Citation: 2008TCC53
Date: 20080207
Docket: 2007-3425(EI)
BETWEEN:
MÉLANY-MANON BILODEAU,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
9169-9843 QUÉBEC INC.,
Intervener.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from a decision under paragraph 5(2)(i), subsection 5(3) and
sections 91 and 93 of the Employment Insurance Act (the “Act”)
dated September 20, 2007, that the work done by the Appellant from
June 1, 2006, to June 7, 2007, for the Intervener 9169‑9843 Québec Inc. did not constitute insurable employment because
that business and the Appellant were not dealing with each other at arm’s
length.
[2] In making his
decision, the Minister of National Revenue (the “Minister”) relied on the
following assumptions of fact:
[TRANSLATION]
5.
(a) The Payor, which was incorporated on May 25, 2006, operates a
snow removal business and mechanical repair shop under the business name Déneigement
EMR; (admitted)
(b) The
Appellant and the Payor have admitted and confirmed that the Appellant rendered
services to the Payor from June 1 to September 30, 2006, but
received no remuneration from the Payor during that period. (admitted)
6. The Appellant and the Payor are
related persons within the meaning of the Income Tax Act
because
(a) at the time of
incorporation, the Appellant and Michel Raymond held the Payor's voting shares
in equal amounts; (admitted)
(b) on August 1, 2006, the Appellant's
shares were bought back by the Payor; (denied)
(c) on August 1, 2006, Michel Raymond became
the sole holder of the Payor's voting shares; (admitted)
(d) the Appellant is Michel Raymond's
spouse; (admitted) and
(e) since August 1, 2006, the Appellant has
been related to a person who controls the Payor. (admitted)
7. (a) The Payor started
up its business by purchasing the goodwill of 310 customers of the predecessor
business, which belonged to Frank Raymond, the brother
of the Payor's shareholder; (admitted)
(b) The Payor acquired three vehicles (tractors)
for snow removal, and Michel Raymond already had one that could do backup
work for the Payor; (admitted)
(c) During its first season of operations, the
Payor hired three drivers to operate its tractors and do snow removal; (admitted)
(d) One of the Payor's drivers was a
foreperson and was paid a fixed amount, while the other two were paid
solely for snow removal; (admitted)
(e) The Appellant began to render services to
the Payor on or about June 1, 2006, but it was only on October 1
that the Payor hired her for pay; (admitted)
(f) The Payor hired the Appellant as a
secretary-bookkeeper; (denied)
(g) The Appellant had secretarial training,
and had previously worked part time for a dental clinic; (admitted)
(h) In June 2006, the Appellant began to
render services to the Payor by organizing its books. In early September, after
her job at the dental clinic ended, she started to work full time for the Payor;
(admitted)
(i) In September, the Appellant, who was not
being paid at the time, sent invoices to the Payor's 310 customers, and 250 of
them renewed their contracts; (denied)
(j) In October and November, after placing
advertisements in newspapers, the Payor got 200 new customers, for a total
of 450 for the 2006‑07 season; (denied)
(k) Each of the Payor's customers paid 50% of
the contract price upon signing, and remitted the balance by cheque postdated
to February 1, 2007; (denied)
(l) The snow removal contracts ended on
March 31, but the Payor did an additional run on April 5, 2007,
after a significant snowfall; (admitted)
(m) The Appellant's main duties as of October 2006
can be summarized as follows:
- taking customers' phone calls,
- doing the Payor's bookkeeping,
- preparing the invoices for the customers,
- going to the bank and making the deposits, and
- running various errands, such as finding parts for machinery; (denied)
(n) In October and November 2006, the Appellant
received $1,200 in gross monthly pay. During the rest of the period in issue,
she received $810 every two weeks; (denied)
(o) On snowy days, Mr. Raymond was the
one who notified drivers of the snow removals that needed to be done, and the
Appellant took calls from customers as of 8:00 a.m.; (admitted)
(p) After her layoff on
March 30, 2007, the Appellant continued to render services to the Payor by doing
month-end tasks, preparing quarterly reports, preparing the pay for one of the
drivers who stayed on longer with the Payor, and doing certain work needed in
order to end the fiscal year; (admitted)
(q) Starting October 1, 2006, which was
renewal time for all contracts, the Payor apparently hired the Appellant
for 30 hours of work per week over a 17‑week period in order to answer
the phone and do some accounting entries on the computer; (denied)
(r) The few tasks entrusted to the Appellant
did not justify a workload of 30 hours per week; (denied)
(s) During the period in issue, the Appellant was
paid more than the drivers hired to do snow removal, which was the very essence
of the Payor's existence; (denied)
(t) From June to late September 2006, when
the Payor had to start up its business and there was a work surplus, the
Appellant worked without pay; (denied)
(u) It is not reasonable to believe that a
stranger would have agreed to work for the Payor on the terms and conditions
offered to the Appellant. (denied)
[3] Michel Raymond, the
sole shareholder and the Appellant's spouse, represented the Appellant at the
hearing. After being sworn in, he admitted to the facts referred to in
subparagraphs 6(a), 6(c), 6(d), 6(e), 7(a) through 7(e), 7(g), 7(h), 7(l), 7(o)
and 7(p):
[TRANSLATION]
6. . . .
(a) at the time of
incorporation, the Appellant and Michel Raymond held the Payor's voting shares
in equal amounts; (admitted)
(c) on August 1, 2006, Michel Raymond became
the sole holder of the Payor's voting shares; (admitted)
(d) the Appellant is Michel Raymond's spouse; (admitted)
(e) since August 1, 2006, the Appellant has
been related to a person who controls the Payor. (admitted)
7. (a) The Payor started
up its business by purchasing the goodwill of 310 customers of the predecessor
business, which belonged to Frank Raymond, the brother of the Payor's
shareholder; (admitted)
(b) The Payor acquired three vehicles
(tractors) for snow removal, and Michel Raymond already had one that could do
backup work for the Payor; (admitted)
(c) During its first season of operations, the
Payor hired three drivers to operate its tractors and do snow removal; (admitted)
(d) One of the Payor's drivers was a foreperson
and was paid a fixed amount, while the other two were paid solely for snow
removal; (admitted)
(e) The Appellant began to render services to
the Payor on or about June 1, 2006, but it was only on October 1 that
the Payor hired her for pay; (admitted)
(g) The Appellant had secretarial training,
and had previously worked part time for a dental clinic; (admitted)
(h) In June 2006, the Appellant began to
render services to the Payor by organizing its books. In early September, after
her job at the dental clinic ended, she started to work full time for the Payor;
(admitted)
(l) The snow removal contracts ended on March
31, but the Payor did an additional run on April 5, 2007, after a significant
snowfall; (admitted)
(o) On snowy days, Mr. Raymond was the one who
notified drivers of the snow removals that needed to be done, and the Appellant
took calls from customers as of 8:00 a.m.; (admitted)
(p) After her layoff on March 30, 2007, the
Appellant continued to render services to the Payor by doing month-end tasks,
preparing quarterly reports, preparing the pay for one of the drivers who
stayed on longer with the Payor, and doing certain work needed in order to end the
fiscal year; (admitted)
[4] He explained how he
got into the snow removal business. He said that his availability was limited
because he operated another business with a partner.
[5] The Appellant was a
secretary-bookkeeper with a dental office where she worked part time for roughly
20 hours per week. She left that job to form a 50-50 partnership with her
spouse in the new business that he had created.
[6] It was agreed that
she would look after the administrative and accounting aspect of the new
business because her spouse would often be unavailable.
[7] Thus, initially,
she looked after the many contract renewals before devoting herself to
promotional initiatives aimed at recruiting new customers. The new customer
recruitment drive required more work than the contract renewals.
[8] At first, when the
Appellant was a co-shareholder, it was agreed that she should receive $1,200 in
remuneration per month. Somewhat later, she assigned her shares to her spouse
for nil consideration, at which time it was agreed that she would receive a
salary of $800 every two weeks for her work.
[9] The Appellant apparently
transferred her shares free of charge because she found that the responsibilities
associated with her shareholder status were burdensome and preferred to be rid
of them.
[10] These were the main
arguments of the Appellant and her spouse. With respect to the workload, the
Appellant and her spouse explained that the amount of work justified both the
salary and the creation of the position. They argued that the work and the
pay were reasonable. They also alleged that, although the Appellant was paid a
fixed amount for each biweekly pay period, she did roughly 30 hours
of work per week.
[11] A quick calculation
shows that, based on a 30-hour week, her pay was equivalent to what she earned
when she worked for a dental office. This supports the Appellant's argument
that the remuneration that the Intervener paid her was reasonable.
[12] As for the workload,
the Appellant and her spouse provided several explanations to justify the significance
of the duties. The Respondent had determined that the Appellant was
exaggerating when she said that her duties justified a workload of 30 hours per
week.
[13] In coming to this
conclusion, the auditor tried to quantify the time needed to answer the
telephone, prepare cheques, receive and pay accounts, prepare bids and
contracts, and do all the entries in the computer system. I do not accept the
auditor's calculations on the ground that they are not reasonable.
[14] Indeed, any
business, especially a new one, must have someone available at all times,
especially during normal business hours, to answer telephone calls from
customers, prospective customers, or anyone seeking information.
[15] This simplistic
calculation of the time devoted to each administrative task is not an
acceptable formula for calculating the insurable hours of a job.
The amount of time necessary to ensure continuity of service is just as
important and fundamental but was completely left out of the analysis. This was
a significant weakness in the analysis because this element was clearly given
conclusive importance in the Minister’s decision.
[16] Consequently, the
analysis should be redone based on the facts and considerations disclosed by
the evidence. In this regard, I have accepted, by way of background, that the
Appellant did not make any initial investment to obtain her 50% of the
company's shares; a few months later, she transferred those shares for nil consideration.
These facts are obviously of very little relevance to the issue of the
insurability of the employment. However, they aptly illustrate the special
context of this situation, in which the family dimension characterized the
dealings between the parties.
[17] As for as the
relevant and determinative facts, the Appellant did indeed do work. This was
absolutely not a job that was given to someone for the sake of convenience. It
was necessary work that was actually done.
[18] While this
conclusion might initially seem favourable to the Appellant's case, its effect
on that case is actually the opposite.
[19] How can one account
for the fact that this real and significant work was not remunerated from the
outset? In fact, work on finding new contracts and on renewals, bid submissions
and responses to inquiries constitutes a fundamental component of the snow
removal business. The fact is that a significant share of this work was done
prior to the remuneration period. Consequently, the evidence discloses that the
Appellant took on quite a heavy workload without being paid — something
that a third party would obviously not have agreed to do for free.
[20] Another very
important consideration is the issue of remuneration. It appears that the
initial agreement was for the Appellant to be paid $1200 per month; it should
be recalled that she was a shareholder at the time, and had not invested
anything in the company.
[21] Interestingly,
however, when the Appellant transferred her shares, the parties agreed that her
salary would no longer be $1200 per month, but rather $800 every two weeks, or
$1720 ($400 per week multiplied by a factor of 4.3) per month, which represents
an increase of $520 per month. It is unlikely that such a situation would have
occurred if the work had been done by someone who was at arm's length.
Such a discrepancy in earnings for the same work is certainly not the norm in
the workforce, where the two parties are unrelated.
[22] Another important
consideration is the fact that Michel Raymond said that the Appellant alone
signed all the cheques for the business. Here again, a third party would not
have had the benefit of such authority. The business’s cheques would
probably have needed two signatures: Mr. Raymond’s and the employee’s.
[23] Lastly, having
regard to the vocation of the business, the length and intensity of the work
should have been described in a way that was adapted to the various strategic
periods of the business, because, as mentioned earlier, a snow removal business
must invest time and energy to recruit as many customers as possible before the
winter so that it can plan the work ahead and obtain the equipment and
materials needed to carry out the contracts.
[24] The second stage essentially
consists in fielding complaints, planning the execution of the work and
ensuring that customers make their second payment at the appropriate time.
[25] These special
characteristics mean that the hours of work are markedly longer at the
beginning of the winter period than they are in the middle of it, when the
schedules of the snow removers become the greatest concern.
[26] Lastly, the end of
the Appellant's pay period in late March does not correspond to the reality of
the activities of such a business.
[27] Moreover, the
activities of the business in question are seasonal by their very nature;
hence, the beginning and end of the activities should be relatively simple to
establish.
[28] However, in the case
at bar, this dimension seems to have been evaluated on the basis of the family
situation. Evidently, the Appellant initially worked without pay for the simple
reason that the company had not yet generated enough income to pay her. A
person at arm's length would not have agreed to work on an unpaid basis,
regardless of the reason.
[29] The Appellant and
her spouse assert that they had always acted in good faith, and I do not doubt
them for a moment; clearly, they were advised to arrange matters so that the
Appellant could receive employment insurance benefits in view of the seasonal
nature of the business, and that, in and of itself, is completely legitimate.
[30] Nonetheless, in
order for the Appellant to qualify for benefits, it was imperative that she
enter into a contract of service substantially similar to what a person at
arm's length would have entered into under similar circumstances.
[31] An unrelated person
would have worked for reasonable remuneration; he or she would not have worked
without pay. And an employer would not pay an employee who was not working. An
employer would pay an employee using a reasonable pay scale for a reasonable amount
of work.
[32] In the case at bar,
the Appellant's contract of employment was not consistent with what a person at
arm's length would have entered into. Indeed, this is a business where there is
a great need for administrative work (the type of work performed by the
Appellant) before the winter season begins: renewals, advertising, contracts,
schedules, plan, requests for information, and so forth.
[33] Once the season has
begun, an administrative slowdown is sure to occur, and the emphasis is on the
actual snow removal work. After the season has ended, there is a whole series
of tasks related to the cessation of activities, the preparation of reports,
etc.
[34] The best approach
for a person who is not at arm's length is to enter into a contract of
employment that would be substantially similar to the contract that a person at
arm's length would obtain.
[35] For all the
foregoing reasons, although the analysis that was carried out as part of the
discretion contemplated in paragraph 5(2)(i) of the Act was seriously
flawed, I must confirm that the determination that the non-arm's length
relationship between the Appellant and the business had an influence on the
contact of employment was correct and well-founded.
[36] For all these
reasons, the appeal is dismissed.
Signed at Ottawa, Canada, this 7th day of February 2008.
"Alain Tardif"
Translation certified true
on this 25th day of March
2008.
Susan Deichert, Reviser
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