Citation: 2011 TCC 473
Date: 20111006
Dockets: 2010-2622(EI)
2010-2623(EI)
BETWEEN:
GILBERTE SHEEHAN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
The appeals involve the
insurability of work performed during the two following periods:
a.
July 7, 2008, to November
1, 2008;
b.
September 14, 2009, to
December 31, 2009.
[2]
During those periods, the
appellant performed work on behalf and for the benefit of Les Distributions
Richard Langlais Inc., of which all of the voting shares were held by her
husband Richard Langlais. The parties agreed to have the two matters heard on
common evidence.
[3]
Only the appellant
testified at the trial. She
admitted almost all of the facts relied on to explain and justify the two determinations under appeal.
The facts relied upon are paragraphs and subparagraphs 5 (a) to (c), 6 (a)
to (f), (1), (2) and (3) and (g), (h), (j) to (p), and (t).
[Translation]
(5) The appellant and the payor are related
persons within the meaning of the Income Tax Act, as
(a) the payor’s sole shareholder was
Richard Langlais;
(b) Gilberte Sheehan, the appellant,
is the wife of Richard Langlais;
(c) the appellant is related by
marriage to a person who controls the payor;
(6) The Minister determined that the
appellant and the payor were not dealing with each other at arm’s length in the
course of the employment. Indeed, the Minister was satisfied that it was unreasonable
to conclude that the appellant and the payor would have entered into a
substantially similar contract of employment if they had been dealing with each
other at arm’s length, having regard to the following circumstances:
(a) the payor was incorporated on
April 7, 1998;
(b) the payor ran a business specialized
in distributing bread and pastries for the company Multimarques;
(c) the payor is the only one who
delivers on a territory that extends from Barachois to Rivière-aux-Renards;
(d) the payor affirmed that business
is slower from January to June 24 of each yearcompared to the summertime,
which is a busier period owing to the high tourism (large number of tourists?) in
Gaspé and compared to the month of December owing to the holidays;
(e) the payor’s monthly income from
July 2008 to December 2009 was as follows:
|
July 2008*
|
$11,548.49
|
April 2009
|
$11,016.27
|
|
August 2008
|
$17,639.47
|
May 2009
|
$12,463.68
|
|
September 2008
|
$11,858.76
|
June 2009
|
$9,884.34
|
|
October 2008
|
$12,021.36
|
July 2009
|
$12,405.22
|
|
November 2008
|
$14,008.56
|
August 2009
|
$13,566.45
|
|
December 2008
|
$10,734.20
|
September 2009
|
$8,840.65
|
|
January 2009
|
$14,436.80
|
October 2009
|
$10,853.51
|
|
February 2009
|
$10,171.35
|
November 2009
|
$8,305.32
|
|
March 2009
|
$11,920.61
|
December 2009
|
$8,162.55
|
* the months in bold indicate the appellant’s periods of employment
with the payor;
(f) the delivery of pastries and bread is executed in three stages:
1. every
morning deliveries are made to grocery stores, namely, I.G.A. and Provigo de
Gaspé where some of the bread is placed on shelves and the rest is kept in a section
in the back of the stores;
2. on
Tuesdays, Wednesdays and Saturdays, someone must go back to the grocery stores
to rotate the bread and place the rest of the stored bread on the shelves;
3.
on
Thursdays and Fridays, a third service is necessary because the quantity of
bread is larger;
(g) the
shareholder is the only one authorized to sign the payor’s cheques;
(h) the payor hired, in addition to the shareholder, the shareholder’s
son and the appellant;
(j) the appellant
was a stock clerk for the payor and was in charge of the second and third services
for some of the payor’s clients; she was also in charge of filing invoices and getting
the papers ready for the accountant each month, preparing payments for the
suppliers (5 to 10 statements of account per month) and making the weekly
bank deposits;
(k) the appellant
also worked at Canadian Tire where she had a regular schedule of 30 hours per
week during the period in issue; she was dismissed in December 2008 and started
working again on June 1, 2009, without a regular schedule, and stopped working
in December 2009 and started working again on May 17, 2010;
(l) the payor stated
that the appellant would always give priority to her employment with Canadian
Tire and that it itself would manage to get the appellant’s work done if she
were unavailable;
(m) the appellant
worked 25 hours per week divided as follows: 2 hours per day on Mondays, Tuesdays,
Wednesdays and Saturdays and 3 hours per day on Thursdays and Fridays at I.G.A.
and ¾ of an hour per day, except for Saturdays, at Provigo, the payor’s
clients, and about 7 hours per week for the invoicing and getting the papers
ready for the accountant;
(n) the hours
worked by the appellant were not recorded by the payor;
(o) the
appellant’s remuneration was determined by the payor at the hourly rate of $12,
including 4% vacation pay, for the period in issue;
(p) the appellant
was paid by cheque each week for 25 hours of work;
(t) the payor stated that although the month of December is a profitable
month owing to the holidays, he dismissed the appellant on November 1 because
he could no longer pay her;
[4]
However, the appellant
denied the facts set out in subparagraphs 6 (i), (q), (r), (s), and (u) as
follows:
[Translation]
(i) the payor stated that Ricky Langlais would do the deliveries with
the payor’s shareholder until he was dismissed in April 2009, when the payor lost
a part of its territory resulting in a loss of monthly income of about 20%, whereas
the appellant stated that she was the payor’s sole employee both in 2008 and in
2009, as she was hired to replace their son;
(q) the payor stated that each time the appellant was dismissed, she continued
to be in charge of the invoicing without getting paid, as the payor knew
nothing about computers and she continued to work with the payor in the
afternoon to place the bread on the shelves and rotate it, whereas the appellant
stated that she did not perform regular services for the payor after her
dismissals, that it was her husband that was in charge of bread and rotating it,
and that he was in charge of sorting out the invoices;
(r) the beginning of the period in issue corresponds with the moment at
which the appellant started getting paid, whereas she performed the same work before
she was hired without getting paid;
(s) an employee unrelated to the payor would not have agreed to work
without remuneration;
(u) the appellant’s period of employment with the payor does not correspond
with the payor’s needs, especially since the monthly income did not fluctuate on
a large scale warranting a dismissal;
[5]
The basis for the
respondent’s finding of exclusion is provided for in paragraph 5(2)(i)
of the Act, which reads as follows:
5(2) Excluded employment − Insurable employment does not
include
. . .
(i) employment
if the employer and employee are not dealing with each other at arm’s length.
[6]
In the same section,
however, Parliament provided that the exclusion could be set aside if parties dealing
with each other at arm’s length would have entered a substantially similar
contract of employment.
[7]
In other words, Parliament
granted the respondent the discretionary power to assess all facts pertinent to
the employment at issue, namely, the remuneration paid, the terms and
conditions and the duration of the work performed, and to determine whether or
not the employment is insurable. The provisions in question read as follows:
5(3) Arm’s length dealing − For the purposes of paragraph (2)(i),
(a) the
question of whether persons are not dealing with each other at arm’s length
shall be determined in accordance with the Income
Tax Act; and
(b) if
the employer is, within the meaning of that Act, related to the employee, they
are 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.
[8]
The Federal Court of
Appeal has in a number of decisions held that a decision resulting from the
exercise of discretionary power cannot be set aside by the Court unless it is
established on a balance of probabilities that the exercise of the
discretionary power was tainted by errors or flaws, or was simply exercised
unreasonably, either by failing to take into account relevant elements or by
taking into account irrelevant elements.
[9]
In short, if the Minister
properly and reasonably assessed all the relevant facts, this Court cannot set
aside his decision, even if the Court could have arrived at a different conclusion.
[10]
The analysis must
involve not only the work performed that led to the determination under appeal
but also all the facts shown at trial; contrary to the investigation prior to
the determination, the hearing before the court provides a set of generally more
complete and nuanced facts; moreover, witnesses are more prepared to present
all facts they deem important and relevant while allowing for a better
assessment of credibility when all relevant parties are present.
[11]
In that respect, the
two cases most often cited, Légaré v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878,
246 N.R. 176, and Pérusse v. Canada (Minister of National Revenue - M.N.R.), [2000] F.C.J. No. 310,
261 N.R. 150, indicate the following. In Légaré, the
Honourable Justice Marceau states as follows:
4 The Act requires the Minister to make a
determination based on his own conviction drawn from a review of the file. The
wording used introduces a form of subjective element, and while this has been
called a discretionary power of the Minister, this characterization should not
obscure the fact that the exercise of this power must clearly be completely and
exclusively based on an objective appreciation of known or inferred facts. And
the Minister's determination is subject to review. In fact, the Act confers the
power of review on the Tax Court of Canada on the basis of what is discovered
in an inquiry carried out in the presence of all interested parties. The Court
is not mandated to make the same kind of determination as the Minister and thus
cannot purely and simply substitute its assessment for that of the Minister:
that falls under the Minister's so-called discretionary power. However, the Court
must verify whether the facts inferred or relied on by the Minister are real
and were correctly assessed having regard to the context in which they
occurred, and after doing so, it must decide whether the conclusion with which
the Minister was "satisfied" still seems reasonable.
. . .
12 I have just
said that in our view, these facts by themselves do little to explain and
support the response of the Minister or his representative. Under the Unemployment
Insurance Act, excepted employment between related persons is clearly based
on the idea that it is difficult to rely on the statements of interested
parties and that the possibility that jobs may be invented or established with
unreal conditions of employment is too great between people who can so easily act
together. And the purpose of the 1990 exception was simply to reduce the impact
of the presumption of fact by permitting an exception from the penalty (which
is only just) in cases in which the fear of abuse is no longer justified. From
this perspective, after identifying the true nature of the employment, the
importance of the duties and the reasonableness of the compensation, it is
difficult in our view to attach the importance the Minister did to the facts he
relied on to exclude the application of the exception. It is the essential
elements of the employment contract that must be examined to confirm that the
fact the contracting parties were not dealing with each other at arm's length
did not have undue influence on the determination of the terms and conditions
of employment. From this standpoint, the relevance of the facts relied on, even
without further detail, seems very questionable. And there is no need to go any
further. While the facts relied on might legitimately leave sufficient doubt
with respect to an objective basis for the conditions of the applicants'
employment contract, placing these facts in the context of the evidence adduced
before the Tax Court of Canada - evidence which was almost completely accepted
by the Tax Court judge - only serves to highlight the unreasonableness of the
Minister's initial conclusion. It was in fact clearly explained and established
that the applicants' salary was higher than the minimum wage the other
employees received because of the responsibility involved in the duties they
performed and that that was the prevailing salary in the industry for similar
jobs; it was clearly explained and established that the shareholders had
decided to reduce the salary normally due to them to provide for the financial
support and development of the business; it was clearly explained and proven
that a tornado had destroyed a large number of the buildings of the business in
1994, which led to a period of confusion, and then reconstruction and financial
difficulties; last, it was explained and proven that the presence of the
children of one of the applicants on the land around the greenhouses was very
unlikely to affect the performance of her duties and the provision of the
services she agreed to provide.
[12]
In Pérusse, the
Honourable Justice Marceau stated as follows:
14 In fact, the judge was acting in the manner
apparently prescribed by several previous decisions. However, in a recent
judgment this Court undertook to reject that approach, and I take the liberty
of citing what I then wrote in this connection in the reasons submitted for the
Court:
The Act requires the
Minister to make a determination based on his own conviction drawn from a
review of the file. The wording used introduces a form of subjective element,
and while this has been called a discretionary power of the Minister, this
characterization should not obscure the fact that the exercise of this power
must clearly be completely and exclusively based on an objective appreciation
of known or inferred facts. And the Minister's determination is subject to
review. In fact, the Act confers the power of review on the Tax Court of Canada
on the basis of what is discovered in an inquiry carried out in the presence of
all interested parties. The Court is not mandated to make the same kind of
determination as the Minister and thus cannot purely and simply substitute its
assessment for that of the Minister: that falls under the Minister's so-called
discretionary power. However, the Court must verify whether the facts inferred
or relied on by the Minister are real and were correctly assessed having regard
to the context in which they occurred, and after doing so, it must decide
whether the conclusion with which the Minister was "satisfied" still
seems reasonable.
15 The function of an appellate judge is thus not
simply to consider whether the Minister was right in concluding as he did based
on the factual information which Commission inspectors were able to obtain and
the interpretation he or his officers may have given to it. The judge's
function is to investigate all the facts with the parties and witnesses called
to testify under oath for the first time and to consider whether the Minister's
conclusion, in this new light, still seems "reasonable" (the word
used by Parliament). The Act requires the judge to show some deference towards
the Minister's initial assessment and, as I was saying, directs him not simply
to substitute his own opinion for that of the Minister when there are no new
facts and there is nothing to indicate that the known facts were misunderstood.
However, simply referring to the Minister's discretion is misleading.
[13]
Only the appellant
testified in support of her appeal. The respondent called as a witness the person
in charge of the file at the
objection stage for the
first-level determination.
[14] The appellant testified in a spontaneous and
forthright manner. She explained and described her work, contribution and support
with respect to the business, owned by her husband.
[15] She revealed and explained, inter alia,
that she did not replace her son, who stopped working in order to obtain more
suitable and beneficial employment in the course of pursuing his studies. The
son drove the company vehicle, whereas she was essentially a stock clerk.
[16] She explained that over the years, she had
worked at Zellers and then at Canadian Tire, where she still works, first as a
store clerk and now as a cashier.
[17] She indicated that her priority was her work
at Canadian Tire and that in the case of a scheduling conflict, she would work
for that employer. Her husband’s business came second.
[18] She described her work for her husband’s
business; she primarily worked as a stock clerk at the premises of the clients
of the business operated by her husband. It was important work with a number of
consequences not only on the volume of sales, but also on the commission the
appellant received. Her job was to ensure shelves were always stocked with
non-expired and fresh products in order to stimulate sales.
[19] She was also in charge of management, filing, of
all work related to the use of a computer, seeing as her husband did not have
the ability to use such a management tool.
[20] When called upon to explain her unpaid or
volunteer work, she admitted that it was correct and true but added that in the
Gaspé region, it is not unusual to work for one’s employer without remuneration.
[21] She also stated that it was normal to help and
support her husband in the operating his business. She also indicated that
everyone knew, supported and helped everyone else.
[22] Finally, as regards her volunteer work, she
stated that it was a period during which she was learning the job and which
occurred over a number of years. She also mentioned that she did not perform
work but rather lent her support.
[23] She mentioned that her husband attempted to no
avail to find a qualified and competent employee, given the requirements, in a
region where the unemployment rate is generally higher than anywhere else on
the one hand, and on the other hand, that it was a job that had to be learned,
but did not require specialized or specific training.
[24] Johanne Potvin, appeals officer, whose responsibilities
included the appellant’s appeals, also testified; she relied on the report of
her investigation and the analysis contained in her report adduced as Exhibit I-1.
She also considered elements which I believe would be useful to reproduce:
[Translation]
Duration, nature and importance of the work
The payor’s activity is to deliver pastries and bread, namely to
I.G.A. and Provigo de Gaspé grocery stores. Delivery is undertaken by the
payor’s shareholder who places the products on the stores’ shelves. Some of the
bread is immediately placed on the store shelves, whereas the rest is placed in
a section situated in the back of the stores. Such an operation is called
service 1. Service 2 is required on Tuesdays, Wednesdays and Saturdays, as
someone must return to the stores to place the rest of the bread on the shelves
and rotate it. A 3rd service is necessary on Thursdays and Fridays, owing to
the larger quantity of bread during those two days.
The appellant was hired on July 7, 2008, as a stock clerk and was
responsible for performing the second and third services in groceries stores. She
was also responsible for the invoicing of thirty or so clients and getting
papers ready for the accountant each month. She was also in charge of preparing
5 to 10 statements of account per month to pay the suppliers and making
bank deposits once a week. The facts showed that the appellant worked just over
fifteen hours or so per week in order to take care of the bread, and that she
spent 7.5 hours per week on paperwork.
The appellant is the payor’s sole employee and the reason she was
hired seems vague, which raises the issue of the importance of the work
performed by the appellant. First, the payor’s shareholder stated that the
appellant had always worked before she was hired but was not paid. How can one
justify the appellant’s hiring then?
. . .
The facts showed that the appellant also worked 30 hours per week at
Canadian Tire in Gaspé during the period in issue. The shareholder stated that
the appellant still works for that employer, but that she currently does not
have a regular schedule. The shareholder also claimed that the appellant will
always give priority to Canadian Tire and that he himself would manage to get the appellant’s work done if she were unavailable. Was the work
performed by the appellant truly essential to the payor at that time?
Another important element was raised over the course of the review that
raises the issue of the importance of the work. It is the fact that the payor’s
shareholder stated that despite the fact that the payor operates year-round, it
is less busy from January to June compared to the month of December, which is a
profitable month owing to the holidays. However, the payor terminated the
appellant’s services on November 1, 2008, under the pretext that it was no
longer able to pay her.
. . .
Terms and conditions of employment
The appellant had the latitude to adjust her schedule to accommodate
her other employer. She did not record her hours of work and she received fixed
remuneration for 25 hours per week throughout the entire period at issue. The
payor’s shareholder told the decision-making officer that the appellant worked
between 20 and 25 hours per week, but that he always paid her for 25 hours
of work as it was easier to calculate for the payor’s accountant, who was his brother-in-law.
The payor’s shareholder also stated that their daughter would
sometimes help the appellant with her work during school holidays. The appellant
should have therefore worked fewer hours during those times and yet she was
always paid for 25 hours.
We are of the view that the payor would have exercised control over
the hours performed by a stranger, and that such a person would have been paid
for hours actually worked.
Remuneration paid
The appellant’s salary was at the rate of $12 per hour, including
the 4% vacation pay, and she was always paid for 25 hours of work per week. The
facts showed that the appellant received paycheques every week in the amount of
$202.32 during the period in issue.
The payor began paying the appellant for her services in July 2008, while,
before that, roughly ten years as the payor has been operating since 1998, she
had always performed the work without being paid. Moreover, the appellant
continued to be in charge of invoices without being paid since the end of her
employment as the shareholder knew nothing about computers. Also, the
shareholder stated that the appellant continued to work with him in the afternoon.
We are of the view that a stranger would not have agreed to work that
long without being paid nor would a stranger agreed to continue to perform duties
without being paid.
. . .
Conclusion
The analysis of the non-arm's-length dealings has shown us 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 unreasonable to conclude that the
parties would have entered into a substantially similar contract of employment
if they had been dealing with each other at arm’s length. The Minister is therefore satisfied that it is reasonable to conclude that the employment of Giberte [sic]
Sheehan for Les Distributions Richard Langlais Inc. was excluded from insurable
employment under paragraph 5(2)(i) of the Employment Insurance Act for the period
from July 7, 2008, to November 1, 2008.
[25] The appeals officer’s analysis is beyond
reproach, except for the fact that she contended, incorrectly, that the
appellant replaced her son, whereas the evidence established that it was a misinterpretation
on her part as the appellant and her son did not perform the same work. Such a
detail is however irrelevant within the context of the analysis particularly
since it did not manifestly impact the conclusion reached.
[26] As for the other aspects, elements and facts considered
by the appeals officer, the evidence confirmed their accuracy, even those
denied, with the exception of the issue that she replaced her son. The
evidence, therefore, added nothing new.
[27] The evidence submitted by the appellant validated
all the assumptions of fact made. The evidence also revealed that the
investigation and analysis took into account all relevant facts and that their
assessment was conducted in a correct and judicious manner.
[28] The evidence validates or confirms, on a
balance of probabilities, the reasonableness of the two determinations under appeal.
[29] Certain determining facts in that respect are,
inter alia, the unpaid work, the surprising flexibility, the particular approach
to her work for the payor compared to that for Canadian Tire, but also and
above all the fact that her work covered periods where the sales figures were
lower than those where she did not work.
[30] The Gaspé region is a very particular region which
consists of several dozen small communities. The people who live in that region
are warm and welcoming. Support, generosity and collaboration are qualities that
properly characterize and define those communities.
[31] Exceptional qualities, however, somewhat complicate
the analysis of a file where the employee and the employer are not dealing
with each other at arm's length. In fact, what is often implausible, unreasonable
even, in large urban areas where people do not know one another and where the
rule in relationships is often individualism, is entirely reasonable and customary
in such regions as the Gaspé.
[32] Such qualities and characteristics shape labour
relations and it can become very difficult to draw the distinction between what
is reasonable and what is unreasonable.
[33] One thing is for certain, that reality cannot explain
and justify all the terms and conditions of a contract of service.
[34] The fact that a person would agree to work
without being paid for a short period of time, that a person would take work
home without being compensated, that a person would be more flexible about his
or her workload, that a person would more easily accept certain difficulties or
irritants can be viewed as acceptable and customary.
[35] However, such characteristics must not and
cannot dominate the terms and conditions of a contract of service.
[36] In the case at bar, the appellant testified in
a spontaneous and forthright manner. She admitted almost all the facts assumed;
the evidence also revealed the truth of the facts denied with the exception of
that pertaining to the replacement of her son. That element does not constitute
a determining factor in the analysis and conclusion that followed.
[37] Seeing as the investigation and analysis were validated
by the evidence, it appears that the resultant conclusion is reasonable. The conclusion
reached and contested is reasonable and entirely consistent with all the
relevant facts available both in the exercise of discretion and during the
hearing before the court.
[38] For all these reasons, the appeals are
dismissed.
Signed at Ottawa, Canada, this 6th day of October
2011.
“Alain Tardif”
Translation certified true
on this 22nd day
of November 2011.
Daniela Possamai,
Translator
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