Citation: 2008TCC137
Date: 20080403
Docket: 2007-3925(EI)
BETWEEN:
LANDREK INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from a decision that the work done by Marc Landry from January 1, 2003 to
December 31, 2005, and from January 1, 2006 to December 31, 2006, for
the Appellant Landrek Inc., was an insurable contract of service even though it
would normally be excluded under paragraph 5(2)(i) of the Employment
Insurance Act ("the Act").
[2] Specifically, the
Minister of National Revenue ("the Minister") determined that
the Appellant and the Worker were deemed to be dealing with each other at arm's
length because he was satisfied, after analyzing all the relevant facts, that
the Appellant and the Worker would have entered into a substantially similar
contract of employment if they had been dealing with each other at arm's
length.
[3] The Minister made
his decision based on the following assumptions of fact:
[TRANSLATION]
5. . . .
(a)
The Appellant was
incorporated on October 21,
1991. (admitted)
(b)
The Appellant
operated a business that manufactured wooden frames and distributed wooden
doors and hardware. (admitted)
(c)
The Appellant
operated throughout the year. (admitted)
(d)
The business was open
Monday to Friday from 8 a.m. to 5 p.m. (admitted)
(e)
The Appellant's sales,
as at October 31, 2006, amounted to $1,375,329. (admitted)
(f)
The Appellant
employed three of the shareholders and 11 additional workers during the peak
periods. (denied)
(g)
The Worker began
working for the Appellant in 1991. (denied)
(h)
The Worker was a
sales representative at the showroom and on the road; he met with customers and
provided estimates. (admitted)
(i)
The Worker also hired
personnel and supervised the plant's employees. (admitted)
(j)
The Worker worked 32
to 40 hours a week for the Appellant. (denied)
(k)
The Worker had no
fixed schedule but was generally asked to perform his services during the
business's hours of operation. (denied)
(l)
The Worker was paid
$42,000 a year. (admitted)
(m)
During the period in
issue, the Worker received the following bonuses, which were determined by the board
of directors: $12,000 in 2003; no bonus in 2004; $6,500 in 2005; and
$7,000 in 2006. (admitted)
(n)
The salary was paid
to the Worker regularly each week by cheque. (admitted)
(o)
Travel expenses
actually incurred by the Worker were reimbursed by the Appellant. (admitted)
(p)
Like all employees,
the Worker had income protection and group prescription drug insurance. (admitted)
(q)
The Worker had six
weeks of annual vacation. (denied)
(r)
Decisions important
to the Appellant were made by the directors. (denied)
(s)
The Appellant had the
right to exercise control over the Worker and made use of that right. (denied)
6.
. . .
(a)
The Appellant's voting
shareholders were (admitted)
|
Claude Landry
Denis Landry
The Worker
Luc Landry
|
26% of the shares
26% of the shares
26% of the shares
22% of the shares
|
(b) Claude Landry, Denis Landry,
Luc Landry and the Worker are brothers. (admitted)
(c) The
Worker is related by blood to a group of persons that control the Appellant. (admitted)
7. . . .
(a) The Worker's
salary and bonus were decided by agreement among the directors. (admitted)
(b) The Worker's
annual remuneration, including the bonuses, varied from $45,316 to $55,656 for
the years 2003 to 2006, which are in issue. (admitted)
(c) The Worker
received the same annual remuneration and same bonuses as the two other
shareholding workers. (admitted)
(d) The Appellant
also paid bonuses of $200 to $800 to unrelated employees. (admitted)
(e) Having regard
to his duties and responsibilities with the Appellant, the Worker's
remuneration was reasonable. (denied)
(f) The Worker had
been working for the Appellant for several years. (admitted)
(g) The Worker
worked for the Appellant throughout the year. (admitted)
(h) The duration of
the Workers' employment was reasonable. (denied)
(i) The
Appellant's employees had two weeks of winter vacation and two weeks of summer
vacation. Another employee had five weeks, and Claude and Denis Landry had
six weeks. (denied)
(j) The Appellant
considers Claude and Denis Landry employees. (admitted)
(k) The Worker and
his brothers are governed by a shareholders' agreement and the terms and
conditions of the employments are decided by the directors. (denied)
(l) The Appellant
had an active corporate life, with two or three directors' meetings a year. (admitted)
(m) The Worker's
work was necessary and important to the sound operation of the Appellant's
business. (admitted)
(n) The terms and
conditions of the Worker's employment, as well as its nature and importance,
were reasonable. (denied)
[4] First of all, the
facts alleged in subparagraphs 5 (a), (b), (c), (d), (e), (h), (i), (l), (m), (n),
(o) and (p) and in subparagraphs 7 (a), (b), (c), (d), (f), (g), (j), (l) and (m)
were admitted; the others, namely subparagraphs 5(f), (g), (j), (k), (q), (r), (s)
and 7(e), (h), (i), (k) and (n), were denied.
[5] Marc Landry testified.
He explained that he worked as a traveling salesperson selling wooden frames,
wooden doors and hardware starting in the early 1980s.
[6] In 1984, he
began working as a sales representative for Valco Métal Inc., a company
that had $5 to $6 million in annual sales.
[7] He received a 5%
commission for his work as a salesperson. This corresponded to an annual
salary of approximately $35,000, which included all expenses incurred in the performance
of his duties. He described himself as self‑employed.
[8] One of Marc
Landry's brothers was working for the same company at the time. The
company in question went bankrupt in the early 1990s, whereupon Marc Landry
and his two brothers decided, along with their parents, to create the Appellant
corporation. Each person owned 20% of the corporation's share capital.
[9] The business that
was created essentially worked in the same field as Valco Métal Inc.
[10] The new company's
clientele, which consisted primarily of building contractors, was essentially
the same as that of Valco Métal Inc.
[11] Marc Landry explained
that purchases made by building contractors accounted for 90% of the business's
sales, and purchases made by walk-in customers at the industrial park location
accounted for 10% of sales.
[12] When Marc Landry's
mother died, her 20% of the share capital was bequeathed to Marc Landry's
father, who consequently held 40% of the share capital.
[13] Marc Landry's father
then sold the 20% that he inherited from his spouse to Luc Landry, Marc's
brother. However, Luc Landry did not do any remunerated work for the
Appellant corporation.
[14] Later on, the father
sold his original 20% of the share capital as follows: 6% to Claude, 6% to
Denis, 6% to Marc, and, lastly, 2%
to Luc.
[15] Marc Landry then
explained that he and his brothers Claude and Denis essentially had the same
duties and shared the territory in which they sold various products, chiefly
wooden doors and frames. All three brothers were concerned about the quality of
the service offered to the companies with which they were doing business.
[16] The annual sales
were more or less the same every year. Marc Landry's brothers refused to
consider the idea of expanding or developing their business. There were a few
reasons for this, including the fact that the premises where the work was done
were of limited size and did not permit the business to expand.
[17] Marc Landry explained
that his brothers were clearly content with the status quo and were
contemplating eventual retirement.
[18] He explained that,
during the high season, which ran from March to October, they worked roughly 35
hours a week, while from November to February they worked approximately 25
to 30 hours a week.
[19] The business hired
roughly seven people during the busiest period, whereas only four employees
were sufficient to meet demand during the slow period, and
a secretary-receptionist looked after the office and showroom. Marc Landry
explained that she was the person who most often made the sales to individuals.
[20] At first, the work
done at the plant was managed by a foreperson. Once the employees were
sufficiently familiar with their work, the foreperson position was left vacant when
the last incumbent left.
[21] Mr. Landry explained
that a shareholders' agreement was signed; under its terms, unanimity was
required in order to pay a dividend, and since unanimity could not be achieved,
the Appellant corporation never paid any dividends.
[22] However, bonuses
could be paid with the approval of a majority of votes. Thus, the shareholders
and employees were paid a bonus, though the amount granted to the shareholders
was much more generous than the amount granted to the employees.
[23] Marc Landry asserted
that the expenses incurred in the course of his work were reimbursed by the
Appellant. As for travel expenses, he used his personal car, but the Appellant
reimbursed related expenses at the same rate that the government pays its employees.
[24] The wage paid to
plant employees varied from $11.00 to $12.25 an hour and the terms and
conditions of their employment were absolutely not comparable to those of Marc,
Claude and Denis Landry, the three shareholders who each held 26% of the
shares.
[25] Marc Landry ended
his testimony by stating that he disagreed with the idea of paying employment
insurance premiums because he would never receive any employment insurance
benefits.
[26] He also stated that
when he was working for Valco Métal Inc., he was a self‑employed salesperson
and did not have to pay any employment insurance premiums.
[27] Mr. Landry testified
in such a clear, simple and very direct fashion that the overall picture of the
situation and the relevant circumstances were established very quickly and in a
manner that left no room for any confusion or interpretation.
[28] In fact, no new
considerations emerged from the evidence.
[29] The Appellant denied
subparagraph 5(f) because it never had 11 workers, just seven or eight of them;
as for subparagraph (j), the Worker worked 35 hours a week, not 32 to 40 hours;
and as for subparagraph (k), the evidence showed that it was consistent with
the facts. The contents of subparagraphs (k) and (r) were confirmed by Mr. Landry's
testimony. As far as subparagraph 5(s) is concerned, this is a question of law.
Mr. Landry's testimony was very revealing in this regard: his brothers
exercised true control and ensured that things were going properly and meeting
their expectations.
[30] Lastly, the
Appellant denied subparagraphs 7 (e), (h), (i), (k) and (n), essentially
for reasons of interpretation. It is true that different people may have
different views of what is reasonable.
[31] The approach taken
by counsel for the Appellant, which is based on a comparison between the terms
and conditions of people who work for the company, warrants a finding that the
situation was completely unreasonable.
[32] However, things are
completely different when the question of what is reasonable is assessed having
regard to a comparable situation where the shareholders are at arm's length
from each other and not related. The comparison with the salary paid to
the employees is neither appropriate nor relevant.
[33] In the case at bar,
the investigation obtained all the relevant facts and the analysis that
followed was completely sound. Consequently, its findings are completely
reasonable.
[34] Moreover, Marc
Landry made several assertions that discredited the Appellant corporation's
case.
[35] He admitted that he
was an employee. He admitted that he might have had to pay a similar wage to
an outsider who had the same duties as he did.
[36] In fact, in this
regard, he explained that the appeal was a personal matter, because he
disagreed with the idea of having to pay employment insurance premiums knowing
all the while that he would never receive any benefits.
[37] He added that he did
not pay such premiums when he was a self-employed salesperson for another
company that did business in the same field.
[38] It must be
understood that employment insurance premiums are not payable on a voluntary
basis. They must be paid if the work was done in accordance with the parameters
contained in the Act.
[39] The burden of proof
was on the Appellant. However, the Appellant did not show that the Minister's
analysis was deficient in any respect. Rather, it confirmed that the findings
of the analysis were correct.
[40] In this regard, the
clarity, simplicity and spontaneity of the answers given by Mr. Landry greatly
simplified the Court's task of deciding whether the Minister's work and
findings were reasonable; indeed, Mr. Landry's unambiguous admissions and
assertions confirm that the decision under appeal was well-founded.
[41] For these reasons,
the appeal is dismissed.
Signed at Ottawa, Canada, this 3rd day of April 2008.
"Alain Tardif"
Translation
certified true
on this 16th day
of May 2008.
Brian McCordick,
Translator
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