Citation: 2008 TCC 320
Date: 20080625
Docket: 2007-3123(EI)
BETWEEN:
FRANCE DANCAUSE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
9049-5490 QUÉBEC INC.,
Intervener.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from a determination that the work performed by the Appellant France Dancause for 9049‑5490 Québec
Inc. was excluded from insurable employment under paragraph 5(2)(i)
of the Employment Insurance Act ("the Act").
[2] The Minister of
National Revenue ("the Minister") excluded the work performed by the
Appellant for 9049‑5490 Québec Inc. from November 9, 2001, to
November 9, 2002, from May 6, 2004, to August 21, 2004, from
October 3, 2004, to August 27, 2005, and from September 11,
2005, to December 23, 2006, from insurable employment under
paragraph (5)(2)(i) of the Act. The Respondent analyzed the work
performed and concluded that the employer and employee had entered into an
employment agreement the terms and conditions of which were different from what
persons dealing with each other at arm's length would have agreed to in similar
circumstances.
[3] Because the
Appellant and the Intervener 9049‑5490 Québec Inc. were not dealing with
each other at arm's length, the Minister was satisfied that it was not
reasonable to conclude that the Appellant and the company 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 facts and circumstances
analyzed.
[4] In making his
determination, the Minister relied on the following facts:
5. …
(a)
The sole shareholder of
the payor was Serge Saucier. (admitted)
(b)
France Dancause is
the common-law spouse of the payor. (admitted)
(c)
The Appellant is
related as a common-law spouse to a person who controls the payor. (admitted)
6.
…
(a)
The payor was
incorporated on April 25, 1997. (admitted)
(b)
The payor operated a
unisex hairdressing salon. (admitted)
(c)
The sole shareholder of
the payor had purchased his father's barber shop and transformed it into a
unisex hairdressing salon. (admitted)
(d)
In addition to the
shareholder, the payer employs seven hairdressers who do unisex hairdressing. (to
be clarified)
(e)
The salon is open
year-round on Tuesdays and Wednesdays from 8:30 a.m. to 5:30 p.m.,
Thursdays and Fridays from 8:30 a.m. to 8:30 p.m. and Saturdays from
8:00 a.m. to 4:00 p.m. (admitted)
(f)
The payor's busiest
periods are for about three weeks at Easter, in the summer and five weeks at
Christmas, and the Appellant was on the payroll for minimum periods at
Christmas and Easter 2004 and 2005. (denied)
(g)
About 80% of the
payor's revenue came from women's hairdressing and about 20% from men's. (admitted)
(h)
During the periods in
issue, the payor's revenues rose steadily, from about $185,110 in 2002 to about
$274,885 in 2006. (admitted)
(i)
The Appellant had
worked for her father-in-law's barber shop as a men's hairdresser, with Marie‑Claude
Saucier. (admitted)
(j)
Marie-Claude Saucier is
the sister of the sole shareholder of the payor. (admitted)
(k)
The Appellant
continued to perform the same duties for the payor. (denied)
(l)
Marie-Claude Saucier does
women's hairdressing and she and two other hairdressers help with men's
hairdressing when necessary. (denied)
(m)
The Appellant is the
only hairdresser paid to do men's hairdressing exclusively. (admitted)
(n)
Like all the other
hairdressers, the Appellant washes towels and serves juice and coffee to
customers. (denied)
(o)
The Appellant does
not do hair colouring or women's hair cutting. (admitted)
(p)
The Appellant was the
only employee of the payor who was paid for 40 hours a week, when she was
working full time, while all the other hairdressers worked 35 hours or less per
week. (denied as written)
(q)
The Appellant was
paid $12.50 an hour when she worked 40 hours per week in 2004 and $13.75 in
2005, and her hourly rate was reduced to $11.50 when she worked part time,
about six hours a week, that being the maximum number of hours so that she
would not lose her unemployment benefits or have them reduced. (denied)
(r)
All of the payor's
other unisex hairdressers were paid hourly rates varying from $7.00 to $9.00
plus commissions, except Marie‑Claude Saucier, who received an hourly
rate of $11.50 plus commissions. (denied)
(s)
The Appellant's
hourly rate was higher, given that the work done by the Appellant was not very
profitable. (denied)
(t)
The Appellant's
periods of full-time employment corresponded to the periods when the other
hairdressers were on maternity leave or vacation, although the Appellant is
only able to do men's hairdressing. (denied)
(u)
The Appellant's
periods of part-time employment made it possible for her to keep her customers.
(admitted)
(v)
The Appellant did not
work in 2003 because she was on maternity leave and then on parental leave. (admitted)
(w)
The Appellant was
often laid off by the payor because she was limited to men's hairdressing and
was therefore not profitable enough for the payor. (denied as written)
(x)
The Appellant used up
all her weeks of benefits before being rehired by the payor. (denied as written)
(y)
The low revenue
generated by the Appellant's work could not have justified hiring her on the
same terms and conditions if the parties had been dealing with each other at
arm's length. (denied as written)
[5] First, the
Appellant's spouse, Mr. Saucier, described the region and its characteristics.
He said that people working in hairdressing were very scarce in the region and
that this shortage meant that he had to be very accommodating, and this
explained and justified certain characteristics of the work his spouse did.
[6] He described the situation
in the region in terms of hairdressing. He talked about the problems involved
in recruiting qualified, skilled staff.
[7] He said that the
scarcity of hairdressers meant that the people working in this field were
demanding and difficult and generally put their quality of life above
everything.
[8] He said that the
consequence of this problem was that his authority as proprietor of a hairdressing
salon was limited. In other words, he cannot be too demanding and has to deal
with the demands and even whims of some employees.
[9] Serge Saucier formally
admitted, at least twice, that he would have liked the hairdressers with whom
he was dealing at arm's length to agree to terms and conditions of employment
similar to his spouse's; in other words, he would have preferred that those of
his employees with whom he was dealing at arm's length were as cooperative, as
attentive to the needs of the business and as flexible as his spouse.
[10] Serge Saucier reiterated
that he had very limited authority over the hairdressers, who had specific
requirements in terms of the number of hours of work and their quality of life;
most often, these terms were not negotiable, and he had to accept them or risk
losing employees who were very difficult to replace.
[11] To explain the
layoffs and wage reductions in relation to his spouse's work, he systematically
referred to his accountant, who obviously played a predominant role in managing
his business. However, the accountant did not testify.
[12] The Appellant was
the only one whose wages were reduced and increased; the Appellant had very
specific periods of work, which were very different from the other employees'.
[13] Despite how flexible
and genuinely willing to cooperate in the smooth operation of her spouse's
business the Appellant was, she did not have all of the necessary skills, in
that her work was limited to men's hairdressing, a secondary aspect of the
business, whose primary activity was women's hairdressing: the breakdown of revenue
shows 80 percent coming from women's hairdressing and 20 percent from
men's.
[14] Mr. Saucier said
that women's hairdressing was a more profitable and worthwhile business. In
addition, the Appellant's lengthy absences had negative effects on customer
loyalty, since they had to turn to other hairdressers during her periodic
absences. Some customers returned, others did not.
[15] Serge Saucier
explained that his spouse did administrative support, display, sales and
reception work. She also swept up, and she may occasionally have provided
back-up for other people, served coffee, done general cleaning, and so on.
[16] She worked 40 hours
a week while the others worked only 35. Why? Because the others did not want to
work any more. When it came time to explain how the services described as
essential and fundamental were performed during the periods when the Appellant
did not work, Mr. Saucier's answers were somewhat confused and evasive.
[17] The Appellant's
spouse used all sorts of general and often confused excuses to justify or explain
certain facts, which were not particularly coherent.
[18] This was
particularly apparent when Mr. Saucier explained the fluctuations in the
Appellant's hourly wage. The same answers were given with respect to questions
relating to when the periods of work began and ended.
[19] Each time he was
asked to explain the specific characteristics of the Appellant's terms and
conditions of employment, he said that qualified, skilled staff were very
scarce and the people who were available were independent and very demanding.
In other situations, he said he had acted and decided on the recommendations of
his accountant.
[20] Serge Saucier was
very talkative and had an answer for everything, but very often he fell back on
unverifiable explanations, such as the accountant's recommendations, the particular
situation in the region, the economy, the characteristics of the field, and the
employees' jealousy, demands and intransigence.
[21] When Mr. Saucier
was asked to explain a number of inconsistencies, he fell back on catch-all
assertions, such as declining business, an economic slowdown, the opening of a
housing complex with a hairdressing service and the accountant's instructions
regarding the Appellant's job description.
[22] On the one hand, the
Appellant's workload declined because of the drop in customers resulting from
her absences, and so the other hairdressers were able to acquire her customers
while she was gone; on the other hand, her work at certain times (period in
issue) was described as very important, if not essential.
[23] The Appellant
herself made frequent reference to her spouse's authority with respect to her
wages, her schedule, the number of hours worked and increases and decreases in
the hourly wage, this being certain and clearly established by the evidence.
The Appellant was much more flexible and accommodating than the other employees.
[24] Generally speaking,
the Appellant essentially confirmed what her spouse had said. Obviously, she
was not as bold, firm and demanding as the other salon employees.
[25] Both the Appellant
and her spouse said they did not know much, if anything, about what the Employment
Insurance Act and Regulations say, although the facts and certain
information suggest to the Court that the parties had organized the Appellant's
work on the basis of the requirements of the Act and Regulations.
[26] The Respondent
called service officer Jenny Pelletier, who essentially explained how the
Minister had made the determination under appeal.
[27] In her testimony,
Ms. Pelletier essentially reiterated the various points listed in the
Reply to the Notice of Appeal. Generally speaking, she said that the
Appellant's contract of employment was considerably different from the other
employees' contracts, in terms of both the duration and the wages, these being
determining factors in conducting an analysis under paragraph 5(3)(b)
of the Act. The evidence presented did not relate to a particular period or
periods, leading me to infer that the evidence adduced by the Respondent related
to all periods in issue in the appeal.
[28] When a contract of
employment is excluded from insurable employment under paragraph 5(2)(i),
which excludes employment where the parties are not dealing with each other at
arm's length, the Respondent analyzes all of the relevant facts having regard
to the tests that have been laid down for determining whether the terms of the
contract of employment were different from what they would have been if the
parties had been dealing with each other at arm's length.
[29] The courts have held
that this analysis is the exercise of a discretion and the persons exercising
that discretion must act responsibly and consider all of the relevant facts as
objectively as possible. Where a judicious analysis has led to reasonable conclusions,
the Tax Court of Canada will not intervene.
[30] There is nothing in
the evidence from which I could conclude that in conducting that analysis the
Minister had regard to irrelevant facts or placed excessive or inappropriate
weight on the various factors considered. The opposite is true; the analysis
was done on the basis of the relevant facts and nothing was ignored that was
such as would have had any effect on the conclusion.
[31] The conclusions
based on the interpretation of certain facts observed, particularly in terms of
the hourly wage and periods of work, were reasonable.
[32] However, in his
analysis, the Minister did not distinguish between the various periods of work,
some of which came after or before a benefit period connected with maternity
leave.
[33] This is a special
situation, in which the work stoppages were not dictated by the needs of the
business and market conditions. They are specific periods when the terms and
conditions of the contract of employment are necessitated by the worker's
maternity leave. The evidence submitted made no distinction regarding that
period when a special situation prevailed.
[34] There are entirely
undeniable facts in the record. I refer, in particular, to the inconsistencies
in Mr. Saucier's testimony, when he said that the Appellant was a
cornerstone of the business even though her skills limited her to an activity
that accounted for only 20 percent of the business, and she was not replaced
when she was absent.
[35] In comparison with
the other employees, the Appellant accumulated more hours of work. Obviously, a
40-hour week is better for a worker who wants to be eligible for employment
insurance benefits as soon as possible. The random nature of the time periods
and the lower hourly wage corresponded precisely, once they were reduced,
to the threshold at which a worker is not penalized.
[36] There is no foolproof
method for assessing the plausibility of explanations given by the parties in a
case.
[37] In this instance,
the case raised some doubts from the start as to whether the work done by the
Appellant was comparable to the work done by the other employees. I refer, in
particular, to the duration of the periods of work, which corresponded to the
periods of work the Appellant needed in order to be eligible for benefits.
[38] In some cases, that
situation can be a matter of chance. If the scenario recurs, however, there is
no room for doubt left. If there is other evidence pointing in the same
direction, that can be sufficient to tilt the balance of probabilities to
favour the Respondent's position.
[39] In this instance, in
addition to the duration of the periods of work, there is the question of the
Appellant's wage, which was reduced at one point so that it corresponded
exactly to what the Appellant required in order not to be penalized by the
employment insurance scheme. Those are objective facts, in addition to which
the numerous general and often confused explanations, and the fact that
witnesses were not called (co-workers, accountant, etc.) must also be
considered.
[40] This is a case in
which the intention of taking maximum advantage of the employment insurance
scheme had the effect of creating situations that were dubious, if not
implausible.
[41] There can be no
doubt that entitlement to benefits is a legitimate and fundamental right.
However, this does not mean that the right may be abused and/or used for
accommodation; when the abuses are obvious, the consequence could be a finding
that it is not reasonable to imagine a substantially similar employment
relationship between unrelated parties.
[42] If we take a
reasonable and accommodating approach, some facts seem more plausible, and
ultimately more acceptable in the context of a family business.
[43] The right to
benefits is indeed an important right, and it is entirely proper for unemployed
persons to want to receive benefits when they meet the requirements.
[44] Meeting the
requirements of the scheme is one thing, and taking part in a subterfuge to
make a person eligible for the maximum benefits provided by the scheme is
another.
[45] In this instance, on
a balance of probabilities, the parties have plainly exaggerated. However, it
is clear that because of her pregnancy, the Appellant was entitled to the
benefits associated with her maternity leave.
[46] The appeal relates
to several periods. One of those periods came before a period of unemployment
necessitated by the Appellant's pregnancy. The benefits to which a person in
that situation, in this case the Appellant, is entitled are paid for medical
reasons (leaving for preventive reasons, potential danger, etc.) and because of
the effects of pregnancy.
[47] The factors
associated with this type of leave, which have nothing to do with the terms of
a contract of employment, particularly with respect to the beginning and end of
the leave period, are essentially determined by the mother's health and the
length of the leave period established by Parliament itself.
[48] The fact that the
parties to a contract of employment under which the claimant is entitled to
employment insurance maternity benefits, whether before the birth or after
(parental leave), are not dealing with each other at arm's length is of no
effect, since these are fixed periods, defined not by the parties but by the
attending physician and Parliament.
[49] Because the parties
made no distinction between the periods in question when they presented their
evidence at the hearing, I took the initiative of holding a conference call so
that the parties could make submissions on this aspect of the documentary
evidence.
[50] Nothing new came of
the discussion, other than the fact that the parties acknowledged that these
were periods to which special requirements applied; however, the Respondent
stressed the fact that the Appellant's remuneration was not comparable or
similar to the remuneration of the other employees during the periods in
question.
[51] No special analysis
was done regarding the period preceding the Appellant's maternity leave,
because, apparently, the Respondent assumed that it was a period like all the
others.
[52] The Respondent was
wrong on the face of that, given that this was an exceptional situation in
which the usual tests for determining whether an employment relationship was
influenced by the fact that the parties were not dealing with each other at
arm's length are remuneration, duration and terms and conditions of employment.
[53] The Respondent was
correct to raise the question of the hourly wage, which was obviously not
comparable to the other employees'; the Appellant replied that her situation
was different, given that she did not receive a bonus.
[54] However, it seems
plain to me that the Appellant had a greater interest in the business—that she
was, in short, more flexible—and this may have justified different pay.
[55] In general, however,
I do not believe that this fact alone justified the conclusion that an
unrelated person would not have been given equivalent pay.
[56] With regard to the
other periods, there are, in addition to the ever-present question of
remuneration, a number of other factors which, on the whole, support the
Respondent's position and tilt the balance of probabilities in the Respondent's
favour.
[57] For these reasons,
the appeal is allowed in part. Under paragraph 5(3)(b) of the Act, the Appellant's employment with 9049‑5490 Québec
Inc. is excluded from the operation of paragraph 5(2)(i) of the Act in relation
to the work she performed from November 9, 2001, to November 9, 2002,
on the ground that she performed that work on the same basis as an unrelated
person would have done.
[58] For the periods from
May 6 to August 21, 2004, October 3, 2004, to August 27, 2005, and September
11, 2005, to December 23, 2006, the work performed by the Appellant is excluded
from insurable employment under paragraph 5(2)(i) of the Act.
Signed at Ottawa, Canada, this 25th day of June 2008.
"Alain Tardif"
Translation certified true
on this 8th day of December 2008.
Brian McCordick, Translator
Email this Content