Citation: 2008TCC269
Date: 20080604
Docket: 2007-4910(EI)
BETWEEN:
LES ENTREPRISES CHARLES MAISONNEUVE LTÉE,
Appellant,
and
MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1]
This is an appeal from
a determination by the Respondent that the work performed for the Appellant by Hélène
Maisonneuve from January 1, 2003, to December 31, 2006, Frédéric
Maisonneuve from January 1, 2003, to February 16, 2007, and Pierre Maisonneuve
from January 1, 2003, to December 31, 2006 (the "workers"), met
the requirements for a contract of service despite the non-arm’s length
relationship between the parties.
[2]
The Respondent's
determination was based on the following facts, set out in paragraphs 5, 6 and
7 of the Reply to the Notice of Appeal:
[TRANSLATION]
a)
the Appellant was
incorporated in 1997; (admitted)
b)
the Appellant specializes in
excavation and in the grading of aqueducts and wastewater collection ditches,
and also has snow removal operations; (denied as worded)
c)
the Appellant operates throughout
the year, as it provides snow removal services in the winter; (admitted)
d)
the Appellant's hours of operation
depend on its client contracts; there can be work on weekends; (admitted)
e)
the Appellant employs about 50
people a year; (denied as worded)
f)
the workers are shareholders in
the Appellant and all sit on the Appellant's board of directors; (denied as
worded)
g)
Charles Maisonneuve, majority
shareholder in the Appellant, is the father of the workers and acts more as a
director for the Appellant; he has gradually handed over his powers of
direction to his children (the workers); (admitted)
h)
the workers hold the Appellant's
managerial positions; (admitted)
i)
the workers make all decisions regarding
both major and day-to-day management operations and see that the Appellant's
business runs smoothly; (admitted)
j)
Hélène Maisonneuve acted as administrative
comptroller; she dealt with accounting, government, legal and other matters;
she was primarily responsible for
-
accounts receivable and
payable
-
payroll
-
contract terminations
-
government remittances
-
complexities in some
documents
-
bids
-
commissions
-
building maintenance
-
decorating the place of
business
(admitted)
k)
she worked only at the Appellant's
place of business; (denied)
l)
she had no set hours of work, but
generally worked days from Monday to Friday; she occasionally worked evenings and
weekends when circumstances required; (denied)
m)
during the period at issue, she had
a fixed annual salary of $66,417 and was eligible for an annual bonus based on
the company's performance; (admitted)
n)
she normally took two weeks of
vacation in the summer and a few days in the winter; (denied)
o)
Frédéric Maisonneuve was
responsible for supervising the heavy equipment operators for commercial and
civil engineering operations; (admitted)
p)
he also dealt with snow removal
contracts with his brother Louis; his main duties amounted to
-
handling early morning calls, the
equipment, transportation and problem cases
-
supervising the operators
-
scheduling work
-
carrying out snow removal
contracts
(admitted)
q)
he had no set hours of work, but
worked between 40 and 70 hours a week, depending on contracts; (denied as
worded)
r)
part of his duties required him to
move from one worksite to another to check on the progress and quality of work
under way; (admitted)
s)
during the period at issue, he had
a fixed annual salary of $68,204 and was eligible for an annual bonus based on
the company's performance; (denied)
t)
he normally took five to six weeks
of vacation a year; (denied)
u)
Louis Maisonneuve was supervisor/foreman
of the heavy equipment operators for residential operations; (admitted)
v)
he was responsible for managing
the workers on worksites and mainly handling
-
emergencies
-
snow removal contracts
-
supervision of
operators
-
work scheduling
-
problem cases
(admitted)
w)
he had no set hours of work, but
generally worked 45 hours a week from Monday to Friday, and occasionally worked
evenings or weekends; (denied)
x)
part of his duties required him to
move from one worksite to another to check on the progress and quality of work
under way; (admitted)
y)
during the period at issue, he had
a fixed annual salary of $71,534 and was eligible for an annual bonus based on
the company's performance; (denied)
z)
he normally took two weeks of
vacation during the construction industry break, one week during spring break
and one other week at some other point during the year; (denied)
aa)
Pierre Maisonneuve held the
position of general manager for the company; (admitted)
bb)
he dealt mainly with
-
the mechanics
-
production
-
management
-
bids
(admitted)
cc)
he had an annual salary of $85,160
and was eligible for an annual bonus based on the company's performance; (denied)
dd)
he worked at the Appellant's place
of business and sometimes at home; (admitted)
ee)
he had no set hours of work and
worked anywhere from 20 to 90 hours a week depending on the time of year and
the number of contracts the company had; (admitted)
ff)
he occasionally worked evenings or
weekends; (admitted)
gg)
he took two weeks of vacation
during the construction industry break and two more in the spring; (denied)
hh)
each of the workers had an office
and workspace at the Appellant's place of business; (admitted)
ii)
each of the workers reported or
was accountable to the Appellant's board of directors; (denied)
jj)
the workers' work was subject to
verification and/or correction at all times; (denied)
kk)
Pierre and Hélène Maisonneuve were
covered by the company's health care plan, in the same way as other employees
not covered by the C.S.S.T., whereas Louis and Frédéric Maisonneuve were not
covered by the said plan; (admitted)
ll)
the workers were required to
advise the Appellant when they had to take time off work; (denied)
mm)
the workers did not incur any
expenses in the performance of their duties; (denied)
nn)
all of the material, equipment,
supplies, trucks and physical premises were the property of the Appellant. (denied)
[3]
The Court notes that the Appellant's
agent admitted at the hearing that the workers were employed by the Appellant
under a contract of service.
[4]
The Court also notes that the
Respondent determined that the employment in question was insurable, as it was
not subject to paragraph 5(2)(i) of the Employment Insurance Act
(the "Act"). In fact, the workers and the Appellant were deemed under
paragraph 5(3)(b) to be dealing with one another at arm's length for the
purposes of the employment in question, the Respondent being satisfied that it was
reasonable to conclude that, having regard to all the circumstances, the
workers would have entered into a substantially similar contract of employment
with the Appellant if they had been dealing with each other at arm's length.
[5]
The Court further notes that all of
the workers testified in support of the Appellant's position and that no one
testified in support of the Respondent's position. The Court considered the workers'
testimony highly credible.
[6]
The Federal Court of Appeal has on
several occasions defined the role conferred by the Act on judges of the Tax
Court of Canada. That role does not allow a judge to simply substitute his or
her discretionary decision for that of the Minister of National Revenue (the
"Minister"). Rather, it requires that the Court "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, . . . decide whether the conclusion with which the Minister
was 'satisfied' still seems reasonable".
[7]
Each the workers testified at the
hearing primarily to describe the role he or she had played within the company
during the periods at issue. The Court notes that the descriptions the workers
gave of their roles basically matched that set out by the Minister in the Reply
to the Notice of Appeal.
[8]
Each of the workers testified
that, unlike the Appellant's other workers, he or she was not supervised
because
i)
each of them set his or her own
hours of work and could change them at will. In this regard, Pierre Maisonneuve
indicated that he spent anywhere from 20 to 90 hours a week on his work, which
meant his schedule varied; he stated that he worked an average of 50 hours a
week. Louis Maisonneuve testified that he spent anywhere from 30 to 90 hours a
week on his work, which meant his schedule varied; he stated that he worked an
average of 55 to 60 hours a week. Hélène Maisonneuve indicated that she spent
an average of 45 hours a week on her work and that those hours were generally spread
over five days a week, during the business hours of the Appellant's head office.
Finally, Frédéric Maisonneuve indicated that he spent anywhere from 30 to 90 hours a
week on his work, which meant his schedule varied; he stated that he worked an
average of 60 hours a week;
ii)
all of the workers
could take time off work when they wished and plan their work around their
family and personal lives, regardless of the Appellant's needs, as they could
always turn their responsibilities over to a trusted employee within the
company when they wanted to be away. Each of the workers provided examples in
this regard: for instance, Pierre Maisonneuve had taken nine days off work when
his spouse had been hospitalized; he had also taken a few days off to help his
daughter (who had been admitted to university) to find an apartment; he also
mentioned that he had taken English classes during business hours. Louis
Maisonneuve indicated that he took time off work to drive his daughter to
violin lessons; the evidence showed that he spent about 30 hours a year doing
so; he also pointed out that he occasionally took long weekends. Hélène
Maisonneuve indicated that she regularly took time off work for visits to the
hairdresser, dentist and esthetician; she also pointed out that she
occasionally took long weekends. Finally, Frédéric Maisonneuve indicated that
he took time off work to indulge his love of horses, although he did not
specify how often he was away from work for this purpose or how long he was
gone;
iii)
the workers individually decided
on the dates and length of their vacation time, which was paid; the evidence
showed that each of the workers took an average of four weeks of annual leave
when it suited him or her;
iv)
the workers were paid when they
took sick leave, regardless of the number of days taken; however, the evidence
did not show whether any of them took a large number of days off as sick leave;
v)
the workers individually
set their own salaries; each of them maintained that he or she could increase his
or her salary without the agreement of the other workers; each explained that
he or she would inform the other workers of the raise wanted, not to obtain
their consent, but out of respect or consideration; they added that at no time
had the other workers stopped one worker from increasing his or her salary. The
Court emphasizes that the workers did not succeed in satisfying it of this
fact; it appears unlikely to the Court that a worker, even if he or she is a
shareholder in the employer, could increase his or her salary without the
consent of the other shareholders. The Court is of the view that, in this case,
the worker concerned would informally advise the other workers of the raise
wanted, not out of consideration, but to obtain their agreement, and would
interpret silence on the part of the other workers as tacit agreement. The
Court is also of the view that in this case the other shareholders never
stopped a worker from increasing his or her salary simply because the raise struck
them as unreasonable under the circumstances; the following example provided by
the workers clearly illustrates the Appellant's approach with regard to raises sought
by the workers: the workers explained that, in 2003, their brother Frédéric had
needed $4,000 in additional income to cover the costs of his pastime (horses);
they explained that Frédéric had told
them about his needs and they had agreed to his request and decided (most
likely to keep things fair) that the Appellant would pay each of them a bonus
of $4,000 in 2003.
[9]
The evidence also showed that the
workers had received the following earnings from the Appellant during the
periods concerned:
|
|
2003
|
2004
|
2005
|
2006
|
|
Pierre Maisonneuve
|
$82,096
|
$81,074
|
$87,812
|
$85,160
|
|
Louis Maisonneuve
|
$71,273
|
$58,832
|
$64,644
|
$71,534
|
|
Hélène Maisonneuve
|
$59,691
|
$56,878
|
$70,276
|
$66,417
|
|
Frédéric Maisonneuve
|
$70,770
|
$67,362
|
$67,904
|
$68,404
|
Analysis
[10]
Does the conclusion with which the
Minister was satisfied still seem reasonable considering the evidence of the
workers? It will be recalled that the Minister was required to determine
whether it was reasonable to conclude that the workers would have entered into a
substantially similar contract of employment with the Appellant if they had been
dealing with each other at arm's length. There was no question of determining
whether working conditions necessarily reflected market conditions although,
generally, this can be a relevant matter worth considering. In the Court's
view, with regard to paragraph 5(3)(b) of the Act, that is, the matter
of whether or not the employer and employees would have entered into a substantially
similar contract of employment, it is necessary to remember that the four
workers in question were not only the Appellant's only officers, but were also
its directors and owners. There is no indication in paragraph 5(3)(b)
of the Act that the workers' financial interests in the company must be
disregarded. Consequently, it is possible to construct an abstract case involving
four unrelated workers each holding approximately one quarter of the capital
stock in the Appellant (with which they are dealing at arm's length), in
addition to being its sole directors and officers. The question to be decided
by the Minister could then be reworded as follows: would the four workers have
entered into a substantially similar contract had they each held more or less
one quarter of the shares in the Appellant and had they been dealing with each
other and the Appellant at arm's length?
[11]
It is a matter of
judicial notice that workers who are both paid employees of an employer and (as
shareholders) owners of that same employer act differently from mere paid
employees. In fact, the salary of someone
who is a paid employee and shareholder may take into account the fact that
salaries not paid will be retained earnings that can be reported as dividends
at a future date. Workers who are also shareholders must often keep the
company's financial needs in mind, especially if the company is experiencing
cash-flow problems. This likely explains why some of the workers' earnings were
lower in 2004.
[12]
Does the Minister's
conclusion still seem reasonable? Was it
reasonable for the Minister to conclude that the workers-shareholders would
have entered into a substantially similar contract of employment had they been
dealing with the Appellant at arm's length? The Court finds that the Appellant
did not succeed in demonstrating that the Minister's decision seems not to be reasonable.
This is not a case where the Court should intervene to substitute its view for
that of the Minister. It is true that some of the Minister's assumptions were disproved
at the hearing. However, there remained sufficient evidence to justify the
Minister's decision. The Court agrees that, had the four workers not had any
financial interests in the Appellant, they would not have worked weekends and
evenings as often to solve urgent problems. Had Hélène Maisonneuve not had
a financial interest (as a shareholder) in the Appellant, she would probably
not have cleaned the washrooms and the office, as she occasionally did. No one
assigned her this duty. This too is the behaviour of workers who are also
shareholders in the employer, regardless of whether or not they are dealing
with it at arm's length. An employee who is a shareholder in the employer,
whether or not the relationship is at arm's length, is generally more dedicated
to the employer than a mere worker would be, as it is more in that person's
interest to be. It bears repeating that there is nothing unusual about this.
[13]
Moreover, it is
perfectly normal for a senior manager (and even more so where he or she is also
a shareholder in the employer)
i)
to occasionally take
time off work (as was the case for the workers here) for personal reasons
without asking the employer's permission; the Court does not believe that
senior managers ask permission of their employer to go to a close relative's
bedside, visit the doctor, play golf with friends on a Friday afternoon, or
even occasionally take a long weekend;
ii)
to have considerable
autonomy in the performance of his or her duties; the Court notes in this
regard that the workers in this case in no way satisfied it that they could do as
they pleased within the company and make any decision they deemed appropriate;
according to the evidence, although the workers enjoyed a great deal of
autonomy in performing their duties, they had to consult informally with the
other workers before making any major decisions affecting the Appellant,
basically to obtain their consent;
iii)
to decide on the dates
and length of his or her vacation time;
iv)
to be paid for time off
when ill, regardless of the number of days taken;
v)
to be paid a salary based on needs
rather than performance (e.g., the $4,000 bonus in 2005).
[14]
Had one of the workers
worked only 10 hours a week year-round, but still received a salary equal to
that of the other three workers, who might have averaged 50 hours, the Court
would have arrived at a very different decision. It is quite normal for workers
performing the types of duties involved here to be paid as these workers were,
and to have a high level of autonomy in the performance of their duties. The Court finds that the four workers would have
entered into a substantially similar contract of employment had they been
dealing with each other and the Appellant at arm's length and had the same
number of shares in the Appellant.
[15]
For these reasons, the
appeal is dismissed.
Signed at Ottawa, Canada, this 4th day of June 2008.
"Paul Bédard"
Translation
certified true
on this 25th day
of July 2008.
Susan Deichert,
Reviser
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