Citation: 2008TCC110
Date: 20080222
Docket: 2006‑1332(EI)
BETWEEN:
LES ENTREPRISES LEOPOLD SIMARD & FILS INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif, J.
[1] This
is an appeal regarding the insurability of work performed by
Denise Langlois during the periods from August 27, 2001 to
August 30, 2002, from December 2, 2002 to
April 25, 2003, and from January 5, 2004 to
December 3, 2004, for the Appellant company, Les Entreprises Léopold
Simard & Fils Inc.
[2] The
decision under appeal is that the work in question must be excluded from
insurable employment under paragraph 5(2)(i) of the Employment
Insurance Act ("the Act" ) as the parties to the contract
of employment were not dealing with each other at arm's length.
[3] In
other words, the Minister exercised his discretionary authority by relying on certain
factual assumptions to determine that the contract of work was influenced by the
non-arm's-length relationship as regards the terms and conditions, duration,
and nature and importance of the work performed.
[4] The
facts assumed are set out in paragraphs 5 (a) through (c) and 6 (a) through
(u) of the Reply to the Notice of Appeal. The Appellant admitted the facts
mentioned in paragraphs 5 (a) through (c), 6 (a) through (c), (e), (g) through
(j), (n) and (o), denied those in paragraphs 6 (f), (l) and ( p) through
(t), and, finally, had no knowledge of those mentioned in paragraphs 6
(d), (k), (m) and (u).
5. The Appellant
and the worker are not dealing with each other at arm's length within the
meaning of the Employment Insurance Act because:
(a) during
the periods in issue, the Appellant's shareholders were:
‑ Gérard
Simard, with 98% of the shares;
‑ the
worker, with 2% of the shares. (admitted)
(b) the
worker is Gérard Simard's wife; (admitted)
(c) the
worker is related to a person who controlled the Appellant. (admitted)
6. The
Minister determined that the Appellant and the worker were not at arm's length
in the context of the employment. In fact, the Minister was satisfied that it
was unreasonable to conclude that the Appellant and the worker would have
entered into a substantially similar employment contract if they had been dealing
with each other at arm's length, in view of the following circumstances:
(a) the Appellant,
incorporated on November 15, 1982, carries on a business specializing
in excavation and wood transportation; (admitted)
(b) the Appellant's
office is located in the residence of the worker and Mr. Simard;
(admitted)
(c) the Appellant
owned 6 10‑wheeler trucks, a mechanical shovel and 2 loaders; (admitted)
(d) the Appellant
carries on business year-round and has a peak period between the months of
April‑May and October‑November of each year; (no knowledge)
(e) the Appellant
hires up to 10 employees during the peak period and often none outside the
peak period; (admitted)
(f) during
the peak period, the Appellant might receive up to 30 telephone calls per
week, while this number dropped to 1 or 2 calls per week outside the peak
period; (denied)
(g) the
worker has been employed by the Appellant since its establishment as a
secretary, bookkeeper and receptionist; (admitted)
(h) in 2000,
the Appellant hired Sylvie Simard, the daughter of Gérard Simard, to handle the
accounting and administrative aspects of the business; (admitted)
(i) after
that time, the Appellant computerized his business and employed 2 persons
full‑time to handle the secretarial and administrative aspects, namely
the worker and Sylvie Simard; (admitted)
(j) during
the periods in issue, the worker performed services under the control of
Mr. Simard; (admitted)
(k) the
worker's duties were to assist Sylvie Simard when she was too busy by answering
the telephone and doing filing; (no knowledge)
(l) the
worker could also do housekeeping chores and do her grocery shopping; (denied)
(m) the
worker had no regular work schedule and her hours of work were not recorded by
the Appellant; (no knowledge)
(n) during
the periods in issue, the worker claims she was working 40 hours per week;
(admitted)
(o) the
worker was paid $10.00 per hour or $400.00 per week irrespective of the number
of hours actually worked; (admitted)
(p) the
worker was often listed in the Appellant's payroll journal outside the peak
period when there was little activity and there were no employees; (denied)
(q) the
worker performed services for the Appellant according to her own needs and not according
to the Appellant's needs; (denied)
(r) when the
worker was laid off, nobody replaced her because Sylvie Simard could handle the
work alone; (denied)
(s) during
the periods in issue, the minimal duties assigned to the worker did not require
40 hours of work per week; (denied)
(t) after
the arrival of Sylvie Simard in June 2000, the worker's work became more
incidental than indispensable to the Appellant's activities; (denied)
(u) although
Sylvie Simard had more duties that were more complex than those performed by
the worker, she received the same weekly remuneration as Sylvie Simard. (no
knowledge)
[5] Mr. Gérard
Simard described the history of the company created by his father, assisted by
his mother; his father developed the lands that he sold; he also performed
excavation work when his clients decided to have a house built. Over the years,
these activities were augmented by the transportation of wood and certain snow removal
work.
[6] In
the early 1980s, Gérard Simard, who had been working in his father's business for
several years, began to take steps in preparation for the transition. Thus, over
a five-year period, he began to gradually acquire his father's shares until, by
the end of that period, he owned very nearly all the shares, with his wife
Denise Langlois holding 2%.
[7] He
explained how the business continued to grow and develop from independent
offices that were connected, however, to the family residence. Over the years,
his wife had replaced his mother; she alone handled the administrative tasks,
which were performed manually for a long time.
[8] As
the father of two daughters, Mr. Simard explained that one of them ran a
day care service and the other, Sylvie, had expressed an interest in the family
business at a very early age.
[9] To prepare herself for an important role in the
business, Sylvie first studied administration. In the late 1990s, the business'
accountant strongly recommended that a computer system be installed, which
Sylvie handled, as her mother was not interested in it and preferred her
traditional method of doing everything manually.
[10] The
mother and daughter worked closely together to set up the computer system, a
lengthy and difficult task, with Sylvie being the only person capable of using
it.
[11] After
the computer system was installed, and with her father's encouragement, Sylvie
assumed a role of increasing importance in the business. In particular, she
took courses in planning, occupational health and safety, and so on.
[12] In
other words, she began to do what her father had done some thirty years
earlier. Her mother, always faithful to the traditional approach, never stopped
working, except for three periods, two of which were caused by illness.
[13] Having
no experience with computers, her mother handled matters manually and the work
involving the computer was neglected until Sylvie returned, particularly during
her maternity leave of several months.
[14] Mr. Simard
explained that when his wife or daughter was absent, he had to spend more time
at the office. He stated that he then preferred to hire someone to do the
manual work rather than the office work. At a certain point, however, the
business hired someone to do the office work. The work was then given to his
sister‑in‑law, the Appellant's sister.
[15] As
regards the work of Denise Langlois, which is the subject of this matter, she
and Mr. Simard explained that it involved working on a very irregular schedule,
stating that she might have to answer a business call at 5 a.m.; it was indicated
that work often continued after 5
p.m. and that she often had
to receive clients on weekends various reasons.
[16] As for the hours of work, periods of work, salary and
other terms and conditions for performance of the work, Mr. Simard and his
daughter described the work performed. They noted that some the work week could
vary between 20 and 60 hours.
[17] All
this testimony indicated that the duties were important and numerous and took
place over a very long period, with Mr. Simard even talking of 24 hours
per day and seven days per week.
[18] As
regards the salary, it was clearly established that it was $400 per week,
irrespective of the number of hours worked or the time when the work was
performed.
[19] The
same salary of $400 per week was also paid to Mr. Simard's sister‑in‑law
when she came to work for the business for a period of two months.
[20] In
this respect, Mr. Simard specifically asserted that this woman's workload
was not comparable to his wife's, particularly regarding the regularity of the
work schedule.
[21] The work performed by the worker was been excluded
from insurable employment under paragraph 5(2)(i) of the Act,
which reads as follows:
5(2) Insurable employment does not include ...
...
(i) employment if the employer and employee are not dealing with
each other at arm's length.
The investigation and analysis conducted under the
discretionary authority set out in the Act have led to the conclusion
that the Appellant could not benefit from the exception provided by Parliament,
considering that the work was not performed under terms and conditions that
would have been substantially similar if the parties to the contract had been
dealing with each other at arm's length.
[22] In
other words, the Minister determined that persons at arm's length would not
have entered into a substantially similar employment contract in terms of the
duration or number of hours of work, the time of performance of the work, the
workload and finally the remuneration. Parliament has framed the parameters of
the Minister's discretionary authority in the following terms:
(3) For the
purposes of paragraph (2)(i),
(a) the question of
whether persons are not dealing with each other at arm's length shall be
determined in accordance with the Income Tax Act; and
(b) if the employer is,
within the meaning of that Act, related to the employee, they are deemed to
deal with each other at arm's length if the Minister of National Revenue is
satisfied that, having regard to all the circumstances of the employment,
including the remuneration paid, the terms and conditions, the duration and the
nature and importance of the work performed, it is reasonable to conclude that
they would have entered into a substantially similar contract of employment if
they had been dealing with each other at arm's length.
[23] Counsel
for the Respondent stated unequivocally that the facts established that the
secretarial, bookkeeping and receptionist's work were exaggerated and of little
importance to the proper functioning of the business.
[24] However,
the evidence submitted to the court indicated instead that the workload was
real and, especially, much more important than what was determined during the
investigation.
[25] Given
that this is a key consideration forming the basis of the Minister's
conclusions, we must proceed with a new analysis based on the evidence adduced.
[26] It
does appear that Denise Langlois' workload was in fact important and real. It
is also true that Ms. Langlois was very much involved in the proper functioning
of the family business. While she never succeeded in mastering the computer,
she nevertheless continued to perform the manual work in a somewhat parallel
fashion, as she and her husband were more comfortable with that way of doing
things.
[27] In
addition, she regularly assisted her daughter who had taken several months of
maternity leave after the birth of her child. On several occasions, the
witnesses referred to the fact that mutual assistance and working together were
essential in a family business.
[28] In this regard, Mr. Simard stated that
this was a business in which things might have to be done over a period of
seven days, even 24 hours per day, adding that his Appellant wife and his
daughter worked closely together for the greater good of the business.
[29] He gave the example of having to answer the telephone
at 5 o'clock in the morning. There were also many calls in the evenings
and on weekends, and he indicated that his wife was always available, except when
she was ill.
[30] Sylvie's entry into the business could have reduced
the importance of Mrs. Langlois' participation. However, Sylvie had a
child and as a mother, her family responsibilities increased, thereby reducing
her availability. On the other hand, the evidence indicated that she performed
a considerable amount of work, with the support and encouragement of her
father, eventually assuming a more significant role in which she spent a
considerable part of her time outside the office.
[31] This
objective meant that she was doing less office work, devoting more time to
duties directly connected with the operation of the business.
[32] Ms. Langlois
and her husband stated that Sylvie was very flexible and could even do personal
work during the day, since she knew what had to be done and was available to
perform the work at any time, either at night or on the weekend.
[33] In a
situation such as this, the following question must be asked: "Would a
person at arm's length have agreed to be as free or flexible?" It is
unnecessary to analyse the evidence to answer this question, since
Mr. Simard himself stated that his sister‑in‑law, whose
services had been retained for a certain period, had been hired to do the same
work for the same salary, but on a schedule that was more firm, stable, regular
and, especially, less demanding in terms of hours.
[34] Would
a person dealing at arm's length have agreed to work as many hours for
remuneration of $400 per week, without considering overtime, and always at the
same salary, year after year? To put the question is to answer it, no.
[35] At this point, it is necessary to restate the facts
within the context of a family business. Within the family, availability,
flexibility, zeal, dynamism, enthusiasm, willingness to work for free and
generosity are essential qualities, which often explain the success of a family
business.
[36] If the
business prospers, develops and grows, the result generally benefits everyone.
Therefore it is no exaggeration to say that while there are many advantages, often
there are also many disadvantages.
[37] In
employment insurance, Parliament wanted to avoid any discrimination with
respect to individuals who are employed by persons with whom they are not dealing
at arm's length.
[38] In
order to achieve this objective, Parliament enacted paragraph 5(2)(i)
of the Act, which provides that this employment is automatically
excluded from insurable employment, immediately adding, however, that if this
work is performed under terms and conditions of remuneration and duration
substantially similar to what would have been the case for persons dealing with
each other at arm's length, the work which was initially excluded would then
become insurable.
[39] Accordingly,
in order for the work to be insurable, the similarities must be real. In the
case at bar, would a person dealing at arm's length with the family have
accepted a workload spready over a seven-day week, with the possibility that
work could begin as early as 5 a.m. and extend regularly into evenings and
weekends, and all this for a salary of $400, without any annual salary
increase?
[40] I do
not think so. The sole reason for accepting this work was a concern for the
proper operation of the business, its prosperity and development, the ultimate
expectation being to achieve a high standard of living. Such motivation, commitment
and interest would not have been possible in the case of a person dealing at
arm's length. The principal shareholder himself referred to the difference in
the case of his sister‑in‑law, who in any event was less demanding
than a person at arm's length would have been. The dynamism, interest and
flexibility required in the instant case are such that it is thoroughly
unlikely that a third person would have accepted even a reduced workload.
[41] For all these reasons, the appeal must be dismissed.
Signed at Ottawa, Canada, this
22nd day of February 2008.
"Alain Tardif"
Tardif J.
Translation
certified true
on
this 11th day of April 2008.
Brian McCordick, Translator
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