business. She received fixed weekly wages, which were paid to her regularly through direct deposit.
Degree of integration
[30] The work performed by the worker was extremely important to the Appellant's business and directly related to its activities. The evidence showed that the worker was bound to the Appellant through a contract of service.
[31] Because a non-arm's length relationship existed between the worker and the Appellant, it must be determined whether it is reasonable to conclude that a substantially similar contract would have been concluded between them, had this relationship not existed.
[32] The worker worked and performed her duties on a full-time basis, and the success of the company was a personal concern to her, given that she was potentially the sole heiress of the company.
[33] The worker could organize her work schedule according to the needs of the business and her own personal responsibilities. She worked 40 hours, and sometimes 48 hours or more, per week. She was not subject to the same terms and conditions of employment as the other employees. Her schedule was flexible owing to her management position and her status in the business.
[34] The worker received fixed wages that were reasonable in the circumstances. At times, while her father was living, she received an annual bonus. She took vacation days at will, but she kept in contact with the business to ensure that it was operating smoothly. This term and condition of employment was specific to her status within the business.
[35] It is the opinion of this Court that the Minister correctly concluded that the Appellant would have hired another worker on the same conditions, even if a non-arm's length relationship did not exist between them.
[36] It is also the opinion of this Court that the facts inferred or relied on by the Minister are real and were correctly assessed, having regard to the context in which they occurred.
[37] Consequently, this Court must determine that the conclusion with which the Minister was satisfied still seems reasonable.
[38] Thus, during the period at issue, the worker was employed in an insurable employment within the meaning of the Act, because during this period, she and the Appellant were bound through a contract of service pursuant to paragraph 5(1)(a) of the Act. Although a non-arm's length relationship existed between the Appellant and the worker, they would have concluded a substantially similar contract of service between them had this relationship not existed.
[39] The appeal is dismissed, and the Minister's decision is confirmed.
Signed at Grand-Barachois, New Brunswick this 13th day of April 2004.
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"S.J. Savoie" |
Savoie D.J.
Certified true translation
Colette Dupuis-Beaulne
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CITATION: |
2004TCC257 |
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COURT FILE No.: |
2003-2236(EI) |
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STYLE OF CAUSE: |
Construction St-Anselme Ltée and M.N.R. |
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PLACE OF HEARING: |
Québec, Quebec |
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DATE OF HEARING: |
November 24, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Deputy Judge S.J. Savoie |
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DATE OF JUDGMENT: |
April 13, 2004 |
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APPEARANCES: |
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Agents for the Appellant: |
Valérie Belle-Isle Joanne Richard |
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For the Respondent: |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |