Citation: 2007TCC707
Date: 20071205
Docket: 2006-605(EI)
BETWEEN:
RENÉ CÔTÉ,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1] This is an appeal
from a decision rendered by the Minister of National Revenue ("the
Minister") on January 12, 2005, in relation to the insurability of René Côté's
employment with Les
Entreprises en soudure Ungava Inc. ("the Payor") from November 1, 1999, to October 27, 2000
("the period in issue").
[2] Specifically, the
Minister determined that Mr. Côté was not an employee of the Payor because the
requirements of a contract of service, within the meaning of paragraph 5(1)(a)
of the Employment Insurance Act, S.C. 1996, c. 23, as amended
("the Act") were not met, and, consequently, that there was no
employer-employee relationship.
Facts
[3] The Appellant was
the sole shareholder and director of Les Entreprises R.C. d'Ungava Inc., which incorporated on August 3, 1978, and which specialized in Linatex cold-process rubber
lining for mining parts when it sold its business to the Payor on October 29,
1999. The selling price stated in the contract was $40,000, allocated as
follows: $35,000 for equipment, accessories and furniture, $5,000 for
merchandise, and $0 for goodwill. The sale did not include accounts receivable,
bank accounts, the business name, the automobile, or the building in which
the company's workshop was located.
[4] The aforementioned
contract of sale specified that the exclusivity agreement with Linatex was part
of the assets sold and included a 10-year non‑competition clause for the
entire sector covered by the exclusivity agreement with Linatex. This non-competition
clause was also binding on the Appellant.
[5] On October 29,
1999, the day that the business was sold, the Appellant and the Payor entered
into a contract of employment under which the Payor hired the Appellant as an
expert consultant for a term of one year, commencing November 1, 1999,
for annual remuneration in the amount of $30,000, in order to enable the Payor
to acquire all the skill and knowledge required for the operation of its rubber
lining installation and sales business. As noted in the employment contract,
the Appellant is the only person with the requisite knowledge of rubber lining placement
and installation.
[6] Under the terms of
the employment contract, the Appellant agreed to work personally with the Payor
for the first six months, but was not required to be present every day, except
if there were contracts with the mining companies, or other customers of
the business, that needed to be fulfilled. In the event of illness, the
Appellant agreed to provide the Payor with an experienced person, under the
same terms and conditions, and to the Payor's satisfaction.
[7] After these first
six months, the Appellant would be free to manage his work schedule as he saw
fit for the remainder of the term, as the Payor would have acquired the
necessary knowledge and skill by then.
[8] On November 13, 2000, the Payor issued a
Record of Employment to the Appellant, which stated that he accumulated 2080
hours of insurable employment and earned a total of $30,004 during the period
in issue.
[9] After receiving a
complaint, Human Resources Development Canada conducted an investigation of the
Payor's practices, following which the Payor admitted that it was guilty of 35
counts of producing false Records of Employment, including the Appellant's, and
was fined $550 on each of these counts.
[10] The Appellant faced
27 counts, under the Act, of knowingly providing false or misleading
information, on job cards, with respect to the holding of insurable employment and
the accumulation of 2080 insurable hours therein. In a decision rendered on
June 9, 2006 by Judge Jean-Yves Tremblay of the Court of Québec, the Appellant
was acquitted of the charges against him. It should be specified here that the
parties limited the debate to the determination of the number of hours that the
Appellant worked for the Payor.
[11] In addition to the
Appellant and the Human Resources Development Canada investigator, four people
testified and five statutory declarations were produced.
[12] The first witness, Alain
Gagnon, was a shareholder and director of the Payor and is the person who negotiated
the purchase of the Appellant's business. He explained that the
Appellant's business complemented the Payor's activities. The rubber
lining that the Appellant installed significantly increased the lifespan of
machinery parts used by the mining industry. During the period in issue, the
Payor had 10 to 15 employees but no expertise with respect to the installation
of rubber lining; thus, that activity could only be carried out if the
Appellant's services were used. Mr. Gagnon explained that, following the
acquisition of the Appellant's business, the Payor's revenues increased more
quickly than expected, so the Payor had to rent the Appellant's workshop for $400
per month. He specified that the Payor's office was in his home and that the
Payor's employees (except its administrative staff) worked exclusively away at
the mining sites. The Appellant, for his part, spent roughly 30% of his
work time at the workshop and 70% at mining sites. He confirmed that he was the
Appellant's supervisor and that the Appellant filled out his own time sheets.
He admitted that he did not know the exact number of hours that the Appellant
worked each week, but that he had a good idea because he saw the work done and
the orders filled. He testified that the Appellant worked more than the 2080
hours reported in the Record of Employment during the period in issue, that the
Appellant did not work while he was receiving employment insurance benefits,
and that the Appellant's hours of work were not paid in gasoline supplied by
the Payor. He acknowledged that the Payor had a practice of banking hours in
order to avoid paying overtime at time and a half, and that the overtime worked
by the Appellant was billed by the Appellant's company at a rate of $20 per
hour plus applicable taxes. He acknowledged that the Appellant's Record of
Employment was signed by his spouse Francine Gagnon, who, along with Nancy
Dion, was responsible for the secretarial work and the bookkeeping. He
specified that the same two people were responsible for tabulating the number
of hours accumulated.
[13] In the statutory
declaration that Mr. Gagnon signed on April 1, 2004, he answered question
11 as follows:
[TRANSLATION]
After September 3, 1999, with which
members of the management did the employees make their arrangements for the
accumulated hours?
A. With their bosses, Clément Gaudreault and
Roland Bédard.
[14] The Appellant was
the second person to testify. He explained that his age and lung disease
prompted him to decide to sell his business. He said that, during the period in
issue, he did a lot of work at Inmet's Troilus division mine, as shown by the work
orders produced in a bundle as Exhibit A‑5. The mine was located
more than 200 km from Chibougamau, and he was given food and lodging on
site and had a workshop at his disposal. He acknowledged that he accumulated many
overtime hours with the Payor in connection with his travel to the mine and the
training of Roland Bédard, and that he billed those hours through his
company. He also acknowledged that he was sometimes paid in gasoline. He submitted
his gasoline bills and had them paid by the Payor, and then the office staff reduced
the number of hours in the Appellant's bank by an amount equal to the total of
the bills divided by $20. He explained that Roland Bédard took many hours
to train and that it took a long time to complete his training because he was
only available on weekends and there was a very wide range of parts to line.
[15] In the statutory
declaration signed by the Appellant on March 23, 2004, the Appellant
answered Question 9, at page 2, as follows:
[TRANSLATION]
Is it possible that you were paid $30,004
for 2080 hours as stated in the Record of Employment from Soudure Ungava, considering
that the time cards say that you only worked for 103 hours?
A. I certainly did not do all the hours, but I was there if needed.
I could show the employees.
Page 3 of the
declaration contains the following questions and answers:
[TRANSLATION]
Q. 11. How much did you actually
sell your business for?
A. Forty plus thirty. You
know how to read between the lines. They put me in an impasse, and I wouldn't
want to have to tell my wife that I'm going to have to repay all of it.
Q. 12. Do you acknowledge all the 94 hours
entered under your name on Soudure Ungava Inc. time sheets for the period
from 2000-01-11 to September 13, 2000?
A. Yes, they were accepted and entered by
the foremen.
Q. 13. Do you acknowledge all the hours
entered under your name from 2000‑11‑06 to July 12, 2001, while you were receiving employment insurance
benefits without declaring these hours?
A. You've got the evidence right there .
. . those are hours that I worked.
It is important to
specify that the top left of this third page of the declaration was initialled
by the Appellant but was not signed by him because it was too incriminating.
At page 4 of the
declaration, the following answer was given to Question 17:
[TRANSLATION]
Q. Who made the proposal to bank hours
and get paid later for them?
R. Well, I was the one who wanted to keep
my company and get paid later.
[16] During the
Appellant's cross-examination, counsel for the Respondent produced work orders
issued by the Payor and bearing the Appellant's name. These work orders report
a total 103 hours of work during the period in issue, and 247 hours subsequent
thereto. Counsel for the Respondent also produced a series of invoices that
were issued by the Appellant's company to the Payor, and that bear dates
subsequent to the period in issue — specifically, while employment
insurance benefits were being paid, and subsequent to that time.
[17] The third witness, Clément
Gaudreault, was a director of the Payor and a shareholder of 9081-0037 Québec
Inc. who held 80% of the Payor's shares. He lost his memory during his
testimony. He did not recall whether the Appellant had banked hours, even
though he gave the following answer to Question 11 of the statutory
declaration that he signed on May 2, 2004:
[TRANSLATION]
Q. Are you aware of the fact
that the 350.5 hours accumulated during the period covered by the Record of
Employment and while he was on unemployment were paid to him through invoices of
his own company, Les Entreprises R.C. d'Ungava Inc.?
A. Yes, Mr. Côté made the arrangement with the three of
us (Roland, Alain and me).
He neither confirmed nor
denied his answer to Question 14 of his statutory declaration:
[TRANSLATION]
A. Do you acknowledge that Record of Employment
#A67743337 issued to René Côté is false insofar as the number of hours
that he worked from 1999-11-01 to 2000-10-27 is concerned?
R. Yes, I acknowledge that. He never
worked those hours. They correspond to the $30,000 that we owed him on the selling
price of the business that we purchased from him.
His answer with
respect to the purchase price of the Appellant's business was not as clear as his
answer to Question 6 of his statutory declaration:
[TRANSLATION]
Q. Could you tell me what price you paid
for René Côté's business, Les Entreprises R.C.
Ungava Inc.?
A. Seventy thousand ($70,000). I've always said we paid too much
for it.
[18] The fourth witness
was Nancy Dion, who worked for the Payor part-time as a secretary. During her
testimony, she confirmed that the time banking system was a limited internal
practice, and that the banked hours were recorded in a specific book. She said
that the Appellant brought his time sheets to the office and submitted them to
Mr. Gagnon or Mr. Gagnon's spouse. She said that the Appellant had
control over his hours.
[19] In the statutory
declaration that she signed on March 23, 2004, she answered Questions 5
through 10 as follows:
[TRANSLATION]
Q. 5. Do you recognize your
writing on two 8½" x 11" sheets containing the details of René Côté's
hours worked and paid?
A. Yes, all the
handwriting on both sheets is mine.
Q. 6. Can you explain to me what is
written on these two sheets bearing the name René Côté?
A. The first page, covering
January 11, 2000 to November
23, 2001, records all the
hours that he worked and banked — a total of 350.5 hours. He submitted work slips
(time sheets) to us for these hours worked.
Q. 7. How do you account for the fact
that the Record of Employment issued to him on 2000-11-13 (#A 67743337) says
that he worked for 2080 insurable hours, when, according to these two sheets,
he worked for only 103 hours in all during this period, and, when, moreover, those
hours were banked in order to be paid later on?
A. Based on what I knew from
the work sheets that he brought me at the office, he worked for 103 hours.
Q. 8. Is it possible that he banked
hours when he was on unemployment from October 29, 2000, to October 27, 2001?
A. Yes, based on the two
sheets that record the banked hours, and on his time sheets, he worked a few
times during this period.
Q. 9 . At whose request did you keep
these hours banked until they totalled 350.5 hours?
A. At Mr. Côté's. He probably made
this arrangement with the four shareholders at the time: Alain and Francine
Gagnon, Clément Gaudreault, and Roland Bédard.
Q. 10. Can you explain to me how the
350.5 banked hours were paid to René Côté?
A. They were deducted
from the bills for the gas that he bought from Shell to fill up his personal
vehicle. I divided the amount of the bill by his $20 hourly wage, and reduced
his banked hours by an equal amount. In addition, he submitted false
invoices from his company, Les Entreprises R.C. d’Ungava
Inc., bearing a number of hours (15 to 30 hours per invoice) that I computed
at $20 per hour plus taxes, and I issued cheques to his company and reduced the
banked hours by the number of hours that he stated on his invoices.
[20] The fifth person to
testify was Roland Bédard, a director of the Payor and an equal shareholder,
along with Clément Gaudreault, of 9081‑0037 Québec Inc. During his
testimony, he confirmed his answers to Questions 7 and 8 of the statutory
declaration that he signed on March 25, 2004. Here are some excerpts:
[TRANSLATION]
Q. 7. What was the selling price of that
business (R.C. d'Ungava Inc.)?
A. Roughly $70,000.00, I
think, and he came a few times to demonstrate the work.
Q. 8. Is it possible that René Côté
worked a total of 2080 hours, as stated in Record of Employment # A67743337 (from
1999-11-11 to 2000-10-27)?
A. Absolutely not, Mr.
Lévesque. He came a few times, that's for sure, but not that often. I am
telling you this honestly between me and you.
During his testimony, Mr.
Bédard also confirmed that the work orders produced as Exhibit I‑6,
which are for work done by Mr. Côté while he was receiving benefits, could not
have belonged to anyone else.
Analysis and conclusion
[21] The determination of
whether a person is an employer or independent contractor is a question of fact
and law because it involves the application of a legal rule to a factual
situation.
[22] The definition of
insurable employment is set out in paragraph 5(1)(a) of the Act,
which reads as follows:
5. (1) Subject to subsection
(2), insurable employment is
(a) employment in Canada by one or more
employers, under any express or implied contract of service or apprenticeship,
written or oral, whether the earnings of the employed person are received from
the employer or some other person and whether the earnings are calculated by
time or by the piece, or partly by time and partly by the piece, or otherwise;
[23] The concept of a
"contract of service" in paragraph 5(1)(a) of the Act must be
analysed in light of Quebec civil law when the applicable provincial law is Quebec law. The Civil Code of
Québec determines the rules applicable to a contract entered into in
Quebec.
[24] The relevant
articles of the Civil Code of Québec, S.Q. 1991, c. 64, are
articles 2085, 2098 and 2099, and I shall reproduce them:
2085. A contract of employment is a contract by
which a person, the employee, undertakes for a limited period to do work for
remuneration, according to the instructions and under the direction or control
of another person, the employer.
2098. A contract of enterprise or for services
is a contract by which a person, the contractor or the provider of services, as
the case may be, undertakes to carry out physical or intellectual work for
another person, the client or to provide a service, for a price which the client
binds himself to pay.
2099. The contractor or the provider of
services is free to choose the means of performing the contract and no
relationship of subordination exists between the contractor or the provider of
services and the client in respect of such performance.
[25] The purpose of the
following remarks is to apply these legal rules to the facts of this case.
[26] The Record of
Employment issued by the Payor to the Appellant refers to 2080 insurable hours
and $30,004 in remuneration in respect of a 12-month period. The 2080 insurable
hours represent 40 hours a week for 52 weeks. This is a heavy workload for
the Appellant, who sold his business because he was suffering from lung
disease. The Appellant himself acknowledged in his statutory declaration that
he did not do all the 2080 hours, but he specified that he was available if
needed and to provide training to the Payor's employees. Alain Gagnon, the
Appellant's supervisor, admitted that he did not know exactly how many hours
the Appellant worked every week, and that the Appellant filled out his own time
sheets. Clément Gaudreault acknowledged in his statutory declarations that
the Appellant did not do the 2080 insurable hours and that this amount
corresponded to the number of hours needed to arrive at the $30,000 that the Appellant
was owed on the selling price of his business. Roland Bédard, the very
person that the Appellant trained, confirmed that the Appellant never worked
those 2080 hours. Lastly, it is rather implausible that the Appellant worked
1040 hours during the last six months of the period in issue, considering that
his employment contract did not even require him to report to work and he was
free to manage his time at work as he saw fit.
[27] In fact, the Payor
acknowledged that it was guilty of 35 counts of producing false Records of
Employment, including the Appellant's, and was ordered to pay $550 in respect
of each count.
[28] The $30,000 that the
Payor paid the Appellant during the period in issue seems more like the balance
of a selling price to me than remuneration for services rendered. It seems
unlikely to me that no portion of the selling price was attributed to goodwill,
the exclusivity agreement with Linatex, or the 10-year non‑competition
clause. Both parties obtained a substantial advantage by structuring the
transaction as they did. The Payor purchased the Appellant's business by
spreading out the payment of a portion of the selling price over one year's
time, while the Appellant's company could reduce the tax consequences of the
asset sale and the Appellant could draw employment insurance benefits one year after
the sale.
[29] Based on the
elements brought before me, the Appellant was arguably not even an employee of
the Payor during the period in issue because there was no employer-employee
relationship between them. In any event, I will continue my analysis so that I
can address each aspect of the matter.
[30] The evidence
discloses that
(a) the Payor had no expertise in the
installation of rubber lining on mining machine parts, and thus, the
Appellant's services were essential for this activity to be carried on;
(b) none of the members of the Payor's
management know exactly how many hours the Appellant worked each week;
(c) the Appellant filled out his own time
sheets and submitted them to the Payor's accounting department weekly;
(d) the Appellant spent approximately 30% of
his work time at the workshop that his company leased to the Payor for $400 a
month, and the remainder of that time at mining sites, primarily the Inmet
mining company's Troilus division mine, where the mining company made a
workshop available to him; and
(e) the Appellant provided training to Roland Bédard
mainly on weekends, because Mr. Bédard was not available during the week;
during the week, he had to work on the mining sites.
[31] Based on the facts
set out in the preceding paragraph, and the following comments, I find that the
work contract between the Appellant and the Payor is more consistent with a
contract of enterprise or for services than a contract of employment. Under the
contract, the Appellant had an obligation to provide a service, i.e. a transfer
of knowledge, in exchange for $30,004 in remuneration, paid over a 12-month
period. The contract did not require the Appellant to work a predetermined number
of hours, he did not have to report to the Payor's establishment in order to
carry out his work, and he did not have to follow a set work schedule. In
addition, the Appellant was free to choose the means for performing the
contract, because he was the only one who had the knowledge needed to install
rubber lining. None of the Payor's people had this expertise, so nobody could
dictate how the Appellant was to perform the work, or control the quality or
quantity of work done by the Appellant.
[32] What distinguishes a
contract of enterprise or for services from a contract of employment is the
absence of a relationship of subordination insofar as the performance of the
obligation set out in the contract is concerned. The word
"subordination" means the employer's ability to determine what work
is to be performed and to supervise and control the work. In the case at bar, I
do not believe that there was a relationship of subordination between the Payor
and the Appellant. Nothing in the evidence enables me to conclude that the
Payor could control the quantity and quality of the work done by the Appellant or
impose means of performing the work. On the contrary, the characteristics of an
employment contract, namely a right of immediate supervision and direction, and
the performance of the agreed-upon work by the employee personally, under the
direction of the employer, and within the framework established by the
employer, do not exist in the case at bar. In fact, the work contract
specifically provided that, in the event that the Appellant fell ill, he was to
provide the Payor with an experienced person under the same terms and
conditions and to the Payor's satisfaction. This obligation imposed on the Appellant
to find a replacement in the event of an illness is a good illustration of the
fact that there was a contract for services between the Payor and the
Appellant.
[33] Applying the tests
articulated by the Federal Court of Appeal in Wiebe Door Services Ltd. v.
M.N.R., [1986] 3 F.C. 553, namely control, ownership of work
tools, chances of profit, risks of loss, and integration, tests that were
accepted by the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz
Industries Canada Inc., [2001] 2 S.C.R. 983, the
evidence shows that the Appellant did not own the work tools because he sold
them to the Payor, he did not have chances of profit because his pay, as
specified in the work contract, was determined in advance for the duration
of the contract, and there was no provision for overtime. On the other hand,
the obligation imposed on the Appellant to provide the services of a
replacement in the event of an illness created a risk of financial losses for
the Appellant, or, at least, a shortfall. As far as integration is concerned, I
do not believe that the Appellant's activities were integrated into the Payor's
activities. The Appellant rendered services in his workshop and in the workshop
that the Inmet mining company made available to him. He determined his own work
schedule. He controlled the quality and quantity of his work and the means of
performing the work to be done. He held no position in the Payor's hierarchy.
The Payor did not and could not exercise his power of direction of control
to ensure that the work entrusted to the Appellant was performed properly.
[34] As for the parties'
intention at the time that the contract was signed, it is my opinion that the
parties intended to enter into an employment contract in order to give the
Appellant access to employment insurance benefits after the transitional year
elapsed. Unfortunately for them, the context did not lend itself well to such a
contract. The contract was concurrent with a contract for the sale of business assets,
and it is clear to me that the parties tried to convert what should have been
the balance of a selling price into employment income. The contract in question
is deficient in many respects, and does not contain the customary employment
contract clauses, such as fringe benefit eligibility, vacation time, overtime,
work schedule, place of work, etc. The intention factor cannot be given as
much importance here as the case law normally ascribes to it. The parties'
conduct in the case at bar is very telling. It is important to bear in mind
that the business in issue pleaded guilty to charges of issuing false Records
of Employment, and had a system in which hours were banked. In addition,
we are dealing with an Appellant who made false statements in order to obtain
employment insurance benefits, who worked while receiving such benefits and did
not declare the hours that he worked, who participated in the Payor's system of
banking hours, and who arranged to get paid for banked hours in gasoline and
through invoices of his own company.
[35] For all these
reasons, René Côté's appeal is dismissed, and I find that his work with
the Payor during the period in issue did not constitute insurable employment
within the meaning of subsection 5(1) of the Act.
Signed at Ottawa, Canada, this 5th day of December 2007.
"Réal Favreau"
Translation
certified true
on this 25th day of January 2008.
Brian McCordick, Translator
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