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Citation: 2005TCC609
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Date: 20051004
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Docket: 2004-3937(EI)
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BETWEEN:
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LÉO DUFOUR,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
REASONS FOR JUDGMENT
Savoie D.J.
[1] This
appeal was heard in Québec, Quebec, on July 28, 2005.
[2] The
issue in this appeal is the insurability of the Appellant's employment with the
Payor, Les Entreprises Besson Inc., from May 19 to November 16, 2002.
[3] On
September 16, 2004, the Minister of National Revenue ("the Minister")
notified the Appellant of his decision that he did not hold insurable
employment and did not accumulate any insurable hours.
[4] In
rendering his decision, the Minister relied on the following assumptions of
fact, which the Appellant either admitted or denied:
[TRANSLATION]
(a) The Payor was
incorporated on October 27, 2000. (admitted)
(b) The Payor
operated a weeping tile excavation and installation business. (admitted)
(c) The Payor had
five shovel excavators and four carriers. (admitted)
(d) The Appellant
wanted to purchase the Payor's business. (denied)
(e) The Payor
went bankrupt on February 12, 2004. (admitted)
(f) During the
period in issue, the Appellant allegedly worked by transporting machinery and
shopping around for pipes and drains. (admitted)
(g) During the
period in issue, the Appellant, who claims to have been paid $750 a week for 40
hours, was actually not paid at all. (denied)
(h) On February
4, 2003, the Appellant and the Payor signed an acknowledgement of the Payor's
indebtedness to the Appellant for 26 weeks' worth of pay, which amounts to
$19,500. (admitted)
(i) According to
the acknowledgement of debt signed on February 4, 2003, the Payor's
debt to the Appellant totalled $56,047.18. (admitted)
(j) On June 30,
2004, the Appellant told a representative of the Respondent that, on our about
November 20, 2004, the Payor's secretary Nadia Larivière gave him his
termination of employment and had him endorse 26 paycheques. (admitted)
(k) On or about
November 20, 2002, the Payor gave the Appellant a Record of
Employment that stated that the first day of work was May 19, 2002,
and the last day of work was November 16, 2002, and indicated that there were
1,040 insurable hours and $19,500 in insurable earnings. (admitted)
(l) The
Appellant's Record of Employment does not reflect the true number of hours
worked or the true insurable earnings. (denied)
(m) The Appellant
and the Payor made an arrangement to qualify the Appellant for unemployment
benefits. (denied)
(n) The Appellant
never received any remuneration from the Payor. (denied)
(o) The Appellant
never filed a complaint for unpaid wages with a government authority or with
the Payor's trustee in bankruptcy. (denied)
[5] During
his testimony, the Appellant admitted that he had taken steps to purchase the
Payor's business. However, the financial statements that he was requesting were
not forthcoming and the plan was aborted.
[6] At
the hearing, the Appellant produced a document (Exhibit A‑2) which
purports to be a compilation of the hours that he worked for the Payor during
the period in issue. He said he prepared the document himself, but he
apparently did not show it to anyone beforehand. In addition, the number of
hours set out in the document contradicts the number stated in the Record of
Employment (Exhibit A‑1). He said that he made his calculations
based on a 50‑hour work week.
[7] The
Appellant testified that his work was supervised by Sylvain Ouellette, the
Payor's general director, but the only evidence he provided on the subject was
his testimony that Mr. Ouellette called him on his cell phone for updates.
[8] The
Appellant also testified that the Payor was having liquidity problems and that
Mr. Ouellette therefore borrowed money from him. The Appellant claimed
that he lent the Payor's business $15,000 so that it could pay him for upcoming
contracts. In addition, the Appellant said that Sylvain Ouellette was insolvent
and needed him. The Appellant acknowledged that he was not paid for his work
during the period in issue.
[9] The
evidence revealed that the Appellant received $13,701 from the Payor on
July 13, 2003. He claims to have applied this amount to the salary he
was owed, and not to the $56,047.18 debt that the company incurred toward him,
the details of which are set out in the document entitled [translation]
"Demand Loan," produced at the hearing as Exhibit A‑5.
It has been established that the Appellant filed no complaint for non-payment
of remuneration with any federal or provincial labour authority. The Appellant
claims to have filed a claim in this regard with the Payor company's trustee in
bankruptcy, but he admits that he is not listed as one of its creditors.
[10] Richard Powers, an investigator for Human Resources Development
Canada, visited the Payor's company to audit its books. At the hearing, he said
that he discovered that hours had been banked there. He added that the manual
labourers were paid regularly, whereas the employees on the administrative side
received cheques in series bearing consecutive numbers. He discovered only five
cheques payable to the Appellant, and the Appellant had endorsed these cheques
and re‑deposited them into the company's account.
[11] Mr. Powers said that he did not find a single hour of the Appellant's
work recorded in the company's payroll journal. In fact, he said he did not
find any payroll journal at all. He also claimed that the Payor's company
accountant did not talk to him about documentary evidence. Mr. Powers testified
that he uncovered other anomalies, including the fact that the Appellant was
purportedly paid a higher salary than the company's general director.
[12] Based on the evidence, the Appellant was financing the Payor's company.
This is confirmed by the document entitled [translation]
"Demand Loan" (Exhibit A‑5). The document shows that,
apart from the hours worked by the Appellant, the Payor acknowledges the
investments made by the Appellant, including, for example, an amount of
$20,695.72, which represents the invoices paid by the Appellant; an amount of
$1,200 for office furniture; an amount of $15,000, representing a loan to the
Payor's company; and an amount of $4,000, representing another loan to that
company.
[13] Faced with this situation, it is reasonable to ask how it can be
reconciled with the concept of a relationship of subordination — an essential element of an employment
contract. Is the subordination not reversed in this case?
[14] The issue in this case is whether the Appellant held insurable
employment for the purposes of the Employment Insurance Act ("the
Act"). The relevant provision is paragraph 5(1)(a) of the Act,
which provides:
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;
. . .
[Emphasis added.]
[15] The section quoted
above contains the definition of insurable employment. One holds insurable
employment under a contract of service, i.e. a contract of employment. However,
the Act does not define what constitutes such a contract. There is no written
contract in the case at bar, but testimony was offered at the hearing with
regard to the intent that the parties showed during the period in issue. By
analysing the facts presented at the hearing, this Court will be able to
establish the type of contract that is binding on the parties in the case at
bar.
[16] A contract of
service is a civil law concept that is found in the Civil Code of Québec.
The nature of the contract in issue must therefore be ascertained by reference
to the relevant provisions of the Code.
[17] It is useful to
reproduce the relevant provisions of the Civil Code of Québec, which
will serve to determine whether an employment contract, as distinguished from a
contract of enterprise, exists.
Contract of employment
2085 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.
2086 A contract of
employment is for a fixed term or an indeterminate term.
Contract of enterprise or
for services
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. [Emphasis added.]
[18] The provisions of
the Civil Code of Québec reproduced above establish three essential
conditions for the existence of an employment contract:
(1) the employee's prestation in the form of work; (2) remuneration
by the employer for that work; and (3) a relationship of subordination. The
significant distinction between a contract of service and a contract of
employment is the existence of a relationship of subordination — the
fact that the employer has a power of direction or control over the worker.
[19] Scholarly writers
have reflected on the concept of "power of direction or control" and
its flip side, subordination. Here is what Robert P. Gagnon wrote in Le
droit du travail du Québec, 5th ed. (Cowansville: Yvon Blais, 2003):
[translation]
(c) Subordination
90 – A distinguishing factor – The
most significant characteristic of an employment contract is the employee's
subordination to the person for whom he or she works. This is the
element that distinguishes a contract of employment from other onerous
contracts in which work is performed for the benefit of another for a
price, e.g. a contract of enterprise or for services governed by
articles 2098 et seq. C.C.Q. Thus, while article 2099 C.C.Q provides
that the contractor or provider of services remains "free to choose the
means of performing the contract" and that "no relationship
of subordination exists between the contractor or the provider of services and
the client in respect of such performance," it is a characteristic of an
employment contract, subject to its terms, that the employee personally
perform the agreed upon work under the direction of the employer and within
the framework established by the employer.
. . .
92 – Concept – Historically, the
civil law initially developed a "strict" or "classical"
concept of legal subordination that was used for the purpose of applying the
principle that a master is civilly liable for damage caused by his servant in
the performance of his duties (article 1054 C.C.L.C.; article 1463 C.C.Q.).
This classical legal subordination was characterized by the employer's
direct control over the employee's performance of the work, in relation to
the nature of the work and the way it was performed. This concept was
gradually relaxed, giving rise to the concept of legal subordination in the
broad sense. The reason for this is that the diversification and
specialization of occupations and work methods often made it unrealistic for an
employer to be able to dictate or even directly supervise the performance of
the work. Consequently, subordination came to include the ability of the
person who became recognized as the employer to determine the work to be
performed, and to control and set the conditions of the performance. Viewed
from the reverse perspective, an employee is a person who agrees to
integrate into the operational structure of a business so that the business can
benefit from the employee's work. In practice, one looks for a certain
number of indicia of the ability to control (and these indicia can vary
depending on the context): mandatory presence at a workplace; a somewhat
regular assignment of work; the imposition of rules of conduct or behaviour; an
obligation to provide activity reports; control over the quantity or quality of
the services, etc. The fact that a person works at home does not mean that he
or she cannot be integrated into a business in this way. [Emphasis added.]
[20] It must be specified
that what characterizes an employment contract is not the actual exercise of
direction or control by the employer, but the fact that the employer has the
power to exercise that direction and control. That is what the Federal Court of
Appeal held in Gallant v. Canada (Minister of National
Revenue – M.N.R.), [1986] F.C.J. No. 330 (QL).
[21] This Court's task is
to determine the type of Quebec contract to which the parties are bound. In carrying out
this task, it is its duty to consider and follow the relevant provisions of the
Civil Code of Québec and the jurisprudence that has applied them.
[22] In the case at bar,
was there a relationship of subordination between the Appellant and the Payor
that would enable us to conclude that an employment contract existed? Several
indicia can be taken into consideration in our mandate to determine whether or
not a relationship of subordination exists. The jurisprudence has
developed a number of these indicia of supervision. Here are the indicia that
emerge from a reading of this jurisprudence:
(1) mandatory
presence at a workplace;
(2) compliance with
the work schedule;
(3) control over
employee's absences on vacations;
(4) submission of
activity reports;
(5) control over
quantity and quality of work;
(6) imposition of
methods for performing the work;
(7) power to sanction
employee's performance;
(8) source
deductions;
(9) benefits;
(10) employee status
on income tax returns; and
(11) exclusivity of
services to employer.
[23] However, a word of
caution is necessary: the analysis cannot stop merely because certain indicia
support a conclusion that a relationship of subordination exists. The exercise,
which is based on the distinction drawn in the Civil Code of Québec, is
to determine the overall relationship between the parties. Thus, one must
establish the extent to which the indicia pointing to a relationship of subordination
predominate over the other indicia.
[24] Based on his
analysis, the Minister determined that the Payor and the Appellant had entered
into an arrangement to qualify the Appellant for unemployment benefits.
[25] A situation of this
kind came before our Court in Thibeault v. Canada (Minister of National
Revenue – M.N.R.), [1998] T.C.J. No. 690, where Tardif J.
wrote:
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.
28 Generally, the
entitlement to benefits under an insurance contract must be based on facts over
which the potential beneficiary has no control.
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
work 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.
30 In this case,
not only are the coincidences great and very numerous, the size of the salary
has never been justified in a proper and reasonable manner.
[26] The Payor's debts to
the Appellant are undeniable. They consist of amounts other than unpaid salary.
[27] In the case at bar,
the Appellant contends that the $13,701 that he received from the Payor on
July 13, 2003, is part of the insurable earnings paid to him.
But aside from this assertion by the Appellant, the facts presented to
this Court do not support such a finding.
[28] The Minister based
his decision on paragraph 5(1)(a) of the Act, section 9.1 of the Employment
Insurance Regulations and section 2 of the Insurable Earnings and
Collection of Premiums Regulations. It is useful to reproduce these
relevant provisions below:
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;
. . .
[Emphasis added.]
9.1 Where a
person's earnings are paid on an hourly basis, the person is considered to have
worked in insurable employment for the number of hours that the person actually
worked and for which the person was remunerated.
Earnings from insurable
employment
2. (1) For the
purposes of the definition "insurable earnings" in subsection 2(1) of
the Act and for the purposes of these Regulations, the total amount of earnings
that an insured person has from insurable employment is
(a)
the total of all amounts, whether wholly or partly pecuniary, received or
enjoyed by the insured person that are paid to the person by the person's
employer in respect of that employment, and
. . .
(2) For the
purposes of this Part, the total amount of earnings that an insured person has
from insurable employment includes the portion of any amount of such earnings
that remains unpaid because of the employer's bankruptcy, receivership,
impending receivership or non-payment of remuneration for which the person has
filed a complaint with the federal or provincial labour authorities, except for
any unpaid amount that is in respect of overtime or that would have been paid
by reason of termination of the employment.
[29] The evidence in the
case at bar does not establish that the Appellant has discharged his obligation
under section 2 of the Regulations, supra, to prove that his unpaid
remuneration was the subject of a complaint to the federal or provincial labour
authorities.
[30] The burden was on
the Appellant to prove that the Minister's assumptions of fact were false, and
he has not done so.
[31] Moreover, the
Appellant has not succeeded in showing that he held insurable employment with
the Payor. In addition, he was unable to answer relevant questions that he was
asked about documents that he himself produced late without notifying the
Minister. However, in view of his incomplete and evasive answers, the surprise
that the production of these documents created at the hearing placed his
credibility in question.
[32] In light of the
foregoing, this Court can only conclude, as did the Minister, that the Payor
and the Appellant entered into an arrangement to qualify him for unemployment
benefits.
[33] The following
articles of the Civil Code of Québec are worth reproducing:
IV – Cause of contracts
1410. The cause of a
contract is the reason that determines each of the parties to enter into the contract.
The cause need not be
expressed.
1411. A contract whose
cause is prohibited by law or contrary to public order is null.
[34] Consequently, this
Court sees no basis to intervene in the Minister's decision.
[35] The appeal is
dismissed and the Minister's decision is confirmed.
Signed at Grand-Barachois, New Brunswick,
this 4th day of October 2005.
Savoie
D.J.
Translation
certified true
on this 18th day of
October 2005.
Aveta Graham,
Translator
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