Citation: 2006TCC160
Date: 20060529
Dockets: 2004-4005(EI)
2004-4008(EI)
BETWEEN:
JACINTHE GARNEAU,
DENISE BELLEFEUILLE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] The Appellants,
Jacinthe Garneau and Denise Bellefeuille, appeal from decisions
handed down by the Minister of National Revenue (the Minister)
concerning the insurability of their employment with Boiserie Dubé &
Associés Inc. (the Payer), a company controlled by Joseph Dubé. The
material times relating to Ms. Garneau’s work (the Garneau periods) are
the following:
·
May
5, 1997 to December 12, 1997
·
May
31, 1998 to November 7, 1998
·
June
7, 1999 to October 22, 1999
·
May
22, 2000 to October 6, 2000
·
March
4, 2001 to June 22, 2001.
[2] Those germane to
Ms. Bellefeuille’s work (the Bellefeuille periods) are:
·
June
8, 1997 to September 12, 1997
·
June
21, 1998 to October 15, 1999
·
April
17, 2000 to September 1, 2000
·
April
16, 2001 to August 31, 2001.
[3] Concerning Ms.
Garneau, the Minister stated in his Amended Reply to the Notice of Appeal that
she [Translation] “was not
employed in insurable employment...because...there was no genuine contract of service”
between her and the payer (paragraph 11).
[Translation] “In the
alternative, he submitted that the Appellant did not deal at arm’s length with
the payer during the periods at issue pursuant to paragraph 5(3)(a)
of the Employment Insurance Act [EIA] and paragraph 251(1)(c)
of the Income Tax Act [ITA] and, consequently, the Appellant’s
employment, if employment it was, was excluded pursuant to paragraph 5(2)(i)
of the [EIA] (paragraph 12).” Finally, according to the Minister,
paragraph 5(3)(b) of the EIA was not applicable in the case at bar.
[4] Concerning Ms.
Bellefeuille, the Minister submitted in his Amended Reply to the Notice of
Appeal that she was not employed in insurable employment because there [Translation] “was no employment”
(paragraph 10). [Translation] “In
the alternative, should the Court find that the Appellant was an employee of
the payer..., he submitted that there was no genuine contract of employment”
(paragraph 11). Finally, the Minister maintained that, even if there were a genuine
contract of employment, it would be excluded from insurable employment because
of the non-arm’s length relationship between Ms. Bellefeuille and the
payer “under paragraphs 251(1)(a) and 251(2)(a) of the
[ITA]” (paragraph 12), and he [Translation]
“submitted that persons dealing at arm’s length would not have entered into a
contract of employment substantially similar to the one between the Appellant
and the payer” (paragraph 13). Ms. Bellefeuille was a person related to the
payer because she was the wife of Mr. Dubé.
Factual background
[5] The Appellants are
represented by the same counsel and they have agreed to have their appeals
heard on common evidence. The hearing of these appeals, initially scheduled for
one day, lasted six days: five days in June 2005 to hear the evidence and one
day for argument on October 6, 2005. Counsel for the Minister, who had
undertaken to file written submissions on September 30, 2005, submitted a
227-page document. Counsel for the Appellants made oral submissions. For a
better understanding of the scope taken on by these appeals, it is helpful to
describe the circumstances surrounding the progress of the two cases.
• The HRDC
investigation
[6] The request that
the Employment Insurance Commission of Canada (the Commission) made to
an employee (insurance officer) of the Canada Revenue Agency (Agency)
concerning the insurability of the Appellants’ employment followed an
investigation by the Department of Human Resources Development Canada (HRDC).
Following an anonymous tip in September 2001, HRDC conducted an investigation
of the payer that continued until the summer of 2003. The following is an excerpt from
HRDC’s “Investigation Report – penalty on the employer” (Exhibit I‑27,
page 2):
[Translation]
The investigation
revealed that some employees worked full time for the business while
receiving employment insurance benefits, that the employer had issued false
or deceptive Records of Employment not reflective of reality and that there
were employees who unabashedly worked under the table.
We especially
noted that Boiserie Dubé & Associés Inc. had used employment
insurance funds to pay the salaries of employees and family members, doing
so in an ongoing and repetitive manner, following an “established pattern”,
since the start of the business early in 1997. The investigation also showed
that the employer began this conduct in 1996 when the two shareholders were
working for another business as employees (Boiserie D.C.).
[Emphasis added.]
[7] It is apparent that
the facts of this case are very similar to those in Massignani v. Canada,
2004 TCC 75 and Pourvoirie au
pays de Réal Massé Inc. et al. v. Canada, 2004 TCC 582. As
Létourneau J. wrote in Desaulniers v. Canada, 2006 FCA 15 paragraph 1, it was “a scheme by
which the Employment/Unemployment Insurance benefits they received financed to
a large extent the salaries their employer paid them” (scheme).
[8] In her
investigation report, the HRDC investigator recommended the imposition of
penalties and that warning letters be sent to the payer for committing offences
against the EIA, [Translation]
“namely, [for] issuing a false Record of Employment, issuing 11 erroneous
Records of Employment, and helping and participating with a worker to receive
benefits while working full time” (Exhibit I‑27, last page). The
total amount of benefits
overpaid to eight employees, including Ms. Garneau, Ms. Bellefeuille and
Guylaine Dubé, was $73,015 and the total amount of the penalties imposed
on these recipients was $18,144. The investigator went on to say:
[Translation]
It is important to
note that the total amount of the overpayments and penalties for the claimants
would have been far greater but for the delays that we experienced in meeting
with the employer and obtaining the documents needed to conduct our
investigation and make decisions, while complying with the limitation periods
in the workers’ cases.
There would also
have been a greater number of offences against the Act by the employer for the
same reasons.
[9] The investigator
wrote in her report that Ms. Garneau had completed a number of Records of
Employment containing false or misleading information. For example, when she
was an employee of Boiserie D.C. Inc. (BDC), she prepared her own Record
of Employment, which was signed by Mr. Dubé when he was no longer an
employee of BDC; she gave as the reason for the termination of employment a
lack of work, whereas she had left BDC to join the payer’s company as a
shareholder and employee (Exhibit I‑27, pages 3, 4 and 5).
Ms. Garneau also filed a claim for unemployment benefits on January 14,
1997 containing the same misleading information, that is, that a lack of work
was the reason for the termination of her employment with BDC (Exhibit I‑2).
For the employees or alleged employees of BDC, Ms. Garneau completed Records of
Employment on which Marcel Maltais' signature was forged. This is true, inter
alia, of the Records of Employment for Guylaine Dubé, the daughter of
Mr. Dubé, Stéphane Laferrière and Gaston Dubuc (Exhibit I‑14).
Ms. Dubé’s Record of Employment is also misleading since she never worked
for BDC. As for Mr. Laferrière, the reason given for the termination of
employment was a lack of work and the last day of work was given as December
21, 1996 (Exhibit I‑14), whereas Mr. Laferrière worked for BDC until
February 22, 1997, if one is to go by the Record of Employment signed by
Monique Dugas (Exhibit I‑27, page 4 and Exhibit I‑17). On
the Record of Employment for Mr. Dubuc, Ms. Garneau indicated the
reason for the termination of employment as a lack of work, whereas
Mr. Dubuc had voluntarily quit his job in order to work for the payer
(Exhibit I‑27, pages 4 and 5, and Exhibit I‑30 (statutory
declaration by Mr. Dubuc)).
[10] The investigation
report describes a number of misleading and erroneous Records of Employment
submitted to HRDC by the payer. At a meeting with the investigator on May 10,
2002, Ms. Garneau admitted that she had prepared all of them (Exhibit I‑32,
page 4). With regard to Mr. Dubuc’s Record of Employment, the investigator said
that this worker had admitted that he began his employment in February 1997,
and not on April 20, 1997, as the Record of Employment indicates. Furthermore,
she reported that he did not stop working for the payer because of a lack of work
but because he had decided instead to quit his job. She adds [Translation] “that there was an
agreement with the employer so that the worker would not have any trouble with
Employment Insurance if he indicated a lack of work” (Exhibit I‑27, page
5, and Exhibit I‑30 (statutory declaration by Mr. Dubuc)). The
payer’s version is contained in the investigator’s report (Exhibit I‑27,
page 5): [Translation] “The
employer confirms that Gaston Dubuc began to work for him as of February
1997, but only after reading the documents in evidence. He stated, however,
that Gaston Dubuc worked as a subcontractor from February 1997 to 19‑04‑97,
as a self-employed employee. This statement cannot be considered credible.”
[11] The investigator
wrote with regard to Stéphane Laferrière:
[Translation]
This worker
acknowledges that he began his employment with this company on 24‑02‑97
instead of on 13‑04‑97, as recorded on the Record of Employment. He
stated that he received Employment Insurance benefits while working full time,
that he knew it was illegal, but that Joseph Dubé had told him there was
no risk because the cheques that he gave him were for his expenses.
For his part, the
employer stated that he knew that Stéphane Laferrière was receiving
Employment Insurance benefits, but that the worker wanted him to write the
cheques for him in his spouse’s name.
We have in
evidence cheques dated from before 13‑04‑97, either made out to the
worker, and not to his spouse, or to Réno‑Dépôt, and countersigned by the
worker.
[Emphasis added.]
[12] The investigator’s
report contains many cases like that of Mr. Laferrière. The report also
describes other kinds of arrangements in which Mr. Dubé was involved, inter
alia, the arrangement with Nancy Ménard described at page 8:
[Translation]
The worker stated
that she had definitely worked for Boiserie Dubé & Associés Inc. from 19‑03‑01
to 25‑09‑01. However, she said that she had an arrangement with the
boss, Joseph Dubé, that, instead of a raise, he would pay her for an
hour or more on her pay cheque.
[Emphasis added.
• Decisions by the
insurance officer
[13] When he received the
requests for decision concerning the insurability of the Appellants’ employment
in the summer of 2003, the insurance officer consulted the voluminous documentary
evidence assembled by the HRDC investigator. Among the documents were numerous
summaries of the investigator’s interviews with the payer’s shareholders, Mr.
Dubé’s spouse, his children and the employer’s employees and former employees.
He later interviewed all of them and they confirmed to him what they had
already told the investigator. Relying in part on the statement of
Guylaine Dubé that Ms. Bellefeuille had not worked for the payer, the
insurance officer found that she had not been employed with the payer in
insurable employment. With regard to Ms. Garneau, the insurance officer
found that her employment was excluded from insurable employment because she
and the payer were not dealing at arm’s length.
• The admissions
[14] In making his decision
concerning Ms. Garneau, the Minister assumed the following facts, which are set
out in his Amended Reply to the Notice of Appeal:
[Translation]
8. ...
(a) the payer was incorporated on November 7, 1996; [admitted]
(b) the payer operated a business manufacturing wooden stairs and
various kinds of wood trim; [admitted]
(c) the payer’s shareholders with voting shares were
|
Joseph Dubé
|
75% of the shares
|
|
|
|
|
|
|
The Appellant
|
25% of the shares;
|
[admitted]
|
(d) Until 2002,
according to the constitution of the payer, the Appellant was director of the
payer; [admitted]
(e) on December 4,
1999, the Appellant and Joseph Dubé began a conjugal relationship; [admitted]
(f) the Appellant
had been hired by the payer as a secretary-bookkeeper; [admitted]
(g) the
Appellant’s duties were billing, bookkeeping, doing the payroll and acting as
receptionist for the payer; [admitted]
(h) the Appellant
worked year-round for the payer on the premises of the business; [denied]
(i) on May 10,
2002, in a statement to an HRDC representative, the Appellant stated that, when
she was receiving unemployment benefits, she may have worked fewer hours, maybe
half-days instead of full days; [denied]
(j) the Appellant
continued to work for the employer after her alleged layoffs; [denied]
(k) the
Appellant had been the mistress of Joseph Dubé, the payer’s other shareholder,
since 1996.[denied]
9. The Deputy
Attorney General of Canada adds that:
(a) on December
19, the payer gave the Appellant a Record of Employment that indicated the
first day of work as May 5, 1997, and the last day of work as December 12,
1997, and indicated 1,085 insurable hours and insurable earnings of $16,275.00;
[admitted]
(b) on November
12, 1998, the payer gave the Appellant a Record of Employment that indicated
the first day of work as May 31, 1998, and the last day of work as November 7,
1998, and indicated 1,130 insurable hours and insurable earnings of $17,500.00;
[admitted]
(c) on November 3,
1999, the payer gave the Appellant a Record of Employment that indicated the
first day of work as June 7, 1999, and the last day of work as October 22,
1999, and indicated 795 insurable hours and insurable earnings of $15,900.00; [admitted]
(d) on October 12,
2000, the payer gave the Appellant a Record of Employment that indicated the
first day of work as May 22, 2000, and the last day of work as October 6, 2000,
and indicated 800 insurable hours and the insurable earnings of $16,000.00; [admitted]
(e) on July 4,
2001, the payer gave the Appellant a Record of Employment that indicated the
first day of work as March 4, 2001, and the last day of work as June 22, 2001,
and indicated 640 insurable hours and insurable earnings of $11,400.00; [admitted]
(f) the Records
of Employment do not reflect reality with respect to the periods worked or the
number of hours worked by the Appellant; [denied]
(g) the payer and
the Appellant entered into an arrangement to qualify the Appellant to receive
unemployment benefits while she continued to work for the payer. [denied]
(h) The
Appellant, Joseph Dubé and the payer acted in concert in the context of the
Appellant’s contract of employment for the payer. [denied]
[15] In rendering his
decision concerning Ms. Bellefeuille, the Minister assumed the following facts,
which are set out in his Amended Reply to the Notice of Appeal:
[Translation]
8. ...
(a) the payer was incorporated on November 7, 1996; [admitted]
(b) the payer operated a business manufacturing wooden stairs and
various kinds of wood trim; [admitted]
(c) the majority shareholder, with 75% of the voting shares of the
payer, was Joseph Dubé; [admitted]
(d) the Appellant
is the wife of Joseph Dubé; [admitted]
(e) the Appellant
is a legal secretary and she worked for notaries’ offices at the same time she
claims to have worked for the payer; [denied]
(f) the Appellant
was allegedly hired by the payer as a secretary; [denied]
(g) the
Appellant’s duties for the payer involved typing letters, preparing cases for
small claims court and delivering files to the payer’s lawyer, whereas in
reality the Appellant rendered little or no services to the payer; [denied]
(h) on September
29, 1997, the payer gave the Appellant a Record of Employment showing the first
day of work as June 8, 1997, and the last day of work as September 12, 1997,
and indicated 224 insurable hours and insurable earnings of $3,360.00; [admitted]
(i) on October
20, 1999, the payer gave the Appellant a Record of Employment that indicated
the first day of work as June 8, 1997 (corrected to June 21, 1998) and the last
day of work as October 15, 1999, and indicated 1,180 insurable hours and
insurable earnings of $12,800.00; [admitted]
(j) on September
8, 2000, the payer gave the Appellant a Record of Employment that indicated the
first day of work as April 17, 2000, and the last day of work as September 1,
2000, and indicated 450 insurable hours and insurable earnings of
$8,110.00; [admitted]
(k) on September
7, 2001, the payer gave the Appellant a Record of Employment that indicated the
first day of work as April 16, 2001, and the last day of work as August 31,
2001, and indicated 400 insurable hours and insurable earnings of $5,620.00; [admitted]
(l) the Records
of Employment do not reflect reality with respect to the dates the Appellant
worked or her hours or earnings. [denied]
• Work prior to 1997
Jacinthe
Garneau with Quincaillerie
[16] Ms. Garneau
worked for Dragon et Chapdelaine inc. (Quincaillerie) from June 1979 to
October 20, 1995. The termination of this employment was due to the closing of
the business. Ms. Garneau described herself as a bookkeeper on the Record
of Employment that she had prepared.
Quincaillerie belonged to a group of building contractors, including a certain
Mr. Maltais. The latter considered Ms. Garneau as his number two. At
one time, Quincaillerie had a division that manufactured wooden stairs and
various kinds of wood trim. The division was known as Boiserie D.C. At some unspecified time, but
probably when Quincaillerie
closed down, the woodwork division was transferred to BDC. The shop foreman of
this division was Joseph Dubé who had been employed in the division since
1993 (Exhibit I‑14).
[17] Quincaillerie
operated a larger company than BDC or the payer. It had between 15 and 20
employees, one of whom was a bookkeeper.
Quincaillerie's sales were $15,000,000; the payer’s fluctuated around $1
million. For the 2000, 2001 and 2002 calendar years, the payer’s sales were as
follows:
|
Table 1
|
|
Payer’s sales
|
|
|
2000
|
2001
|
2002
|
|
January
|
26,300
|
61,470
|
54,819
|
|
February
|
35,560
|
39,310
|
0
|
|
March
|
40,970
|
82,520
|
161,490
|
|
April
|
79,930
|
125,450
|
29,020
|
|
May
|
100,960
|
166,170
|
161,630
|
|
June
|
108,890
|
129,050
|
190,900
|
|
July
|
48,900
|
31,760
|
143,000
|
|
August
|
93,440
|
118,900
|
124,000
|
|
September
|
200,660
|
67,780
|
122,850
|
|
October
|
3,990
|
52,310
|
144,773
|
|
November
|
75,160
|
42,360
|
37,100
|
|
December
|
83,715
|
85,710
|
N/A
|
|
|
898,475
|
1,002,790
|
1,169,582
|
[18] According to the
payer’s financial statements for the 1998 to 2000 fiscal years, sales and
profits (losses) were as follows:
|
Table 2
|
|
Payer’s sales and
profits
|
|
|
31/03/98
|
31/3/99
|
31/12/00
|
|
|
|
|
|
|
Sales
|
529,745
|
977,653
|
898,593
|
|
Profits
|
|
|
|
|
(losses)
|
(67,467)
|
4,395
|
21,141
|
[19] When she was
employed by Quincaillerie, Ms. Garneau said, she earned $550 to $575 per
week. In addition, she said, she received a year-end bonus, which allegedly
increased her weekly salary to $800. In his testimony, Mr. Maltais stated
that Quincaillerie had established a bonus plan for its two managers. He doubted that such a plan had been set up for Ms. Garneau. If it had, she
would have had to receive a bonus of $11,700, representing 39% of her base
salary in order for Ms. Garneau’s statement to be accurate, which is unlikely. Moreover, the Record of Employment does
not mention any other form of compensation, such as a bonus (Exhibit I‑12).
[20] Ms. Garneau
said that she had been paid by the week by Quincaillerie and not by the hour.
However, on her October 24, 1995, claim for unemployment insurance benefits,
filed after this business closed, Ms. Garneau wrote [Translation] “$12 an
hour” in answer to the question [Translation]
“What were your normal earnings before deductions?” In answer to the
question [Translation] “Minimum
acceptable base salary”, she wrote [Translation]
“$10 to $12” (see Exhibit I‑13). In addition, according to the
Record of Employment (Exhibit I‑12) dated October 20, 1995, that
Ms. Garneau herself prepared and signed, her weekly earnings during the 20
weeks preceding the termination of her employment fluctuated between $384 and
$528. The longest period without a variation was four weeks. Assuming that her hourly wage was $12, the results
are as follows:
|
Table 3
|
|
Ms. Garneau’s
earnings at Quincaillerie
|
|
Number of weeks
|
Weekly wage
|
Number of hours
|
|
1
|
815
|
?
|
|
9
|
528
|
44
|
|
4
|
504
|
42
|
|
1
|
456
|
38
|
|
3
|
432
|
36
|
|
1
|
408
|
34
|
|
1
|
384
|
32
|
|
Total
|
20
|
|
|
|
|
|
|
These facts show, then,
that Ms. Garneau was paid by Quincaillerie on the basis of the hours that she
actually worked.
Jacinthe Garneau
at BDC
[21] After a little over
two months of being unemployed following the closing of Quincaillerie,
Ms. Garneau was hired by BDC on January 8, 1996, to perform duties similar
to those she had performed at Quincaillerie. On her claim for unemployment
benefits dated January 14, 1997 (Exhibit I‑2), Ms. Garneau indicated
$525 as the earnings paid by BDC for 35 hours of work, which corresponds to an
hourly rate of $15. However, it must be emphasized that the weekly earnings
correspond to what she received at Quincaillerie. Wages of $525 at an hourly
rate of $12 yields close to 44 hours a week. In addition, the minimum
acceptable salary indicated on her claim for benefit is $12 an hour for
employment as an accountant or secretary. It is more likely that BDC hired
Ms. Garneau on conditions similar to those she had had at Quincaillerie
before her layoff and that her hourly rate at BDC was $12 (and not $15), then.
According to her Record of Employment (Exhibit I‑2), which was prepared
by her, signed by Mr. Dubé and dated December 20, 1996, her weekly salary fluctuated between
$450 and $525 in the 20 weeks preceding her departure on December 20, 1996. On
the assumption that her hourly salary was $12, the following result is
obtained:
|
Table 4
|
|
Salary of
Ms. Garneau
at BDC
|
|
Number of weeks
|
Weekly salary
|
Number of hours
|
|
4
|
450
|
37.5
|
|
15
|
525
|
43.75
|
|
1
|
750
|
?
|
|
Total
|
20
|
|
|
|
|
|
|
The facts also reveal
that Ms. Garneau was probably paid by the hour instead of by the week.
Joseph Dubé,
Denise Bellefeuille and Guylaine Dubé at BDC
[22] According to Mr.
Dubé’s claim for benefits dated January 14, 1997, his weekly salary at BDC was $250 for 37 hours of work as “Director”,
which makes for an hourly wage of $6.76! Is it not surprising, incidentally, to
learn that the names of his wife, Ms. Bellefeuille, and his daughter,
Guylaine, were entered in the payroll journal of BDC and that they each
received an amount of $250 per week? If the weekly salaries of these two
individuals were attributed to
Mr. Dubé, he would have received a salary of $750, which would correspond
to an hourly wage of $20.27. This looks more reasonable than $6.76.
[23] According to the
Record of Employment of July 29, 1996, prepared and signed by Ms. Garneau,
Ms. Bellefeuille allegedly worked at BDC from April 9, 1996, to July 12, 1996
(Exhibits A‑17 and I‑33). Her weekly salary was $250 for the
last 14 weeks before the termination of her employment, except for the very
last week in which it rose to $380.
In addition, according to her Record of Employment (Exhibit I‑14), Guylaine Dubé
worked at BDC from August 12, 1996, to December 20, 1996. The last day of her alleged
employment matches that of her father. The name of the contact person appearing
on this Record of Employment is Ms. Vachon, i.e., the married name of
Ms. Garneau, and it was she who completed the form.
[24] Oddly enough,
Mr. Dubé’s justification for his low salary was his desire to show his
bosses that he had the ability to properly manage BDC. However, he said he told
BDC that he might need help to do his work and that BDC should pay the people
he might use. This would explain the remuneration paid to his daughter and his
wife. Moreover, he acknowledged that he received a pension from CSST for a
permanent partial disability and that, by agreeing to work for $250 a week, his
monthly pension went from $2,400 to $1,068. Surprisingly, he maintained that he
could have received a weekly salary of $600 without having this pension
reduced.
[25] However, in her
testimony at the hearing and in a statutory declaration (Exhibit I‑15),
Guylaine Dubé acknowledged that she had not worked for BDC and that all
the cheques that she had received from BDC had been endorsed and given to her
mother. Mr. Dubé acknowledged in his testimony that his daughter Guylaine
had never actually worked for the business. As for Ms. Bellefeuille,
Mr. Dubé claimed that she did legal research and prepared small claims
cases for BDC. However, she was not the person who took the documentation for
the claims and lawsuits to BDC’s lawyer.
Incorporation of the payer and the departure of
Mr. Dubé and Ms. Garneau from BDC
[26] The payer was
incorporated on November 7, 1996 (Exhibit I‑3). The founder and first
director of the company was Joseph Dubé. According to his testimony, the
company was incorporated to acquire the assets of BDC, because they were for
sale. Mr. Dubé’s negotiations with Mr. Maltais, one of the
shareholders of BDC, had turned out badly, he said, because the latter thought
that some of the company stocks had disappeared and, although he could not
prove it, he held Mr. Dubé responsible for this situation. Mr. Dubé
claimed that Mr. Maltais agreed to sell the assets of BDC if he were given
$50,000 without the other shareholders’ knowledge, which Mr. Maltais
denied in his testimony.
[27] In any event,
Mr. Dubé was dismissed and then decided to start his own business through
the payer. The evidence is contradictory as to the timing of Mr. Dubé’s
departure. According to Ms. Garneau, Mr. Dubé left BDC at the end of
October or the beginning of November 1996, or two months before her own
departure. On his claim for benefit of January 14, 1997 (Exhibit I‑16),
Mr. Dubé gave as his “last day of work” December 16, 1996 (a Monday). The
Record of Employment prepared by Ms. Garneau and signed by Mr. Maltais
shows the last day of work as December 20, 1996, i.e., the Friday of that week.
According to Mr. Maltais, Mr. Dubé and Ms. Garneau had left their employment at
BDC together, which corresponds with the dates on their respective Records of
Employment.
[28] Although
Ms. Garneau indicated on her Record of Employment of December 20, 1996, that the reason
for the termination of her employment with BDC was a lack of work, Mr. Maltais
stated at the hearing that he had tried to keep Ms. Garneau. Mr. Maltais
had hired another chief executive officer for BDC and was counting on
Ms. Garneau to continue to be — to use his expression — [Translation] “my eyes” in the
management of BDC. On her claim for benefit, Ms. Garneau also indicated a “lack of work” as the
reason for the termination of her employment (Exhibit I‑2). Therefore, she stated
the facts incorrectly on her Record of Employment and on her claim for benefit
and this enabled her to obtain more benefit than she was entitled to.
[29] Testifying at the
Minister’s request, Mr. Maltais said that he later better understood the
reason for Ms. Garneau’s departure in December 1996 when Gaston Dubuc, a
former BDC employee who joined the payer, told him three to five months after
her departure that he had surprised Ms. Garneau and Mr. Dubé engaged
in sexual activity in an office. According to Mr. Dubuc, Mr. Dubé and
Ms. Garneau were living together at the time. According to the report of
the appeals officer, counsel for the Appellants had stated in the presence of
Mr. Dubé, at the meeting on May 19, 2004 in the Agency office, that
Ms. Garneau had been the latter’s mistress since 1996 (Exhibit I‑18,
paragraph 39).
[30] In
testimony-in-chief, Mr. Dubé and Ms. Garneau denied that they had
been lovers since 1996. On cross-examination, only Mr. Dubé denied having
intimate relations with Ms. Garneau at BDC. Ms. Garneau did not
testify again. According to Mr. Dubé, he only began to court
Ms. Garneau in May or June 1997, when each of them was married. Their
intimate relationship did not start until late in 1998. However, this version
of the facts does not accord with the statements in the Amended Motion for
Interim Relief, signed on October 6, 1998, by Ms. Garneau’s counsel.
According to this motion, the separation of Ms. Garneau and her husband
took place around August 21, 1998, and there are six separate statements
concerning Mr. Dubé, Ms. Garneau’s “new spouse”. The motion is accompanied by a sworn
statement by Ms. Garneau attesting to the truth of the facts set out in
the motion (Exhibit A‑2). According to Mr. Dubé’s version, his
cohabitation with Ms. Garneau did not begin until the end of December
1999, when he separated from Ms. Bellefeuille, whereas Ms. Garneau puts the
beginning of their cohabitation in January 2000. However, counsel for
Ms. Garneau admitted that the cohabitation began on December 4, 1999.
• Work with the
payer from 1997 to 2001
Joseph Dubé
[31] After the failure of
the negotiations to purchase BDC’s business and following his dismissal, Mr. Dubé
looked for premises for the payer and also took steps to obtain financing.
Mr. Dubé hoped to obtain government aid, but apparently had little
success. The new premises were available as of February 1997 and some BDC
employees came to work for the payer, including Jacinthe Garneau,
Stéphane Laferrière and Gaston Dubuc.
[32] Once he was employed
by the payer, Mr. Dubé continued to receive $250 a week, from 1997 to
2001;
Denise Bellefeuille and Guylaine Dubé continued to be paid by the
payer just as they had been paid at BDC.
Jacinthe Garneau
[33] Ms. Garneau stated
that she had left BDC to join the payer because she saw little future in that
company and she wanted to invest in her own business. She said that she had invested
between $10,000 and $20,000 to start up the payer and her investment later
rose to about $30 thousand.
According to Mr. Dubé’s testimony, she did not invest the money directly
in the payer, but made a loan to it instead. Although it is admitted that
Ms. Garneau held 25% of the company’s shares, she did not know what class
of shares she held. According to the payer’s financial statements, there were
two kinds of shares in circulation, 400 class A voting shares, with a paid-up
capital of $40 (or $0.10 per share) and class B non-voting shares, having a
paid-up capital of $26,500 in 1997 and $55,600 as at March 31, 1998.
According to the payer’s shareholders’ register, Ms. Garneau’s shares were
subscribed on November 20, 1996.
[34] However, according
to Exhibit I‑16, Mr. Dubé, on February 11, 1997, told an HRDC
officer that he was the sole shareholder of the payer, that he had invested
$20,000, that he had already leased premises in St‑Hubert and planned to
begin operating on March 1, 1997. In a statutory declaration to the Commission
dated November 24, 1999, Mr. Dubé indicated that Ms. Garneau had
purchased [Translation] “25% of
the shares in April or March 1997” (Exhibit I‑23). In his testimony at
the hearing, he offered another version: it seems that it was either in June or
July 1997 that it was decided to issue 100 class A shares to Ms. Garneau. A
“unanimous shareholders’ agreement” was allegedly signed by Mr. Dubé and
Ms. Garneau on September 15, 1997 (Exhibit A‑9). According to
Mr. Dubé, the shareholders’ register was crafted on February 18, 2002, i.e., it had been backdated.
[35] Mr. Dubé,
furthermore, tried to explain Ms. Garneau’s presence as a shareholder and
director of the payer as due to the advice he had received from a certain
lawyer to the effect that he had to provide the names of three directors. Now,
the articles of incorporation of the payer indicate that the number of
directors could vary between one and ten. Moreover, as counsel for the Minister
noted, only two directors are entered on the list of directors (Exhibit I‑3),
as at November 20, 1996, and they are Mr. Dubé and Ms. Garneau.
[36] The following table
shows Ms. Garneau’s salary with the payer according to the payroll journal:
|
Table 5
|
|
Ms. Garneau’s salary
with the payer
according to the
payroll journal
|
|
|
Periods
|
Weekly
salary
|
Number of hours
|
Hypothetical hourly
rate
|
Hourly rate
(37.5)
|
|
1997
|
May 4 – Dec. 12
|
525
|
35
|
15
|
14.00
|
|
1998
|
May 31 – June 20
|
600
|
40
|
15
|
16.00
|
|
|
June 21 – Nov. 7
|
800
|
40
|
20
|
21.33
|
|
1999
|
June 6 – 12
|
700
|
35
|
20
|
18.66
|
|
|
June 13 – Oct. 23
|
800
|
40
|
20
|
21.33
|
|
2000
|
May 22 – June 2
|
700
|
35
|
20
|
18.66
|
|
|
June 11 – July 15
|
700
|
35
|
20
|
18.66
|
|
|
July 16. – Oct. 7
|
800
|
40
|
20
|
21.33
|
|
2001
|
March 4 – 17
|
800
|
40
|
20
|
21.33
|
|
|
March 18 – April 28
|
700
|
40
|
17.50
|
18.66
|
|
|
April 29 – May 5
|
600
|
40
|
15
|
16.00
|
|
|
May 6 – June 23
|
700
|
40
|
17.50
|
18.66
|
|
Table 6
|
Ms. Garneau’s salary with the payer based on the
claims for benefit
|
|
Periods of work
|
Weekly salary
|
Number of hours
|
Hypothetical hourly rate
|
Salary requested
|
|
May 5 –
Dec. 12, 97
|
525
|
35
|
15
|
10-12
|
|
May 4 –
Nov. 13, 98
|
800
|
40
|
20
|
600
|
|
June 7 –
Oct. 22, 99
|
800
|
40
|
20
|
N/A
|
|
May 22, –
Oct. 6, 00
|
800
|
40
|
20
|
700
|
|
March 4 –
June 22, 01
|
800
|
40
|
20
|
n/a (sick)
|
[38] After June 22, 2001,
Ms. Garneau obtained from her physician medical certificates stating that she
was unfit to work on account of depression for the period from June 26 to
October 28, 2001 (Exhibit A‑3). After that, she continued to receive
benefits (supposedly because of a lack of work) until February 2002 (Exhibit I‑29).
[39] Ms. Garneau
said that she returned to work at the payer in about March or April 2002. After
that, she filed no more claims for benefit. It should be noted that, as of
December 2001, Ms. Garneau knew that HRDC was investigating the payer and some
of its employees. At the time of the first meeting, the investigation was not
specifically focusing on Ms. Garneau or Ms. Bellefeuille, but rather
on other employees of the payer. As long as the investigation dealt with the
other employees, said the investigator, she received excellent cooperation.
After she said that the investigation was focusing on all of the employees,
including Ms. Garneau, the latter’s attitude and that of Mr. Dubé changed.
The investigator received less cooperation from them.
[40] According to the
analysis by the HRDC investigator, the benefits received by Ms. Garneau in
1999, 2000 and 2001 represented the maximum weeks of benefits to which they
were entitled, based on the Records of Employment that had been prepared (see
Exhibit I‑34). Ms. Garneau was again listed in the payer’s payroll
journal after receiving the maximum employment insurance benefits. For 1998,
Ms. Garneau would have been entitled to 29 weeks of benefits whereas she
received benefits for 25 weeks. That information is not available for 1997. Ms.
Garneau’s periods of employment and benefit periods for 1996 to 2001 are as
follows:
|
Table 7
|
|
Ms. Garneau’s periods
of employment with BDC and the payer
and her benefit periods
|
|
Work
|
Unemployment benefits
|
|
Jan. 8, 1996 — Dec. 20,
1996*
|
Dec. 23, 1996 — May 3,
1997
|
|
May 5, 1997 — Dec. 12,
1997
|
Feb. 1, 1998 — May 29,
1998
|
|
May 31, 1998 — Nov. 7,
1998
|
Nov. 8, 1998 —June 5, 1999
|
|
June 7, 1999 — Oct. 22,
1999
|
Oct. 24, 1999 — May 20,
2000
|
|
May 22, 2000 — Oct. 6,
2000
|
Oct. 8, 2000 — March 3,
2001
|
|
March 4, 2001 — June 22,
2001
|
June 24, 2001 — Oct. 20,
2001 (sick)
Oct. 28, 2001 — Feb. 23,
2002
|
|
* Employment with BDC
|
[41] Because of financial
problems, the payer negotiated for a compromise in April 2004, which
negotiations were allegedly broken off in October 2004. It was at that time
that the payer’s business was allegedly sold to a new company controlled by a
Mr. Pinsonneault. Ms. Garneau signed a five-year contract of
employment with this company; she was to perform bookkeeping and receptionist
duties. Her salary was $575 for a 38-hour workweek (or $15.13 per hour), to
which was added a 5% commission on sales made by her, the sales work bearing [Translation] “no relationship, direct
or indirect, with the employer’s development and promotion efforts” (Exhibit A‑5,
Art. 2). This contract contained non-competition and non-solicitation
clauses. Ms. Garneau was entitled to just two weeks’ vacation per year.
Denise Bellefeuille
with the notaries and the payer
[42] During the
Bellefeuille periods, Ms. Bellefeuille had been employed as a legal
secretary with some notaries since 1995 at least, as shown in the following
table compiled from the Records of Employment prepared by the notaries. For the
purposes of comparison, Ms. Bellefeuille’s periods of employment at BDC
and the payer and those of Ms. Garneau have been added:
|
Table 8
|
|
Periods of employment
of Ms. Garneau and Ms. Bellefeuille
|
|
|
Ms. Garneau
|
Ms. Bellefeuille
|
|
Year
|
Payer/BDC
|
Payer/BDC
|
Notaries
|
|
1995
|
|
|
Nov. 4 − Dec. 31
|
|
1996
|
Jan. 8 − Dec. 20
|
April 9 − July 12
|
Jan. 1 − July 19
|
|
1997
|
May 5 − Dec. 12
|
June 8 − Sept. 12
|
April 7 − Oct. 17
|
|
1998
|
May 31 − Nov. 7
|
June 21 − Dec. 31
|
March 13 − Dec. 31
|
|
1999
|
June 7 − Oct. 22
|
Jan. 1− Oct. 15
|
Jan. 1 − Feb. 26
April 19 − July 30
|
|
2000
|
May 22 − Oct. 6
|
April 17 − Sept. 1
|
April 3 − July 21
|
|
2001
|
March 4 − June 22
|
April 16 − August 31
|
April 2 − Sept. 7
|
[43] According to the
report of the meeting held by the HRDC investigator with Notary Aubertin, on
April 24, 2002, Ms. Bellefeuille worked five days a week and often more
(Exhibits I‑36 and I‑37). She even worked overtime on some
Saturdays. The notaries, Ms. Gélinas and Mr. Aubertin, both said that
Ms. Bellefeuille was not in good enough health to hold two jobs at once
since a legal secretary’s workload for a notary is very heavy in spring and
summer, i.e., the periods that to a great extent correspond to the periods of
her alleged employment with the payer, as shown in table 8.
[44] The pay summaries
concerning Ms. Bellefeuille’s employment at the payer (Exhibit I‑25)
provide the following information:
|
Table 9
|
|
Ms. Bellefeuille’s salary with the payer
according to the pay summaries
|
|
Periods
|
Weekly earnings
|
Number of hours
|
Rate
|
|
1997
|
June 8 –
Sept. 13
|
240
|
16
|
15
|
|
1998
|
June 21,
1998 – Jan. 2, 1999
|
240
|
16
|
15
|
|
1999
|
N/A
|
|
|
|
|
2000
|
April 16 –
July 15
|
250
|
N/A
|
N/A
|
|
July 16 –
July 22
|
360
|
N/A
|
N/A
|
|
July 23 –
August 19
|
750
|
N/A
|
N/A
|
|
|
August 27
– Sept. 2
|
750
|
N/A
|
N/A
|
|
2001
|
April 15 –
August 11
|
260
|
N/A
|
N/A
|
|
August 12
– Sept. 1
|
400
|
N/A
|
N/A
|
[45] Although
Ms. Bellefeuille’s Record of Employment of October 20, 1999, covers the
period from June 21, 1998 to October 15, 1999, the payer’s payroll journal ends
on January 2, 1999, in the case of Ms. Bellefeuille (Exhibits I‑25
and A‑22). No explanation was provided to justify this. However, no
probative value can be attached to the Record of Employment because it is
obviously erroneous. Ms. Bellefeuille denied working continuously during
the 17 months from June 1998 to October 1999. She also contradicts her
statutory declaration, which was provided to the Commission on November 14,
1999, in which she confirmed that [Translation]
“the hours given on the Record of Employment dated October 20, 1999, were
definitely worked” (Exhibit A‑25). She stated at the hearing that she
only worked in the spring, which for her meant March or April to August.
According to the Records of Employment, this version would be accurate for 2000
and 2001. In 1997, she did not start until June and allegedly ended her work in
September. There is no data for 1998.
[46] The duties performed
by Ms. Bellefeuille, included, according to her and Mr. Dubé, preparations
for collecting the payer’s debts. According to Mr. Dubé, it was
Ms. Bellefeuille who obtained the cadastral lot numbers for the
registration of legal mortgages. She would take some documents to a lawyer,
Pierre Lessard. In his testimony at the hearing, Mr. Lessard estimated the
number of visits by Ms. Bellefeuille to his office at 10 to 15 times a
year, up until the beginning of 2000. He acknowledged that she may have come a
little more often since she could have simply handed the documents to his
secretary without his seeing her. It is strange that Ms. Bellefeuille’s
services with respect to the lawsuits were only required in the “spring” — to
use Ms. Bellefeuille’s expression — namely, during the high season,
whereas there does not appear to have been such activity during the rest of the
year, during her periods of absence from the payer.
[47] Mr. Dubé
acknowledged on several occasions that Ms. Bellefeuille was paid by the
week and not on the basis of the hours actually worked. In any event, he did
not know how many hours she worked for the payer. In his statutory declaration of
October 30, 2002, Mr. Dubé acknowledged that Ms. Bellefeuille was not
subject to any schedule since she worked at home (Exhibit I‑26). In the
same statement, Mr. Dubé explained that Ms. Bellefeuille’s
remuneration had been changed for September and October 1999 because her hours
had increased, but he could not say by how much. He claimed that the salary
paid to Ms. Bellefeuille was established based on her skills and her
salary at the notaries.
[48] Ms. Bellefeuille
stated that she worked, on average, from 7 to 15 hours a week for the payer.
But sometimes it was more: about twenty hours once in 1999 or 2000. According to these figures, if we
assume that she received $250 per week, Ms. Bellefeuille received an
hourly wage equivalent to $16.66 based on 15 hours a week, $25 based on 10
hours and $35.71 based on 7 hours. A comparative analysis of Ms. Bellefeuille
hourly rates with the payer, with BDC and with the notaries is presented below.
It was prepared based on data collected by the HRDC investigator and from the
payer’s pay summaries and what was identified from the testimony at the
hearing:
|
Table 10
|
|
Ms. Bellefeuille’s
salary with the payer/BDC and the notaries
according to the claims
for benefit/investigation
|
|
|
Payer/BDC
|
Notaries
|
|
Year
|
Salary
|
Hours
|
Hourly rate
|
Salary
|
Hours
|
Hourly rate
|
|
1996
|
250
|
11
|
22.72
|
335
|
35
|
9.57
|
|
1997
|
240
|
11
|
21.82
|
335
|
35
|
9.57
|
|
1998
|
240
|
11
|
21.82
|
335
|
35
|
9.57
|
|
1999
|
800
|
40
|
20.00
|
335
|
35
|
9.57
|
|
|
|
|
425
|
35
|
12.14
|
|
2000
|
250
360
750
|
11
11
35
|
22.72
32.72
21.42
|
425
|
35
|
12,14
|
|
2001
|
260
400
|
11
11
|
23.63
36.36
|
425
|
35
|
12.14
|
Decisions of the appeals officer
[50] As for
Ms. Bellefeuille, the appeals officer found that she was not employed in
insurable employment during the Bellefeuille periods because she did not
employed in “genuine employment”. The reasons justifying this finding (Exhibit
I‑40, page 8) are set out below:
[Translation]
In this case, only
one of the payer’s lawyers, Mr. Lessard, said that he met with the worker on
several occasions so that she could give him documents relating to the payer’s
receivables.
A number of people
were interviewed, including the worker’s daughter who stated that the worker
did not work for the payer whereas she allegedly replaced the secretary,
Jacinthe Garneau.
The HRDC
investigation revealed several conflicting pieces of information (place of
work, duties).
The worker could
not recollect her co-workers or customers when she was interviewed by HRDC in
2002.
[51] The impression given
by the report is that there was no “genuine employment” because, like the
insurance officer, the appeals officer was not satisfied that
Ms. Bellefeuille had actually been employed. In the alternative, he concluded
that, if there were employment, it would still not be insurable because of the
non-arm’s length relationship.
[52] As for
Ms. Garneau, the insurance officer did not conclude that there was no
genuine employment. Instead he found that there was no “insurable employment”,
and this was because of the exclusion mandated by paragraph 5(2)(i)
EIA on account of the non-arm’s length relationship between the payer and
Ms. Garneau (Exhibit I‑18).
Analysis
• Void contracts of employment and absence of genuine employment
Void contracts
[53] In his submissions,
counsel for the Respondent raised two new arguments applicable to the
Appellants. According to the first argument, there was no insurable employment
because there was no valid contract of employment for the purposes of the Civil
Code of Québec (Civil Code); the contracts were void owing to
absolute nullity. According to the second argument, even if the contracts were
valid under the Civil Code, the Appellants’ employment was not “genuine
employment” for the purposes of the EIA. Let us look at each of these arguments. First, the Appellants’
contracts of employment were invalid because there was an unlawful cause.
Counsel for the Respondent stated in his written submissions reproduced below:
[Translation]
394. As the Respondent indicated above, the
point of departure for interpreting the term “employment” for the purposes
of the application of the EIA in the province of Quebec is Quebec civil law.
395. Article 2085 of the Civil Code of
Québec provides that:
A contract of employment is a contract by which a person, the employee, undertakes for a limited period to
do work for remuneration, according to the instructions and under the direction
or control of another person, the employer.
396. As this Court has stated before,3
a contract of employment in Quebec exists if the three essential elements of
such a contract are proved: (a) the performance of work for a person,
(2) for remuneration and (3) according to the instructions and under the
direction or control of another person.
397. Where there are no instructions
or direction or control, the work done for another person can be carried
out under a contract of enterprise or for services. Articles 2098
and 2099 of the Civil Code of Québec provide that
2098. A contract of enterprise or for
services is a contract by which a person, the contractor or the provider of
services, as the case may be, undertakes to carry out physical or intellectual
work for another person, the client or to provide a service, for a price which
the client binds himself to pay.
2099. The contractor or the provider of
services is free to choose the means of performing the contract and no
relationship of subordination exists between the contractor or the provider
of services and the client in respect of such performance.
398. The Quebec Court of Appeal in 97980 Canada inc. v. Quebec (Deputy Minister of Revenue),4
recently held that, in determining the status of a worker, it is necessary to
look at other elements besides subordination and it referred to the
decision of the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz
Industries Canada Inc.5
399.
This Court recently considered the tests stated
by the Supreme Court in Sagaz in an employment
insurance decsion.6 ...
400. For work to be carried out under a
contract of employment or a contract of enterprise (or for services), there
must be (1) a contract, and (2) the work must be remunerated. What
distinguishes one from the other is the existence or absence of subordination.
401. The concept of contract is
defined in articles 1377 et seq. of the Civil Code of Québec.
402. Article 1378 of the Civil Code of
Québec provides that
1378. A contract is an agreement of wills by
which one or several persons obligate themselves to one or several other
persons to perform a service.
Contracts may be divided into contracts of
adhesion and contracts by mutual agreement, synallagmatic and unilateral
contracts, onerous and gratuitous contracts, commutative and aleatory
contracts, and contracts of instantaneous performance or of successive
performance; they may also be consumer contracts.
...
404. A person who provides services to
another person other than in the context of a contract can therefore not be
considered as being an employee within the meaning of the Civil Code of
Québec. In other words, a person who wants to be considered the
employee of another person will have to prove the existence of a contract
between himself and the other person.
405.
Article 1411 of the Civil Code of Québec
provides that “A contract whose cause is prohibited by law or contrary to
public order is null.”
406. The cause of a contract is
defined in article 1410 of the Civil Code of Québec as the reason
that determines each of the parties to enter into the contract. In the case of
a contract of employment, the cause of the contract for the employee will be the
remuneration.
407. The nullity of a contract may be
absolute or relative. Where the nullity is absolute, it may be invoked
by any person having a present and actual interest in doing so; it is invoked
by the court of its own motion (article 1418 of the Civil Code of Québec).
There are grounds for the absolute nullity of a contract where the condition of
formation sanctioned by its nullity is necessary for the protection of the
general interest (article 1417 of the Civil Code of Québec). Article
1418 of the Civil Code of Québec provides that a contract that is
absolutely null may not be confirmed.
...
409. The Respondent submits that the EIA
and the contributions paid to the employment insurance fund by all Canadian
employers and employees are for the benefit of all of these employees and that any
contract of employment under which the parties have made an agreement for
the purposes of enabling a person to receive employment insurance
benefits unjustly would be contrary to public order (article 1411 of the
Civil Code of Québec) and null by absolute nullity since this nullity is
necessary for the protection of the general interest.
410. The Respondent submits that this
should especially be the case where a contract of employment is entered into
between an employee and an employer and where the parties agree that the
employee will work year-round for the employer but will be paid by the latter
for a part of the year and where a Record of Employment will be issued to the
employee to enable him to obtain employment insurance benefits during the other
part of the year.
411. The Respondent submits that the
work performed in the second part of the year, i.e., that in respect of
which employment insurance benefits are paid out with the help of the Record of
Employment issued, cannot be considered volunteer work. It is clear that
the worker works during this period while still considering himself employed by
the payer. Moreover, the worker certainly works because he has no choice if
he wants to keep his job.
412. In such a case, the Respondent
submits that the remuneration agreed on by the employee and the employer consists
of two elements: (1) the consideration, generally in cash, paid by
the employer; and (2) the issuance of a Record of Employment. It
seems clear in the situation described in paragraph 410 that an employee would
not agree to work for the employer if the latter did not promise to issue a
Record of Employment to the employee to enable this employee to claim
employment insurance benefits.
413. Consequently, in such a situation,
the Respondent submits, the issuance of the Record of Employment is an
integral part of the remuneration promised to the employee.
414. In such a case, the
Respondent submits that a portion of the remuneration, the cause of the
contract for the employee (article 1410 of the Civil Code of Québec)
is contrary to public order. The contract of employment would be
therefore null (article 1411 of the Civil Code of Québec) by absolute
nullity because the nullity is necessary for the protection of the general
interest (article 1417 of the Civil Code of Québec) and the court must
invoke it of its own motion (article 1418 of the Civil Code of Québec).
3 For
example, recently in Jean-Yves
Vaillancourt v. M.N.R., 2005 TCC 328 (Archambault T.C.J.).
4 [2005] J.Q. no. 995.
5 [2001] 2 S.C.R. 983.
6 Gilles Pellerin v. M.N.R.,
2005 TCC 361
[Emphasis added.]
[54] I believe that the
analysis of the law by counsel for the Minister is excellent, with the
exception of the statement that other aspects besides subordination must be
examined — as is done in the common law provinces— in order to find that there
is a contract of employment in Quebec. I think that the position described by
counsel in paragraphs 398 and 399 of his written submissions and applied in
past by some judges is inconsistent with a recent decision of the Federal Court
of Appeal on October 17, 2005 in 9041‑6868 Québec Inc. v. M.N.R.,
2005 FCA 334. In that case, Décary J.A. found that the judge of this
Court (the same as in the Pellerin case), who had referred to the common
law rules set out in Wiebe Door Services Ltd. v. M.N.R. [1986]
3 F.C. 533 (F.C.A.) and Sagaz (supra) had reached the right
solution, but in the wrong way (paragraph 2 of the decision). According to
Décary J.A., the relevant source of law in determining whether or not a
contract of employment in Quebec exists is the Civil Code and not the common
law. In paragraph 7 of his reasons, he writes: “In other words, it is the Civil Code of Québec
that determines what rules apply to a contract entered into in Quebec. Those
rules are found in, inter alia, the provisions of the Code dealing with
contracts in general (arts. 1377 C.C.Q. et seq.) and the provisions
dealing with the "contract of employment" (arts. 2085 to 2097 C.C.Q.)
and the "contract of enterprise or for services"
(arts. 2098 to 2129 C.C.Q.) To exclude the common
law rules, he wrote as follows:
6 It is possible, and in most cases
even probable, that where contracts are similar they would be characterized
similarly, whether the civil law or common law rules are applied. The exercise,
however, is not a matter of comparative law, and the ultimate objective is
not to achieve a uniform result. On the contrary, the exercise, as was in
fact intended by the Parliament of Canada, is one of ensuring that the
approach taken by the court is the approach that applies in the applicable
system, and the ultimate objective is to preserve the integrity of each
legal system. On that point, what was said by Mr. Justice Mignault in Curly
v. Latreille, (1920) 60 S.C.R. 131, at page 177 applies as well now as it
did then:
[Translation] It is
sometimes dangerous to go outside a legal system in search of precedents in
another system, based on the fact that the two systems contain similar rules,
except, of course, where one system has borrowed a rule from the other that was
previously foreign to it. Even when the rule is similar in the two systems, it
may be that it has not been understood or interpreted in the same way in each
of them, and because the legal interpretation--I am of course referring to
interpretation that is binding on us--is in fact part of the law that it
interprets, it may in fact happen that despite their apparent similarity, the
two rules are not at all identical.
I would
therefore not base the conclusions that I think must be adopted in this case on
any precedent taken from English law...
[Emphasis added.]
[55] However, I totally
disagree with counsel for the Minister’s manner of applying these rules to the
facts of these appeals, particularly when he states that the Records of
Employment were a part of the consideration for which the Appellants had
undertaken to provide their work to the payer. In my opinion, the only
consideration the contract refers to was the money that the payer promised to
pay them. To maintain that workers might work for a Record of Employment seems
rather strange to me.
Moreover, it is not the Records of Employment that give entitlement to
benefits, it is the provisions of the EIA to the extent that the requirements
of this Act have been met. The Records of Employment are only monitoring
mechanisms used by the administration to verify whether some of the EIA
requirements have been fulfilled. Moreover, HRDC was not even a party to the
contract of employment with the payer and no contractual relationship bound it
to the payer or to the employees. Furthermore, counsel for the Minister did not
cite any case law decision in support of his position.
[56] In my opinion, it is
more accurate to state that the payer and his employees agreed in their
contract of employment that the latter would receive from the payer less
remuneration for their work while hoping that they could receive benefits while
they worked for the payer. The benefits paid by HRDC during the alleged periods
of unemployment cannot be considered as remuneration for services provided to
the payer because they were paid by HRDC as unemployment compensation.
[57] It is obvious that
the payer tried to use the benefits from the employment insurance fund as a
sort of government subsidy. He hoped in this way to fund indirectly the
salaries of his employees. Not only was this an illegal operation, but it was
an operation that was doomed to failure. To be entitled to benefits, there must
be a termination of employment and termination of the remuneration. Such a
situation is therefore inconsistent with a contract of employment. Furthermore,
a similar argument had been made in Massignani (supra). This is
how I summarized the argument and my ruling:
35 Finally,
counsel maintains that one of the requisites to the validity of a contract
of employment was not present, because there was an unlawful cause or
consideration. She relied specifically on section 984 of the Civil Code of
Lower Canada ("C.C.L.C.”). Moreover, under section 990 of the C.C.L.C., the
consideration is unlawful when it is prohibited by law, or is contrary to good
morals or public order. the new Civil
Code of Québec ("C.C.Q.") (in effect since January 1, 1994),
article 1411 states that a contract whose cause is prohibited by law or
contrary to public order is null. Article 1417 of the C.C.Q. stipulates that a contract is
absolutely null where the condition of formation sanctioned by its nullity is
necessary for the protection of the general interest. Under article 1418 of the
C.C.Q., "The absolute nullity of a contract may be invoked by any person
having a present and actual interest in doing so; it is invoked by the court of
its own motion. A contract that is absolutely null may not be confirmed."
...
54 It must now be
determined whether the essential conditions applicable to all contracts have
also been met, that is, it must be determined specifically whether the parties
were legally capable of contracting, whether consent was given lawfully,
whether the contract had a purpose, and whether a lawful cause or
consideration existed. In this case, counsel for the Respondent
maintains that only the last condition was not met, because an unlawful cause
or consideration existed with respect to the Appellants’ contracts of
employment. In my view, there was no such consideration in these contracts of
employment. Contrary to the belief of counsel for the Respondent, the cause or
consideration of the contracts was not to unlawfully obtain employment
insurance benefits. The consideration, in this case, was the provision of
services for Tiva, and wages for the Appellants. The goal of the parties,
namely, to operate a business and earn money to support themselves, was lawful.
55 To quote my colleague, Tardif J.,
in Thibeault, a genuine contract exists in this case because a
contribution was made "in a real and positive way to the advancement and
development of the business." In the case where wages had been paid to
someone who had nothing to do for the business [See Note 16 below] or who
was asked to perform work that had no benefit for the business, for the sole
purpose of enabling him to receive unemployment insurance benefits, the
conclusion would have to be that a genuine contract of employment did not exist.
The fact of providing a service that benefits a business, without remuneration,
as was the case in Municipalité de Paspébiac, prevents the creation of a
genuine contract of employment, because one of the conditions essential to the
existence of such a contract, namely, remuneration, has not been met. Volunteer
work cannot be the subject of a contract of employment, because, by
definition, a contract of employment requires that a remuneration be paid. In
this case, I repeat, there was never any doubt that Tiva benefited from
services that contributed to the development of its business or that the
Appellants received wages for their services during the relevant periods.
56 It is true that Tiva was involved in
an unlawful scheme in which it would be subsidized by unemployment insurance
benefits for a portion of the remuneration it owed to its employees.
As recalled by the Supreme Court of Canada in Canada (Canada Employment and
Immigration Commission) v. Gagnon, [1988] 2 S.C.R. 29, at page 37, the
primary and essential purpose of the Act is to provide persons who are
involuntarily unemployed with a means of supporting themselves until they
become reintegrated in the labour market. Consequently, it is clear that the
purpose of the Act is not to provide a subsidy to cover a portion of the wages
paid for services provided.
57 Tiva’s goal
was obviously unlawful, but it was neither the cause of nor the consideration
for the contract of employment that it entered into with the Appellants. If
Tiva had robbed a bank to pay its employees, it would not have changed the fact
that they were bound by a contract of employment. In my view, a court could
not deny these employees the right to recover their wages if the employer had
not paid them.
Obviously, the situation would be completely different if the services provided
by these employees had included their participation in the bank robbery. In
this case, the work of Tiva’s employees consisted of manufacturing clothing,
not obtaining unemployment insurance benefits from HRDC unlawfully. All of the
independent witnesses acknowledged that they had not remitted the funds they
received from HRDC to Tiva. The scheme, therefore, is independent of the
contractual rights of the contract of employment; it is an arrangement made
independently of the contract of employment. Consequently, the contracts
that exist between the Appellants and Tiva are genuine contracts of employment.
16 I hasten to add that it is not because a
worker who is bound by a genuine contract of employment receives a remuneration
while he is not providing services that it must be concluded that a contract of
employment does not exist. During his yearly vacation, a worker continues to
receive wages, even though he is not providing any services. The same is true
where a worker is away on sick leave or suspended, and continues to receive his
wages. In all of these cases, the contract of employment subsists, because a
genuine contract of employment, in which all of the conditions necessary to
such a contract have been met, exists from the outset.
[58] It should be added,
moreover, that the courts are reluctant to void contracts of employment for
reasons of public order. The decision of Lamarre J. of this Court in Luzolo
v. Canada (M.N.R.), [1999] T.C.J. No. 822 (QL) may be cited on this point.
Concerning a contract of employment governed by the Civil Code, she adopted the
same approach as in Still v. M.N.R., [1998] 1 F.C. 549, a decision
of the Federal Court of Appeal on a contract of employment governed by the
common law. Now, in the case at bar, if counsel for the Minister were correct,
it would mean that none of the payer’s employees who participated in the scheme
could claim his unpaid salary from the payer; he would not qualify for
protection under the CSST, the EIA and the Act respecting Labour Standards
(R.S.Q., c. N‑1.1). Furthermore, the payer could claim that he was
not liable for the actions of his employees when they injure another in the
performance of their duties for the payer. This result appears quite anomalous
and was not the Minister’s interpretation in respect of the payer’s other employees.
Non-existence of genuine employment
[59] Even if, for the
purposes of the Civil Code, the employment was governed by a contract of
employment, counsel for the Respondent submits, as the Respondent did in Massignani,
that the employment created by this contract would not be “insurable
employment” because it would not be “genuine employment” for the purposes of
the EIA. In his written submissions, counsel for the Respondent wrote as
follows concerning this issue:
[Translation]
488. The Respondent submits that the
determination that a contractual relationship between two people is a
contract of employment under provincial private law does not necessarily make
this relationship “employment” for the purposes of the EIA.
489. As mentioned
earlier, section 8.1 of the Interpretation Act provides that where a
private law concept is not defined in a federal enactment, it is necessary to
refer to the private law of the province to interpret the enactment. This is
what was done in the preceding portion of these written submissions.
...
491. For the interpretation of a concept
such as “employment” in relation to the EIA, the Respondent submits that
recourse should also be had to other rules of interpretation such as the
purposive method of interpretation, one should interpret an enactment in
terms of the intent of the lawmaker, the object and spirit of the Act, the
context and previous case law on the issue.
...
496. Therefore, the Respondent submits, if
this Court finds that the contractual relationship between the Appellants,
Jacinthe Garneau and Denise Bellefeuille, and the payer, during the periods at
issue, was a contract of employment not void under the Civil Code of
Québec, this Court must continue its analysis in order to determine
whether Parliament intended that this contractual relationship be considered
“employment” for the purposes of the application of the EIA. For this
exercise, this Court must take into account the presumed intent of the
lawmaker in the light of the spirit and object of the EIA, the context and
precedents on the subject.
497. The Respondent submits that this further
exercise does not depart from the principle of the complementarity of
provincial private law with federal legislation and section 8.1 of the Interpretation
Act.
498. The effect of the enactment of
section 8.1 of the Interpretation Act was not to make this concept of
genuine contract of employment inapplicable. This section was enacted to ensure
that the courts would use the private law of the province of application
when the enactment refers to a private law concept without defining it. One
must not hide from the fact that, more often than not, the courts that
interpret and apply federal statutes tend to do so from a common law
perspective to the detriment of the civil law even where the province of
application is Quebec.
499. Once it has been determined that the
contractual relationship between a worker and a payer is a contract of
employment within the meaning of the applicable provincial private law, it is
not recourse to the common law to interpret a concept in the EIA in the light
of the intention of Parliament, the spirit and object of the EIA, the context
and previous case law on the issue.
...
501. In the case at bar, the private law
of the province of Quebec is applicable to determine whether or not the
Appellants, Jacinthe Garneau and Denise Bellefeuille, were employees of the
payer. Once Quebec private law has been applied and it has been determined, if
in fact there was, that there was employment, there is nothing to stop this
Court from finding a supplementary condition for the employment to be insurable
for the purposes of the EIA.
...
6.2 Previous decisions concerning
the concept of a genuine contract of employment
505. The Respondent submits, without
concluding that the contract of employment is void from a civil law
perspective, that some decisions of this Court, which will be analysed below,
have at the very least held that some arrangements put in place by the
parties in order to unjustly benefit from the EIA could not be considered
genuine contracts of employment for the purposes of the EIA.
...
508. According to the Respondent, these
decisions do in fact take the intent of Parliament into account. The Respondent
submits that this Court has seen in the intention of the legislature an
implied condition that only genuine employment where none of its objectives
is to unjustly abuse the protection offered by the EIA will be insurable
employment.
...
514. Counsel for the Respondent
understands that the Federal Court of Appeal would have liked to reconsider
the concept of a genuine contract of employment in the context of the
appeal in Massignani.25 However, since the
Respondent did not appeal the decision of this Court on that issue, the
Federal Court of Appeal had to assume that there was a contract of employment.26
6.2.1. Gauthier
515. The facts in the case of the
Appellant, Denise Bellefeuille, remind us of the facts
at issue in Gauthier v. Canada (Minister of National Revenue –
M.N.R.).27
516. In
that case, the Appellant did some work for her husband’s company but was paid
for more hours than the work required. Judge
Lamarre-Proulx of this Court commented as follows:
My analysis of the evidence is that the Appellant's services,
which I have no doubt were of excellent quality, could not, in the labour
market, require the number of hours in issue, that is 40 hours per week, or be
paid for at a salary of $350 per week. The Appellant provided certain
services, but it is clear, and I am entirely convinced, that those services
would not have been required to this extent in the normal course of business or
remunerated with the amounts that were paid. The sums paid as salary were paid
for reasons other than for the services of an employee on a weekly basis.
...
The object of the Act is to insure true employment. Since no such employment is in issue in the instant case, there was
no insurable employment within the meaning of section 3(1)(a) of this
Act. [Emphasis added.]
...
6.2.3. Thibeault
518. The following comments of Judge Tardif of this Court in Thibeault v. Canada (Minister of
National Revenue – M.N.R.)29 also seem quite relevant to the
present cases:
¶20 To receive unemployment
insurance, now called employment insurance, the work must be performed
within the framework of a genuine contract of service. The following
criteria have been identified in the case law as elements of a contract of
employment: a relationship of subordination giving the payer a power of control
over the work performed by the employee, the chance of profit and risk of loss,
ownership of the tools and integration.
¶21 The application of these criteria
to the facts available obviously facilitates the exercise of characterization. On
the other hand, it is just as important that there be genuine employment,
without which the exercise of applying the criteria is completely useless.
¶22 Genuine employment is
employment remunerated according to market conditions, which contributes in a
real and positive way to the advancement and development of the business paying
the salary in consideration of work performed. These are basically economic
factors that leave little, if any, room for generosity or compassion.
...
¶26 The unemployment insurance
scheme is a social program whose aim is to support those who lose a real job.
It is definitely not a scheme under which it suffices to pay premiums for a
certain period of the year in order to have automatic entitlement to benefits.
¶27 It is an insurance scheme
under which all the known conditions defined by the Act and its regulations
must be respected or else the person who has paid the premiums cannot claim
automatic entitlement to the payment of benefits.
...
¶29 Of
course, it is neither illegal nor reprehensible to organize one's affairs so as
to profit from the social program that is the unemployment insurance scheme,
subject to the express condition that nothing be misrepresented, disguised or
contrived and that the payment of benefits occur as a result of events over
which the beneficiary has no control. Where the size of the salary bears no
relation to the economic value of the services rendered, where the beginning
and end of word [sic] periods coincide with the end and the beginning of the
payment period and where the length of the work period also coincides with the
number of weeks required to requalify, very serious doubts arise as to the
legitimacy of the employment contract. Where the
coincidences are numerous and improbable, there is a risk of giving rise to an
inference that the parties agreed to an artificial arrangement to enable them
to profit from the benefits. (Emphasis added.)
...
6.2.7. Massignani
525. With respect, the Respondent
submits that this Court in Massignani34 wrongly decided that a contract
that meets the three essential conditions for the formation of a
contract of employment (provision of services, remuneration and
subordination) is necessarily a genuine contract of employment for the
purposes of the application of the EIA.
526. In the
decisions cited above, these three conditions essential to the formation of a
contract of employment seem to be present and this did not stop this Court from
finding that there was no genuine contract of employment for the purposes of
the application of the EIA.
527. In addition, the Respondent
respectfully submits that, if this Court had found that there were no
genuine contracts of employment in Massignani, it would have avoided the result,
which the Respondent considers inappropriate, resulting from the decision of
the Federal Court of Appeal in that case.
25 Massignani,
supra, note 13.
26 Massignani
v. M.N.R., [2005] F.C.J. No. 777 (Q.L.)
27 [1993]
T.C.J. No. 109 (Q.L.).
29 [1998]
T.C.J. No. 690 (Q.L.).
34 Massignani,
supra, note 13.
[Emphasis added.]
[60] With respect for the
contrary view of counsel for the Minister, I still believe that a contract that
meets the three essential conditions of article 2085 and the general
conditions for the formation of a contract formation set out in the Civil Code
necessarily creates an “employment...under the terms of a contract of service”
and, consequently, “insurable employment”, unless the employment is excluded
under subsection 5(2) EIA. My remarks in Massignani may be of
assistance:
47 As is often the case in this type of appeal, the recipients of
unemployment insurance have arranged their affairs in such a way as to be
eligible for the benefits provided for by the Act. However, as recognized by
the Federal Court of Appeal, this fact does not necessarily prevent the
employments from being insurable; nevertheless, this Court has a duty to
ensure that the conditions set out in the Act have been met. This is what
Hugessen J. says in Canada (Attorney General) v. Rousselle, [1990]
F.C.J. No. 990 (Q.L.), at page 2 of the judgment:
I do not think
it is an exaggeration to say, in light of these facts, that if the Respondents
did hold employment this was clearly "convenience"
employment, the sole purpose of which was to enable them to qualify for
unemployment insurance benefits. These circumstances certainly do not
necessarily prevent the employment from being insurable, but they imposed
on the Tax Court of Canada a duty to look at the contracts in question with
particular care; ...
[Emphasis added.]
48 Moreover, in Navennec v. Canada
(M.N.R.), [1992] F.C.J. No. 1005 (Q.L.), Desjardins J., on behalf of the
Federal Court of Appeal, said that the criteria established by the Supreme
Court of Canada in Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R.
536, were applicable in matters involving unemployment insurance:
It is true that in Stubart the
question was whether a company could, for the avowed purpose of reducing its
tax, conclude an agreement by which its future profits were transferred to a
subsidiary in order to take advantage of the latter's loss carry-forward; but
the rules are still applicable to the case at bar when it must be determined
whether the applicant has, in short, arranged his affairs so as to be able to
collect unemployment insurance benefit; …
[Emphasis added.]
49 It should be noted that, in Stubart,
at page 575, the Supreme Court rejected "the proposition that a
transaction may be disregarded for tax purposes solely on the basis that it was
entered into by a taxpayer without an independent or bona fide business
purpose." Desjardins J. applied the criteria set out in Stubart to Navennec
as follows:
The parties in the case at bar are related;
but what matters is to establish whether by their agreements they did what
they said they intended to do. Did the applicant in fact intend to make the
company a family business or did he retain control of it? Did his wife and
children in fact intend to pay off their promissory notes by the profits
they received from the business or by other income? - or did they never intend
to do so? Were these legal obligations clear and executory, or was it a
façade?
50 I note, from these two Federal
Court of Appeal decisions, that an employment that is not a façade and that
meets all of the conditions set out in the Civil Code of Québec
constitutes a genuine contract of employment for the purposes of the Act,
even where the purpose of this contract was to make a person eligible for
unemployment insurance benefits. However, this Court has a duty to carefully
examine the agreement that exists between the parties--in this case, the
Appellants and Tiva--to ensure that a genuine contract of employment exists. I
add that the impact of the reasons given by my colleagues, Tardif and Dussault,
must be interpreted in light of these principles.
51 The first
issue to be resolved here is whether the contract that binds the Appellants and
Tiva constitutes a genuine contract of employment. As mentioned above, the
three conditions essential to the existence of a contract of employment
are: the provision of a service, payment of remuneration, and the
existence of a relationship of subordination.
[Emphasis added.]
[61] In addition to the
reasons stated in Massignani, I would add the following in order to
better respond to the points raised by counsel for the Minister in
paragraphs 488 et seq. of his written submissions. First, it must be
remembered that the issue that the Court must decide in this case is the
existence or non-existence of “insurable employment”. The term “insurable
employment” is defined in section 5 EIA. This is the point of departure:
|
5. (1) Subject to subsection (2), insurable employment is
(a) employment in Canada by one or more employers,
under any express or implied contract of service or apprenticeship,
written or oral, whether the earnings of the employed person are received
from the employer or some other person and whether the earnings are
calculated by time or by the piece, or partly by time and partly by the
piece, or otherwise;
…
(d) employment included by regulations made under
subsection (4) or (5); and
…
(2) Insurable
employment does not include
(a) employment of a casual nature other than for the
purpose of the employer’s trade or business;
(b) the employment of a person by a corporation if the
person controls more than 40% of the voting shares of the corporation;
…
(h) employment excluded by regulations made under
subsection (6); and
(i) employment if the employer and employee are not
dealing with each other at arm’s length.
(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.
(4) The Commission may, with the approval of the Governor in
Council, make regulations for including in insurable employment
…
(c) employment that is not employment under a contract
of service if it appears to the Commission that the terms and conditions
of service of, and the nature of the work performed by, persons employed in
that employment are similar to the terms and conditions of service of, and
the nature of the work performed by, persons employed under a contract of
service;
|
[Emphasis added.]
[62] Paragraph 5(1)(a) defines insurable
employment as, inter alia, employment in Canada … under any … contract of service …”. The EIA does not
define “contract of service”. This is a legal concept belonging to the field of
“property and civil rights”, that is, to one of the classes of subjects
assigned exclusively to the Legislatures of the Provinces
(subsection 92(13) of the Constitution Act, 1867). Where a
federal statute that is to be applied in a province uses a concept of civil law
that it does not define, recourse must be had to the concept in force in that
province unless otherwise provided by law. This is the rule enacted by
section 8.1 of the Interpretation Act (IA), in force on June 1,
2001.
The Parliament of Canada has thus codified the rule of construction known as
the “principle of complementarity”, which was often applied by the courts, inter alia, for the purposes
of the definition of “insurable employment” in paragraph 5(1)(a)
EIA
and 3(1)(a) of the former Unemployment Insurance Act, R.S.C.
1985, c. U‑1 (UIA). Thus, regardless whether one applies
section 8.1 IA or the principle of complementarity deriving from the
jurisprudence, the result is the same. As Décary J.A. recognized in paragraph 7
of 9041‑6868 Québec Inc. (supra), it is the Civil Code that
applies when paragraph 5(1)(a) EIA must be applied to a contract of
employment governed by the laws of Quebec, in particular, by article 2085
of the Civil Code.
[63] As Parliament chose
to enact, by reference, the provisions of the provincial statute to determine
whether a contract of employment (contract of service) exists, it must first be
determined whether the contracts binding the Appellants and the payer in the
instant case are contracts of employment within the meaning of the Civil Code.
Now, the concept of a contract of employment is not subject to variation
according to whether the contract is interpreted for the purposes of the Civil
Code or for the purposes of a tax statute such as the ITA or for the purposes
of the EIA or the Act respecting the Quebec Pension Plan (R.S.Q., c. R‑9).
When the lawmaker wants to enact in a particular statute a concept that differs
from the common law concept, it provides a specific definition for the statute.
See, in particular, subparagraph (1) of the definition of “employee” in
paragraph 1(l) of the Labour Code (R.S.Q., c. C‑27).
Furthermore, Parliament has explicitly provided that the Commission, with the
approval of the Governor in Council, may make regulations for including in
insurable employment employment that “is not employment under a contract of
service”
(paragraphs 5(1)(d) and (5(4)(c) EIA reproduced supra).
If all the requirements of the Civil Code are met, one must, for the purposes
of the Civil Code, ascertain the validity of the contract of employment and the
employment that it creates. According to paragraph 5(1)(a) EIA, it is
“insurable employment”, unless the employment is excluded from the definition
under subsection 5(2) EIA.
[64] Counsel for the
Minister rightly acknowledged that the Civil Code applies and that, if all the
conditions for the formation of a contract of employment are met, there will be
a genuine contract of employment for the purposes of the Civil Code. He
acknowledged that, if there is no illegal cause, the contract between
Ms. Garneau and the payer is a valid contract of employment. However, he
argues, even if there is a valid contract of employment that creates an
employment for the purposes of the Civil Code, it is not “genuine employment”
for the purposes of the EIA. In order to reach this conclusion, he sees an “implied
condition” in the EIA (paragraph 508 of his written submissions), which he
justifies through the application of a purposive interpretation.
[65] With respect for the
contrary view, I believe that this position is unfounded. In order to apply a
purposive interpretation, the wording of paragraph 5(1)(a) EIA must
be equivocal, ambiguous or vague. Where the wording is clear and not equivocal,
it simply must be applied. This is what was said by Madam
Justice McLachlin (as she then was), who delivered the unanimous judgment
of the Supreme Court of Canada in Shell Canada Ltd. v. Canada, [1999]
3 S.C.R. 622, 99 DTC 5682:
40 Second, it is well established in
this Court's tax jurisprudence that a searching inquiry for either the
"economic realities" of a particular transaction or the general
object and spirit of the provision at issue can never supplant a court's duty
to apply an unambiguous provision of the Act to a taxpayer's transaction. Where
the provision at issue is clear and unambiguous, its terms must simply be
applied: Continental Bank, supra, at para. 51, per Bastarache
J.; Tennant, supra, at para. 16, per Iacobucci J.; Canada v.
Antosko, [1994] 2 S.C.R. 312, at pp. 326-27 and 330, per Iacobucci J.; Friesen
v. Canada, [1995] 3 S.C.R. 103…
[Emphasis added.]
[66] In Antosko, the
issue was the application of subsection 20(14) ITA, which provides a deduction
to avoid the double taxation of interest accumulated on a bond before its
transfer, but paid after the transfer. Essentially, the effect of the rule is
that the interest accumulated before the transfer is included in the income of
the transferor, and the interest accumulated afterwards, in the income of the
transferee. Now, the transferor in Antosko was a tax-exempt organization
and therefore the interest that the transferee was able to receive was partly
tax-exempt: a windfall to which, according to the Minister, the taxpayer was
not entitled. Iacobucci J., who delivered the unanimous judgment of the Supreme
Court of Canada, summarized one of the arguments of the Federal Court of
Appeal, at page 324, as follows:
However, the Federal Court of Appeal, the
only court to deal with this point, took the view that the transaction in
question in this appeal was nonetheless not included within the class of transactions
giving rise to a deduction pursuant to this section. The Court of Appeal held
that this transfer of accrued interest was not in accord with the purpose of
the section, when the section was viewed in light of economic and
commercial reality. In its view, the object or spirit of the provision was
the avoidance of double taxation, and the transfer between the board and
the Appellants had nothing to do with such a purpose. ...
[Emphasis added.]
[67] Iacobucci J. drew
the following conclusion at page 328:
In this appeal, despite conceding that
these factual elements are present, the Respondent is asking the Court to
examine and evaluate the transaction in and of itself, and to conclude that
the transaction is somehow outside the scope of the section in issue. In the
absence of evidence that the transaction was a sham or an abuse of the
provisions of the Act, it is not the role of the court to determine whether the
transaction in question is one which renders the taxpayer deserving of a
deduction. If the terms of the section are met, the taxpayer may rely on it,
and it is the option of Parliament specifically to preclude further
reliance in such situations.
[Emphasis added.]
[68] He added the following, at
page 330:
This transaction was obviously not a sham. The terms of the section were met in a
manner that was not artificial. Where the words of the section are not
ambiguous, it is not for this Court to find that the Appellants should be
disentitled to a deduction because they do not deserve a "windfall",
as the Respondent contends. In the absence of a situation of ambiguity, such
that the Court must look to the results of a transaction to assist in
ascertaining the intent of Parliament, a normative assessment of the
consequences of the application of a given provision is within the ambit of the
legislature, not the courts.
[Emphasis added.]
[69] Here, the wording of
the EIA cannot be more clear: “insurable employment” is “employment … under any
… contract of service”, a contract that, in Quebec, is defined as a contract of
employment. “Employment” is defined in subsection 2(1) EIA as follows: the
act of employing or the state of being employed.” Thus, “insurable employment”
within the meaning of the EIA includes, inter alia, “the state of being
employed...under a contract of service.”
[70] For counsel for the
Respondent to be able to argue a purposive interpretation, the word “genuine”
would at least have to appear in section 5 EIA. For example if Parliament had
provided that insurable employment is “genuine employment … under a
contract of service”, or if it had defined the word “employment” as the state
of being “genuinely employed”, perhaps questions could have been raised
about the meaning of the word “genuine”. However, this word is not found in the
EIA. As Rothstein J. stated in his historic appearance before a House of
Commons committee, the courts’ role is not to make law but to apply it. To
apply to this case an “implied condition” allegedly contained in the EIA would
amount, in my opinion, to making law.
[71] Not only do I find
paragraph 5(1)(a) EIA completely clear and unequivocal, but I do
not see how an “implied condition” of “genuine” employment could be justified
through a purposive interpretation. Counsel for the Minister did not analyse
the relevant provisions of the EIA in order to justify his position. If such an
analysis were made, it would be seen that Parliament explicitly provided in the
EIA for cases where “employment...under a contract of service” could be
excluded from “insurable” employment. Subsection 5(2) lists a whole series
of exclusions. They are, inter alia, employment of a casual nature and
the employment of a person by a corporation if the person controls more than
40% of the voting shares of the corporation. The Commission, with the approval
of the Governor in Council, may even make regulations for excluding other cases
(paragraph 5(2)(h) EIA).
[72] Then, there is the
exclusion under paragraph 5(2)(i): “employment if the employer and
employee are not dealing with each other at arm’s length.” Where these persons
are related persons, the Minister may, however, under paragraph 5(3)(b),
find that the employment qualifies for the purposes of the EIA if he is
satisfied they would have entered into a substantially similar contract of
employment if they had been dealing with each other at arm’s length. It clearly
emerges from paragraphs 5(2)(i) and 5(3)(b) that they are an
anti-avoidance rule, that is, that they are intended to exclude from the
employment insurance scheme contracts with unreasonable terms and conditions.
Adoption of the broad interpretation proposed by counsel for the Minister would
make the exclusion provided for in paragraph 5(2)(i) EIA completely
pointless. If the terms and conditions of employment are so unreasonable that
it is considered not to be “genuine employment” and, therefore, not “insurable
employment, what purpose would be served by the exclusion in paragraph 5(2)(i)?
This interpretation would also override the Minister’s discretion under
paragraph 5(3)(b) EIA. We know that the Court owes a duty of
deference to the exercise of this discretion; however, it would not owe such a
duty if the genuine employment doctrine were applicable.
Credibility of the witnesses
[75] Let us apply these
rules to the facts of these appeals. Before doing so, however, some preliminary
comments are in order which concern the credibility of the key witnesses. As is
often the case in appeals where the issue concerns the existence of an
employment, or, if one does exist, its terms and conditions (so that one can
determine whether the employment is excluded because of a non‑arm’s
length relationship), one of the great difficulties is the credibility of the
witnesses. Here, I should note that I found the testimony of Mr. Dubé and
Ms. Garneau and Ms. Bellefeuille not credible. Although I found
Ms. Bellefeuille’s testimony more sincere than that of the Dubé‑Garneau
couple, it was too often imprecise and vague and insufficiently corroborated by
documentary evidence or testimony.
[76] Mr. Maltais and
Guylaine Dubé described Mr. Dubé as a manipulator. The evidence that
I heard not only confirms this character trait of Mr. Dubé, but
establishes that he is underhanded. He was the author of the scheme to use
employment insurance benefits to indirectly finance his business, and from the
outset, Ms. Garneau was his accomplice. The collusion began when the two
worked together at BDC and continued later when they became not just the
payer’s employees but its directors as well.
[77] Mr. Dubé split
his employment income from BDC; one part was paid to his daughter and very
likely to his spouse. In fact, Mr. Dubé received a salary of $250 a week
for 37 hours, which gave him an hourly wage of $6.76. The splitting not only
allowed him to reduce the taxes that he would have had to pay but also to
continue to receive his monthly pension of $1,068 from the CSST and enable his
daughter and wife to claim HRDC benefits. Mr. Dubé even strongly urged his
daughter, Guylaine Dubé, to make such a claim. She did not understand how
she could be entitled to benefits since the money that the payer had given to
her did not belong to her. Even though she had not worked for BDC and the
payer, Guylaine Dubé could, for her claims for benefit, rely on the false
and misleading Records of Employment prepared by Ms. Garneau. However, she
had no success because HRDC refused her benefit claims because of her non‑arm’s
length relationship with the payer, a decision that she did not challenge.
[78] At the hearing, even
after he had confirmed that he had told the insurance officer that
Guylaine Dubé had never actually worked for the business, Mr. Dubé
tried to diminish the impact of his answer by giving the facts a spin
(vol. 3 of the transcript, pp. 304 and 305):
[Translation]
A. It’s true, Your Honour, yes, that
is more or less what I said. She did not work for the business, she worked
for me. However, the cheque that she gave, it was definitely
Denise who cashed it. I said it on Friday, by the way, that she did it because
she was going to get married and so I gave her this amount. Now, to say that
she didn’t work, that depends on what you mean by work, she didn’t work on a
bench inside but she went to get things I needed for the office, she made
photocopies, she helped her mother make the schedule. She did a lot of things. She
herself took documents to Pierre Lessard. I don’t know if Mr. Lessard
mentioned this, but she did that, too. But, it’s like I said and I repeat,
there is no doubt that, if she had been a stranger, she would not have had $150
per week, she might have had $150 every two or three weeks. But she was my
daughter. So, she had $150 a week.
[Emphasis added.]
[79] Ms. Garneau
lied to the HRDC investigator when she said that Guylaine Dubé had really
worked for BDC and the payer (Exhibit I‑32, page 3). It is highly likely
that she did likewise with respect to the alleged work of
Ms. Bellefeuille. She also lied when she told the HRDC investigator that
Ms. Bellefeuille replaced her at the office as a receptionist when she was
absent (Exhibit I‑32, page 3), since Ms. Bellefeuille denies working
in the payer’s office and says instead that her work was done at home (Exhibit
I‑35, pages 3 and 4). Ms. Garneau deceived HRDC by preparing Records
of Employment for herself in which she gave as the reason for the Record of
Employment the lack of work at BDC, whereas in fact she had left that business
to be an employee of the payer and one of its shareholders. The Records of
Employment prepared by Ms. Garneau for other BDC employees were also
deceptive because they indicated that the employees had been dismissed for lack
of work whereas they had left BDC to join the payer as employees. In her claim
for benefit of July 17, 2001, she answered that she was not related to the payer’s
majority shareholder through a common-law relationship, whereas she had
cohabited with Mr. Dubé since at least the beginning of January 2000
(according to her version)!
[80] The Records of
Employment of Guylaine Dubé, Stéphane Laferrière and Gaston Dubuc
bear the forged signature of Marcel Maltais. These Records of Employment
were prepared by Ms. Garneau. The evidence did not establish who had
forged the signature. On the other hand, who had an interest in doing so apart
from Mr. Dubé or Ms. Garneau? In any case, Mr. Dubé acknowledged
that he had forged the photocopy of the six cheques for $276.08 to justify
the payment of a salary higher than that actually paid to Ms. Bellefeuille
from September 16 to October 21, 1999 (Exhibit I‑24). Mr. Dubé also
tried to obtain benefits during the transition period between his departure
from BDC and the start-up of the payer’s business. Mr. Laferrière
indicated in his statutory declaration that he had received benefits while
working full time for the payer although he knew that it was illegal.
Mr. Dubé had told him that there was no risk because the cheques that he
gave him were for his expenses (paragraph 11 supra). The payer even
applied for a grant under a job creation program for employing this employee,
although this was not a new job. This employee had already been working for the
payer since February 24, 1997 (Exhibit I‑27, page 5). The manipulative
nature of Mr. Dubé is evident in his attempt to explain that
Mr. Laferrière had started working for the payer as a subcontractor (under
a contract of service) in February 1997 and had continued until April 19, 1997.
[81] At her meeting with
the HRDC investigator on May 10, 2002 (Exhibit I‑32, page 4),
Ms. Garneau confirmed that she had prepared all of the payer’s Records of
Employment. However, she refused to provide any explanation concerning the
Records of Employment for Ms. Bellefeuille or Ms. Dubé. When she was
asked to explain why she had completed Records of Employment that were
erroneous, particularly for people who stated that they had never worked for
the businesses indicated, and why she had written down periods of employment
that did not correspond to reality, and when she was asked to comment on the
statements made by some employees of the payer that, as of January or February
1997, she was at work every day, Ms. Garneau answered (Exhibit I‑32,
page 5):
[Translation]
We left the
company with almost nothing in investments and without any grant. We had been to see the banks
and we had been stymied everywhere. The government refused all our
applications for grants.
The owners of Boiserie D.C. blocked us whenever we applied for grants. We
had to figure out a way to get out of this by ourselves.
If you only
knew!!!
I can tell you
that I did not work every day at the office; there were days where I worked at
home and Joseph brought me work.
I refuse to talk
about the original cheques and copies of cheques faxed on 16-12-99 by Denise
Bellefeuille for the period from September 1999 and October 1999. Ask Joseph.
I refuse to give
explanations about the telephone conversation of 02-11-99 that I had with an
employment insurance officer concerning Record of Employment #A66013347 of
Denise Bellefeuille.
I do not want to
give any information about the requests for information sent by your office
concerning my file dated 02‑06-99 and 15-09-99 in which my writing
appears.
...
I refuse to give
explanations concerning the Records of Employment; go see Joseph and ask him
the questions.
I refuse to
give explanations about the fact that the number of documents completed by me, whether cheques or invoicing or other
documents, was about the same number, regardless whether I was on the
payroll journal or receiving employment insurance benefits.
I no longer want
to provide any information about the Boiserie Dubé company or the Boiserie D.C.
company. You will have to speak to Joseph Dubé.
[Emphasis added.]
[82] In addition to the
underhanded dealings mentioned above, which raise many doubts about the
credibility and honesty of Mr. Dubé and Ms. Garneau, there are all
the lies and contradictions they gave, during the hearing or during the HRDC
and Agency investigations. Moreover, there were many evasive answers on the
part of this couple and Ms. Bellefeuille. In addition to all those that
were referred to above, the following can be mentioned:
Jacinthe Garneau
[83] When examined by her
counsel, Ms. Garneau stated that her salary had initially been $525. Then,
she explained how her salary had increased (vol. 1 of the transcript,
pp. 93 and 94):
[54] Q. Were there variations in
the salary after that?
A. After that, well, as
soon as...It is certain that in the beginning, we started slowly. But as
soon as the business became a little more confident, if you will, the salary increased
based on... It is certain that I had more work at that time. This meant
that there were raises every year up to about, I think, I’ll say $800 a week
for basically having the same salary that I had.
...
[55] Q. Beginning in what period
did you reach $800?
A. I think that it took
three years or something like that.
...
[58] Q. Between $525 and $800,
were there others...
A. Yes, yes, yes. It was
beginning. Afterwards, I had $725. The year after that I had about $600.
The year after that, I must have had $700 until I reached $800.
[Emphasis added.]
[84] On
cross-examination, she gave the following answer to counsel for the Minister
(vol. 1 of the transcript, pp. 264 and 265):
[Translation]
[752] Q. You said this morning in
reply to a question asked by Mr. Guertin, I’m going by
memory, three years later, your salary went to $800?
A. Because, when I started
my job in 97, in the spring of 97, it was certain that we were at the start-up
of the new company. You know that when you start up a company, you don’t
give salaries of $1,000 per shareholder per week, you have to give yourself
a chance to succeed. This meant that we began with a salary identical to
what I had before. Then, as the customers increased every year, I had a
salary raise like just about all companies.
[Emphasis added.]
[85] These answers reveal
a number of contradictions or statements that do not correspond to reality.
First, Ms. Garneau indicated that she earned $800 a week at Quincaillerie
or BDC. However, as was noted above, under the heading “Factual background”, it
is highly unlikely that she earned a salary like that when she was an employee
of Quincaillerie. Instead, her salary was not more than $528 at
Quincaillerie and $525 at BDC (see tables 3 and 4 supra). In
addition, in contrast to what she said, her salary did not progressively
increase based on the payer’s business figure. Furthermore, it did not take
three or five years to reach the $800 salary since, according to the payer’s
payroll journal, Ms. Garneau earned $800 as of June 21, 1998, or one year
after her official beginning with the payer (according to the payroll journal).
That salary was paid until November 7, 1998. Her previous salary had been $600
for three weeks, i.e., from May 31 to June 20, 1998. It should be noted that in
the ensuing years her salary essentially alternated between $700 and $800,
depending on the periods (see table 5 supra).
[86] There are also
contradictions between the testimony of Ms. Garneau and that of
Mr. Dubé concerning the beginning of the discussions about the payer’s
business. In his testimony, Mr. Dubé stated that it was before November
1996 that he had begun having discussions with Ms. Garneau (vol. 1 of
the transcript, p. 396, Q. 1282). However, Ms. Garneau stated
that these discussions had taken place once BDC had closed its doors and she
had been unemployed for a number of months. This is what she said:
[Translation]
[5] Q. So, it’s another
company, is it?
A. O.K. that’s right, I’m
getting to the... Boiserie D.C. closed its doors. I found myself unemployed.
At the same time, Boiserie D.C., I had known Joseph Dubé who at that time
wanted to start a company. Since I, I no longer had...
...
[7] Q. Right.
A. Then, since at
that time, I had had no more work for some time, he told me about his
plan to start a business, as for me, I needed to work, too. So I told him
what I could do... to try to get into business, to create my own company,
well, in part. That’s right.
(Vol. 1 of the transcript, p. 78)
[Emphasis added.]
...
[502] Q. But you said that
before... that you had been for a long time without work after the
closing of Boiserie D.C. because you did not find work?
A. I was six months.
I have never been...
[503] Q. O.K., because you did
not find a job, you went to see Mr. Dubé, Joseph Dubé, in order to create your
business, did I understand correctly?
A. Yes. I was without
work for several months and I had always worked since I left cegep. To
be six months without working, with no prospects ahead of me, I had a
hard time living with that.
(Vol. 1 of the transcript,
pp. 205 and 206)
[Emphasis added.]
[87] On another occasion,
Ms. Garneau stated that the discussions with Mr. Dubé began maybe in
March 1997 (vol. 1 of the transcript, p. 224, Q. 573). After
that, she again contradicted herself when she acknowledged, after a number of
evasive answers, that she had considered becoming a shareholder of the payer in
November 1996 (vol. 1 of the transcript, pp. 227 and 228):
[586] Q. Look, the question is
simple, yes or no, had there been talk of your being a
shareholder of the company in November 96?
A. Well, I had begun to
see it as a possibility, but there was nothing official before the spring,
as I said, of 97.
[587] Q. So, you say that there had
been talk of it?
A. There had been talk
of it.
[Emphasis added.]
[88] Furthermore, it must
be remembered that, contrary to what Ms. Garneau’s statement, BDC did not
close its doors.
BDC replaced Mr. Dubé after his dismissal and continued its operations. In
addition, as we have seen above, Ms. Garneau did not leave BDC because of
the loss of her job, since Mr. Maltais tried to persuade her to stay with
BDC. How could she have had “a hard time living with that” (“be six months
without working”) when she had left voluntarily to start up her own business
with Mr. Dubé?
[89] Ms. Garneau was
evasive in her answers on more than one occasion. A question had to be asked
several times before an answer was obtained, particularly when she was asked if
she had told the HRDC investigator that it was Ms. Bellefeuille who had
replaced her on occasion:
[Translation]
[920] Q. But the question is: did
you or did you not tell that to the [investigator]? That’s all it [the
question] is. You are not being asked to comment on the contents, it’s just,
did you make that statement to [the investigator] that you were replaced by
someone from Mr. Dubé’s family? Do you remember saying that or not?
A. I don’t remember, but
it’s possible.
(Vol. 1 of the
transcript, pp. 300 and 301)
[90] A curious fact is
that Ms. Garneau did not remember whether she was receiving benefits at
the time of her meeting with the investigator in December 2001. Was it because Ms. Garneau worked
constantly at the office that she did not remember whether she was receiving benefits
at the time? In view of the scheme put in place by Mr. Dubé, it might have
been thought that the meeting would be stressful and that she would have
remembered her status at that time:
[Translation]
The Judge:
[450] Q. No, but the question was: were
you on job termination at the time of this interview, the third, is that right?
BENOIT MANDEVILLE:
[451] Q. At the meetings, Ms.
Dion’s first meeting, second and third?
A. I have no recollection.
Since I...
(Vol. 1 of the
transcript, p. 187)
Denise Bellefeuille
[91] Ms. Bellefeuille
had no memory of the facts about which she was questioned and she was just as
evasive. For example, she was asked whether she remembered telling the Agency
that her daughter Guylaine had not worked at the payer’s. She replied that she
did not remember. After that, she was asked if in fact Guylaine had worked for
the payer. Her answer was as follows (vol. 4 of the transcript,
pp. 298 and 299):
[Translation]
[1052] Q. You don’t remember saying
that. But did she or did she not work at Boiserie Dubé?
A. Well, she worked a
little bit, did some little errands.
[1053] Q. What kind of errands?
A. Well, you will have
to ask my husband.
[1054] Q. No, no, I was asking you.
What did she do at Boiserie Dubé?
A. You will have to ask
him.
...
[1055] Q. But when you say that she
did little errands, you can’t tell us what?
A. Well, errands, there
are things like... just like when you have prepared the book, for example,
there were things that had to be done, go make photocopies, go to... what’s it
called... Multipixels in Varennes, things like that.
[1056] Q. So, to a printer?
A. To the printer.
Multipixels, is a printer, yes.
BENOIT MANDEVILLE:
[1057] Q. Did she do other jobs for
Boiserie Dubé apart from that?
THE JUDGE:
[1058] Q. As
far as you know.
A. No,
I don’t remember, I don’t know.
[1059] Q. You
don’t know.
BENOIT
MANDEVILLE:
[1060] Q. In
terms of Boiserie D.C., do you remember if she worked there?
A. I don’t remember.
[Emphasis added.]
However, we know that
Guylaine said that she did not work for BDC or for the payer.
Joseph Dubé, Jacinthe Garneau and
Denise Bellefeuille
[92] In his statutory
declaration of November 24, 1999 (Exhibit I‑23), Mr. Dubé stated
that Ms. Bellefeuille had earned $800 a week since September 5, 1999, [Translation] “because she replaced
Jacinthe Garneau for about two weeks ...” During his meeting with the
insurance officer on July 14, 2003, Mr. Dubé stated that
Ms. Bellefeuille [Translation]
“had come to work at the office for a few days” (Exhibit I‑38, page 1). In
her statutory declaration of May 10, 2002, Ms. Garneau stated that she was
replaced during her absences from the office by Ms. Bellefeuille, who [Translation] “went to the office to
answer the telephone.” Now,
none of the payer’s employees who signed a statutory declaration (and who, for
the most part, did not even know Ms. Bellefeuille) saw her in the payer’s
establishment (Exhibit I‑30). Ms. Bellefeuille could not name any
employee in the office or the factory or any vendor from BDC or the payer.
Moreover she did not know what her salary was with the payer. Ms. Bellefeuille acknowledged at the
hearing that she did not do any work at the payer’s establishment but said that
she worked at home instead. She made the same statement on May 8, 2002: [Translation] “She said that when she
replaced the secretary, when the latter was absent in 1999, she replaced her
from home in the evening, she never showed up at the company.” Mr. Dubé said the same thing at
the hearing, stating that [Translation]
“Denise did not come to work in the office at all”, when speaking of the period
of Ms. Garneau’s sick leave in 2001 (vol. 4 of the transcript,
p. 27, Q. 76).
[93] Furthermore, there
is another odd fact, revealed by tables 8 and 10 supra and the
statements of Mr. Dubé and Ms. Bellefeuille, namely, that in
September and until October 15, 1999, Ms. Bellefeuille was officially an
employee of the payer and received a salary of $800 for 40 hours’ work.
However, Ms. Garneau was also with the payer at the time and received a
salary of $800 for 40 hours (see tables 5 and 6 supra for the period
from June 7 to October 22, 1999). In addition, in her claim for benefit of
January 4, 2000 (Exhibits A‑4 and I‑9), in answer to question
no. 24: [Translation] “Did
you or will you receive vacation pay or other amounts from your last
employer?”, Ms. Garneau answered “No”. In this way, the payer, according
to his payroll journals, would have had two full-time secretaries working for
him at a weekly salary cost of $800 each: Ms. Garneau in the office and
Ms. Bellefeuille at home.
[94] There are two things
to be said. First, how can Mr. Dubé claim in his statutory declaration of
November 24, 1999 (Exhibit I‑23) that Ms. Bellefeuille replaced
Ms. Garneau when the latter was entered on the payer’s payroll journal and
she said that she did not have vacation pay? Furthermore, if there was enough
work to justify a 40-hour week for Ms. Bellefeuille, why did she not
report to the payer’s office? -- especially since Mr. Dubé indicated in
his statutory declaration that Ms. Bellefeuille did the invoicing and the
statements of account. Ms. Bellefeuille could have reported to the office,
since she had just ended her employment with the notaries on July 30, 2000, as
shown in table 8 supra. Is a reminder needed that Ms. Bellefeuille’s
alleged period of work corresponds to the period for which Mr. Dubé
provided HRDC with photocopies of the forged cheques?
[95] In her summary of
the interview held on May 8, 2002, with Ms. Bellefeuille (Exhibit I‑35,
page 5), the HRDC investigator reported the following remarks of
Ms. Bellefeuille (who refused to sign a statutory declaration):
[Translation]
...Joseph brought
me the small claims files and I prepared the cases and gave them to Joseph so
that he could do them. I can’t give you any names of customers whose credit
was bad, I don’t remember, there weren’t a ton of them. I can’t give
you any names of people who worked or are still working for the company. It
was Joseph or Jacinthe who brought me work at home. I did not go on the
road, I worked at home. I don’t know how many hours I worked, I didn’t
count them and I had no schedule; I can’t say which days of the week I
worked, I worked in the evenings and on weekends for two hours here and
there and no one kept track of what I did or when I did it. I did things
on my computer but I cannot explain what it was I did; I don’t remember,
even if it was in 2001.
I do not know
why I did not say on some of my claims for benefit that I was related to the employer, Boiserie
Dubé, i.e., Joseph Dubé, who is now my former spouse.
I do not know why
I did not report the Record of Employment from Boiserie Dubé from 08‑06‑97
to 12‑09‑97 when I made my benefit renewal claim on November 18, 1997.
[Emphasis added.]
[96] However, Ms. Garneau
denied that she had brought work to Ms. Bellefeuille:
[Translation]
I can say that
it wasn’t me who brought work home for Denise Bellefeuille, it was Joseph. She handled the small claims and took
the documents to the lawyers. (Exhibit I‑32, page 5)
[Emphasis added.]
[97] In his statutory
declaration of November 24, 1999, Mr. Dubé justified the $800 salary paid
to Ms. Bellefeuille for 6 or 7 weeks, from September 1999 to October 15,
1999, by the fact that she was [Translation]
“most of the time...on the road preparing some fifteen bad debt
customer cases....she had to pay her own travel expenses ...” (Exhibit I‑23).
In her statutory declaration of November 26, 1999, or two days after that of
her husband, Ms. Bellefeuille had also justified the $800 salary, saying
that it was given [Translation]
“because of the higher volume of work and also to pay for my car travel”
(Exhibit A‑25). Now, according to the passage reproduced above, in
paragraph 95, Ms. Bellefeuille said that she did not go on the road and
that she worked at home. When the investigator confronted her with her earlier
declaration of November 26, 1999, Ms. Bellefeuille was unable to explain
the contradiction. Her answer at that time was: [Translation] “I don’t know and I don’t want to say anything
more” (Exhibit I‑35, page 6). At the meeting on May 8, 2002, she was told
about a number of $150 cheques that she was given in 2001 and 2002 for
kilometrage, but Ms. Bellefeuille was unable to provide explanations in
this case either (Exhibit A‑26, page 4).
Absence of a
contract of employment/deception
Guylaine Dubé
[98] The alleged contract
of employment between Guylaine Dubé and the payer and between her and BDC
are clear examples of simulated contracts of employment, of deception.
Ms. Dubé acknowledged that she had not provided work to the payer and that
the money she received was not hers: she signed the payer’s cheques and gave
them to her mother. Guylaine Dubé’s husband confirmed that she had not
worked for BDC or for the payer. Mr. Dubé acknowledged this himself during
the investigation and during the hearing. The errands that she did for her
father were the kind of thing one does to help out a family member. There is
deception here since the three elements essential to the existence of a
contract of employment are missing: Guylaine Dubé and the payer never
intended for her to provide work in return for a salary and, consequently, the
relationship of subordination was missing. The money paid by BDC and the payer
was instead remuneration for Mr. Dubé’s work with these two businesses. With
regard to Guylaine Dubé’s alleged employment with BDC and the payer, the
Minister rightly argued that they were not genuine employment. In addition, the
employment was not genuine for the purposes of the Civil Code nor, therefore,
for the purposes of the EIA.
Jacinthe Garneau
[99] Concerning the
contract between Ms. Garneau and the payer, I have no hesitation in
concluding that this was a genuine contract of employment. All the conditions
necessary for the existence of such a contract were present. Ms. Garneau
provided work in return for a salary and the payer had the power of guidance or
control over the work of Ms. Garneau. The fact that some conditions of the
employment could be considered unreasonable does not invalidate the contract,
but could lead to its exclusion from insurable employment under
paragraph 5(2)(i) EIA, as will be seen below.
Denise Bellefeuille
[100] As for
Ms. Bellefeuille, her situation is far less clear than that of
Ms. Garneau or Guylaine Dubé. As the insurance officer and the
appeals officer noted, the evidence is far from conclusively establishing that
Ms. Bellefeuille provided work for the money paid her by the payer. First,
Guylaine Dubé testified that she did not think that her mother had worked
for the payer. In addition, the summary of the interview conducted by the HRDC
investigator with Ms. Bellefeuille (Exhibit I‑35, page 5) indicates
that Ms. Garneau did not provide Denise Bellefeuille’s employee
records when HRDC requested the records of all of the payer’s employees. It
should also be remembered that Ms. Bellefeuille acknowledged that she had
not worked continuously from June 21, 1998, to October 15, 1999. Here is
something that clearly shows that there was no provision of service and payment
of money in return. Not even a pay summary was submitted for the period after
January 2, 1999. It is clear that Ms. Bellefeuille’s Record of Employment of
October 20, 1999, like a number of others prepared by Ms. Garneau, is
false and misleading.
[101] The fact that
Ms. Bellefeuille’s testimony and that of Mr. Dubé and
Ms. Garneau was evasive, vague or contradictory with regard to the
services provided by Ms. Bellefeuille adds to the difficulty of the task.
For example, Ms. Bellefeuille said that she did her work for the payer at
home and that Mr. Dubé or Ms. Garneau brought her work. However,
Ms. Garneau denies bringing work to Ms. Bellefeuille. In addition,
there is the testimony of the investigator who revealed that in her
conversation with Ms. Bellefeuille the latter could not provide details
about her work at the payer’s, whereas she gave many more details about the
work she did for the various notaries. As was seen in paragraph 95, she
could not [Translation] “give any
names of customers whose credit was bad”, even though dealing with bad debts
would appear to have been her most important activity. In addition, she was
unable to explain what she did on her computer. With such weak evidence and
given the testimony of Guylaine Dubé, who did not think that her mother
had worked for the payer, it is not surprising that the insurance officer
believed that she had not worked for the payer.
[102] The main evidence for
Ms. Bellefeuille’s position is the testimony of the lawyer, Mr. Lessard,
who confirmed that Ms. Bellefeuille had brought documents to him in his
office in Varennes, the city where Ms. Bellefeuille lived and worked.
However, he could not provide details about what work Ms. Bellefeuille
might have done in connection with the collections files, except that he said
that she brought him documents and that he could ask her for details. A curious
fact is that Mr. Lessard stated that he occasionally communicated with
Ms. Bellefeuille at the payer’s office. Yet, as was seen above, she did
not work at the office. She worked at home. This contradiction raises doubts
about the lawyer’s testimony. However, he seemed more confident when he said
that he communicated more often with Mr. Dubé or Ms. Garneau.
[103] It is highly likely,
then, that Ms. Bellefeuille’s work could have been summed up as being just
a courier, “doing errands”. She took documents to the lawyer, Mr. Lessard,
whose office adjoined the notaries’ offices where she was employed. When the
notary who was her boss left the notaries’ offices to move elsewhere in
Varennes, Ms. Bellefeuille continued to deliver documents to Mr. Lessard.
However, he said that Ms. Bellefeuille’s 10 or 15 visits had been at the
beginning of 2000, and she acknowledged in her testimony that she had [Translation] “really stopped going to
Mr. Lessard’s...around 2000. ... I went there less often, that is certain.”
(Vol. 4 of the transcript, p. 293, Q. 1021.) This situation
could be explained by the fact that she had ceased to live with Mr. Dubé
at the end of 1999.
[104] It is also highly
likely that the amounts given by the payer to Ms. Bellefeuille were really
amounts owed to Mr. Dubé for the work that he did for the payer. When he
worked for BDC and later for the payer, Mr. Dubé received a salary well
below a manager’s. He received only $250 a week. The salary to which
Mr. Dubé was entitled at BDC and at the payer could include both the
amounts paid to Guylaine Dubé, his daughter, and those paid to his wife,
Ms. Bellefeuille. Mr. Dubé had an interest in acting this way since
he could hope to receive a disability pension from the CSST. Even if that had
not been the case, Mr. Dubé could reduce his tax payable by splitting his
income among three people. It must be emphasized that Ms. Bellefeuille did
not work year-round in the notaries’ office and thus her income was low.
[105] The fact that
Guylaine Dubé acknowledged that she had never worked for the payer lends
weight to this interpretation of the facts. It makes it more plausible that the
amounts received by Ms. Bellefeuille from BDC and the payer were of the
same nature as the amounts paid to Guylaine Dubé. This money was used to
meet the household needs of the Dubé family. After the Dubé couple separated,
the payer probably continued to pay amounts to Ms. Bellefeuille on behalf
of Mr. Dubé who could have support obligations to Ms. Bellefeuille.
If the remuneration paid by the payer to Ms. Bellefeuille represents
remuneration for Mr. Dubé’s services, it is clear that
Ms. Bellefeuille’s contract of employment would be a simulation, a
deception, and the alleged employment of Ms. Bellefeuille would not be
genuine employment within the meaning of the Civil Code nor, as a result, for
the purposes of the EIA.
• Ms. Bellefeuille’s contract of employment
[106] In any case, even if
Ms. Bellefeuille had actually provided services to the payer under an
onerous contract, that contract would instead be a contract for services and
not a contract of employment. The work provided by Ms. Bellefeuille, if
one relies on her version of the facts and on that of Mr. Dubé, included
well-defined tasks, to wit: the preparation of files for the lawyer so that the
latter could launch collection proceedings, delivery of these documents to that
lawyer, a little work making templates for invoices and other similar,
well-defined tasks. Even if he did not keep track of the hours, Mr. Dubé
stated, he did check Ms. Bellefeuille’s work since the result was there.
His counsel asked him if he had the power to monitor Ms. Bellefeuille’s work.
He answered in the affirmative. However, he acknowledged, in answer to a
question from me, that he could have given the same instructions if
Ms. Bellefeuille had been an independent contractor.
[107] The evidence as a
whole leads me to believe that there was no relationship of subordination
between her and the payer, such a relationship being one of the conditions
essential for the existence of a contract of employment. In my opinion, the
payer had no power of guidance or control over the work of
Ms. Bellefeuille. The only control that the payer could exercise over her
was that which a customer exercises over a provider of services. The
circumstances in which the work was performed by Ms. Bellefeuille exhibit
significant indicia of independence. The latter had all the flexibility she
needed to carry out, whenever she saw fit, the tasks entrusted to her.
Ms. Bellefeuille needed this flexibility because most of the time she also
worked full-time in a notaries’ office. The fact that Ms. Bellefeuille did
not work in the payer’s establishment, even after her employment with the
notaries ended, is another indication of her independence.
• Exclusion because of the non-arm’s length relationship
[108] In any event, even if there were a relationship of
subordination between Ms. Bellefeuille and the payer and they were bound
by a contract of employment, the contract of employment would clearly be
excluded from the definition of insurable employment because of the non-arm’s
length relationship between them. In order to define the concept of a non-arm’s
length relationship, paragraph 5(3)(a) EIA refers us to the ITA.
The relevant provisions of the ITA follow:
248 (1)
Definitions — In this Act,
“common-law
partnership” – “common-law partnership” means the relationship between two
persons who are common-law partners of each other;
“common-law partner”
– “common-law partner”, with respect to a taxpayer at any time, means a person
who cohabits at that time in a conjugal relationship with the taxpayer
and
(a) has
so cohabited with the taxpayer for a continuous period of at least one year,
or
(b) would
be the parent of a child of whom the taxpayer is a parent, if this Act were
read without reference to paragraphs 252(1)(c) and (e) and
subparagraph 252(2)(a)(iii), and, for the purposes of this definition,
where at any time the taxpayer and the person cohabit in a conjugal
relationship, they are, at any particular time after that time, deemed to be
cohabiting in a conjugal relationship unless they were not cohabiting at the
particular time for a period of at least 90 days that includes the particular
time because of a breakdown of their conjugal relationship;
251(1) Arm’s length
(1) For the
purposes of this Act,
(a) related
persons shall be deemed not to deal with each other at arm’s length; and
...
(c) where
paragraph (b) does not apply, it is a question of fact whether persons
not related to each other are at a particular time dealing with each other
at arm’s length.
251(2) Definition
of “related persons” — For the purposes of this Act, “related
persons”, or persons related to each other, are
(a) individuals
connected by blood relationship, marriage or common-law partnership
or adoption;
(b) a corporation and
(i) a person who controls the
corporation, if it is controlled by one person,
(ii) a person who is a member of
a related group that controls the corporation, or
(iii) any person related to a
person described in subparagraph (i) or (ii); …
251(6) Blood
relationship, etc. For the purposes of this Act, persons are connected by
...
(b) marriage
if one is married to the other or to a person who is so connected by blood
relationship to the other;
(b.1) common-law
partnership if one is in a common-law partnership with the other or with a
person who is connected by blood relationship to the other;
252(4) In this Act,
(a)
words
referring to a spouse at
any time of a taxpayer include the person of the opposite sex who
cohabits at that time with the taxpayer in a conjugal relationship and
(i)
has so cohabited with
the taxpayer throughout a 12-month period ending before that time, or
(ii)
would be a parent of
a child of whom the taxpayer would be a parent, if this Act were read without
reference to paragraph (1)(e) and subparagraph (2)(a)(iii)
and, for the purposes of this paragraph, where at any time the taxpayer
and the person cohabit in a conjugal relationship, they shall, at any
particular time after that time, be deemed to be cohabiting in a conjugal
relationship unless they were not cohabiting at the particular time for a
period of at least 90 days that includes the particular time because of a
breakdown of their conjugal relationship;
(b) references to marriage shall be read as if a conjugal
relationship between 2 individuals who are, because of paragraph (a),
spouses of each other were a marriage;
(c) provisions that apply to a person who is married apply to a
person who is, because of paragraph (a), a spouse of a taxpayer; and
(d) provisions that apply to a person who is unmarried do not apply
to a person who is, because of paragraph (a), a spouse of a taxpayer.
[Emphasis added.]
Denise Bellefeuille
[109] In the case at bar,
Ms. Bellefeuille was the wife of Mr. Dubé and, because of this fact,
was “related” to him within the meaning of paragraph 251(2)(a) ITA.
As Mr. Dubé controlled the payer, Ms. Bellefeuille was related to the
payer and did not deal with the payer at arm’s length
(subparagraph 251(2)(b)(iii) and paragraph 251(1)(a)
ITA). Where the parties to a contract of employment do not deal at arm’s length
because they are related (paragraph 251(1)(a)) and the employment
created by this contract could therefore be excluded from the definition of
insurable employment, it falls to the Minister to determine, pursuant to
paragraph 5(3)(b) EIA, if these parties can be deemed to deal at
arm’s length and, consequently, if, in this case, Ms. Bellefeuille held
insurable employment. More specifically, what this paragraph sets out is that,
in this kind of case, the employer and the employee … “are deemed to deal with
each other at arm’s length if the Minister … 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.”
[110] The Minister’s power
of determination “must clearly
be completely and exclusively based on an objective appreciation of known or
inferred facts” and this Court must, in light of the
facts revealed to the Minister and those shown to the Court, decide whether the
Minister’s conclusion still appears “reasonable”. If this is the case, the
Minister will have exercised his power “appropriately”.
[111] Furthermore, an
“objective appreciation” of the circumstances, such as the remuneration and the
terms and conditions of employment, is incompatible with an “arbitrary” appreciation.
To determine whether the terms of the contract of employment between an
employee and his employer would have been substantially similar if they had
been dealing at arm’s length, it is useful, and even necessary, to compare them
with contracts of employment between persons dealing at arm’s length, whether
in law or in fact. Paragraph 5(3)(b) EIA does not state that the
Minister is required to make this comparison and still less does it specify for
which contracts he must do so. However, in order for the Minister’s conclusion
to appear reasonable, the existence of such points of comparison seems
desirable. In any event, the comparison will facilitate reaching a conclusion
about the reasonableness of the determination.
[112] These are the reasons
provided by the appeals officer to justify his decision that
Ms. Bellefeuille did not hold insurable employment (Exhibit I‑40,
p. 9):
[Translation]
Remuneration
paid: It varied between $240 and $800 per week.
Terms and
conditions of employment: The worker allegedly worked at home and on the road but, on the payer’s
own admission, her hours were not monitored.
Duration of
the work: The worker
allegedly performed some tasks from time to time between 1997 and 2001.
Nature and
importance of the work: Apart from Mr.
Lessard, who states that he met the worker in his office, but could not,
however, judge the quantity of work performed by the worker, we believe that the
work performed by the worker was very little or was negligible. What she
did cannot in any case justify the $750 or $800 remuneration paid in 1999 and
2000 over a number of weeks.
Consequently, we
believe that the payer and the worker would not have entered into such a
contract of work if they had been dealing at arm’s length. The employment is not
insurable employment under paragraph 5(2)(i) of the Employment
Insurance Act.
...
(VIII) RECOMMENDATION
– RECOMMANDATION:
We recommend that
the departmental notification stipulate that Denise Bellefeuille did not
hold insurable employment under 5(1)(a) of the Employment Insurance
Act. In the alternative, she did not hold insurable employment under
paragraph 5(2)(i) of the Employment Insurance Act when she was
employed with Boiserie Dubé et associés Inc. during the periods in question.
[Emphasis added.]
[113] The evidence produced
by Ms. Bellefeuille did not satisfy me as to the unreasonableness or
inappropriateness of the Minister’s decision. Moreover, if it had fallen to me
to decide, I would have made the same decision as the Minister. I am in full agreement
with the appeals officer that the work provided by the worker was “very little
or was negligible”, compared to the salary of $750 or $800. I would even say
that this is true of the $240 salary. As tables 9 and 10 supra show, Ms.
Bellefeuille’s hourly rates with the payer were much higher than what she
received from the notaries. Ms. Bellefeuille’s average hourly wage,
according to the payer’s payroll journal for 1997 and 1998 was $15, or 50% more
than what she received from the notaries (table 9 supra). Even assuming
that Ms. Bellefeuille actually worked between 7 and 15 hours a week, as
she stated at the hearing, an hourly wage with the payer is obtained that
represents approximately the double and sometimes the triple of what she earned
with the notaries who, it would appear, dealt at arm’s length (whether in law
or in fact) with Ms. Bellefeuille (table 10 supra). The salary
was well above what an employer would have paid to an employee with whom he was
dealing at arm’s length.
Jacinthe Garneau
[114] The appeals officer
determined that in law there was a non-arm’s length relationship between
Ms. Garneau and the payer because the two were related within the meaning
of section 251 ITA. In reaching this conclusion, the officer seems to have
assumed that Ms. Garneau had been Mr. Dubé’s mistress since 1996 and
his common-law partner since December 4, 1999, because they had shared the same
apartment beginning on that date. As Mr. Dubé controlled 75% of the voting
shares of the payer, there was a non-arm’s length relationship between
Ms. Garneau and the payer.
[115] In this analysis, the
appeals officer made an error of law. He wrongly concluded that
Ms. Garneau had in law a non-arm’s length relationship with the payer
during the Garneau periods, except with regard to the last period, that is,
from March 4, 2001, to June 22, 2001. Under subsection 251(2) ITA,
individuals like Mr. Dubé and Ms. Garneau could not be “related
persons” before 2001 until they were married, and in respect of 2001 and the
following taxation years unless they were united in a common-law partnership.
According to subsection 252(4) ITA, persons of the opposite sex living in
a conjugal relationship for a period of twelve months are considered married
for the years prior to 2001.
First Garneau periods
[116] As the evidence
disclosed that Mr. Dubé and Ms. Garneau did not cohabit until
December 1999, they could not have been related by marriage or a common-law
partnership until twelve months later, that is, in December 2000, or, if one
accepts Ms. Garneau’s version,
in January 2001. The fact that they had been lovers since 1996 does not alter
the situation. Consequently, these persons were related persons — and therefore
deemed not to deal at arm’s length — only in respect of the last Garneau
period. For the other Garneau periods (first Garneau periods), there has
to be a de facto non-arm’s length relationship between Ms. Garneau and the
payer in order for Ms. Garneau’s employment to be excluded from insurable
employment. In Massignani I wrote as follows on this point:
80 Prior to 1993,
Ms. Provost was not related to Tiva and, consequently, there is no legal
presumption of a non-arm’s length relationship between her and Tiva, as is the
case after 1992. Thus, it must be determined whether, in fact, such a non-arm’s
length relationship existed. The concept of a non-arm’s length relationship has
been addressed a number of times in case law. My colleague Bonner J. dealt with
this concept in McNichol v. Canada, [1997] T.C.J. No. 5, para. 16 [97
DTC 111, at pages 117 and 118]:
16 Three criteria or
tests are commonly used to determine whether the parties to a transaction are
dealing at arm’s length. They are:
(a)
the existence of a common mind which directs the bargaining for both
parties to the transaction,
(b)
parties to a transaction acting in concert without separate interests, and
(c)
“de facto" control.
The
common mind test emerges from two cases. The Supreme Court of Canada dealt
first with the matter in M.N.R. v. Sheldon's Engineering Ltd. At pages
1113-14 Locke J., speaking for the Court, said the following:
Where
corporations are controlled directly or indirectly by the same person, whether
that person be an individual or a corporation, they are not by virtue of that
section deemed to be dealing with each other at arm’s length.~. Apart
altogether from the provisions of that section, it could not, in my opinion, be
fairly contended that, where depreciable assets were sold by a taxpayer to an
entity wholly controlled by him or by a corporation controlled by the taxpayer
to another corporation controlled by him, the taxpayer as the controlling
shareholder dictating the terms of the bargain, the parties were dealing with
each other at arm’s length and that s. 20(2) was inapplicable.
The decision of
Cattanach, J. in M.N.R. v. T R Merritt Estate is also helpful. At pages
5165-5166 he said:
In my
view, the basic premise on which this analysis is based is that, where the
"mind" by which the bargaining is directed on behalf of one
party to a contract is the same "mind" that directs the bargaining
on behalf of the other party, it cannot be said that the parties were dealing
at arm's length. In other words where the evidence reveals that the same person
was "dictating" the "terms of the bargain" on behalf of
both parties, it cannot be said that the parties were dealing at arm's length.
The acting in concert
test illustrates the importance of bargaining between separate parties, each
seeking to protect his own independent interest. It is described in the
decision of the Exchequer Court in Swiss Bank Corporation v. M.N.R. At
page 5241 Thurlow J. (as he then was) said:
To
this I would add that where several parties -- whether natural persons
or corporations or a combination of the two -- act in concert, and in the
same interest, to direct or dictate the conduct of another, in my
opinion the "mind" that directs may be that of the combination as a
whole acting in concert or that of any of them in carrying out particular
parts or functions of what the common object involves. Moreover as I see it no
distinction is to be made for this purpose between persons who act for
themselves in exercising control over another and those who, however numerous,
act through a representative. On the other hand if one of several parties
involved in a transaction acts in or represents a different interest from the
others the fact that the common purpose may be to so direct the acts of another
as to achieve a particular result will not by itself serve to disqualify the transaction
as one between parties dealing at arm’s length. The Sheldon’s Engineering case
[supra], as I see it, is an instance of this.
Finally, it may be noted
that the existence of an arm’s length relationship is excluded when one of the
parties to the transaction under review has de facto control of the
other. In this regard reference may be made to the decision of the Federal
Court of Appeal in Robson Leather Company Ltd. v. M.N.R., 77 D.T.C.
5106.
...
81 To
determine whether a non-arm’s length relationship does exist, the courts
analyze the facts as a whole. One indicator that a non-arm’s length
relationship exists is the fact that the terms and conditions under which
property is acquired do not correspond with a regular business operation.
In Petro-Canada v. The Queen, 2003 DTC 94, Bowie J. concluded as follows
at paragraph 82:
... The evidence leaves
me in no doubt that these transactions did not reflect ordinary commercial
dealings between the vendors and the purchasers acting in their own
interests and so were not at arm’s length. ...
82 At page 1453
of Freedman Holdings Inc. v. The Queen, 96 DTC 1447, Rip J. stated that
the guidelines set out in Interpretation Bulletin IT-419R appeared to him to be
a reasonable application of the case law. Paragraph 19 of these guidelines
reads as follows :
19. Failure to
carry out a transaction at fair market value may be indicative of a non-arm’s
length transaction. However, such failure is not conclusive and,
conversely, a transaction between unrelated persons at fair market value does
not necessarily indicate an arm’s length situation. The key factor is
whether there are separate economic interests which reflect ordinary
commercial dealing between parties acting in their separate interests.
83 In my view,
this constitutes only one of the aspects that the courts must take into account
to determine whether a non-arm’s length relationship exists in situations that
present indicators of a negotiated transaction, where in reality, one of the
parties exercises influence over the other in such a way that this party is not
free to participate in this transaction independently. Although Bonner J.
(like many others) sets out three separate criteria to define the concept of a
non‑arm’s length relationship, there is essentially one single criterion
that can be summarized briefly as follows: is one party exercising control
or influence over the other party? What the three criteria seek to
determine is whether a relationship exists between individuals who are party to
a transaction in which one of the parties exercises its influence over the
other in such a way that the other party is no longer free to participate
independently.
[Emphasis added.]
[117] There are also my remarks in McMillan v. Canada (M.N.R.),
[1996] T.C.J. No. 1384 (QL):
18 Mr.
McMillan was not related to BLI. In this case, the determination whether Mr.
McMillan was dealing at arm's length with BLI remains a question of fact. The
courts have held that a non-arm's length situation exist in a particular transaction
when the relationship between the parties is such that they are not in a
position to negotiate terms of a transaction that would reflect the prevailing
commercial constraints of the market. This occurs when one party controls
the other or the two parties are controlled by the same person. In a Supreme
Court of Canada decision, Swiss Bank Corporation et al. v. M.N.R., 72
D.T.C. 6470, at pages 6473-6474, Laskin, J. stated :
|
|
Although the circumstances here do not
present the common type of non-arm's length dealing referred to by this Court
in the Minister of National Revenue v. Sheldon's Engineering Ltd.
[1955] S.C.R. 637 [55 D.T.C. 1110], they bring this case within the principle
that underlies the disqualification expressed in s. 106(1)(b)(iii)(A),
namely, that the payer and payee must not be persons who, effectively, are
dealing exclusively with each other through a fund provided (1) by the payee
for the benefit of the payee. A sound reason for this that the enactment
itself suggests is the assurance that the interest rate will reflect ordinary
commercial dealing between parties acting in their separate interests. A
lender-borrower relationship which does not offer this assurance because
there are, in effect, no separate interests must be held to be outside the
exception that exempts a non-resident from taxation on Canadian interest
payments. The fact that the interest actually authorized or paid is
consistent with arm's length dealing is not enough in itself to avoid this
conclusion.
|
...
20 Laskin, J. stated in Swiss
Bank Corporation (supra) that the fact that the terms of a contract
are consistent with arm’s length dealing is not enough in itself to avoid the
conclusion that a party does not deal at arm’s length with another. I would
add, however, that the fact that the terms of a contract are not consistent
with arm’s length dealing raises a strong indication of a non-arm’s length
relationship. When, in addition to this fact, there is also evidence
that a special relation exists between the parties which would make it
doubtful that they had independent interest in negotiating the terms of an
agreement, then the conclusion that the parties were not dealing at arm’s
length may be inevitable.
21 Here,
I find that the terms of the contract of service, if it existed, are not
those of persons dealing with each other at arm's length. First, I do
not believe that a person dealing at arm's length would accept to work for
another without remuneration. Mr. McMillan agreed to work without any
remuneration for BLI when he shovelled snow on a regular basis during the
winter. In Mr. MacMillan's own words, "there was a lot of snow to shovel
and this required two to three hours on every occasion". He stated that he
did so because he "enjoyed it". However, BLI was the only beneficiary
of this service.
22 There are also other
indications of a non-arm’s length relationship. On several occasions, he
accepted receiving less than what he was entitled to for his services.
Furthermore, Mr. MacMillan acknowledged that he was working longer hours
without additional remuneration than what had been agreed to between him and
BLI. Finally, there is the close relationship that existed between Mr.
McMillan and Mrs. Leblanc, the owner of BLI.
[Emphasis added.]
Was there a de facto
non-arm’s length relationship between Ms. Garneau and the payer from 1997 to
2000?
[118] Since the payer was
controlled by Mr. Dubé, a de facto non-arm’s length relationship between
Mr. Dubé and Ms. Garneau could be a revealing indication of a de facto
non-arm’s length relationship between the payer and Ms. Garneau. What facts
could disclose the existence of such a relationship? First, there is the fact
that Ms. Garneau may have been Mr. Dubé’s mistress since 1996. On this, there
is conflicting evidence. Moreover, the Respondent did not submit the best
evidence for the existence of this fact, since Mr. Maltais’ testimony is
hearsay. The probative value of this testimony is less impressive than it would
have been if Mr. Dubuc, who allegedly witnessed the above-mentioned sexual
conduct, had testified himself. It would certainly have been useful if this
employee had testified before the Court. However, it must be remembered that
the onus is on Ms. Garneau to show that she was not Mr. Dubé’s mistress in 1996. However, Mr. Dubé
and Ms. Garneau denied that they had had a relationship in 1996.
Mr. Dubé allegedly did not begin to court Ms. Garneau until the
summer of 1997.
[119] In rebuttal evidence,
to counter the statement of Mr. Maltais, who established the beginning of
the cohabitation of Ms. Garneau and Mr. Dubé at a particular time in
1997, the latter stated that he had not had intimate relations with
Ms. Garneau prior to December 1998. However, Mr. Dubé is described as
the new spouse of Ms. Garneau in her motion dated October 6, 1998. In
order to be able to make this statement, the common-law partnership would have
had to be created at some period prior to October 6, 1998! In any event, it is
clear that they went out together beginning in May or June 1997. This would be
consistent, at least in part, with the hearsay testimony of Mr. Maltais, who
stated that Mr. Dubé and Ms. Garneau were living together at that
time. Even if I believe that Ms. Garneau began to work for the payer
towards the end of February 1997, the official commencement of her work with
the payer, according to the payroll journal (Exhibit A‑10) and according
to Ms. Garneau’s Record of Employment (Exhibit I‑5), was May 5, 1997,
which is more or less during the period when Mr. Dubé acknowledged that he
was going out with Ms. Garneau.
[120] Another element that
could support the conclusion that there was a de facto non-arm’s length
relationship would be evidence that the circumstances were such between
Mr. Dubé and Ms. Garneau from 1997 to 2000 that the parties were not
in a position to negotiate a contractual agreement that reflected the
conditions of the market. Evidence of the existence of such circumstances can
be given by showing that the terms of the contract of employment were unreasonable.
Were the terms of Ms. Garneau’s contract of employment with the payer
sufficiently unreasonable to permit the inference that there was a de facto
non-arm’s length relationship between her and the payer?
[121] At first blush, the
weekly remuneration of $525 paid to Ms. Garneau by the payer in 1997 seems very
reasonable since it corresponds to what BDC had paid her in 1996, especially if
we assume that she worked the same number of hours with the payer as she did
for BDC. That company belonged to a group of shareholders which did not appear
to have had a non-arm’s length (in law or in fact) with Ms. Garneau. The
terms and conditions of Ms. Garneau’s contract of employment with BDC may
therefore constitute an excellent point of comparison for determining whether
the terms and conditions of her contract of employment with the payer
corresponded to those of the market.
[122] However, if
Ms. Garneau only worked 35 hours with the payer, instead of 44 hours as
she did with BDC, then her hourly rate went from $12 to $15, a substantial 25%
increase. We must add to that the fact that with the payer she was paid by the
week without taking into account the hours actually worked, whereas she had
been remunerated on an hourly basis — and not weekly — with BDC, as
the analysis in table 4 supra makes clear. Although there is a reference
to the number of hours in the payer’s payroll journal with regard to
Ms. Garneau, Mr. Dubé acknowledged that her remuneration did not take
those hours into account. He also acknowledged that Ms. Garneau often left
work before the end of the day and that on occasion she did not even work on
Friday.
[123] Mr. Dubé also
confirmed that Ms. Garneau’s remuneration depended on other factors, such as
the payer’s ability to pay and Ms. Garneau’s financial needs. For example, in
answer to a question posed by counsel for the Appellants, who asked him the
reason for Ms. Garneau’s salary raise to $700 and $800 per week, he explained
that Ms. Garneau had to buy a new house, which she did after leaving her
husband in August 1998. The house was conveyed to her in December 1998. Counsel
for Ms. Garneau, realizing that this answer could harm his case,
contradicted his witness and had him acknowledge that this kind of reason is
not a justification when one is dealing at arm’s length. At this point,
Mr. Dubé changed his version and instead said that the company was making
more profit and could pay a higher salary to reflect the fact that it had
previously paid her a lower salary than she might deserve. Mr. Dubé then
stated that, if Ms. Garneau had been dealing at arm’s length, she would
never have accepted a remuneration of $700. Therefore, it was time that the
company paid her a higher amount. However, the case law recognizes that the
acceptance of terms and conditions of employment that are less favourable than
those which a third party dealing at arm’s length would have accepted is an
indication that such conditions would not have existed had there not been a
non-arm’s length relationship.
[124] Mr. Dubé also
stated that Ms. Garneau’s salary went from $800 to $700 after they began to
live together in December 1999. Ms. Garneau’s remuneration, which was $800 from
June 13, 1999, to October 23, 1999, was reduced to $700 on May 22, 2000, when,
according to the payroll journal, she had returned to the payer (table 5 supra).
[125] According to Ms.
Garneau’s version, the reason that she started with the payer at $525 was
because she took into account the ability to pay of a new company just starting
up. It is true that for its first fiscal year, the payer suffered a loss of
$67,467. In the second fiscal year, profits were very small: $4,395. However,
it should be noted that Ms. Garneau’s attitude was more like that of a co-owner
than an employee seeking the best possible remuneration while being aware of
the circumstances of her future employer. Furthermore, this attitude is
apparent in the following answer:
[Translation]
[773] Q. You did not count your hours?
A. No. When you have a company,
Sir, you don’t count your hours.
(Vol. 1 of the transcript, p. 271)
[Emphasis added.]
[126] Another factor that
could reveal the unreasonableness of the terms and conditions of Ms. Garneau’s
contract of employment is the fact that she worked without pay during her
alleged periods of unemployment. In fact, it would be more accurate to state
that she worked year-round and was remunerated for this work over short periods
corresponding to the official periods of work, namely, those indicated in the
payroll journal and on the Records of Employment. Mr. Dubé, like
Ms. Garneau, tried to minimize the amount of hours worked by
Ms. Garneau, although she was regularly at the payer’s establishment
during her alleged periods of unemployment. According to them, the number of
hours a week during these periods varied between five and six.
[127] In her meeting with
the investigator on May 10, 2002 (Exhibit I‑32, page 3), Ms. Garneau
denied working for the payer before May 1997. All that she admitted to was
helping paint on weekends. [Translation]
“I did nothing and put in no time or period of time” she said (Exhibit I‑32,
page 3). One cannot attach much probative value to this statement, however,
since at the same meeting Ms. Garneau stated that Guylaine Dubé had worked
for BDC and the payer. When she was told that Guylaine Dubé had said that
she had not worked for BDC or for the payer, she refused to talk any more about
this matter: [Translation] “I
don’t want to talk about Guylaine any more until I speak to my lawyer” (Exhibit
I‑32, page 3). However, she acknowledged at that time that she worked
during her alleged periods of unemployment, but [Translation] “perhaps fewer hours, perhaps half-days instead
of full days” (Exhibit I‑32, page 3). She added: [Translation] “I might work in the office only in the morning
and the next day, I might go to work only in the afternoon” (Exhibit I‑32,
page 3).
[128] At her meeting with
the insurance officer on July 14, 2003, Ms. Garneau indicated that she had not
provided her services to the business without being paid (Exhibit I‑38,
page 30). When she was told that the Minister had evidence that she had
signed cheques during some periods when she was receiving benefits, she
acknowledged that she came to the office on Thursday mornings to prepare the
payroll. She stated that she had not been paid for this time since [Translation] “it was very brief,
sometimes it only took a few hours” (Exhibit I‑38, page 30). She
said that it was [Translation]
only on Thursdays [that she came in] to prepare the payroll for the employees”
(Exhibit I‑38, page 30).
[129] According to the
investigator, Ms. Garneau worked a great deal more than she was prepared
to acknowledge. In support of his position, the Respondent produced numerous
statutory declarations from employees or former employees of the payer that
state that Ms. Garneau was in the payer’s establishment on a regular basis
year-round. According to the investigator,
the following persons confirmed that Ms. Garneau worked regularly and
continuously during the following periods when she was generally in receipt of
employment insurance:
|
Table 11
|
|
Alleged periods of
unemployment
|
Witnesses
|
|
Dec. 21, 1996, to May 4,
1997
|
Dubuc,
Ostiguy,
Latreille, Laferrière and Searles
|
|
Dec. 13, 1997, to May 30,
1998
|
Laferrière,
Poirier, Searles, Martel and Harnois
|
|
Nov. 8, 1998, to June 6,
1999
|
Martel, Harnois, Searles, Poirier, Laferrière and
Plante
|
|
Oct. 23, 1999, to May 21,
2000
|
Tremblay,
Laferrière, Perrault, Poirier, Searles and Martel
|
|
Oct. 7, 2000, to March 3,
2001
|
Ostiguy, Tremblay, Charrier, Laferrière, Perrault,
Searles, Martel and Patenaude
|
|
June 23, 2001, to Oct. 28,
2001 (sick leave)
|
Tremblay, Charrier, Lambert, Laferrière, Ménard,
Ducharme, Perrault, Searles and Martel
|
|
Oct. 29, 2001, to Feb. 23,
2002
|
Tremblay, Ducharme, Charrier, Lambert, Searles and
Martel
|
[130] Obviously, the
statutory declarations of these persons, or summaries of the interviews with
them, are not the best evidence that the Respondent could have produced. If
these people had testified, the hearing would have lasted longer than the six
days that it did.
However, this evidence is corroborated by the voluminous documentary evidence
provided by the investigator. Moreover, the burden of demolishing the facts so
established lay with Ms. Garneau and she did not succeed in this task.
According to the HRDC investigator, analysis of the payer’s documents (Exhibit
I‑28) revealed that, during Ms. Garneau’s alleged periods of
unemployment, there were never five consecutive days for which there is no
evidence of Ms. Garneau’s signature on cheques, invoices or Records of
Employment.
[131] The HRDC verifications
even revealed that Ms. Garneau also provided information to various
government departments or agencies, including the Agency and the Commission des
normes du travail, during her alleged periods of unemployment. She was on site
when the investigator came for the initial interview, in December 2001 when she
was receiving benefits. On Friday, December 7, 2001, Ms. Garneau telephoned a
collection officer to reconcile the employer’s account and that of the Agency.
On July 17, 2001, while Ms. Garneau was on sick leave, the collection
officer telephoned the payer to obtain an amount of missing returns. It was Ms.
Garneau who called back on Thursday, July 19, 2001, using the name Vachon,
i.e., the family name of her former husband (from whom she had been divorced
since March 17, 2000!) (Exhibit A‑2). On Thursday, September 6, 2001, a
collection officer contacted Ms. Garneau concerning the return for July.
On the infamous date of September 11, 2001, an officer from the taxation
centre obtained confirmation from Ms. Garneau of information concerning
the shareholders. On Tuesday, January 8, 2002, a collection officer received a
call from Ms. Garneau concerning the business’ account. On Tuesday, February 5,
2002, a collection officer contacted Ms. Garneau regarding some post-dated
cheques.
[132] There is another
disturbing fact that raises a good many doubts about statements that
Ms. Garneau worked very little during her alleged periods of unemployment.
Mr. Dubé acknowledged that he had not replaced Ms. Garneau during her
sick leave, from June 26 to October 28, 2001 (Exhibit A‑3). As for
Ms. Bellefeuille, she did not come to the office “to work”. However,
Ms. Garneau was normally employed from May or June to October, November or
even December, every year. She was officially on the payer’s payroll journal
from May to December 1997, from May to November 1998, from June to October 1999
and from May to October 2000. Table 1 supra shows that the business
figure for 2001 was $104,000 higher than the one for 2000. There was therefore
more activity in 2001 than in all the previous years that the payer was in
operation (table 1 and 2 supra).
[133] There are two possible
interpretations of these facts. First, Ms. Garneau’s work was not important and
her services could be dispensed with; or, on the contrary, her work was
important and Ms. Garneau continued to work while she was on sick leave and for
the remainder of 2001. I prefer the second interpretation. Mr. Dubé
acknowledged, moreover, that Ms. Garneau was present on a regular basis at the
payer’s establishment at that time. According to him, it was personal
considerations that dictated her presence: he feared that she might do something
irreparable while she was depressed. It is true that the sick leave occurred
during the last of the Garneau periods, during which Ms. Garneau was a “related
person” vis-à-vis the payer, whereas it still must be determined whether there
was a de facto non-arm’s length relationship during the first Garneau periods.
However, these facts raise significant doubts about the credibility of
Ms. Garneau and Mr. Dubé when they minimize the work she accomplished
during her periods of alleged unemployment.
[134] I conclude therefore
that Ms. Garneau did not succeed in disproving the facts assumed in
paragraphs 8(h) and (j) of the Minister’s Reply to the Notice of Appeal,
namely, that she [Translation]
“worked year-round for the payer on the premises of the business” during the
Garneau periods and that she [Translation]
“continued to provide services to the payer after her alleged layoffs”. Not
only did she not disprove them, but I believe, on a balance of probabilities,
that she worked year-round for the payer.
[135] To illustrate the
effect on Ms. Garneau’s remuneration of working for the payer year-round while
receiving only the amounts indicated on the payroll journal as remuneration, it
is revealing to calculate the true hourly wage that she received. For instance,
let us take 1999, the middle year in the Garneau periods. Ms. Garneau was
not officially on the payer’s payroll journal except from June 6, 1999, to
October 23, 1999. For these 20 weeks, she received a total remuneration of
$15,900 [(19 x $800) + (1 x $700)] (table 5).
Ms. Garneau stated that she had generally worked from 35 to 40 hours a
week. On the assumption that she worked 38 hours a week on average, as is
provided for, incidentally, in the contract between her and the company that
purchased the payer’s business in 2004, it can be calculated that she had to be
paid for 1,976 hours in 1999 (52 x 38). A salary of $15,900 for
1,976 hours corresponds to an hourly rate of $8.05. Such a remuneration is
far below that which an honest person, dealing at arm’s length, in fact or in
law, and not participating in any fraudulent scheme to unjustly receive
benefits under the EIA, would have accepted. When Ms. Garneau worked in
1995 and 1996 for Quincaillerie and BDC, persons with which she apparently had
a non-arm’s length relationship (in law or de facto), she earned an hourly wage
of $12, or 50% more. The remuneration that she received from the payer does not
correspond to that which parties with distinct economic interests would have
agreed to.
[136] Finally, another
factor reveals the existence of a de facto non-arm’s length relationship
between Ms. Garneau and the payer in the first Garneau periods.
Ms. Garneau, holder of 25% of the voting shares of the payer, acted in
concert with Mr. Dubé, the other shareholder of the payer, to institute
the scheme that allowed the payer to finance its operations indirectly through
the HRDC benefits paid to its employees while they were working for the payer.
She participated in the scheme in many ways, including by working for the payer
while receiving benefits, like a number of other employees. She had acted in
concert with Mr. Dubé since the time that she had worked with him at BDC.
She completed false and misleading Records of Employment for other employees of
BDC and the payer, in particular for Guylaine Dubé, who admitted that she
had not worked for these two businesses.
[137] I believe that all
these circumstances show that Ms. Garneau was under the influence of
Mr. Dubé who controlled the payer. The situation was such that she was
unable to negotiate freely with the payer a contract of employment whose terms
and conditions were consistent with those of the contracts that would have been
entered into under normal market conditions. Moreover, Ms. Garneau
considered the payer as “her” company. She held 25% of the voting shares. She
allegedly invested up to $30,000 of her own money, even though it was through
loans to Mr. Dubé. She acted in concert with Mr. Dubé. The latter
acknowledged that Ms. Garneau could set her own salary. If she needed more
money to purchase a condominium, the payer paid her more, if she needed less
money because she was living with Mr. Dubé, the payer paid her less:
[Translation]
[671] Q. How was that determined?
A. It was maybe the salary continued
from the year before or… it was determined like that. It was agreed at the
beginning, she would start with a salary similar to what she had had with
Dragon Chapdelaine more or less, and then as... that one couldn’t always take
big salaries, as the business figure increased, the company improved, that she
could take money. She did not have to ask me: can you let me have a raise or
something. We were partners, that’s how it was. She needed money. In 98,
that was the year when she needed money the most because her divorce, things
were going badly, her divorce was coming up, and it was the year when we had
discussed that she would take a little more money per week.
(Vol. 2 of the transcript, pp. 168 and
169.)
[Emphasis added.]
[138] In conclusion, it
emerges from the evidence as a whole, on a balance of probabilities, that there
was a de facto non-arm’s length relationship between Ms. Garneau and the
payer for the first Garneau periods and, consequently, the employment of
Ms. Garneau is excluded for these periods under paragraph 5(2)(i)
EIA.
Period from March 4, 2001, to June 22, 2001
[139] Concerning the last
Garneau period, the one from March 4, 2001, to June 22, 2001, during this
period Ms. Garneau was a person related to the payer because she was related to
Mr. Dubé on account of their common-law partnership. Consequently, a
non-arm’s length relationship was deemed to exist between her and the payer.
With regard to the period, it is for the Minister to decide whether the
contract of employment between Ms. Garneau and the payer would have been
substantially similar had Ms. Garneau been dealing with the payer at arm’s
length.
[140] The appeals officer
justified the Minister’s decision that Ms. Garneau’s employment was excluded
from insurable employment as follows (Exhibit I‑18, pp. 7 and 8):
[Translation]
Remuneration
paid: From the $525 per week in 1997, the worker’s salary rose
to $800 per week in the following years. Before and after the periods indicated on her
Records of Employment, the worker continued to provide services to the payer
without being paid.
Terms and
conditions of employment: She works on the premises of the payer in collaboration with the majority
shareholder, Mr. Dubé. Her hours of work are not the subject of particular
control because she performs her duties as they arise.
Duration of
work: The worker
performed her duties continuously from the beginning of the payer’s activities
in the winter of 1997 contrary to what her Records of Employment indicate. In
fact, the worker was the only person to have administrative skills and for that
reason she worked continuously for the payer, that is, before and after the
alleged periods of work indicated on her ROEs.
Nature and
importance of the work: Office and accounting clerical work for the payer, which is essential to
the smooth functioning of the payer’s operations.
Consequently, we
believe that the payer and the worker would not have entered into a similar
contract of employment if they had dealt at arm’s length. The employment is not
insurable employment under paragraph 5(2)(i) of the Employment
Insurance Act.
...
(VIII) RECOMMENDATION
– RECOMMANDATION:
We recommend that
the departmental notices stipulate that Jacinthe Garneau did not hold insurable
employment under paragraph 5(2)(i) of the Employment Insurance Act when
she worked for Boiserie Dubé et associés Inc. during the periods in question.
[141] The onus of showing
that the Minister’s decision does not appear reasonable, in light of the facts
considered by the Minister and those shown to the Court, and that it was
inappropriate, lies with Ms. Garneau. In my opinion, Ms. Garneau
failed in this task. If I had had to decide the question, I would have reached
the same conclusion as the Minister, as I have done, incidentally, in finding
that there was a de facto non-arm’s length relationship for the first Garneau
periods. First, if one considers only the period when she was listed in the
payroll journal, namely, from March 4, 2001, to June 23, 2001, the hourly wage
paid by the payer to Ms. Garneau was much higher than the hourly rate of $12
that she had earned at BDC. It would in fact have been $16, $18.66 or
$21.33, depending on the period, supposing that Ms. Garneau worked 37.5 hours
per week (table 5). This is not surprising since I think that part of this
salary covered the work she did during her alleged periods of unemployment. If
one assumes that Ms. Garneau actually worked year-round, then the
remuneration paid by the payer is clearly insufficient. In 2001, she would have
earned an hourly wage of only $5.72.
From this perspective, the Minister’s conclusion that Ms. Garneau and the payer
would not have entered into a substantially similar contract of employment if
they had been dealing at arm’s length appears completely reasonable.
[142] It is true that, in Massignani,
2005 FCA 165, the Federal Court of Appeal in a short decision, set
aside my decision, stating in paragraph 4 that “Appellant parties accepted conditions of employment
that other workers would not have accepted and that this acceptance is
explained by the non-arm's length relationship they maintained with Tiva” and that “[I]t is therefore incorrect to conclude that
they enjoyed an advantage in comparison with the other employees because of
their non-arm's length relationship and that by that token their employment was
not insurable.” It is fully justified to state that in Massignani the other
employees were “in law” dealing at arm’s length with Tiva. However, it is not
known whether they had a “de facto” non-arm’s length relationship with Tiva,
since I made no finding of fact in that regard, although the issue could have
been raised since a number of employees who had testified at the hearing at
stated that they felt obligated to take part in scheme because they were afraid
of losing their jobs. In Bélanger (supra), I stated, as the
Federal Court of Appeal did in Massignani, that it was persons “dealing
at arm’s length” with the employer who had abused the Act by participating in
the scheme involved in Massignani:
[74] In my view,
failing to consider the fact that an employee works without remuneration for
the same employer clearly opens the door to abuse. A good example can be found
in the decision I rendered in Massignani ([2004] T.C.J. No. 127 (QL),
2004 TCC 75). In that case, the family members were not the only ones to abuse
the Act. Employees dealing at arm’s length with the employer were encouraged to
participate in the scheme that had been devised. Failing to take into account
the number of hours worked without remuneration would essentially enable
employees to be remunerated through employment insurance while they continued
to work for their employer. This is certainly not the intention of Parliament
with respect to the employment insurance system.
[Emphasis added.]
[143] Now, it would have
been more accurate if I had written that persons not “related” or dealing in
law at arm’s length within the meaning of subsection 251(2) ITA had
participated in the scheme. Although some persons are not related, this does not
necessarily mean that there is not from a factual point of view a non-arm’s
length relationship between them. As I had made no finding of fact on that
issue, I was wrong to state in Bélanger that persons dealing at arm’s
length had participated in the scheme in Massignani. As I believe that
my Bélanger decision was cited by counsel for the Minister before the
Federal Court of Appeal in Massignani, it is possible that this
statement might have misled that Court.
[144] Furthermore, in
contrast to the situation in Massignani, the evidence in this case shows
that some employees in respect of whom there was no appearance of a non-arm’s
length relationship in law or in fact with the payer refused to participate in
the scheme, including Jean‑Pierre Latreille (Exhibit I‑30,
summary of the interview of May 24, 2002) and Stephan Perrault (Exhibit I‑30,
statutory declaration of November 20, 2001). If, to answer the question posed
by paragraph 5(3)(b) EIA, i.e., whether the persons would have
entered into a substantially similar contract of employment had they been
dealing “at arm’s length with the employer”, the Minister has, as a point of
comparison, employees who fraudulently participated in the scheme and employees
wholly at arm’s length (in fact or in law) who refused to take part in it, I
cannot imagine that Parliament intended that, in order to exercise his
discretion, the Minister could consider the example of the former group and not
the latter group. I fully adopt the point of view expressed by counsel for the
Respondent as follows:
[Translation]
707 According to the Respondent, this
Court should make a clear ruling based on the comparison for the purposes of
the application of paragraph 5(3)(b) of the EIA. According to the
Respondent, this Court should rule that the comparison should be made with the
terms and conditions of employment that would have been entered into by persons
who were honest, in good faith, not related, in the regular job market, not
acting in concert, free and subject to no restriction, well-informed, acting
with prudence, and not parties to an arrangement for the purposes of unjustly
profiting from the EIA.49
49 The Respondent was to some extent inspired
by the definition of the phrase “fair market value” in Information Circular
89-3, “Policy Statement on Business Equity Valuations”, of August 25, 1989.
[145] If it were necessary
to use as the point of comparison persons who abuse the EIA in order to
determine the reasonableness of the terms and conditions of a contract of employment,
few or no jobs would be excluded under paragraph 5(2)(i) EIA.
[146] I would add to the
reasons stated by the Minister in finding that Ms. Garneau’s employment
was excluded, the fact that she would not have received her remuneration, which
was fixed on a weekly basis and did not take into account the hours that she
actually worked, had she not been the common-law partner of the person who
controlled the payer. As noted above, when Ms. Garneau was employed with
Quincaillerie and BDC, she was remunerated on the basis of the hours she
actually worked. In my opinion, Ms. Garneau and the payer would not have
entered into a substantially similar contract of employment had they dealt at
arm’s length. The Minister’s decision relative to the last Garneau period still
appears reasonable.
[147] For all these reasons,
the appeals of Ms. Garneau and Ms. Bellefeuille are dismissed.
Dated at Ottawa, Canada, this 29th day of May 2006.
“Pierre Archambault”
Translation certified true
on this 15th day of March 2007.
Monica F. Chamberlain, Reviser
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