Lépine v. M.N.R., docket 97-1298-UI

Date: 19980814

Docket: 97-1298-UI

BETWEEN:

CÉLINE LÉPINE,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Prévost, D.J.T.C.C.

[1] This appeal was heard at Québec, Quebec, on July 15, 1998.

[2] It is an appeal from a determination by the Minister of National Revenue (“the Minister”) dated July 8, 1997, that the appellant’s employment with Service Sanitaire St-Marc Inc. (“the payer”) from May 13 to September 28, 1996, was not insurable because she and her employer were not dealing with each other at arm’s length.

[3] Paragraph 5 of the Reply to the Notice of Appeal reads as follows:

[TRANSLATION]

5. In making his determination, the respondent Minister of National Revenue relied, inter alia, on the following facts:

(a) The payer, which was incorporated on November 22, 1986, operates a garbage collection business. (A)

(b) Gérard Gosselin is the payer’s sole shareholder and was the sole owner of the business before it was incorporated. (A)

(c) The payer operates its business year-round. (A)

(d) The payer owns two trucks used for garbage collection. (A)

(e) In 1996, the payer employed three people: two truck drivers (including Gérard Gosselin) and one secretary, the appellant. (A)

(f) In 1996, the payer had two contracts with municipalities and a few contracts with merchants; the trucks were on the road four and a half days a week. (A)

(g) The appellant and Mr. Gosselin were married but got divorced in February 1992. However, they began living together again in May 1996. They have two children from their marriage. (A)

(h) The appellant performed work for the payer before the divorce. When she began living with her former spouse again, the payer allegedly hired her as a secretary. (A)

(i) The appellant worked in Mr. Gosselin’s home in a room set up for that purpose. (A)

(j) The appellant’s duties can be summed up as follows: first and foremost, she had to be available to answer the telephone; she also did some typing and went to pick up parts for the trucks. (A)

(k) The appellant claims that she worked three or four hours a day; she herself determined her alleged hours of work, which were not recorded by the payer. (D)

(l) The appellant allegedly received $150 a week during the period at issue. (A)

(m) The appellant claims that she stopped working on September 28, 1996, after accumulating 20 weeks of work. (A)

(n) The appellant needed 20 weeks of insurable employment to qualify for unemployment insurance benefits. (A)

(o) Between the date of the appellant’s divorce and the date she was hired by the payer (i.e. between February 1991 and May 1996), the payer never employed a secretary to do the work performed by the appellant. (D)

(p) The payer’s income fell substantially in 1996, and it ceased operating in December 1996. (A)

(q) In December 1996, Kenny Gosselin, the son of Mr. Gosselin and the appellant, purchased the payer’s two trucks in order to carry on the payer’s activities. (A)

(r) The appellant continued to perform work for the payer in November and December 1996 and did the same work in 1997 after the trucks were purchased by her son, and she did so without pay. (D)

(s) The appellant and the payer are not dealing with each other at arm’s length within the meaning of the Income Tax Act. (A)

(t) The payer would never have hired a person with whom it was dealing at arm’s length on terms the same as those offered the appellant. (D)

[4] Following each subparagraph in the above passage from the Reply to the Notice of Appeal, the Court has indicated in parentheses the comments made by counsel for the appellant at the start of the hearing, as follows:

(A) = admitted

(D) = denied

Appellant’s evidence

According to Gérard Gosselin

[5] At the time of the hearing, the payer was no longer in existence.

[6] During the period at issue, the appellant looked after contracts and accounting at the payer’s head office in their home, where a room had been specially set up as an office.

[7] From 1992 to 1996, another woman who was living with him did more or less the same work.

[8] The appellant worked for the payer from 10:00 a.m. to 3:00 p.m. Monday to Friday, and she did indeed work all of those hours.

[9] At supper, he talked with her to determine whether the work that was supposed to be done had in fact been done.

[10] There was just one telephone line for the office and the home.

[11] Employees of his client municipalities called the office for a number of reasons. There were, of course, more calls when there was a new contract.

[12] At some point, the payer lost the Portneuf and St-Raymond contracts. It stopped operating after the loss of those two contracts.

[13] With regard to subparagraph (r), supra, the appellant may have done some occasional work in November and December 1996 without being paid, but she did not do nearly as much work as during the period at issue.

[14] In addition to municipalities, the payer served businesses at negotiated prices, and those contracts had to be seen to.

[15] The payer did not do any advertising.

[16] Its clients knew that it was better to call the office in the afternoon.

[17] From 1992 to 1996, Gérard Gosselin’s other spouse answered the telephone and did some of the accounting work, but she did not run errands; the accountant had to do more during that time.

[18] A contract (Exhibit I-1) entered into by the payer and the appellant as secretary describes her work as follows:

[TRANSLATION]

General office work

Receptionist

Mail

Various reports to be completed

Accounting

Billing

Running errands for the business

Making bank deposits

Picking up specifications from municipalities

[19] The contract also states that the appellant had to work at least 15 hours per five-day work week.

[20] His son, when took over, did a very large part of the appellant’s work himself.

[21] After she was laid off, the appellant had much less work to do for the payer, since there were fewer and fewer contracts, and she no longer put in anywhere near her 15 hours a week. The son could handle the work more or less by himself.

[22] Gérard Gosselin seemed to remember that one contract was lost in July 1996 and the other at the end of August 1996, but he then changed his mind and said that both contracts were actually lost in December 1996.

[23] The payer’s financial statements (Exhibit I-2) for the fiscal year ending on January 31, 1996, clearly show retained earnings of less than $24,415, whereas they had been in excess of $66,491 at the same date the previous year.

[24] The business was doing badly when the appellant was hired, but Gérard Gosselin thought that he nonetheless had to hire her to get the company afloat again.

[25] He had earlier taken funds from the payer to operate a restaurant, but it had to shut down at the end of July 1995.

According to the appellant

[26] She signed a claim for unemployment insurance benefits (Exhibit A-1) on November 7, 1996, stating therein that she was no longer working because of a lack of work.

[27] She had experience in the work to be done, since she had previously done the same work for the company for a number of years.

[28] She worked from 13 to 16 hours a week during the period at issue and was always paid by cheque.

[29] Her record of employment (Exhibit A-2) indicates that it was issued because of a lack of work.

[30] Gérard Gosselin controlled her work.

[31] Subparagraph (k), supra, is untrue in that she did indeed work the hours for which she was paid.

[32] With regard to subparagraph (o), it was the woman living with Gérard Gosselin who did her work from 1992 to 1996.

[33] After Kenny bought the business, all she did was answer the telephone.

[34] She signed on February 6, 1997 a statutory declaration (Exhibit I-3) stating the following (pages 1-2):

[TRANSLATION]

So I again started doing the work that I had always done for the company. However, when I went back, a salary of $150 a week for about 30 hours of work was set.

[35] She was not the one who wrote the declaration, and she does not remember whether it was read back to her.

[36] The declaration also states the following (page 2):

[TRANSLATION]

. . . I did not have a set work schedule; my hours were based on my availability and on need, so I was able to determine my hours of work myself.

[37] Answering the telephone took up a good deal of her time, although not the same amount every day.

[38] The respondent did not call any witnesses.

Argument

According to counsel for the appellant

[39] His client certainly did not understand the meaning of the statement in her statutory declaration that she worked about 30 hours a week, as the declaration also contains the following at page 2:

[TRANSLATION]

I worked by the week preparing cheques (the equivalent of 1.5 hours a day), going to see the accountant two or three times a week, since I know nothing about government paperwork (source deductions, GST, QST) (the equivalent of 1 hour a week), making bank deposits (the equivalent of 2 hours a week), answering the telephone (the equivalent of 6 hours a week). I also prepared bids—perhaps 15 in the course of a year, typing only, so it was occasional—and I ran a few errands, which might have represented 7 hours over a period of two or three weeks.

[40] Adding all this up produces the following result:

1.5 hours for the cheques

1 hour for visits to the accountant

2 hours to go to the bank

6 hours for telephone calls

2.8 hours (7 hours ÷ 2.5 weeks) for bids

13.3 hours

This is much closer to 15 hours than to 30 hours.

[41] Moreover, the contract (Exhibit I-1) refers to at least 15 hours a week.

[42] The appellant said that Gérard Gosselin controlled her work, which was not contradicted.

[43] After being laid off, the appellant just answered the telephone. Furthermore, the telephone line was for the family just as much as for the business.

[44] The Court should intervene, since there was a genuine contract of service: the appellant was very much integrated into the payer’s business and served as an essential link with clients.

[45] While it is true that the payer was operating at a deficit at the time, Gérard Gosselin hoped that hiring the appellant would give it a new lease on life.

According to counsel for the respondent

[46] Account must be taken of all of the evidence and the contradictions in the testimony of both witnesses.

[47] From 1986 to 1991, the appellant worked for the payer without pay.

[48] It is very odd for a business to answer the telephone only in the afternoon.

[49] The son has run his own errands since taking over.

[50] Gérard Gosselin hired the appellant at a time when the payer’s business was on the decline.

[51] He was mistaken at first about when the two contracts in question were lost, subsequently changing his mind in that regard.

[52] From 1992 to 1996, Gérard Gosselin’s other spouse did only a little work for the payer.

[53] The contract (Exhibit I-1) indicates that the appellant was being hired as of May 30, 1996, but she states in her claim for unemployment insurance benefits that she started working on May 13, 1996.

[54] Her credibility is thus called into question.

[55] The Minister considered all of the facts in making his determination.

[56] Aside from the non-arm’s length relationship, there was nothing to justify hiring the appellant.

[57] The appellant’s wages were not justified, since she worked without pay both before and after the period at issue; there was little or no control exercised over her work.

Analysis

[58] While it is true that the appellant was not paid prior to her divorce, that is ancient history and should not be taken into account, as the situation changed considerably after the couple began living together again.

[59] It was normal that the appellant should work in an office set up for that purpose in the family home.

[60] The contract clearly described the appellant’s duties, which were necessary since Gérard Gosselin could not do everything alone and was also trying to revive his business.

[61] The Court is satisfied that the control exercised was normal in the circumstances; the appellant worked at home and could thus go into another room if necessary without disrupting her work.

[62] The appellant says that she was paid, and there is no evidence to the contrary.

[63] It is no doubt a coincidence that she worked only the number of weeks she needed to qualify for benefits.

[64] There is uncontradicted evidence that Gérard Gosselin’s new spouse also performed work for the payer from 1992 to 1996.

[65] The fact that Kenny Gosselin took over is of no consequence in reaching a conclusion in this case, and what little work the appellant may have done for him without pay need not be taken into account here.

[66] It is true that there are a few contradictions in the evidence, but they are minor: both witnesses struck the Court as decent people who always sought to tell the truth, and the Court fully believes them; moreover, it need hardly be pointed out that no one’s memory is infallible.

[67] The appellant may have done a little work for the payer in November and December 1996, but it was minimal and the kind of help that spouses can occasionally give each other without there necessarily being any legal implications.

[68] The fact that clients knew it was better to call the office in the afternoon is uncontradicted.

[69] The contract may have been entered into a few days after the appellant was hired, but it confirmed the actual state of affairs.

[70] The operation of the restaurant is of no consequence in reaching a conclusion in this case.

[71] The appellant was certainly laid off because of a lack of work.

[72] The appellant was competent to do the work assigned to her.

[73] The fact that the appellant was paid for the hours she worked is uncontradicted.

[74] The officer who received the appellant’s statutory declaration should have questioned her further to get her to explain the difference between the 30 hours of work mentioned in general terms at the start and the subsequent breakdown of the hours she worked: the Court prefers the detailed calculation to the overall figure, since it is more consistent with the evidence as a whole.

[75] There is no doubt that the appellant was very much integrated into the payer’s activities.

[76] The Minister took account of irrelevant facts and did not have regard to all of the circumstances.

[77] There was indeed a genuine contract of service and the employment should have been included in insurable employment.

[78] The appeal is therefore allowed and the determination under appeal reversed.

Signed at Laval, Quebec, this 14th day of August 1998.

“A. Prévost”

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 15th day of February 1999.

Erich Klein, Revisor