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Citation: 2004TCC749
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Date: 20041206
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Docket: 2003-1084(EI)
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BETWEEN:
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CANDIDE FRADETTE,
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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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AND BETWEEN:
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Docket: 2003-1087(EI)
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9072-5755 QUÉBEC 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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal from a decision
dated December 17, 2002. According to the decision, the
work that the appellant Candide Fradette did for
9072-5755 Québec Inc., another appellant,
was excluded from insurable employment because Ms. Fradette,
and the manager of the appellant 9072-5755
Québec Inc., were not dealing with each other at
arm's length.
[2] The parties agreed to have the two
matters heard on common evidence.
[3] The Minister of Revenue relied on
the following assumptions of fact to explain and justify his
determination:
[TRANSLATION]
(a) the appellant
was incorporated on January 14, 1999;
(b) the appellant
carried on business under the firm
name "Hôtel Richelieu";
(c) within the same
building, the appellant operated a room rental business (11
rooms); two taverns with capacities of 75 and 90 seats
respectively; and 9 video poker machines;
(d) the appellant
operated throughout the year;
(e) the appellant
hired roughly ten employees;
(f) Roch
Cantin was the appellant's sole shareholder;
(g) Roch Cantin is
the worker's spouse;
(h) the worker was
hired by the appellant as a manager;
(i) according
to the worker, her tasks were to show people the rooms, empty the
video poker machines and maintain the payroll journal;
(j) the worker
had no fixed work schedule;
(k) the worker was
paid a gross fixed salary of $350 per week;
(l) the
worker's hours were not entered in the appellant's
payroll journal;
(m) the appellant's
other employees were paid on an hourly basis;
(n) during the
period in issue, the worker signed only two room rental
cards;
(o) the worker took
15-20 minutes a day to empty the video poker machines;
(p) the worker's
tasks were minor in relation to her pay;
(q) before and after
the period in issue, the worker continued to empty the video
poker machines and make entries in the payroll journal;
(r) before and after
the period in issue, the worker rendered services to the
appellant for no declared remuneration;
(s) the period
during which the worker claims to have worked is not the same as
the period during which she actually worked;
(t) on
November 13, 2001, the appellant issued a Record of
Employment (ROE) to the worker. The ROE stated that the
worker's first day of work was July 1, 2001, that
her last day was November 10, 2001, that she had 760
insurable hours, that her insurable earnings totalled $6,650 and
that the reason for issuing the ROE was a shortage of work;
and
(u) the worker's
ROE does not reflect the reality as to the number of hours she
actually worked or the period during which she actually
worked.
[4] Both appellants admitted to the
contents of paragraphs (a), (b), (c), (d), (e), (f), (g), (h),
(k) and (m). The contents of the other paragraphs were
denied.
[5] Since the assumptions of fact in
docket 2003-1084(EI) were the same, there is no reason to
reproduce them.
[6] 9072-5755 Québec Inc.
operates a commercial establishment under the name
"Hôtel Richelieu". The hotel has roughly a dozen
rooms. It has three beverage licences, two for the operation of
the bar and the other for the operation of an
indoor-outdoor café. It also has ten video poker
machines. The establishment sells no meals; in addition to
alcohol, it sells cigarettes, chips, cheese and pickled eggs.
[7] Room revenues are much higher
during the summer but account for a rather marginal share of
total revenues, which are derived primarily from video poker
machines (up to $60,000 per week) and are complemented by bar
sales.
[8] The business employs roughly a
dozen people to look after all the income-producing
operations.
[9] The period in issue is July 1
to November 10, 2001.
[10] In order to explain and justify the
appellant's work, Mr. Roch Cantin, the appellant's
husband and the sole shareholder of
9072-5755 Québec Inc., explained and
described the numerous managerial duties of his wife.
[11] She is in charge of all aspects of the
video poker machines, from collecting the money (emptying the
machines) to daily local or out-of-town deposits.
She ensures that the automatic teller machine is loaded with
sufficient money because the video poker enthusiasts get their
money from it. She is also responsible for the cleanliness of the
rooms and the entire premises, including the inventory. As far as
the bars are concerned, she is responsible for cleaning and
maintaining the jiggers on the drink bottles. Thus, she has
oversight over the entire organization. She runs errands, looks
after the employees' pay, etc.
[12] The appellant's husband explained
that room rentals have diminished considerably over the years,
especially since the arrival of B & Bs in large numbers.
He said that because the hotel is not right on the major
highway, the appellant has had to seek referrals from
better-located establishments when those establishments are
fully booked. He also said that she had to show the rooms to
potential guests because 80% of them need to see a room before
they will rent it.
[13] Once the period in issue ended, i.e.
November 10, the appellant purportedly ceased these activities
and essentially emptied the poker machines, made deposits, ran
errands, looked after the pay and did short rounds of the
establishment. This is based on her testimony, which added
nothing to the evidence except perhaps this element; indeed, she
essentially confirmed her husband's answers by answering a
question to the following effect: "You understand your
husband's testimony. Is everything he stated accurate
and consistent with what you would say yourself?" She
essentially acquiesced.
[14] In essence, the appellants sought to
establish that the rental of rooms was the principal duty of the
job and that this work was seasonal because it was based on the
tourist season. This room rental aspect was markedly exaggerated.
The evidence adduced showed conclusively that the employment
was real, significant and clearly essential. The pay was
appropriate and reasonable.
[15] The true concern of the employment
contract was to see to it that the video poker machines operated
well; room rentals were a marginal and very secondary addition
that demanded little time, especially considering that the Court
is not convinced the appellant actually did that excess work.
[16] The appellant is Roch Cantin's wife
and trusted colleague. Her presence was indispensable to the
business. Given the immense cash flow, it was essential that the
employer have the fullest confidence in the person who handled
all the money.
[17] Upon reading the assumptions of fact
that served to justify and explain the decision under appeal, it
is clear that the Minister determined that the work done by the
appellant Candide Fradette was marginal and of no economic
value.
[18] In other words, the Minister determined
that job she was given was, in a sense, a job of convenience. The
Minister also found that the work was unessential, of little
importance and overpaid. This assessment is especially reflected
in paragraphs 9 (j), (k), (l), (m), (n), (o) and (p), which
read as follows:
[TRANSLATION]
(j) the worker
had no fixed work schedule;
(k) the worker was
paid a gross fixed salary of $350 per week;
(l) the
worker's hours were not entered in the appellant's
payroll journal;
(m) the appellant's
other employees were paid on an hourly basis;
(n) during the
period in issue, the worker signed only two room rental
cards;
(o) the worker took
15-20 minutes a day to empty the video poker machines;
(p) the worker's
tasks were minor in relation to her pay;
[19] In fact, the evidence established
conclusively that the appellant's work was significant,
regular and essential to the business. The employment required a
relationship of trust with the employer.
[20] The appellant saw to it that the video
poker machines, which generated very large revenues, were
operating well, and ensured that the premises were clean, the
inventories were sufficient the and equipment was in good
condition. These things are absolutely essential to the operation
of the business. While the appellant's testimony was very
limited, she did express something that described her role in the
business very accurately: [TRANSLATION] "I did little
rounds roughly 20 minutes in length." This sentence is
banal, but it is very telling and shows very effectively how
important she was to the economic activities of the
business.
[21] Since the video poker machines
generated significant revenues, they needed to be emptied of
their contents every day, seven days a week. The money was then
placed in a safe located on the premises.
[22] At the same time, the appellant looked
after an automatic teller machine on the premises. She placed the
necessary amounts in it and ensured that all the bank notes were
in excellent condition to avoid problems caused by worn
notes.
[23] Colossal amounts, all in
small-denomination notes and in 25 ¢ , 50 ¢ , $1 and
$2 coins, needed to be accounted for. Every week, the business
would make a remittance to Loto-Québec and submit
various reports along with it.
[24] Apart from these operations, the
business had to remit and manage payouts, i.e. amounts won by
video poker players.
[25] There were ten video poker machines.
The machines generated substantial revenues and operated several
hours each day of the week.
[26] According to Roch Cantin's
testimony, the appellant was the one who ensured that these
machines operated properly. When describing the duties,
Mr. Cantin made a considerable effort to show that his
wife's workload increased considerably during the period in
issue (i.e. July 10 to November 10, 2001) because of
room rentals.
[27] The explanations provided in this
regard were not convincing. The traffic and paperwork involved in
room rentals, such as registration cards, did not succeed in
reversing this assessment. The room rental component essentially
made the duration of the employment seem legitimate in theory,
but the evidence did not lend any air of plausibility to the
explanation. In fact, the evidence to the effect that
rentals were entirely the appellant's responsibility was not
very convincing.
[28] Since the respondent had determined
that his wife's work was marginal and of little significance,
Mr. Cantin thought that it would be sufficient to establish
the quality and quantity of the work, and thereby justify the
$350 weekly pay; he insisted a great deal on the numerous
and significant duties that she carried out.
[29] For her part, the appellant essentially
added nothing new; she confirmed her husband's testimony by
means of a very general response to the effect that
Roch Cantin had explained her job well and that all his
explanations were correct.
[30] The appellant and her husband were very
successful in establishing the quantity and quality of work as a
justification for insurability. At the same time, they
established that the person or people who did the investigation
and analysis on which the decision was based considerably
underestimated the scope and importance of the tasks carried out
by the appellant ― so much so, that it would be no
exaggeration to say that they did slapdash work.
[31] Under these circumstances, the facts as
a whole should be reviewed to determine whether the work done by
the appellant meets the requirements for insurability.
[32] In order to do this, it is certainly
important to consider remuneration, workload and the entire
context in which the work in question was carried out.
The beginning and end of the periods of employment are also
very important factors because they are often very probative in
discovering instances of abuse.
[33] The evidence in the instant case
established that the business operated by the appellant's
spouse through 9072-5755 Québec Inc., a corporation
in which he was the only shareholder, obtained most of its
revenues from the operation of ten video poker machines which
generated $45,000 to $60,000 in revenues every week.
Such revenues do not fall from the sky; things must be
monitored and followed through, important or even essential daily
tasks must be carried out and an indispensable presence is needed
on the premises.
[34] The operation of this aspect of the
business entailed other corollary requirements such as the
preparation of automatic teller machines for players, the
collection of revenues, the deposits and reports, the trips to
and from banks, the revenue accounting, etc.
[35] The evidence disclosed that the
appellant was responsible for collecting the revenues throughout
the year. She was also responsible for roughly a dozen
employees' pay and for running on errands and purchasing the
alcoholic beverages. In addition, the appellant herself said
that she did short rounds, roughly 20 minutes in duration,
to ensure that everything was working well.
[36] All the appellant's duties were of
considerable importance. Her admission regarding the short rounds
was telling. She was the embodiment of authority and ensured that
the equipment operated properly.
[37] I have no doubt that Roch Cantin
played a major role, but it is important in my view to emphasize
that the video poker machines were actively used several hours a
day, seven days a week, and that this necessarily required the
presence of two responsible persons.
[38] Roch Cantin explained that in the
course of an investigation into his spouse's entitlement to
employment insurance premiums, he learned he was required as an
employer to report all work performed by the appellant, even if
insignificant.
[39] From that point onward, he said he
declared a few hours of work every week; he estimated that the
work took roughly four hours a week.
[40] When questioned about the duration of
each task done outside the period in issue, said that it took
about 30 minutes a day to collect the money from the video poker
machine and roughly 1½ hours a week to prepare the
employees' pay. He did not consider the time required to look
after the liquor inventory or run errands. If the time
needed for the appellant to do her short rounds is added to all
these duties, the total exceeds the four-hour estimate
considerably.
[41] Moreover, I am convinced that the
appellant's husband deliberately concealed or considerably
underestimated the time the appellant spent every day to ensure
that the video poker machines operated properly and to carry out
the whole set of corollary tasks.
[42] The appellant was responsible for
overseeing and monitoring all the activities. These were not
manual or clerical duties, but rather, duties that were and
should be part of her job description. It is difficult to
estimate the time these duties required, but it is clear that the
duties are very important and that the business can only function
well if they are carried out.
[43] According to Roch Cantin's
account, the function was a very important one for the business,
and perhaps even essential, but only during the period in issue,
after which the same task, function or responsibility became
insignificant and marginal. This is, quite simply, most
implausible.
[44] There is no credibility to these
explanations. The appellant unquestionably had many important and
ongoing tasks for which employment insurance benefits may well
have been her only remuneration.
[45] This approach is totally unacceptable
and affects the employment agreement to such an extent that it is
not insurable because it is not a true employment contract.
[46] The objective of a true employment
contract between two parties is the performance of work for
appropriate or reasonable remuneration, and the payor of the
remuneration has the authority to intervene at any time.
[47] The parameters of such a contract are
generally established based on essentially economic
considerations that stem from a balance between a desire to
obtain as much as possible, and a competing desire to do as
little as possible for the most remuneration possible.
[48] Such characteristics cannot generally
be reconciled with unpaid or volunteer work or with
disproportionate cooperation, especially to the extent that
prevailed in the instant case.
[49] While the appellant's hours might
not have been computed to the nearest second, she had a
significant workload that justified fully the pay that she
received. She knew what to do and how to do it, and the fact
that the entire organization was functioning properly showed the
payor that she was doing efficient and high-quality
work.
[50] Since her function was crucial to this
unquestionably core aspect of the business, how can it be that
the work which constituted the true reason for her pay from July
to November suddenly, and for no reason, have become so
insignificant or marginal that it is was not even computed or
entered in the accounting records?
[51] The explanations provided are
implausible. Either the work in question was marginal and
insignificant throughout the year, or it was significant
throughout the year. The court finds that it was significant work
done throughout the year, but that that the appellant was only
paid for it during the period in issue.
[52] The appellant's evidence also
showed that the Minister had already determined that the work was
insurable in a decision dated February 20, 2001, the
contents of which are as follows (see
Exhibit A-1).
[TRANSLATION]
February 20, 2001
MS. CANDIDE FRADET [sic]
. . .
Re: EMPLOYMENT INSURANCE LEGISLATION
Decision No. CE2001 2849 8402
We have received a request from the Department of Human
Resources Development for a decision regarding the insurability
of your employment with 9072-5755 Québec Inc., c.o.b.
Hôtel Richelieu during the period of July 2 to
November 4, 2000.
We have determined that you were an employee under an
employment contract.
While your employment with 9072-5755 Québec Inc.,
c.o.b. Hôtel Richelieu, was carried out as part of an
employment contract, you and the employer were not dealing with
each other at arm's length for the purposes of the
Employment Insurance Act.
Despite this fact, it is our opinion, having regard to all the
circumstances, that you and 9072-5755Québec Inc. would
have entered into a substantially similar employment contract if
you had been dealing with each other's at arm's length.
Consequently, pursuant to paragraph 5(3)(b) of
the Employment Insurance Act, you and 9072-5755
Québec Inc., c.o.b. Hôtel Richelieu, are deemed to
deal with each other at arm's length for the purposes of the
Employment Insurance Act.
You employment in Canada by 9072-5755 Québec Inc.,
c.o.b. Hôtel Richelieu, during the period in issue,
was insurable under paragraph 5(1)(a) of the
Employment Insurance Act.
We have established it because:
9072-5755 Québec Inc., c.o.b. Hôtel Richelieu
exercised control over you and your work because:
- It determined your hours of work.
- It monitored hours of work.
- You were required to carry out the services personally.
You did not have to provide the equipment or materials needed
to carry out the work.
. . .
[53] Based on their belief that this
determination of February 20, 2001, protected them from
any problem regarding the right to receive employment insurance
benefits following the payment of the necessary contributions,
the appellants thought it would be sufficient to prepare a ROE
indicating the number of hours necessary to receive employment
insurance benefits, hence the ROE for the period of July 1
to November 10, 2001.
[54] To explain and justify the date on
which the period of employment ended, Roch Cantin said the
very short tourist season was the primary reason, and,
secondarily, that he wanted and deserved a bit of leisure, which
he secured for himself when his wife was working.
[55] Given the evidence that the room rental
component was of little importance, and the evidence that the
appellant had almost no hand in the room rental process, the
explanations do not meet the reasonableness test. Quite the
contrary: the explanations are far-fetched.
[56] In fact, why July and not late May? Why
November 10 and not September 15? The tourist season is a
special element that can vary from one region to another. The
room rental component was a marginal part of the job
description. It was emphasized and exaggerated because it
was the only way to explain and justify a beginning and ending
date for a period.
[57] The evidence adduced by the appellants
decisively established the quality and quantity of the work that
was done. It was so decisive in that regard that it is entirely
implausible that work lasted for the amount of time stated in the
record of employment.
[58] The appellant's work is carried out
on an annual basis, though there may be a very small amount of
extra work during the summer.
[59] The preponderance of the evidence
showed that there was an arrangement between the parties to take
advantage of employment insurance benefits. Such an arrangement
totally discredits the claims to the effect that this was a true
employment contract.
[60] The non-arm's-length
dealings between the parties affected the employment relationship
to such a great extent that the parties fashioned an agreement in
the guise of an employment contract so that employment insurance
benefits would be paid. This arrangement ultimately benefited
both appellants in the instant case.
[61] For these reasons, the appeal is
dismissed.
Signed at Ottawa, Canada, this 6th day of December 2004.
Tardif J.
Translation certified true
on this 3rd day of March 2005.
Jacques Deschênes, Translator
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