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Citation: 2005TCC196
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Date: 20050322
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Docket: 2004-1296(EI)
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BETWEEN:
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PARS EMPIRE NORTH AMERICAN INC.,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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REASONS FOR JUDGMENT
(Judgment delivered orally on March 4, 2005,
at Ottawa, Ontario
and revised on March 22, 2005.)
LamarreJ.
[1] This is an appeal from a
determination by the Minister of National Revenue
("Minister") that Nava Vosough was not employed by the
appellant in insurable employment during the period from August
1, 2001, to August 30, 2002, since Ms. Vosough and the
appellant were related and were not deemed to have dealt with
each other at arm's length within the meaning of
paragraph 5(3)(b) of the Employment Insurance
Act ("EI Act"), and thus paragraph
5(2)(i) of the EI Act applied.
[2] The facts may be summarized as
follows. The appellant's sole shareholder is Ali Karimi,
who has been married to Ms. Vosough since March 2000.
Ali Karimi immigrated to Canada from Iran in April 1987. In
1994, he started his own business through his corporation, the
appellant. He opened a convenience store on Elgin Street in
Ottawa. At that time, he hired approximately four employees. In
1995, he opened a second store on Clyde Avenue in Ottawa and
hired seven employees.
[3] At that time, Ali Karimi ran the
two stores himself. He said it was too costly to hire a manager
and he did not know anyone he could trust. In March 2000, he got
married in Iran and was absent from Canada for a two-month
period. He asked an assistant manager to take care of the stores
during that period.
[4] One year later, that is, in May
2001, his wife immigrated to Canada. Once here, she would
accompany her husband and help him with his business. He was
working 80 hours per week. Ms. Vosough, who had studied
microbiology in Iran, also had experience in managing a wholesale
and retail business that belonged to her father in Iran. Although
she had worked with her husband all the time since her arrival in
Canada, she only started to get paid in August 2001.
Mr. Karimi said that she was in training prior to that.
According to Ms. Vosough, from August 1, 2001, to November
18, 2001, she received $700 per week by way of advances, either
in cash or by cheque. Neither Mr. Karimi nor
Ms. Vosough was entered on the appellant's payroll. On
November 18, 2001, on the advice of Mr. Karimi's
accountant, Ms. Vosough was put on the payroll. At that
time, a salary of $12,115 was recorded on the payroll register,
which amount covered the period from August 1, 2001, to
November 18, 2001 (Exhibit A-1, page 2). It seems that from
there on, she was paid a gross salary of $1,500 biweekly and was
working as the manager of the store on Elgin Street. Among other
things, she was responsible for customer service, ordering
merchandise, the employees' schedules, verifying the
employees' shifts, counting the money, doing the paperwork
and going to the bank. Mr. Karimi said that the average salary
for such a position in the same industry varied between $3,000
and $5,000 per month, and Ms. Vosough was paid $3,000 per
month.
[5] Ms. Vosough became pregnant
at the beginning of January 2002 and although the baby was
expected in late September 2002, she gave birth to her son
prematurely on August 31, 2002. Her last day of work was
August 30, 2002. When she left, she was replaced by an
assistant manager, Mr. Duy Tran, who was already working in the
store. He did Ms. Vosough's work with the help of
Mr. Karimi. Mr. Karimi said that he raised
Mr. Tran's salary by $1 or $2 per hour.
[6] In November 2002, Mr. Karimi
opened a third store, on Bank Street. He had eight employees
working for him there. He hired a manager for that store. At that
time, he was running the second store on Clyde Avenue and was
helping the assistant manager on Elgin Street. He was also acting
as the "district manager" for all the stores. In
January 2003, Mr. Karimi opened a fourth store on
Rideau Street. He employed eight or nine employees,
including a manager, at that store. The documentary evidence does
not reveal how much the managers hired for the two new stores
were paid.
[7] Mr. Karimi used the services of
Ceridian Canada Ltd. ("Ceridian") to process
the appellant's payroll. According to Mr. Karimi, Ceridian
made the proper deductions at source and sent him the cheques for
the appellant's employees. Mr. Karimi said he was paying his
employees himself. This statement contradicts, however, his
answer in a questionnaire he filled out for the Minister
(Exhibit R-2, question 5) in which he said that the
salary was deposited directly in the employee's account.
Ms. Vosough's cancelled paycheques were not provided as
evidence. It is also my understanding that they were not provided
to the Minister. The appellant instead provided documents called
"deposit account history" (Exhibit R-5) showing
deposits in Ms. Vosough's account. However, there was
inconsistency between the testimony of Mr. Karimi and that of
Ms. Vosough as to the source of these documents. It is not
clear whether the money was deposited for Ms. Vosough in an
account at the TD Bank or in an account at the
Royal Bank. The documents themselves do not state their
source. We can see from these documents, though, that once in a
while amounts larger than her regular salary were deposited in
Ms. Vosough's account. Indeed, on March 28, 2002, there
was a deposit of $6,133, and on May 24, 2002, another of $7,000.
These deposits do not correspond to any pay statements in the
payroll register (Exhibit R-5). Neither Mr. Karimi, nor
Ms. Vosough seemed to know exactly what these particular
deposits represented. Ms. Vosough indicated that they could
have been retroactive salary for her three-month training period,
but did not look very convinced. On this point, however, it is
stated in the questionnaires filled out by both Mr. Karimi and
Ms. Vosough, that the training only lasted for two weeks
(Exhibits R-2 and R-6, question 9.b). Moreover,
Ms. Vosough was sometimes paid a bonus on top of her salary.
Indeed, on June 11, 2002, she received an extra gross amount
of $600 and on July 23, 2002, an extra gross amount of $500. We
do not know whether the other employees were entitled to such
bonuses.
[8] Finally, when Ms. Vosough
filed her application for employment insurance benefits (Exhibit
R-7), she indicated that her salary was $1,600 biweekly. At the
hearing, she explained that was referring there to her last
paycheque and that she received gross earnings of $800 for her
last week. This is contradicted by Exhibit A-2, which shows
the payroll register for the period ending September 8, 2002,
that indicates she was paid her regular gross salary of $750 for
her last week of work.
[9] Ms. Vosough also stated in
her application that she was not related to the employer. At the
hearing, she said that she had filled out this application with
her husband on the Internet. She did not know why they indicated
that she was not related to him.
[10] The Minister concluded from his audit
that the worker and the appellant would not have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length. Hence, the
employment was excluded from insurable employment pursuant to
paragraphs 5(2)(i) and 5(3)(b) of the EI
Act.
[11] The most relevant facts upon which the
Minister relied in exercising his discretion as he did are stated
in paragraph 9 of the Reply to the Notice of Appeal, as
follows:
. . .
(g) the Appellant's
payroll records demonstrated that the Worker was not paid on
regular basis;
(h) the Appellant's
payroll records showed that during the year 2001, the Worker was
not on regular payroll as she received a lump sum in December
2001;
(i) the Appellant
was not able to provide any records for the period of August 1,
2001 to November 1, 2001;
. . .
(n) while on maternity
leave, the Worker's duties were performed by the
Appellant's shareholder (the Worker's husband).
[12] The recent case law on this Court's
power to review a determination of the Minister under paragraph
5(3)(b) of the EI Act (formerly subparagraph
3(2)(c)(ii) of the Unemployment Insurance Act) is
well summarized in Légaré v. Canada,
[1999] F.C.J. No. 878 (Q.L.), and in Pérusse v.
Canada, [2000] F.C.J. No. 310 (Q.L.), referred to by
counsel for the respondent. In Légaré, the
Federal Court of Appeal said the following at
paragraph 4:
¶ 4 . . . In fact, the Act
confers the power of review on the Tax Court of Canada on the
basis of what is discovered in an inquiry carried out in the
presence of all interested parties. The Court is not mandated to
make the same kind of determination as the Minister and thus
cannot purely and simply substitute its assessment for that of
the Minister: that falls under the Minister's so-called
discretionary power. However, the Court must verify whether the
facts inferred or relied on by the Minister are real and were
correctly assessed having regard to the context in which they
occurred, and after doing so, it must decide whether the
conclusion with which the Minister was "satisfied"
still seems reasonable.
[13] In Pérusse, Marceau J.A.,
in a majority decision of the Federal Court of Appeal, added the
following at paragraph 15:
¶ 15 The function of an appellate judge
is thus not simply to consider whether the Minister was right in
concluding as he did based on the factual information which
Commission inspectors were able to obtain and the interpretation
he or his officers may have given to it. The judge's function
is to investigate all the facts with the parties and witnesses
called to testify under oath for the first time and to consider
whether the Minister's conclusion, in this new light, still
seems "reasonable" (the word used by Parliament). The
Act requires the judge to show some deference towards the
Minister's initial assessment and, as I was saying, directs
him not simply to substitute his own opinion for that of the
Minister when there are no new facts and there is nothing to
indicate that the known facts were misunderstood. However, simply
referring to the Minister's discretion is misleading.
[14] Accordingly, this Court must verify
whether the facts relied on by the Minister are real and whether
they were correctly assessed having regard to the context in
which they occurred and then decide whether the Minister's
conclusion was reasonable. Furthermore, this Court must also
investigate all other facts put in evidence and consider whether
the Minister's conclusion still seems reasonable.
[15] Here, some of the facts relied upon by
the Minister are confirmed by the evidence. Indeed, it is
confirmed that Ms. Vosough was not on the regular payroll from
August 1, 2001, to November 1, 2001, and no records for that
period were provided. Furthermore, although it would seem that
starting November 1, 2001, or thereabouts, she was paid on a
regular basis, the evidence also disclosed that she received once
in a while larger amounts or lump sum payments that did not match
her regular salary. Finally, the Minister was not totally wrong
in inferring that Ms. Vosough's duties were performed by
her husband while she was on maternity leave. However, it seems
that there was also an employee named Duy Tran who, with the
help of Mr. Karimi, replaced her during that period.
[16] Furthermore, some other facts that were
apparently not considered by the Minister appear to me to be
important. Although Mr. Karimi said in his testimony that
the two managers hired in the two new stores opened since
November 2002 were paid approximately $16 an hour, it would have
been helpful for the appellant to point out, using the payroll
register prepared by Ceridian, who those managers were and how
much exactly they were paid. Indeed, those two managers appear to
me to have been the employees whose work was the most comparable
to that done by Ms. Vosough. Unfortunately, there is no
evidence on this point.
[17] Furthermore, we see from the payroll
register (Exhibit A-1, page 2) that Mr. Duy Tran, who replaced
Ms. Vosough in November 2002, was paid a salary of $9.25 an hour
in November 2001 while Ms. Vosough's salary is shown as being
$21 an hour in the same period.
[18] For the period ending August 25, 2002,
Mr. Tran was paid at an hourly rate of $10 while Ms.
Vosough's hourly rate is shown to be $18.75
(Exhibit A-2). Even if I accept without any
corroborating documentary evidence the testimony of Mr. Karimi
that the other two managers were paid $16 an hour, this is still
more than $2 per hour less than was paid to Ms. Vosough.
[19] Moreover, Ms. Vosough could not
really explain why she occasionally received lump sum payments or
amounts greater than her regular pay. Nor do we know whether
other employees were entitled to bonuses.
[20] Finally, there were quite a few
contradictions in the evidence. In their questionnaires (Exhibits
R-2 and R-6), both Mr. Karimi and his wife said
that there was a two-week training period, while in Court they
spoke of three months. Mr. Karimi also said in his questionnaire
that the pay was directly deposited in his wife's account,
but in Court he stated that there was no direct deposit for any
employee. In the application for employment insurance benefits,
Ms. Vosough and her husband indicated a salary of $1,600
biweekly, while the payroll register indicates $1,500. They also
said that Ms. Vosough was not related to the employer.
[21] Bearing this in mind, I have difficulty
believing Mr. Karimi when he says that he made the same kind
of advances as he did to his wife to other employees at the
beginning of their employment, while they were not yet entered on
the payroll. In my view, this special treatment, that lasted for
more than two months, was reserved for his wife alone, or at
least, I am not at all convinced that he did the same thing for
other employees.
[22] Considering all these elements, I find
that the determination of the Minister is all the more reasonable
in the context of the evidence presented before me. Indeed,
having regard to all the circumstances of the employment, in my
view it is reasonable to conclude that Ms. Vosough was
treated differently than the other employees and that the
appellant would not have entered into a substantially similar
contract of employment with her if they had been dealing with
each other at arm's length. Consequently, they cannot be
deemed to have dealt with each other at arm's length within
the meaning of paragraph 5(3)(b) of the EI
Act, and Ms. Vosough's employment for the period at
issue is therefore excluded from insurable employment pursuant to
paragraph 5(2)(i) of the EI Act.
[23] The appeal is dismissed.
Signed at Ottawa, Canada, this 22nd day of March 2005.
Lamarre J.
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