Joubert v. M.N.R., docket 97-677-UI

Date: 19980828

Docket: 97-677-UI

BETWEEN:

RAYMONDE JOUBERT,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

CHARRON, D.J.T.C.C.

[1] The object of this appeal heard at Québec, Quebec, on June 17, 1998 was to determine whether the appellant held insurable employment within the meaning of the Unemployment Insurance Act ("the Act") during the periods from September 1 to November 30, 1991, February 3 to June 12, 1992, September 7 to November 28, 1992, February 1 to June 13, 1993, September 3 to November 28, 1993, March 7 to June 11, 1994, September 18 to November 19, 1994, February 23 to June 23, 1995, September 16, 1995 to February 7, 1996 and March 8 to June 14, 1996, when she was employed by Les Formations R & R Joubert inc., the payer.

[2] By a letter of March 24, 1997 the respondent informed the appellant that this employment was not insurable because she and the payer were not dealing with each other at arm's length.

Statement of facts

[3] The facts on which the respondent relied in arriving at his determination are set out in paragraph 5 of the Reply to the Notice of Appeal as follows:

[TRANSLATION]

(a) the payer operated a business specializing in personal development training; (admitted)

(b) the appellant held 30% of the payer's voting shares and her spouse Roland Joubert held the other 70%; (admitted)

(c) the appellant and her spouse prepared seminars and workshops; (admitted)

(d) the seminars and workshops were given by Roland Joubert on weekends from February to June and from September to November; (admitted)

(e) on the weekends when the payer was giving courses the appellant took care of, among other things

- preparing the room;

- receiving and enrolling students;

- giving out information and selling material related to the courses; (admitted)

(f) following course days she did the bookkeeping and performed secretarial duties; (admitted)

(g) she spread this work out as she liked between Monday and Thursday; (denied)

(h) in 1991 and 1992 her salary was $400 a week, plus 4% vacation pay; (admitted)

(i) from 1993 to 1996 she received a salary of $425 a week, plus 4% vacation pay; (admitted)

(j) when she could not accompany her spouse to a seminar the appellant was replaced by someone who was not paid, or to whom the payer paid $100 for the weekend; (denied)

(k) when a seminar was cancelled the appellant received the same weekly pay; (admitted)

(l) the appellant had authorization to sign the payer's cheques year-round; (admitted)

(m) the appellant issued and signed her paycheques; (admitted)

(n) between the periods at issue the appellant worked for the payer without pay on a part-time basis; (denied)

(o) the payer's income has dropped significantly since 1993; (admitted)

gross income net income

1993 $90,311 $6,632

1994 44,685 (10,139)

1995 34,018 (2,971)

1996 25,720 (12,659)

(p) Roland Joubert has received no salary from the payer since 1994; (admitted)

(q) the appellant was related to the payer within the meaning of the Income Tax Act; (admitted)

(r) in these circumstances it is not reasonable to conclude that the appellant's contract of employment would have been substantially similar if she had been dealing with the payer at arm's length. (denied)

[4] The appellant admitted all the subparagraphs of paragraph 5 of the Reply to the Notice of Appeal, except those she denied or said she knew nothing of, as indicated at the end of each one.

Testimony of Roland Joubert

[5] Mr. Joubert, a retired teacher, is the president of the payer, of which he holds 70% of the shares. For 27 years he has taught relaxation therapy and organized weekend seminars. The workshops are held successively in various cities from 6:00 p.m. Friday to 1:00 p.m. Monday. They are organized locally by an independent regional committee, at Québec, Montréal, Moncton, Fredericton, Matane, Grand Falls and Edmunston among other places. The members of the local committee recruit participants. The appellant accompanies her husband wherever he goes and acts as secretary (Exhibit A-1). Her duties involve making up lists of seminars and lists of members, addresses and telephone numbers, preparing course binders (Exhibit A-2), maintaining contacts with committees, answering the telephone, preparing the rooms, receiving and enrolling students, giving out information and selling course material. Thursday is spent preparing for the trip and on Friday they travel to the location of the seminar. On Saturday and Sunday the seminar itself takes place. The teacher and his spouse return on Monday. Tuesday and Wednesday are days off. The appellant's work is done in the payer's office, where the payer supplies her with a computer, a scanner, a fax machine, a printer and everything needed by a secretary. The meetings sometimes attract as many as 150 people, including both old and new students.

[6] Mr. Joubert hired the appellant in 1991 at a gross salary of $416 a week. In 1993 he paid her $442 weekly. From 1991 to 1996 the appellant was employed by the payer and worked on the dates indicated in the records of employment filed as Exhibit A-3. The business is seasonal and operates only from February to June and from September to November. Between these periods there was nothing of any consequence for the appellant to do and she was not paid. It can be said that the appellant's work periods coincided with the business's periods of activity.

[7] The payer necessarily controlled the appellant's work because the teacher and his secretary were almost always together, whether at the office or when travelling. The appellant was paid $10 an hour and the payer would have had to hire someone else if she had been unable to work: he considered her to be as essential as his right arm. The appellant prepared the payer's cheques and was authorized to sign them. She worked 40 hours a week.

[8] The payer had been experiencing economic problems since 1994 and as a result its expenses exceeded income. A competitor took away a large number of its students and this caused an alarming drop in the payer's turnover. In spite of this, the appellant continued receiving her cheque regularly each week. Mr. Joubert was no longer being paid as of 1994, the year in which he reached age 65, because, he said, he began receiving his old age security cheques and he was being reimbursed for his travel and living expenses by the payer. Since reaching age 70 he has also been receiving his [TRANSLATION] "U.S. pension". The appellant had not worked for the payer before 1991 because she had to see to the upbringing of their children. At most, she provided a few services to her husband and did so without pay. Mr. Joubert also worked full-time at the CÉGEP de Rivière-du-Loup and so relaxation therapy was nothing more than a sideline, which did not take up more than 38 or 40 hours of his time. The appellant's duties had not altered since 1991: she looked after the accounting and performed secretarial work. She was available to answer the telephone seven days a week. Prior to 1994 Mr. Joubert received $500 a week from the payer and worked 40 hours. He is still doing the same work. If a seminar was cancelled, the appellant received her salary just the same because she had had to do her work.

[9] If Mondays and Thursdays are taken into account in addition to the time taken up by seminars, the appellant put in over 40 hours a week.

[10] Gross income for 1991 to 1996 was as follows:

1991 - $66,358

1992 - 96,215

1993 - 90,311

1994 - 44,685

1995 - 34,018

1996 - 25,720

[11] Prior to 1994 the payer's seminars attracted as many as 150 people; in succeeding years they scarcely drew 10 or 15. The payer paid the business's operating costs and also household expenses.

Testimony of Raymonde Martin Joubert

[12] Raymonde Joubert has been the payer's secretary since 1991 and worked from 9:00 a.m. to 5:00 p.m. Thursday, Friday, Saturday, Sunday and Monday. Her duties were those described in the job description submitted to the Minister of National Revenue by the payer in the letter of August 27, 1991 (Exhibit A-4), except for accounting. She received a weekly salary of $414, which was paid to her by cheque. Because of her experience Ms. Joubert spread out her work as she liked between Monday and Thursday. When she was unemployed she worked part-time, that is, about one hour per month. Her periods of employment coincided with the business's periods of activity. There has never been any discussion of dismissal or layoff between Ms. Joubert and her employer. Prior to 1991 Raymonde Joubert was involved full-time in bringing up her children. Including travel time, Ms. Joubert sometimes worked 50 or 60 hours a week. Her remuneration was calculated on the basis of $10 an hour, but her cheque was always the same: the number of hours worked was not very important.

[13] The appellant gave an oral statement on August 14, 1996 in which she said: [TRANSLATION] "Prior to 1991 I was doing the same work as I have been performing for Les Formations R & R Joubert inc. since 1991, but I was not paid. Since Les Formations R & R Joubert inc. has been in existence, that is, since 1991, I have been paid for my work" (Exhibit I-4). If the appellant had not been there to look after the accounting, someone else would have had to have been hired. Finally, this type of work, in the words of Raymonde Joubert, [TRANSLATION] "is almost a way of life". Each time she was laid off she never made any effort to find new employment because she knew that her job was [TRANSLATION] "guaranteed". She alone decided that she would be laid off for lack of work and she could even set the date on which she would return to work.

Analysis of the facts in the light of the law

[14] The respondent admitted that the appellant was connected with the payer through a contract of service, but considered this contract to be excepted because of the non-arm's-length relationship between them.

[15] Did the respondent act properly in exercising the power conferred on him by s. 3(2)(c)(ii) of the Act?

[16] Section 3(2) of the Act reads in part as follows:

(2) Excepted employment is . . .

(c) subject to paragraph (d), employment where the employer and employee are not dealing with each other at arm's length and, for the purposes of this paragraph,

(i) the question of whether persons are not dealing with other at arm's length shall be determined in accordance with the provisions of the Income Tax Act, and

(ii) where the employer is, within the meaning of that Act, related to the employee, they shall be deemed to deal with each other at arm's length if the Minister of National Revenue is satisfied that, having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length . . . .

[17] Under s. 251(1)(a) and s. 251(2)(b) of the Income Tax Act, related persons are deemed not to deal with each other at arm's length. When persons are related, one cannot speak of insurable employment unless the Minister of National Revenue is satisfied otherwise in accordance with s. 3(2)(c)(ii) of the Act, cited above.

[18] The Federal Court of Appeal has rendered two important decisions concerning the application of s. 3(2)(c) of the Act.

[19] In the first judgment, Tignish Auto Parts Inc. v. M.N.R. (185 N.R. 73), dated July 25, 1994, the Federal Court of Appeal 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.

[20] There are thus four tests which the Tax Court of Canada can apply in deciding whether it has the right to intervene:

(1) whether the Minister of National Revenue has not had regard to all the circumstances of the employment;

(2) whether he has considered irrelevant factors;

(3) whether he has acted in contravention of some principle of law;

(4) whether he has based his decision on insufficient facts.

[21] In Ferme Émile Richard et Fils Inc. (178 N.R. 361), dated December 1, 1994, 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 . . . 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.

[22] The appellant argued that the respondent did not have regard to all the circumstances in excepting her employment from insurable employment.

[23] In this regard, Isaac C.J. of the Federal Court of Appeal, speaking for the court, said the following in Attorney General of Canada v. Jencan Ltd. (1997), 215 N.R. 352:

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 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. . . . 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.

[24] In view of the evidence submitted and the documents filed by the parties, it seems clear that the respondent had regard to almost all the circumstances of the employment, excluded irrelevant factors, followed recognized principles of law and based his decision on sufficient facts. It is not reasonable to believe that the parties would have entered into the same contract if they had been dealing with each other at arm's length.

[25] The appeal is accordingly dismissed and the decision by the Minister is affirmed.

Signed at Ottawa, Canada, this 28th day of August 1998.

"G. Charron"

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 31st day of March 1999.

Erich Klein, Revisor