Citation: 2008TCC552
Date: 20080930
Dockets: 2008-1083(EI)
BETWEEN:
FRANCIS FITZGERALD,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The
issue in this appeal is whether the decision of the Respondent that the
employment of Francis Fitzgerald by Fitzgerald’s Convenience Limited (“Company”)
during the period from January
22, 2006 to September 2, 2007 was not insurable employment for purposes of the Employment
Insurance Act ("Act") was reasonable.
[2]
Subsection
5(2) of the Act provides in part that:
Insurable employment does not include
...
(i) employment if the employer and employee
are not dealing with each other at arm's length.
[3]
Subsection
5(3) of the Act provides that:
(3) 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.
[4]
The
shares of the Company were held equally by Reginald and Mildred Fitzgerald.
The Appellant is Reginald Fitzgerald’s brother. The Appellant and the Company were
therefore related for the purposes of the Income Tax Act as a
result of the provisions of paragraph 251(2)(b) of that Act and are
deemed to not be dealing with each other at arm’s length under paragraph
251(1)(a) of the Income Tax Act. As a result the issue in this case
is whether the decision of the Minister of National Revenue that the Appellant
and the Company would not have entered into a substantially similar contract of
employment for the period in question if they would have been dealing with each
other at arm’s length, is reasonable.
[5]
In
the case of Porter v. M.N.R., 2005 TCC 364, Justice Campbell of
this Court reviewed the decisions of this Court and the Federal Court of Appeal
in relation to the role of this Court in appeals of this nature. In paragraph
13 of this decision Justice Campbell stated as follows:
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.
[6]
The
Company operated a gas bar, convenience store and liquor store. The business is
open for approximately 364 days per year from 7 am until 9 pm each day.
[7]
The
Appellant and her husband were living in Ontario when they were approached by
Reginald and Mildred Fitzgerald to see if they would return to Newfoundland and Labrador to work in
the business. Reginald and Mildred Fitzgerald were looking for someone who
could manage the business so they could have some time for themselves.
[8]
The
Appellant was employed as a cashier, store clerk, and general labourer. He
would order supplies, clean, paint, maintain the cooler, do carpentry work,
shovel snow, and complete any repairs that had to be done and which he could
complete. For example, he would try to repair the fuel pump in the event that
it should break down before calling the service repair company. If it was
simply a broken or loose belt, then he would fix it.
[9]
He
stated that there were also additional duties that he had that the other arm’s
length employees did not have. He would refuel ambulances after hours in the
event that an ambulance would need refuelling. He indicated that this would
happen about once a month. For about four days in the summer of 2007 he worked
on replacing approximately 100 feet of drain pipe and the septic tank. As well,
when the store would close at 9 pm he would take over from the employees who
would be working and balance the cash. The other employees would also consult
with him before they would cash a cheque.
[10]
The
Appellant was paid $16 per hour in 2006 and until February 2007 and then he was
paid $12 per hour. His pay was reduced in February 2007 because the Appellant
and his spouse moved into the apartment above the convenience store and did not
pay rent. The apartment was provided by the Company.
[11]
The
Appellant initially worked 45 hours per work but reduced his hours to 35 hours
per week because he had to look after his wife. He eventually had to quit his
job because his wife was not well. The Appellant’s wife (Betty Fitzgerald) had
been working for the Company as well and she had to quit working in 2006. Her
employment with the Company was also the issue in an appeal to this Court and
her appeal from a determination by the Respondent that her employment was not
insurable employment for the purposes of the Act was dismissed (2007 TCC 665).
[12]
The
Appellant clearly stated that he would not have moved back from Ontario if he and his wife would
have been offered anything less than $16 per hour. However the test
is whether they would have agreed upon substantially the same terms and
conditions if they would have been dealing at arm’s length; not whether he
personally would have agreed to move if the rate of pay would have been less.
The Appellant emphasized that he was being hired to manage the business but he
did not have any responsibility for hiring, scheduling or firing any of the
other employees, which would have been part of managing the business. He did
indicate that he was responsible for ordering supplies but Gertrude Wall, who
was hired for $8.50 per hour in October 2007 as a full time employee, also had
responsibility for ordering supplies.
[13]
Mildred
Fitzgerald, one of the shareholders of the Company, testified. In the
questionnaire that she had completed for the Respondent, the following
questions were posed:
28. Was anyone hired to replace the
Worker?
a. What is that person’s rate of
pay?
b. Please describe this person’s
duties compared to the Worker’s.
The Worker was identified on the
first page of the questionnaire as the Appellant. The answers provided by
Mildred Fitzgerald on this questionnaire were as follows:
Yes, new employee was hired to replace
Worker. Rate of pay for new employee is $8.50. New employee’s duties are the
same as former employee.
[14]
During
the hearing, Mildred Fitzgerald indicated that two employees had left – the
Appellant and one other full time employee. She indicated that only one person
was hired to replace these two employees and that the reference to the duties
of the former employee could refer to the other worker who left. However this
would raise the issue of whether the Appellant would have been hired at all if
he was not Reginald Fitzgerald’s brother. The individual who was hired to
replace the workers (Gertrude Wall) also testified during the hearing. She
indicated that her duties included cleaning, shovelling snow, ordering
supplies, stocking shelves, working at the cash register, running off the
reports at night and locking the cash in the safe. She did not balance the cash
but this did not diminish her responsibilities for the cash as she would have the
control over the cash until she left the store after work.
[15]
The
main issue in this case relates to the amount that the Appellant was paid in
relation to the amounts paid to the other employees who were dealing at arm’s
length with the Company. There were other arm’s length employees who were
working for the Company at the same time as the Appellant and these employees
were paid $7 to $8.25 per hour. The employee that was hired after the Appellant
ceased to work for the Company was paid $8.50 per hour.
[16]
Although
the cash amount paid to the Appellant decreased from $16 per hour to $12 per
hour, the Appellant, when this cash payment was reduced, received the benefit
of the accommodations provided by the Company. Providing the apartment to the
Appellant and his spouse was part of the compensation paid to the Appellant and
the Respondent, in my opinion, was correct in including this as part of the
analysis to determine whether the Appellant and the Company would have entered
into a substantially similar contract of employment if they would have been
dealing with each other at arm’s length.
[17]
No
monetary value was placed on the provision of the apartment to the Appellant
and his spouse. The Appellant had stated that he had reduced the number of
hours that he was working from 45 hours per week to 35 hours per week. Assuming
that the Appellant worked 35 hours per week in 2007, reducing his pay by $4 per
hour would result in the Appellant receiving $140 less per week. On a monthly
basis this would mean that the Appellant was receiving approximately $560 less
per month, which would suggest that this would be the approximate monetary
value of the apartment.
[18]
The
extra duties that the Appellant performed that the arm’s length employees did
not perform, were the extra duties related to the septic tank and the drainage
pipe, refuelling the ambulances, repair work, balancing the cash and providing
advice on cashing cheques. The work related to the drainage pipe and the septic
tank only took about four days. Refuelling the ambulances would only happen
once a month (and although this would be after hours would probably take less
than an hour to do). There was no evidence of the amount of time that he would
spend on repairs, balancing the cash or providing advice to the other employees.
It does not, however, seem reasonable that the repairs would have to be done
each hour of every day but it does seem reasonable to conclude that repairs
would have to be completed occasionally. It also seems reasonable to conclude
that balancing the cash would take some time but not enough time to justify a
rate of pay for each hour that was worked (which would include many hours when
the Appellant was not balancing the cash) of approximately twice as much as the
arm’s length employees who had many of the same duties as the Appellant. It
also does not seem reasonable that any significant amount of time would have
been spent in providing advice on cashing cheques or that this duty would
justify a significant pay differential.
[19]
It
does not seem reasonable that these extra duties, which (other than balancing
the cash) were done sporadically over the period of employment, would justify
the Appellant being paid approximately twice the amount per hour for each hour
that he worked as the arm’s length employees were being paid. It would appear
that the majority of his time was spent performing the same duties as the other
arm’s length employees including Gertrude Wall, yet he was paid almost twice as
much per hour (taking into account the accommodations that were provided for no
rent).
[20]
As
well Mildred Fitzgerald’s written response that a replacement worker was hired
to perform the same duties as the Appellant for substantially less pay,
indicates that the Company and the Appellant would not have entered into a
substantially similar contract of employment if they would have been dealing at
arm’s length. Her suggestion during the hearing that her responses as provided
in the questionnaire referred to above, would only apply to the replacement of
the other employee who left (since only one employee was hired to replace both
the Appellant and another full time arm’s length employee) is not of assistance
to the Appellant. Since only one employee was hired to replace two employees,
this would suggest that the Company and the Appellant would not have entered
into any contract if the Appellant had not been Reginald Fitzgerald’s brother.
[21]
As a
result, the facts that were presented do not lead to a conclusion that the
Minister’s decision was unreasonable in determining that the terms and
conditions of employment would not have been substantially similar if the
Appellant and the Company would have been dealing with each other at arm’s
length. I am unable to conclude that the decision of the Minister was
unreasonable and therefore the appeal is dismissed.
Signed at Halifax, Nova Scotia this 30th day of September 2008.
“Wyman W. Webb”
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