Citation: 2008TCC325
Date: 20080529
Docket: 2007-1154(EI)
BETWEEN:
MANUEL PIRES,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
O'Connor, J.
ISSUE:
[1] The issue in this
appeal is whether amounts paid to the Appellant, Manuel Pires (“Pires” or
“Appellant”), by his former employer, TDS Automotive Canada Inc. o/a Oshawa Reduced (“Payer”), of $4,999 per month
for a period of six months from May 19, 2005 to November 17, 2005 (“Settlement
Award”) pursuant to a Memorandum of Settlement of grievances dated May 3, 2005,
which grievances were dated January 31, 2003 and July 25, 2003 and filed by
Pires with the assistance and instruction of the union, CAW-Canada, constituted
insurable earnings entitling Pires to employment insurance benefits under the Employment
Insurance Act (“EI Act”)
and the Employment Insurance
Regulations (“EIR”) or whether the
Settlement Award constituted a retiring allowance or damages, in which case
Pires would not be so entitled.
FACTS:
[2] The Appellant
stopped working for the Payer in March 2002 and was terminated by letter dated
July 24, 2003.
[3] The Memorandum of
Settlement dated May 3, 2005 contained the following resolutions:
a) the termination letter dated July 24, 2003
was rescinded and removed from the Appellant’s employment record and the
Appellant was to be considered for all purposes as reinstated;
b) the Appellant was considered to be on unpaid
leave for medical reasons from July 25, 2003 to May 3, 2005;
c) the Appellant was to receive payments in the
amount of $4,999 per month for a period of six months commencing May 19, 2005.
Upon completion of the payments the Appellant was to receive a record of
employment (“ROE”) from the employer stating he was “laid off”; and
d) the Appellant was reinstated for coverage in
the employer’s drug, extended health, and dental plans for a period with
certain modifications.
[4] As a result of a Human Resources and Social
Development Canada (“HRSDC”) request, T. Matheson, a CPP/EI Rulings Officer at
the Scarborough Tax Service Office determined that the Appellant was not an
employee of the Payer, during the period of May 19, 2005 to November 17, 2005.
Both parties were advised of the decision by letter dated July 28, 2006.
[5] The Appellant disagreed with the CPP/EI
Rulings Officer’s decision and filed an appeal on October 31, 2006.
[6] The Appellant appealed the ruling to the
Respondent for the determination of the question of whether or not the Settlement
Award received from the Payer, during the period in question, was insurable
earnings within the meaning of the EI Act.
[7] By letter dated November 30, 2006, the
Respondent informed the Appellant and the Payer that it had been determined
that the Settlement Award received by the Appellant, during the period in
question, was not considered insurable earnings under the EI Act nor
pursuant to paragraphs 1(1)(b) and 2(3)(b) of the Insurable Earnings and
Collection of Premiums Regulations (“IECPR”).
[8] The Appellant disagreed with the Minister’s
decision and filed an appeal to the Tax Court of Canada on February 23, 2007.
SUBMISSIONS:
Submissions of the Appellant:
[9] The CAW-Canada
representative, a Mr. Dean Lindsay, assisted the Appellant with this appeal. He
referred to the terms of the Settlement Agreement and concluded therefrom that
the Appellant was an employee during the period in question and was therefore
entitled to employment insurance benefits. He stated further that this
Settlement Award should be considered as earnings under section 36(11) of the EIR.
Submissions of the Respondent:
[10] He submits that the Settlement
Award received by the Appellant, during the period referred to herein, was not
insurable earnings under the EI
Act nor pursuant to paragraphs 1(1)(b) and 2(3)(b) of the IECPR.
[11] He requests that the
appeal be dismissed.
ANALYSIS:
[12] Generally, section 7 of the EI Act states
that there are two requirements to be met for an individual to qualify for
benefits, a claimant must suffer an interruption of earnings and have obtained
a minimum amount of insurable hours.
[13] There does not
appear to be a dispute between the parties as to whether the Appellant had an
interruption of earnings or obtained the minimum insurable hours, rather the
Respondent is questioning the characterization of the Settlement Award, stating
that it represents a “retiring allowance”.
[14] “Retiring allowance” is defined in paragraph 1(1)(b) of
the IECPR and reads as follows:
1. (1) The definitions in this subsection apply in these
Regulations.
“Act” means the Employment Insurance Act. (Loi)
“Minister” means the Minister of National Revenue. (ministre)
“pay period” means the period in respect of which earnings are
paid to or enjoyed by an insured person. (période de paie)
“retiring allowance” means an amount received by a
person
(a) on or after retirement of the person from an office or
employment in recognition of the person’s long service, or
(b) in respect of a loss of an office or employment
of the person, whether or not received as, on account or in lieu of payment of,
damages or pursuant to an order or judgment of a competent tribunal. (allocation
de retraite)
(2) For the purposes of Part IV of the Act
and for the purposes of these Regulations, “employer” includes a person who
pays or has paid earnings of an insured person for services performed in
insurable employment.
[Emphasis added]
[15] Additionally,
paragraph 2(3) of the IECPR states the following:
2. (1) For the purposes of the definition “insurable earnings” in
subsection 2(1) of the Act and for the purposes of these Regulations, the total
amount of earnings that an insured person has from insurable employment is
…
(3) For the purposes of subsections (1) and (2),
“earnings” does not include
(a) any non-cash
benefit, other than the value of either or both of any board or lodging enjoyed
by a person in a pay period in respect of their employment if cash remuneration
is paid to the person by their employer in respect of the pay period;
(a.1) any amount excluded as income
under paragraph 6(1)(a) or (b) or subsection 6(6) or (16) of the Income
Tax Act;
(b) a
retiring allowance;
[Emphasis added]
[16] The Appellant has relied on subsection
36(11) of the EIR to establish that amounts received as a Settlement
Award were insurable earnings. The provision reads as follows:
36. (1) Subject to subsection (2), the
earnings of a claimant as determined under section 35 shall be allocated to
weeks in the manner described in this section and, for the purposes referred to
in subsection 35(2), shall be the earnings of the claimant for those weeks.
(2) For the purposes of this section, the
earnings of a claimant shall not be allocated to weeks during which they did
not constitute earnings or were not taken into account as earnings under section 35.
…
(11) Where earnings are paid or payable in
respect of an employment pursuant to a labour arbitration award or the judgment
of a tribunal, or as a settlement of an issue that might otherwise have been
determined by a labour arbitration award or the judgment of a tribunal, and the
earnings are awarded in respect of specific weeks as a result of a finding or
admission that disciplinary action was warranted, the earnings shall be
allocated to a number of consecutive weeks, beginning with the first week in
respect of which the earnings are awarded, in such a manner that the total
earnings of the claimant from that employment are, in each week except the last
week, equal to the claimant's normal weekly earnings from that employment.
[17] The allocation referred to in subsection
36(11) of the EIR is, however, limited by the determination made in section
35 of the EIR that the amounts were earnings.
[18] Earnings are very broadly defined as
anything the worker derives in the form of pecuniary benefits from his work,
past or present.
[19] Determining the nature of amounts received
is a factual analysis particularly when a determination must be made as to
whether a payment is a “retirement allowance” or a “retirement pension” or a
“wrongful dismissal settlement”.
[20] Justice Décary, in Canada
v. Plasse, [2000] F.C.J. No. 1671, stated what determinations are to be made in assessing
whether a settlement constituted insurable earnings:
18 If a settlement encompasses both an
acceptation of lost wages and a renunciation of a right to reinstatement
granted by the appropriate authority, only the former constitutes
"earnings" and only the value attributable to the former is allocated
pursuant to section 57 of the Regulations. It would of course be open to the
Commission in any given case to make sure that a purported settlement is not a
mere sham to circumvent the unemployment insurance scheme by disguising
compensation for lost wages as something else. Such questions of fact may be
raised to give proper effect to the legislation, the object of which has been described as follows by
Pratte J.A. in Attorney General of Canada v. Walford, [1979]
1 F.C. 768 at 772 (C.A.):
The Unemployment Insurance Act, 1971 sets up
an insurance scheme under which the beneficiaries are protected against the
loss of income resulting from unemployment. The purpose of the scheme is
obviously to compensate unemployed persons for a loss; it is not to pay
benefits to those who have not suffered any loss. Now, in my view, the
unemployed person who has been compensated by his former employer for the loss
of his wages cannot be said to suffer any loss. A loss which has been
compensated no longer exists. The Act and Regulations must, therefore, in so
far as possible, be interpreted so as to prevent those who have not suffered
any loss of income from claiming benefits under the Act.
[Emphasis added]
REVIEW OF DECIDED CASES:
[21] In Élement v. Canada (Minister
of National Revenue – M.N.R.), [1996] F.C.J. No. 718, the Federal
Court of Appeal, whose Judgments are binding on this Court, stated as follows:
1
The
applicant, a seasonal employee, was not recalled to work when he should have
been. Two years later, after a grievance was settled, the employer paid him
monetary compensation equal to the amount of wages he would have earned during
the period he would normally have worked. However, the applicant did not
perform any work during that period.
2
We are all of the
opinion that the Minister and the Tax Court of Canada judge reached the proper
conclusion when they decided that the applicant did not hold insurable
employment during the period in question. Despite Mr. Lepage's very able
argument that the applicant's employment contract continued to exist because he
had a right to be recalled, the fact remains that a person who does not perform
any work or receive any wages does not hold insurable employment within the
meaning of paragraph 3(1)(a) of the Act.
[22] In Forrestall v. Canada (Minister of National
Revenue – M.N.R.), [1996] F.C.J. No. 1638, the Federal Court of Appeal
followed its decision in Élement, stating:
3 We are all
of the view that the Tax Court judge erred in holding that those eleven days
represented insurable employment for the respondent. He did no work in that
period. What he received from his employer was, in the words of the arbitrator,
"damages"; it was not wages.
4 As we said
in Élément c. M.N.R.:
... a person who does not perform
any work [and] receive[s no] wages does not hold insurable employment within
the meaning of paragraph 3(1)(a) of the Act.
[23] In Linesman v. Canada (Minister of National
Revenue – M.N.R.), [2007] T.C.J. No. 42, Justice Webb of this Court
stated:
10 The issue
is whether the amounts paid for the period following the termination of the
employment of the Appellant pursuant to the settlement, including the amount
paid for the loss of salary, were insurable earnings for the purposes of the Employment Insurance Act. The amounts paid represented
compensation for the amounts that the Appellant would have received if he would
have continued working for the additional notice period specified in the
settlement documents but were not paid as consideration for services rendered
or work performed by the Appellant.
11 Insurable
earnings are defined in subsection 2(1) of the Employment
Insurance Act as follows:
"insurable earnings"
means the total amount of the earnings, as determined in accordance with Part
IV, that an insured person has from insurable employment;
12 Paragraph
108(1)(g) of the Employment Insurance Act (which is
in Part IV of this Act) provides that:
108. (1) The Minister may, with the
approval of the Governor in Council, make regulations
(g)
for defining and determining earnings, pay periods and the amount of insurable
earnings of insured persons and for allocating their earnings to any period of
insurable employment;
13 Subsections
2(1) and (3) of the Insurable Earnings and Collection of
Premiums Regulations provide, in part, that:
2. (1) For the purposes of the
definition "insurable earnings" in subsection 2(1) of the Act and for
the purposes of these Regulations, the total amount of earnings that an insured
person has from insurable employment is
(a)
the total of all amounts, whether wholly or partly pecuniary, received or
enjoyed by the insured person that are paid to the person by the person's
employer in respect of that employment, and
...
3. For the purposes of
subsections (1) and (2), "earnings" does not include
(b)
a retiring allowance
14 Subsection
1(1) of these Regulations provides that a retiring allowance means:
"retiring allowance"
means an amount received by a person
(a)
on or after retirement of the person from an office or employment in
recognition of the person's long service, or
(b)
in respect of a loss of an office or employment of the person, whether or not
received as, on account or in lieu of payment of, damages or pursuant to an
order or judgment of a competent tribunal.
15 The term
"retiring allowance" is also a defined term for the purposes of the Income Tax Act. In that Act,
"retiring allowance" is defined in subsection 248(1) as follows:
"retiring allowance"
means an amount (other than a superannuation or pension benefit, an amount
received as a consequence of the death of an employee or a benefit described in
subparagraph 6(1)(a)(iv)) received
(a)
on or after retirement of a taxpayer from an office or employment in
recognition of the taxpayer's long service, or
(b)
in respect of a loss of an office or employment of a taxpayer, whether or not
received as, on account or in lieu of payment of, damages or pursuant to an
order or judgment of a competent tribunal,
by the taxpayer or, after the
taxpayer's death, by a dependant or a relation of the taxpayer or by the legal
representative of the taxpayer;
16 The
definition of "retiring allowance" in subsection 248(1) of the Income Tax Act is not materially different from the
definition of "retiring allowance" in subsection 1(1) of the Insurable Earnings and Collection of Premiums Regulations
for the purposes of this case since the amounts in issue are not a
superannuation or pension benefit, an amount received as a consequence of the
death of an employee or a benefit described in subparagraph 6(1)(a)(iv) of the Income Tax Act.
17 In the case of Overin v. The Queen, 98 DTC 1299, Rip, J. made the
following comments in relation to whether an amount received should be included
as a retiring allowance:
[16] The use of the words "in respect
of" in the definition of retiring allowance has been recognized as
conveying a connection between a taxpayer's loss of employment and the
subsequent receipt. In order for the retiring allowance provision to have real
meaning, however, some limit must be placed on the ambit or scope of the
required connection between a receipt and a loss of employment. In this regard
two decisions may be of some assistance. First, in Merrins, supra, Pinard, J. observed at 6670:
There is no doubt that the amount was
received by the plaintiff in respect of the loss of his employment with AECL.
Had there been no loss of employment, there would have been no grievance, no
settlement, no award and, therefore, no payment of the sum to the plaintiff.
What is implied from Pinard, J.'s
analysis is that in determining the limit to be placed on the connection
between a payment and a loss of employment, the appropriate test is to ask
"but for the loss of employment would the amount have been received?"
If the answer to that question is in the negative, then a sufficient nexus
exists between the receipt and the loss of employment for the payment to be
considered a retiring allowance.
...
[18] It is quite clear then that
in addition to the "but/for" test, where the purpose of a payment is
to compensate a loss of employment it may be considered as having been received
"with respect to" that loss.
REVIEW OF THE EVIDENCE AND
CONCLUSIONS THEREFROM OF THE RESPONDENT:
[24] The relevant
evidence and questions of counsel for the Respondent are as follows:
Q. The settlement was because they didn't give
you a job, right?
A. Yes.
Q. The settlement was because you were fired?
A. That is correct.
…
Under cross-examination, Mr. Pires admitted that he
was paid this settlement amount as a result of his termination, as a result of
him losing his employment. …
It is respectfully submitted that the settlement
amount at issue here is a retiring allowance, because it was paid as a result
of a loss of Mr. Pires' employment.
[25] From the foregoing
and other evidence, counsel for the Respondent concludes as follows:
In essence, but for the loss of employment, would he
have received the money? If the answer is no, then it is a retiring
allowance. The only reason he got the amount of money was because he lost his
job. In the words of the appellant in this case, "They bought me
off." He lost his job, they bought him off.
…
As a first submission, it is a retiring allowance
because he was paid off to compensate him for his loss of employment. But even
if your honour finds that that is not what this payment was about, I would
submit that it is still not insurable employment because the payment was more
in the nature of damages. It was to compensate him, not for work done, not as
a result of a contract of employment, but rather for the breach that his
employer made of that employment contract. It falls, apparently, squarely on
the facts of Forrestall. …
…
I agree with Mr. Lindsay that paragraph 2, page 2, is
critical. However, the issue here is not his status as an employee during the
period in question. The question is whether or not the $4,999 is insurable
employment, which is at paragraph 3.
With respect to the fact that he was reinstated for
that period of time as quite correctly laid out in paragraph 2, it is submitted
that the critical thing for this determination is the fact that, for that
period of time, he was on unpaid leave. There were no earnings attributable to
being employed during that period of time. He was an employee, but he received
no money. If you receive no money, you have no insurable employment.
It is respectfully submitted that that should be
sufficient to dispose of the matter.
With respect to the settlement amounts laid out at
paragraph 3, as my earlier submissions stated, those amounts are not insurable
pursuant to section 3(1) of the regulations I earlier cited because they are
either a retiring allowance or, alternatively, they are damages for the breach
of the employment contract. They are not compensation for work done.
[26] In my opinion, this
appeal is similar to the decided cases and the conclusions of counsel for the
Respondent are correct. The amounts paid were to compensate the Appellant for
his loss of employment, not to compensate for work done. The payments were in
the nature of a retiring allowance or in the nature of damages. The appeal is
therefore dismissed.
Signed at Ottawa, Canada this 29th day of May, 2008.
"T. O'Connor"
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