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Citation: 2005TCC691
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Date: 20051027
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Docket: 2005-354(EI)
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BETWEEN:
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SAHEDA JAHANGIRY,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
and
1371358 ONTARIO LIMITED (MAC'S MILK),
Intervenor.
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REASONS FOR JUDGMENT
MacLatchy, D.J.
[1] This appeal was heard on October 6, 2005 at Toronto, Ontario.
[2] As a result of a request by Human Resources Development Canada (HRDC) of May 25, 2004, Nancy Wilcox, CPP/EI Coverage Officer at the Hamilton Tax Services Office determined that the Appellant was not employed in insurable employment by virtue of paragraph 5(2)(i) of the Employment Insurance Act (the "Act") during the period from November 4, 2002 to May 16, 2003 while working for the Payer, 1371358 Ontario Limited (Mac's Milk). The Appellant and the Payer were advised of the decision by letter dated June 16, 2004.
[3] The Appellant disagreed with HRDC's decision and filed an appeal on September 14, 2004.
[4] The Appellant appealed a ruling to the Minister of National Revenue (the "Minister") for the determination of the question of whether or not she was employed in insurable employment while engaged by the Payer during the period in question within the meaning of the Act.
[5] By letter dated November 30, 2004, the Minister informed the Appellant and the Payer that it had been determined that the Appellant was not employed in insurable employment during the period in question as she and the Payer were not dealing with each other at arm's length pursuant to paragraph 5(2)(i) of the Act.
[6] The Appellant disagreed with the Minister's decision and filed an appeal to this Court on February 4, 2005.
[7] In making his decision, the Minister relied on the following assumptions of fact:
(a) The Payer's business involves the management of a Mac's Milk franchise;
(b) the Payer's shareholders are Mohammed Farid Jahangiry (60%) and his brother, Mohammed Qais Jahangiry (40%);
(c) the Appellant is related to the Payer's shareholders as being the wife of the majority shareholder and the sister-in-law of the other shareholder;
(d) the Payer's shareholders were responsible for controlling the day-to-day operations of the business and making the major business decisions;
(e) the Appellant was hired under a verbal agreement;
(f) the Appellant's duties included the following:
- counter help
- receiving deliveries
- cleaning the store
- pricing products and stocking the shelves
- handling the cash
- serving customers
(g) the Appellant performed her duties at the Payer's place of business;
(h) the Appellant was paid $10.80 per hour (including vacation), cash, on a bi-weekly basis based on an average of 40 hours a week;
(i) the Appellant's rate of pay was determined by the Payer;
(j) no proof of payments were provided by the Appellant or the Payer;
(k) the Payer did not provide the Appellant with any dental, medical or other benefits;
(l) the Payer's business was opened 24 hours a day, 7 days a week;
(m) the Appellant's hours of work were usually from 8:00 a.m. to 2:00 p.m. then 4:00 p.m. to 8:00 p.m. on Mondays and Tuesdays, and from 8:00 a.m. to 4:00 p.m. on Wednesdays, Thursdays and Fridays;
(n) the Appellant's hours of work were determined by the Payer;
(o) the Appellant's hours of work were recorded on a weekly time sheet by the Payer;
(p) the Appellant was supervised by the Payer's shareholders;
(q) the Appellant was provided with training by the store manager;
(r) the Appellant was not paid during her training period;
(s) the Payer and/or the franchisor provided all the tools and equipment required to perform her duties, at no cost to the Appellant;
(t) the Appellant terminated her employment because she went on a maternity leave;
(u) the Payer did not replace the Appellant;
(v) before the Appellant started to work for the Payer, the duties were performed by the Payer's shareholders;
(w) the Appellant is related to the Payer's shareholders within the meaning of the Income Tax Act;
(x) the Appellant is not dealing with the Payer at arm's length.
[8] Evidence for the Court was provided by the Appellant and her husband whom was her employer during the period in question. The Payer's business was the management of a Mac's Milk franchise. The shareholders of the Payer are the aforesaid husband and his brother owning 60% and 40% respectively. The Appellant is married to the majority shareholder and is the sister-in-law of the minority shareholder and is therefore related and would be deemed not to be dealing with each other at arm's length pursuant to the Income Tax Act. This can be unfair at times so the Employment Insurance Act provides discretion for the Minister in subsection 5(3) as follows:
(3) For the purpose 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.
[9] The Appellant was pregnant when she was hired by the Payer and she had a daughter and was unable to get employment elsewhere. She was trained by her husband for a week and was not compensated for the time of training. When she commenced working full time she was paid an hourly rate above what was usual for such employment. She was paid in cash for her hours worked and she would bring her child to the store where she and her husband could attend to the child's needs. The Appellant did not take anyone's place when she was hired and no one replaced her when she left to birth a set of twins.
[10] When the Appellant was asked by counsel for the Respondent to produce proof of payment of salary, none was forthcoming. When it was explained that the ability to take the child to the store was unusual, she then advised that a sister-in-law would also babysit. Invoices for her hours worked and receipts for cash payments were produced after the appeal was filed even though they were requested during the preliminary investigation.
[11] The Minister exercised his discretion under subsection 5(3) of the Act and deemed that the contract of employment would not be deemed to be at arm's length. The Minister could not be 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 was reasonable to conclude that the parties would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. This Court cannot ignore this discretionary power given the Minister in this regard. Based on the information provided by the Appellant and the Payer at the time of the investigation, it was clear that there were very cogent reasons why such a decision was made. The fact that there was no one in the job before the Appellant was hired, nor was anyone hired after the Appellant left on maternity leave and the fact that she was paid an hourly rate higher than others in comparable positions, were influential to such a decision even though the Appellant and the Payer stated it released the husband of the Appellant to do other chores in the business. The ability to take the child to the store during the Appellant's working hours was an unusual condition of employment. The babysitting sister-in-law was mentioned after the investigation was completed and it was assumed the child regularly came to the store. A further influencing factor was that no receipts for the cash paid to the Appellant were available nor were invoices of the time sheets provided until long after the investigation was completed. It was also unusual that the Appellant was not paid during her training period.
[12] Both the Appellant and her husband testified that they were inexperienced in the business world and when questioned by the Tax Services Officer they did not understand what was being requested and yet they both are able to manage and operate a sizeable corner store operation successfully. Their testimony was less than candid and not believable in the circumstances.
[13] It is the responsibility of the Appellant to convince this Court that the discretion of the Minister was exercised improperly or based on incorrect facts. The Appellant had not done so.
[14] The appeal is dismissed and the decision of the Minister is confirmed.
Signed at Toronto, Ontario, this 27th day of October 2005.
MacLatchy, D.J.
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