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Citation:2004TCC579
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Date: 2004-11-25
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Dockets: 2003-4087(EI)
2003-4088(CPP)
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BETWEEN:
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MARTHA V. GWYNN,
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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
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ROBERT GWYNN o/a GWYNN'S TRUCKING & BACKHOE,
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Intervenor.
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REASONS FOR JUDGMENT
Sheridan,
J.
[1] The Appellant, Martha Gwynn, is appealing from the decisions of the
Minister of National Revenue under the Employment Insurance Act and the Canada
Pension Plan. The appeals were heard on common evidence. There is no dispute
that Mrs. Gwynn's work was pensionable under paragraph 6(1)(a) of the Canada
Pension Plan; accordingly, the Appellant's appeal under the Plan is
dismissed.
[2] As for the Employment Insurance Act appeal, although the
Minister admits that Mrs. Gwynn was employed under a contract of service by
the Intervenor, her husband Robert Gwynn operating as Gwynn's Trucking &
Backhoe, from December 30, 2002 to May 9, 2003, he takes the position that her
work was uninsurable : as the wife of her employer Mrs. Gwynn is deemed by the Act
to have been in "excluded" employment unless the Minister is
satisfied that an arm's length employee would not have worked under a "substantially
similar"
contract of employment. The Minister was not so satisfied and it is from that
determination that Mrs. Gwynn appeals.
[3] Robert Gwynn established himself in business operating as Gwynn's
Trucking & Backhoe in 1991. At that time, Mrs. Gwynn was working 60 hours
per week at $8.00 an hour as a "flagger" for the provincial department
of highways. Needing someone to assist him in his new venture, Mr. Gwynn
offered her a salary of $1,045.00 to be paid bi-weekly, this amount being based
on a calculation of a 55-hour week at a rate of $9.00 an hour. Mrs. Gwynn
accepted his offer and left her job as a flagger. In her new position, she was
responsible for both secretarial work (handling client calls, payroll and bookkeeping,
banking) and service truck driving (picking up repairs and, if necessary,
ploughing snow). She worked out of an office in the Gwynn residence in Dingwall, Nova Scotia. The home office is
fully equipped with a telephone, fax, printer, computer and office supplies.
[4] Although the business operates year-round, it is seasonal in nature
with most of its revenues generated during the winter months from snow removal
contracts with local businesses and organizations, as well as for individuals
on an "as required" basis. In summer, Gwynn's Trucking & Backhoe
has essentially only one client, the provincial government's highways
department, for which Mr. Gwynn hauls materials used in road construction.
Mrs. Gwynn's duties are significantly reduced during this period. The practice
adopted by Gwynn's Trucking & Backhoe is for Mr. Gwynn to accumulate what
little paperwork is generated over the summer months for Mrs. Gwynn's attention
on a "catch up" basis when the busy winter season resumes.
[5] Dingwall, where the business is located, is a small Nova Scotia town unable to meet all of the
business needs of Gwynn's Trucking & Backhoe: to attend to the banking Mrs.
Gwynn had to drive to the next community some 40 kilometres away, to purchase
repairs, to Sydney, a distance
of nearly 300 kilometres. For these excursions, she used the service truck, a
vehicle which has a plough attachment for use in the snow removal aspect of the
business.
[6] The issue under appeal is whether Mrs. Gwynn was in insurable
employment from December 30, 2002 to May 9, 2003. The Minister concedes that
Mrs. Gwynn was an employee under a contract of service with Gwynn's Trucking &
Backhoe but argues that her work was excepted from the definition of insurable
employment because she and Mr. Gwynn were not dealing with each other at arm's
length, and that Mr. Gwynn would not have entered a "substantially similar"
contract with an arm's length person. In reaching this conclusion, the Minister
relied on certain assumptions of which only paragraphs (d), (g), (i), (j), (k)
and (l) are disputed by the Appellant. Based on these assumptions, the
Respondent submitted in its Reply to the Notice of Appeal that:
1. Mrs. Gwynn's duties were not onerous enough
to cause her to work 55 hours per week;
2. some of the time, she performed her duties,
especially banking, without pay; and,
3. she did not receive vacation pay
all of which, was
sufficient to satisfy the Minister that her contract of employment was not one
which would have been agreed to between Mr. Gwynn and an arm's length person.
[7] Mrs. Gwynn has the onus of rebutting the Minister's position. Both
she and Mr. Gwynn testified at the hearing. Their evidence was credible and
showed many of the disputed assumptions to be either incorrect or incomplete.
Before addressing the impact of this finding, however, regard must be had to
the approach this Court must take in determining whether the Minister has
properly exercised his discretion under paragraph 5(3)(b) of the Act.
Counsel for the Respondent referred the Court to Tignish Auto Parts Inc.
v. M.N.R
and Canada
(A.G.). v. Jencan Ltd., in which the
Federal Court of Appeal held that an appeal under paragraph 5(3)(b)
involves a two-stage inquiry: first, to determine whether the Minister's
discretion was properly exercised; and only if the Court concludes that the
Minister's discretion was improperly exercised, then to determine whether,
taking into account all the circumstances set out in the Act, it was
reasonable to conclude that the employment arrangement between the related
employer and employee is substantially similar to one in which those dealing at
arm's length would have entered. In a more recent decision, however,
Sharlow, J.A. signalled that a new approach must be taken in determining
whether there has been an appropriate exercise of ministerial discretion:
[6] Having carefully considered the submissions
of counsel and the reasons for the decision of the Tax Court Judge, we are all
of the view that the Tax Court Judge erred in law in reaching his conclusion.
In particular, he failed to consider the directions of this Court in Légaré v.
Ministre du Revenue National (1999), 246 N.R. 176, [1999] F.C.J. No. 878 (QL)
(F.C.A.) and Pérusse v. Canada (Minister of National Revenue) (2000), 261
N.R. 150, [2000] F.C.J. No. 310 (QL) (F.C.A.). These cases mark a departure
from earlier decisions in defining the role of the Tax Court in considering
appeals from Ministerial determinations under paragraph 5(3)(b) of the
Employment Insurance Act, S.C. 1996, c. 23.
[8] In Pérusse v. M.N.R.[5], the Federal Court of Appeal referred to the procedure set out in
the Légaré decision:
[14] In fact, the judge was acting in the manner
apparently prescribed by several previous decisions. However, in [Légaré], this
Court undertook to reject that approach, and I take the liberty of citing what
I then wrote in this connection in the reasons submitted for the Court:
The Act requires the Minister to make a determination
based on his own conviction drawn from a review of the file. The wording used
introduces a form of subjective element, and while this has been called a
discretionary power of the Minister, this characterization should not obscure
the fact that the exercise of this power must clearly be completely and
exclusively based on an objective appreciation of known or inferred facts. And
the Minister's determination is subject to review. 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.
[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 [her] not simply to substitute [her] 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. [Emphasis added.]
[9] Having exercised my judicial function as mandated above, the present
facts, I am satisfied that "new facts" and "facts that had been
misunderstood" by the Minister came to light at the hearing. The investigating
official was a "D.Williams" whose report was apparently based on, among
other unidentified sources, telephone conversations with the Gwynns and the
answers supplied in the department's standard form questionnaire. "D. Williams"
was not called as a witness at the hearing. I accept the Gwynns' uncontradicted
evidence that they were confused by what was required of them and frustrated in
their efforts to explain their situation by the rigid and impersonal nature of both
the questionnaire and the telephone interviews. As a result, the information
provided to the Minister did not tell the whole story.
[10] What was clear to me at the hearing was that
both Mr. and Mrs. Gwynn work hard to make a living in a region of the country
where that can be difficult. Even the Minister does not dispute that Mrs. Gwynn
did the work for which she was paid. But based on the limited and quite
unreliable information he had before him, he came to the conclusion that she
did not really put in the hours she claimed; in other words, that she was
occupying a nominal position at Gwynn's Trucking & Backhoe as receptionist,
bookkeeper and service truck driver that permitted Mr. Gwynn, through
Gwynn's Trucking & Backhoe, to engage in a kind of income-splitting scheme.
[11] On the evidence before me I do not find the
Minister’s determination to be justified. I accept Mrs. Gwynn's evidence that her
bi-weekly pay of $1,045.00 was based on the notion of a 55-hour week at the
rate of $9.50 an hour, regardless of how many hours she actually worked. This
amount was, in effect, a "salary", not an hourly rate calculated each
month according to the hours logged. Mr. Gwynn testified that he had arrived at
this salary relative to Mrs. Gwynn's prior earnings as a flagger (60 hours
a week at $8.00 an hour). By expressing her proposed income in comparable
terms, Mr. Gwynn gave her the chance to compare apples to apples to better
decide whether to leave her flagger position to take the job at Gwynn's
Trucking & Backhoe. Until Mrs. Gwynn's EI claim was disputed, Mr. Gwynn
admitted he had not turned his mind to the nice legal distinctions between
"salary" and "wages". The Minister did not have the benefit
of this information before him.
[12] Nor did the Minister have a complete picture
of the nature of Mrs. Gwynn's duties. As receptionist, Mrs. Gwynn was required
to be on call for requests for ploughing after each winter storm; normally this
meant early morning work as most clients wanted snow removal done in time to
allow them to get to work or to school that day. Given the unpredictability of
the weather and people's individual needs, however, the timing and number of
such demands varied. The one constant was that the calls had to be taken when,
and as often as, they came in, regardless of how many hours Mrs. Gwynn had
worked that day. When the weather improved, the pace of the business slowed and
Mrs. Gwynn was able to enjoy a less hectic schedule.
[13] Another unpredictable and equally demanding
factor was the requirement to keep the snow ploughing equipment in operation. Mr.
Gwynn explained, for example, that his contract with the school board required
him to have the snow cleared by a certain time, failing which he was
responsible for the school board’s cost of replacing his services. In the event
of a breakdown, it was Mrs. Gwynn's task to secure replacement parts on a
timely basis. What this often meant for her was a pre-dawn drive in the service
truck to Sydney, some three
hours away and the closest source of repairs.
[14] Her duties in the service truck (equipped with
a plough) did not end there. In addition to picking up repairs, Mrs. Gwynn used
it to help with the snow ploughing, depending on the demand. As it happened, she
devoted more time than usual to this task during the period in question as Mr. Gwynn
was hospitalized with complications from diabetes for much of that time. The
information before the Minister did not contain the full details of this aspect
of Mrs. Gwynn's duties.
[15] Also in dispute is the amount of time Mrs.
Gwynn spent on banking duties. Her evidence was, and I accept it, that she had
to drive to do the banking, usually every two weeks, to a community some 40 kilometres
away. I reject the Respondent’s position that her having made some Gwynn's
Trucking & Backhoe deposits during the following summer, without being
paid, diminished the validity of the performance of this task during the period
in question. The Gwynns' evidence was that the banking requirements were
significantly reduced during the slow summer period. Further, Mrs. Gwynn
testified that she had her own personal affairs to see to at the same bank
(some 40 kilimetres away) where the business had its account. As for Mr. Gwynn,
he could not do the banking in the summer because he was busy all day working
on the highway. In these circumstances and in the context of a family-run
business, it would be absurd to expect Mrs. Gwynn to refuse to deposit the odd
cheque for her husband, in his capacity as Gwynn's Trucking & Backhoe. It
seems to me that in their efforts to apply the statutory criteria in cases such
as these, officials sometimes lose sight of the reality of the small,
family-run business. Such enterprises form the backbone of Canada's economy. While remaining
ever-vigilant in its duty to ensure that violence is not done to the
requirements of the legislation, this Court ought not to interpret its
provisions in a manner that is detrimental to either the efficient operation of
the business or the harmony of the family unit.
[16] The last aspect of Mrs. Gwynn's duties has to
do with bookkeeping and payroll. To these tasks she turned her mind when she
was finished driving for parts or ploughing snow or not answering the phone. I
draw no adverse conclusions from her admission on cross-examination that she
sometimes "threw in a load of wash" while she was working on the
books in the home office. She did the payroll twice a month and the invoices
monthly. Mr. Gwynn testified that he needed someone to help him with the
paperwork because he himself lacked the expertise. And even if he had been able
to do it, he did not have the time as he was occupied full-time providing snow
removal services. His view was that she was doing "an exceptional job for
a woman who trained herself" in accounting and computer skills. With that
statement, I agree.
[17] I am satisfied on a balance of probabilities that
during the period December 30, 2002 to May 9, 2003, Mrs. Gwynn was
properly fulfilling her duties as a receptionist, bookkeeper and service truck
driver in the same manner and to the same extent that an arm's length employee
would have done. Not having had all of the facts before him when he reached his
decision, the Minister exercised his discretion improperly. On the evidence
presented at the hearing, Mrs. Gwynn has succeeded in showing that it was
unreasonable for the Minister to have concluded that Mr. Gwynn and an arm's
length person would not have entered a "substantially similar"
contract.
[18] Before closing, I would add that at the hearing, counsel for the
Respondent seemed to suggest that Mrs. Gwynn's claim for EI ought to be denied
because her duties under her contract of employment with Gwynn's Trucking &
Backhoe were too onerous to constitute an "arm's length"
contract within the meaning of the Act. This is not the basis upon which
the Minister exercised his discretion as set out in the Reply to the Notice of
Appeal; in fact, it is the complete opposite of the Minister's submission set
out therein that her duties were not onerous enough. I am not at all
convinced that it was open to the Respondent to make such an argument but even
if it was, there is no evidence upon which this (apparently) alternative
position could reasonably be based. In the context of a small, family‑run
enterprise in a rural region of the country where employment of any kind is
often hard to come by, I am satisfied that Mrs. Gwynn's duties were well within
the scope of what an arm's length employee might reasonably be expected, and
would accept to undertake.
[19] For the above reasons, the Court finds that Mrs.
Gwynn was engaged in insurable employment for the period December 30, 2002 to
May 9, 2003. The appeal under the Employment Insurance Act is allowed
and the Minister's decision vacated.
Signed at Ottawa, Canada, this 25th day of November,
2004.
Sheridan,
J.
APPENDIX
Subsection 5(1) of the Employment Insurance Act
reads:
Types of insurable employment
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;
…
Excluded employment
(2) Insurable employment does not include
...
(i) employment if the employer and employee are not
dealing with each other at arm's length.
...
Arm’s length dealing
(3) For the purposes of paragraph (2)(i),
...
(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.
The relevant portions of section 251 of the Income
Tax Act read:
(1) Arm's length. - For the purposes of this
Act,
(a) related persons shall be deemed not to deal with
each other at arm's length;
...
(2) Definition of "related persons".
For the purpose of this Act, "related persons", or persons related to
each other, are
(a) individuals connected by blood relationship,
marriage or common-law partnership
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