Citation: 2009 TCC 481
Date: 20090929
Docket: 2009-1083(EI)
BETWEEN:
GILLIAN McKENZIE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The appellant, Gillian McKenzie, appeals with respect
to a decision of the Minister of National Revenue concerning insurable
employment under the Employment Insurance Act. The period at issue is
from May 7, 2008 to October 4, 2008.
[2] In 2006, the appellant and her parents purchased a
restaurant in Nova Scotia by the name of Seaside Shanty. The restaurant was
operated by GCM Holdings Limited (“GCM”), a corporation that was wholly-owned
by the appellant and her parents.
[3] The restaurant is open from May to October each year.
The appellant’s parents do not have regular involvement with the business. The
appellant was employed full time in the business during the period that the
restaurant was open except in the last week when it was not busy. Both the
appellant and her mother worked for a couple of weeks before the restaurant
opened for the season and after it had closed. This was preparatory work.
[4] The appellant is related to GCM for purposes of the Act.
As such, her employment is not insurable unless the terms and conditions are
substantially similar to what they would be if she and GCM were dealing at
arm’s length.
[5] The Minister determined that the employment terms were
not substantially similar to an arm’s length relationship.
[6] The question to be determined is whether the
Minister’s determination was reasonable.
[7] Before considering this issue, I would first comment
on the approach that must be taken in a case such as this. It was succinctly
described by Campbell J. in Porter v. MNR, 2005 TCC 364, at paragraph
13:
In summary, the function of this Court is to verify the existence and accuracy
of the facts relied upon by the Minister, consider all of the facts in evidence
before the Court, including any new facts, and to then assess whether the
Minister's decision still seems "reasonable" in light of findings of
fact by this Court. This assessment should accord a certain measure of
deference to the Minister.
Discussion
[8] There is very little dispute about the facts. I will
start, then, by reproducing the relevant parts of paragraph 5 of the reply
which describes the assumptions made by the Minister for purposes of his
determination:
[…]
g)
during the period under appeal, the Appellant was the dining room
manager for the restaurant (the “Manager Position”);
h)
during the period under appeal, the Payor employed 5 to 10 employees to
perform duties in the dining room (the “Dining Room Staff”);
i)
the Appellant’s duties in the Manager Position included supervising the
Dining Room Staff, shopping for groceries, providing hostess services,
cleaning, dishwashing, and bartending (the “Duties”);
j)
during the period under appeal, the Appellant purportedly spent an
average of 50 hours per week performing the Duties;
k)
in the Director Position, the Appellant performed bookkeeping duties
(the “Director’s Duties”);
l)
the Appellant spent approximately 2 hours per week performing the
Director’s Duties;
m)
the Appellant was not remunerated for performing the Director’s Duties;
n)
the Appellant’s salary was $650 per week, regardless of the number of
hours she worked;
o)
all staff members at the Restaurant, other than the Appellant, were paid
hourly;
p)
when the Appellant was not performing the Duties, the Duties were shared
by the Dining Room Staff;
q)
the Dining Room Staff were not remunerated for performing the Duties
normally performed by the Appellant;
r)
the Restaurant had a separate kitchen manager (the “Kitchen Manager”);
s)
the Kitchen Manager was paid $12 per hour worked;
t)
all staff members at the Restaurant, other than the Appellant and the
Kitchen Manager, were paid between $8 and $10 per hour;
u)
all staff members at the Restaurant, other than the Appellant, received
pay, above their regular rate, if they worked on a statutory holiday;
v)
in 2008, the Restaurant opened for the season on or around May 7, 2008;
w)
prior to the period under appeal, the Appellant spent approximately 20
hours per week performing both the Duties and the Director’s Duties;
x)
the Appellant performed the Duties and the Director’s Duties prior to
the period under appeal for no remuneration;
y)
prior to the period under appeal, the Appellant also ordered the bar
supplies for the Restaurant;
z)
the Appellant was not remunerated for her time spent ordering the bar
supplies for the Restaurant;
aa)
in 2008, the Restaurant closed for the season on October 12, 2008;
bb)
the Appellant was laid off from the Manager Position on October 4, 2008;
cc)
the Dining Room Staff continued to work for the Payor until the
restaurant closed for the season;
dd)
after the period under appeal the Appellant continued to spend
approximately 20 hours per week performing the Duties and the Director’s
Duties;
ee)
the Appellant continued to perform the Duties and the Director’s Duties
after the period under appeal for no remuneration; and
ff)
the Payor did not have a need for the Appellant to perform the Duties.
[9] If the above assumptions are correct and complete, I
would have no hesitation in concluding that the decision of the Minister was
reasonable. The assumptions do not tell the whole story, however. The terms of
the employment are much closer to arm’s length terms than the assumptions would
suggest.
[10] First, in (w) and (ee) the Minister assumed that the
appellant worked before and after the relevant period for no remuneration.
[11] These assumptions give the impression that work was
performed for no remuneration on an indefinite basis. In fact, this period was
quite limited. According to appellant’s testimony, which I accept, she worked
for about two weeks before and two weeks after the restaurant was open each
year in preparatory work. The appellant’s mother, who was also a shareholder,
helped with some of the preparations for no remuneration.
[12] Second, in (k) and (m) the Minister assumed that the
appellant performed bookkeeping duties in her capacity as a director and that
she was not remunerated for this.
[13] The appellant testified that she was paid a flat
amount of $1,500 annually for bookkeeping. She stated that she did not consider
this as part of her employment duties and that the amount was equal to what the
previous owner had paid a bookkeeper.
[14] Although I can understand why the appellant concluded
that the bookkeeping duties were not part of her employment, it is not
reasonable to separate out the appellant’s duties as being in part employment
and in part something else.
[15] Nothing turns on this, however, because the important
point is that the appellant received reasonable remuneration for the
bookkeeping duties. The terms were set based on arrangements that the prior
owner had made. I do not know what more the appellant could have done to have
arm’s length terms than to mirror terms set by the prior owner.
[16] According to (q), the Minister assumed that the dining
room staff were not remunerated for performing duties normally performed by the
appellant.
[17] This assumption has been rebutted. Most of the staff were
arm’s length and the hourly wage paid to them clearly compensated them for taking
over the appellant’s duties when she was not there.
[18] According to (ff), the Minister assumed that the payor
did not have a need for the appellant to perform the duties.
[19] It is not clear to me what conclusion was taken from
this assumption. If the Minister assumed that the appellant’s duties were not
important, this has been clearly rebutted by the appellant’s testimony.
[20] If, on the other hand, the Minister assumed that
someone else could have assumed these duties, this would be correct. Another
manager could be hired to do these tasks. I do not believe, however, that the
work was equivalent to the duties generally performed by the dining room staff.
The appellant’s managerial role clearly should be paid on a different scale. All
of the dining staff pitched in to help with various tasks, but the appellant’s
managerial role carried considerably more responsibility.
[21] Overall, the Minister seemed to view the appellant’s
managerial duties as not being vital to the business. Based on the evidence
presented, I would have thought that the appellant’s role was very important to
the success of the restaurant. As for whether the salary paid to the appellant
was reasonable, there is no reason for me to believe that it was not.
[22] There is one factor that is not reflective of an arm’s
length relationship and that is that the appellant worked for no additional
remuneration for a couple of weeks before and after the restaurant was open.
[23] The period involved in opening and closing was brief.
The test is whether the employment was “substantially similar” to arm’s length
employment. It would not be reasonable in my view to consider the appellant’s
relationship as not satisfying the test in s. 5(3)(b) of the Act
simply because of the opening and closing duties. In almost all respects, the
employment was at arm’s length terms.
[24] The appeal is allowed, and the decision of the
Minister that the appellant was not engaged in insurable employment during the
period from May 7, 2008 to October 4, 2008 is vacated.
[25] Each party shall bear their own costs.
Signed at Ottawa, Canada this 29th
day of September 2009.
“J. M. Woods”
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