Date: 19980609
Dockets: 97-192-UI; 97-193-UI
BETWEEN:
CLAUDINE HUDON,
COMMUNICATIONS MULTIMÉDIA LOGICOM LTÉE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
GUY TREMBLAY, J.T.C.C.
Point at issue
[1] The question is whether the appellant Claudine Hudon
held insurable employment within the meaning of the
Unemployment Insurance Act ("the Act") with
Communications Multimédia Logicom Ltée, hereinafter
referred to as "the payer", which is also appealing,
during the period from June 14 to November 24,
1995.
[2] The appellant is the spouse of René Forest,
who owns 33 shares in the payer. Daniel Lepage and
Daniel Beaudry own 33 and 34 shares respectively.
[3] It is alleged that only René Forest made an
investment, of $20,000, in June 1995. The payer's activities
involve developing software and selling computer equipment. The
appellant allegedly signed a contract of employment with the
payer for a position as comptroller for five years at
$36,000 a year. She allegedly did the payer's accounting,
administration, purchasing and so on. She is an architectural
technician. During the period at issue she was pregnant with a
fourth child.
[4] In the respondent's submission an arrangement existed
between the appellant and the payer to qualify the appellant to
receive unemployment insurance benefits when she left on
maternity leave. Accordingly, in his submission there was no true
contract of service between the appellant and the payer within
the meaning of s. 3(1)(a) of the Act.
Burden of proof
[5] The appellant has the burden of showing that the
respondent's assessments are incorrect. This burden of proof
derives from a number of judicial decisions, including that of
the Supreme Court of Canada in Johnston v. Minister of
National Revenue.[1]
[6] In Johnston the Supreme Court held that the facts
assumed by the respondent in support of assessments or
reassessments are also presumed to be true until the contrary is
shown. In the instant case the facts assumed by the respondent
are set out in subparagraphs (a) to (s) of paragraph 5
of the Reply to the Notice of Appeal. Paragraph 5 reads as
follows:
[TRANSLATION]
5. In arriving at his decision the respondent Minister of
National Revenue relied inter alia on the following
facts:
(a) the payer was incorporated on November 4, 1994;
[admitted]
(b) the payer's activities involve developing software and
selling computer equipment; [admitted]
(c) on August 18, 1995 the payer's shares were
distributed as follows: René Forest held 33
Class A shares and 30,000 Class F shares,
Daniel Beaudry held 34 Class A shares and
Danny Lepage held 33 Class A shares;
[admitted]
(d) Daniel Beaudry and Danny Lepage did not spend
anything to acquire the shares in the payer;
[admitted]
(e) on June 14, 1995 René Forest deposited
$20,000 in seed capital in the payer's account;
[admitted]
(f) the appellant is René Forest's spouse;
[admitted]
(g) the appellant alleges that on June 14, 1995 she
signed a contract of employment with the payer for an anticipated
period of five years with an annual salary of $36,000 for
the first year and increases of $1,000 in subsequent years;
[admitted]
(h) on June 14, 1995 the appellant received an alleged
first paycheque from the payer; [admitted]
(i) the appellant alleges that her duties involved doing the
payer's accounting, performing administrative duties,
purchasing stationery, going to pick up equipment from suppliers
and doing part of the installation; [admitted]
(j) the appellant is an architectural technician;
[admitted]
(k) Daniel Beaudry and Danny Lepage began their
employment with the payer in July 1995; [admitted subject to
amplification]
(l) René Forest alleges that despite his
investment, he was not paid by the payer during the period at
issue and spent about 20 hours a week running the payer's
business; [admitted with an explanation]
(m) the appellant alleges that René Forest cared
for her three young children during her working hours; [denied
as drafted]
(n) during the period at issue the payer allegedly reimbursed
the appellant for $4,099 in entertainment expenses and a total of
$32,000 for equipment purchases; [admitted with an
explanation]
(o) during the period at issue the appellant's working
hours were not supervised by the payer; [denied]
(p) on June 14, 1995 René Forest was
unemployed and he alleges that he cared for the appellant's
three young children during the period at issue;
[admitted]
(q) during the period at issue the appellant was pregnant with
a fourth child; [admitted]
(r) an arrangement existed between the appellant and the payer
to qualify the appellant to receive unemployment insurance
benefits when she left on maternity leave; [denied]
(s) no true contract of service existed between the appellant
and the payer during the period at issue. [denied]
[7] Further to the foregoing admissions the evidence also
consisted of the testimony of Daniel Beaudry, a computer
specialist, Guy Van Melle, a businessman, the appellant
Claudine Hudon, and René Forest, a salesman.
[8] Although the payer was incorporated on November 4,
1994 ([6] 5(a)), the evidence shows that the plan to form a
company for the purpose of developing software and selling
computer equipment was initiated in the summer of 1994.
[9] According to Mr. Forest the $30,000
(subparagraph 5(e) of the Reply to the Notice of Appeal
mentions $20,000) he invested at the time of incorporation in
order to get the company going was insufficient, especially to
pay qualified employees. Following Mr. Forest's meeting
with Daniel Beaudry and Danny Lepage, both of whom
worked in the same line, it was agreed that he would give them 34
and 33 Class A shares respectively and that they would
devote their time to the company for a salary less than the usual
salary for their skills. The incentive was that if the company
prospered the value of their shares would increase accordingly.
Effect was given to this by means of a resolution dated
August 18, 1995 (Exhibit A-1). Sales in the first
year totalled $800,000 and in 1998 they will total
$1,500,000.
[10] Daniel Beaudry studied computer science and
electronic engineering at the University of Sherbrooke. In the
company he is vice-president, technology division, and his duties
and responsibilities and his projected salary are set out as
follows (Exhibit A-2):
[TRANSLATION]
Duties and responsibilities:
· Managing the development team
· Supervising analysts and programmers
· Analysing new products
· Planning software development
· Conducting technical analyses of proposed
solutions
· Managing the development budget
· Drafting technical proposals
· Providing technical support
· Programming software
· Providing sales support
Pay line:
Annual salary:
First year: $42,000
Second year: $44,000
Third year: $46,000
Fourth year: $50,000
Fifth year: $55,000
[11] Mr. Beaudry participated with Mr. Forest and
Mr. Lepage in the decision to hire the appellant. After meeting
with the appellant and obtaining a statement of her
qualifications, they asked her to leave them alone. In the
witness's submission, they decided on the work to be done and
the salary in a completely objective manner. According to the
witness the appellant began in late spring: she prepared the
office plan and set up the office, or in other words, she
prepared the accommodations. Since the witness was responsible
for the office, the appellant reported to him. The appellant had
to [TRANSLATION] "set up the computerized accounting system
and the bookkeeping, and be responsible for delivery". If
the appellant had not been hired it would have been necessary to
hire someone else. When the appellant left she was replaced by
Guy Daniel, Maxime Bertrand and
Mariette Forest.
[12] Mariette Forest's contract, which was signed on
February 8, 1996 (Exhibit A-3), reads as
follows:
[TRANSLATION]
Contract of employment
Mariette Forest
Position title:
Vice-President Administration
Duties and responsibilities:
· Supply manager
· Administrative support
· Bookkeeping
· Writing letters
· General secretarial work
· Sales support
· Responsible for test and audit procedures
Pay line:
Annual salary: $36,000
Participation in profits:
The employee will participate in a profit-sharing program to
be created by the company's management.
Vacation:
Two weeks a year for the first three years.
Three weeks thereafter.
Working hours:
Thirty-seven and a half hours a week, must be present between
9:30 a.m. and 4:00 p.m. Monday to Friday, excluding
statutory holidays and leave. Full-time work.
Fringe benefits:
Creation of an insurance plan in Ms. Forest's name
when the company has a sufficient number of employees.
Work environment:
So far as possible objectives will be clear and measurable and
will be explained before the various duties are performed. The
working environment will promote, stimulate and encourage
teamwork and a multidisciplinary approach. Work methods must be
structured and will be the responsibility of your supervisor. It
is agreed that the workplace will be smoke free for company
employees. Visitors will be asked to observe the smoking ban,
though they will not be obliged to do so.
Other:
The employer will ensure that present and future labour
standards are observed. The employee will be required to perform
any other duties requested by the supervisor.
Signature of contract
Contract signed at Varennes on February 8, 1996
Employee: Employer:
(s) Mariette Forest (s) René Forest
Mariette Forest René Forest for
Communications
MULTIMÉDIA
[13] In cross-examination the witness Daniel Beaudry
maintained that initially, from April to July, he was not paid.
This unpaid work was part payment for the shares he had received
in the payer. He did not start being paid until July 1995. The
witness recognized the following exhibits, which were filed:
Exhibit I-1 Commercial lease agreement between the
Caisse populaire Verchères and the payer, as the lessee of
premises of 1,186 square feet:
the lessee was required to do renovation work (flooring)
either by itself or with the help of someone from the
construction trades;
Exhibit I-2 Payer's general journal from
day 1, namely June 14, 1995, to day 1,544, namely
May 31, 1996:
it shows the appellant's $1,440 salary, along with all
cash disbursements and receipts. Exhibit I-2 is the
result of the appellant Claudine Hudon's work.
Exhibit I-3 The appellant's record of
employment, signed by the witness Beaudry on April 12, 1996:
it should be noted that vacation pay was later sent on
April 12, 1996 (Exhibit I-2: day 1230); the
appellant received $581.48 (unused vacation pay).
She left the payer on November 24, 1995 to go and work
for Enter-Net, a company that was a customer of the payer.
Enter-Net did not have the payer's administrative
organization. It asked the payer whether the appellant, who had
set up the payer's computerized accounting system, would come
and do the same for it, and the payer agreed. Until she had her
baby on January 10, 1996, she was still working for
Enter-Net.
[14] The respondent questioned Mr. Beaudry about an
expenditure of $4,099.78 on day 35 (August 28, 1995),
which was identified as entertainment expenses of the appellant.
According to him she bought a part with a cheque on her own bank
account. When she got to the office with the part she requested
the amount in order to deposit it into her account so the cheque
would be honoured. This was allegedly also done with the amount
of $32,000 ([6] 5(n)).
[15] Guy Van Melle, the second witness, was one of
Enter-Net's directors. He said he knows the appellant
well. He first met her when delivering hardware to Communications
Multimédia Logicom Ltée. In his submission, hiring
the appellant to set up Enter-Net's accounting system
cost less than hiring a specialized firm. The appellant's
salary was paid by Communications Multimédia Logicom
Ltée but Enter-Net repaid the salary paid to her
plus 20 percent.
[16] The appellant testified that her pregnancy was not
planned. Her spouse had had a vasectomy in October 1994.
Initially she thought it was a false pregnancy. In April 1995 the
doctor told her that it was in fact a real pregnancy. According
to the appellant the plan to create Communications
Multimédia Logicom Ltée had been under way since
the summer of 1994. In fact, it was because of this plan and his
intention to involve the appellant in it that Mr. Forest had
had his vasectomy. The appellant said that in 1994, [TRANSLATION]
"at the time we were talking about forming the company, it
was to create jobs for ourselves, and I was not pregnant"
(transcript, p. 5).
[17] The series of cheques for $913.96
(Exhibit I-4) made out to the appellant clearly shows
that she was always paid by Communications Multimédia.
[18] As her work, the appellant testified that she made plans
of the premises, chose colours, bought "gyproc", did
the accounting and secretarial duties, looked after the filing
cabinets and handled grant applications and stationery.
[19] René Forest, the president of Communications
Multimédia Logicom Ltée, summarized what happened
when operations began. It was essentially a repetition of his
statutory declaration (Exhibit I-7) signed on
March 20, 1996:
[TRANSLATION]
On June 12, 1995 I bought my brother's shelf company,
"9011-4133 Québec Inc.", and changed the
name to "Communications Multimédia Logicom
Inc.". I immediately hired people to make leasehold
improvements to Suite 201, 2100 Boul.
René-Gaultier, in Varennes. There was only one
employee on the payroll, Claudine Hudon, my wife, who
supervised the work.
The company began operations in early August 1995. A second
employee, Daniel Beaudry, V.P. Development, started on
August 7, 1995. The following Monday, August 14, two
other employees, Danny Lepage and Luc Allard, started.
My sister, Mariette Forest, worked there three days a
week but was not paid until February 12, when she started
full time and was paid.
[20] With respect to allegations 5(k) and (p) in the Reply to
the Notice of Appeal, Mr. Forest filed as
Exhibit A-4 the decision of the board of referees
dated February 25, 1997. In response to an objection by the
respondent, the Court originally admitted this document without
prejudice but now admits it as evidence.
There were two points at issue. The first was whether the
claimant was unemployed as of June 12, 1995. The second was
whether the claimant knowingly made 19 false or misleading
statements.
After a detailed analysis, the conclusion on both points was
as follows: in the circumstances, the board of referees
unanimously allowed the claimant's appeal and reversed the
Commission's decision.
[21] As Exhibit I-8 the respondent filed a
[TRANSLATION] "business plan" for Communications
Multimédia Logicom Ltée prepared in September 1995.
This document was prepared for the purpose of obtaining a loan.
It states the following regarding Mr. Forest
(pp. 16-17) and the appellant Claudine Hudon
(p. 23):
[TRANSLATION]
3 - Administrator
René Forest
President
Education
Bachelor of Business Administration (B.B.A.)
Major in Marketing
Experience:
Coming from a family in which finance, regionalization and the
business world formed part of everyday conversation,
René Forest became interested in business at a very
early age.
While at university, where he took a B.B.A. and majored in
marketing, his abilities in this field were recognized through
two prestigious awards: he received the [TRANSLATION]
"Excellence Award" scholarship awarded to the top
marketing student. He also received the "Bourse
Télésag", awarded by a private business to
recognize both his academic performance and his involvement in
his home region.
Mr. Forest started at the Royal Bank of Canada in 1987,
working in personnel, finance, customer service and loan
supervision.
He moved to Montréal, where he held the position of
sales and marketing director for the Centre d'Excellences en
Télécommunications intégrées, a
position which introduced him to the world of telematics.
In 1990 Mr. Forest participated in the launching of the
National Vidéotex Network. Through an agreement with the
U.S. giant AT & T, this network markets a range of interactive
services available in the 52 American states.
At Imatex Communications Mr. Forest helped position the
firm as a leading supplier to the Canadian telematics industry,
especially to suppliers of Bell Canada's Alex network.
More recently, as Vice-President, Marketing, he designed and
implemented business development strategies which enabled Imatex
to gain entry to foreign markets. Based on strategic alliances
with international partners, his approach enabled Imatex to
profit from the positioning of its partners in their respective
markets and so extend its activities into those markets.
Duties and responsibilities:
Mr. Forest will be responsible for co-ordinating sales
and marketing activities. Through his many business contacts in
Quebec, Canada, the U.S., Europe and Asia Mr. Forest will
promote the business's products and services. He will also be
responsible for recruiting and maintaining excellent relations
with Communications MULTIMÉDIA's
distributors/partners.
He will be responsible for the applications development team.
He will supervise the programmers directly. He will be
responsible for analysing new products and drafting technical
proposals.
Planning software development
Supervision and support for the development team
Managing the development budget
Sales support
He will also be responsible for the general administration of
the company.
. . .
Testing, supply and administrative support manager
(1)
Claudine Hudon
Education:
Architectural technician
Computer training in DOS 1, 2 and 3
Experience:
Claudine Hudon has six years' experience in the
computer-assisted design of plans. Among other things, she has
set up, operated and supervised a computer system for an
independent business. Ms. Hudon has co-ordinated the
installation of software, supervised the training of employees on
the system and designed a data bank to speed up employees'
work.
Ms. Hudon has shown great adaptability and a desire to
take on new challenges.
Duties and responsibilities:
Ms. Hudon's primary responsibilities will be
bookkeeping, supply, setting up test and audit procedures and
secretarial work in general.
Pay line: $24,000 a year
[22] Mr. Forest noted that as he wanted to improve the
payer's chances of obtaining a loan, he had put the
appellant's salary down as only $24,000, not $36,000. The
document was to be used by lenders.
[23] The Court was referred to a number of precedents,
including:
1 - Tignish Auto Parts Inc. v. Minister of National
Revenue, A-555-93, 25/07/94 (F.C.A.);
2 - Ferme Émile Richard et Fils Inc. v. Minister of
National Revenue and Deputy Attorney General of Canada,
A-172-94, 01/12/94 (F.C.A.);
3 - Lyne Plamondon v. Minister of National Revenue,
92-858(UI), a decision dated 20/07/94 by
Judge Archambault (T.C.C.);
4 - Attorney General of Canada v. Jencan Ltd.,
A-599-96, 24/06/97 (F.C.A.).
[24] The Federal Court of Appeal has delivered several key
judgments on the application of s. 3(2)(c) of the
Unemployment Insurance Act. In Tignish Auto Parts
Inc. (para. [23] 1), the Court cited counsel for
the respondent in whose opinion it concurred:
Under the authority of Minister of National Revenue v.
Wrights' Canadian Ropes Ltd., contends the respondent,
unless the Minister has not had regard to all the circumstances
of the employment (as required by subparagraph 3(2)(c)(ii)
of the Act), has considered irrelevant factors, or has acted in
contravention of some principle of law, the Court may not
interfere. Moreover, the Court is entitled to examine the facts
which are shown by evidence to have been before the Minister when
he reached his conclusion so as to determine if these facts are
proven. But if there is sufficient material to support the
Minister's conclusion, the Court is not at liberty to
overrule it merely because it would have come to a different
conclusion. If, however, those facts are, in the opinion of the
Court, insufficient in law to support the conclusion arrived at
by the Minister, his determination cannot stand and the Court is
justified in intervening.
[25] There are thus four tests which the Tax Court of
Canada can apply to decide whether it is entitled to
intervene:
the Minister
(1) did not have regard to all the circumstances of the
employment;
(2) considered irrelevant factors;
(3) acted in contravention of a principle of law; or
(4) based his decision on insufficient facts.
[26] The Court went on as follows:
In my view, the respondent's position is correct in law
except that it does not indicate what powers the Court enjoys
once an intervention is deemed to be justified.
[27] After making further observations, the Court added:
It is therefore appropriate, in the case at bar, to analyze
the provisions of the Unemployment Insurance Act under
which the jurisdiction of the Tax Court is exercised in order to
determine the type of decision it may render.
The Tax Court, not being a superior court of record, has no
inherent jurisdiction to refer the matter back to the Minister.
It does, however, enjoy implied powers and could, perhaps, on
this basis, as claimed by the respondent, refer the matter back
to the Minister. But the difficulty here is that the power of the
Tax Court to refer back has already been legislated upon.
Subsection 70(2) of the Act, which I have reproduced
earlier, reads thus:
70. (2) On an appeal under this section, the Tax Court of
Canada may reverse, affirm or vary the determination, may
vacate, confirm or vary the assessment or may refer the
matter back to the Minister for reconsideration and
reassessment, and shall thereupon in writing notify the
parties to the appeal of its decision and the reasons
therefor.
[28] In Ferme Émile Richard et Fils Inc.
(para. [23] 2), the Federal Court of Appeal summarized
Tignish Auto Parts Inc. as follows:
As this Court recently noted in Tignish Auto Parts Inc. v.
Minister of National Revenue, July 25, 1994,
A-555-93, F.C.A., not reported, an appeal to the Tax
Court of Canada in a case involving the application of
s. 3(2)(c)(ii) is not an appeal in the strict sense
of the word and more closely resembles an application for
judicial review. In other words, the Court does not have to
consider whether the Minister's decision was correct: what it
must consider is whether the Minister's decision resulted
from the proper exercise of his discretionary authority. It is
only where the Court concludes that the Minister made an improper
use of his discretion that the discussion before it is
transformed into an appeal de novo and the Court is
empowered to decide whether, taking all the circumstances into
account, such a contract of employment would have been concluded
between the employer and employee if they had been dealing at
arm's length.
[29] In Jencan Ltd. (para. [23] 4), after
reviewing the evidence the Federal Court of Appeal made the
following comments at pp. 24-26 of the original
judgment:
The Deputy Tax Court Judge, however, erred in law in
concluding that, because some of the assumptions of fact relied
upon by the Minister had been disproved at trial, he was
automatically entitled to review the merits of the determination
made by the Minister. Having found that certain assumptions
relied upon by the Minister were disproved at trial, the Deputy
Tax Court Judge should have then asked whether the remaining
facts which were proved at trial were sufficient in law to
support the Minister's determination that the parties would
not have entered into a substantially similar contract of service
if they had been at arm's length. If there is sufficient
material to support the Minister's determination, the Deputy
Tax Court Judge is not at liberty to overrule the Minister merely
because one or more of the Minister's assumptions were
disproved at trial and the judge would have come to a different
conclusion on the balance of probabilities. In other words, it is
only where the Minister's determination lacks a reasonable
evidentiary foundation that the Tax Court's intervention is
warranted.[2] An
assumption of fact that is disproved at trial may, but does not
necessarily, constitute a defect which renders a determination by
the Minister contrary to law. It will depend on the strength or
weakness of the remaining evidence. The Tax Court must,
therefore, go one step further and ask itself whether, without
the assumptions of fact which have been disproved, there is
sufficient evidence remaining to support the determination made
by the Minister. If that question is answered in the affirmative,
the inquiry ends. But, if answered in the negative, the
determination is contrary to law, and only then is the Tax Court
justified in engaging in its own assessment of the balance of
probabilities. Hugessen J.A. made this point most recently
in Jolyn Sports, supra. At page 4 of his
reasons for judgment, he stated:
In every appeal under section 70 the Minister's
findings of fact, or "assumptions", will be set out in
detail in the reply to the Notice of Appeal. If the Tax Court
judge, who, unlike the Minister, is in a privileged position to
assess the credibility of the witnesses she has seen and heard,
comes to the conclusion that some or all of those assumptions of
fact were wrong, she will then be required to determine whether
the Minister could legally have concluded as he did on the facts
that have been proven. That is clearly what happened here and
we are quite unable to say that either the judge's findings
of fact or the conclusion that the Minister's determination
was not supportable, were wrong.
[Emphasis added]
The Deputy Tax Court Judge erred in law in failing to
determine whether the Minister could have legally concluded as he
did on the facts as proved before him. Consequently, he was not
in a position at law to come to his own conclusion on the balance
of probabilities. In short, by reviewing the merits of the
determination without first concluding that the Minister
exercised his discretion in a manner that was contrary to law,
the Deputy Tax Court Judge failed to exhibit the degree of
judicial deference required when reviewing ministerial
determinations under subparagraph 3(2)(c)(ii).
[30] It must now be asked whether in the instant case the
Minister's decision resulted from a proper exercise of his
discretionary authority.
[31] The first thing that can be seen from the evidence as a
whole is that the appellant did important work for the payer,
including the general journal. If she had not been hired it would
have been necessary to hire someone else. When she left, the
appellant was replaced by three people ([11], [13]). She
also did important work while working for Enter-Net, which
reimbursed the payer for the appellant's salary plus
20 percent ([15]). Her $36,000 salary was not excessive. It
was also the salary of Mariette Forest, who replaced the
appellant along with two other people. Enter-Net did
not find the salary high ([15]).
[32] The appellant's work was supervised by
Daniel Beaudry. The equipment used was owned by the
payer.
[33] In light of these facts, the Court considers that the
respondent based his decision on insufficient facts.
[34] This is quite understandable in view of the fact that the
respondent's appeals officer conducted his investigation by
telephone only and did not have the opportunity of seeing the
individuals or visiting the premises. While the Court understands
the excessive cost in time and travel that would be involved, an
investigation conducted by telephone also has its disadvantages,
including that of not seeing or obtaining all the relevant facts.
The respondent called no witnesses.
[35] The evidence as a whole persuades the Court that the
respondent's claim that an arrangement existed between the
appellant and the payer to qualify the appellant to receive
unemployment insurance benefits while on maternity leave is
groundless. Everything, including the appellant's competence
and her support for her husband since the summer of 1994 in
forming the business for the purpose of creating employment,
suggests that she would have been involved in the work of the
business even if she had not been pregnant. In this regard
Mr. Forest's vasectomy was an unsuccessful test.
Conclusion
[36] The appeal is allowed.
Signed at Québec, Quebec, June 9, 1998.
"Guy Tremblay"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 28th day of October
1998.
Stephen Balogh, Revisor
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