[OFFICIAL ENGLISH TRANSLATION]
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Citation: 2004TCC609
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Date: 20040913
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Docket: 2004-1839(EI)
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BETWEEN:
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LE D'ORSAY RESTAURANT PUB 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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And
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MARIE-FRANCE LEGAULT,
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Intervener.
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REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal from a
determination by the Respondent that the work performed by
Marie-France Legault for the Appellant from January 1,
2002, to May 16, 2003, met the requirements of a contract of
service, despite the fact that the parties were not dealing with
each other at arm's length.
[2] To justify and explain his
determination, the Respondent relied on the following assumptions
of fact:
[TRANSLATION]
5.(a) the Appellant was incorporated on July 31,
1979;
(b) the Appellant operated a restaurant and
bar;
(c) the Appellant's business was
operated every day from 11:00 a.m. to 3:00 a.m.;
(d) the Appellant had 40 employees
during the winter and 100 in summer;
(e) in 2002, the Appellant had
turnover of $2,285,921;
(f) the Worker was hired as an
administrative assistant;
(g) the Worker's duties were to do
the Appellant's accounting, that is, the bookkeeping, pay,
bank deposits and financial statements, and to manage the
computer equipment and handle human resources, that is, staff
recruitment and training;
(h) the Worker had a flexible work
schedule;
(i) the Worker was entered on
the Appellant's payroll at 80 hours every two weeks;
(j) the Worker mostly worked on the
Appellant's premises and sometimes at her residence for the
accounting;
(k) the computer at her residence was
supplied by the Appellant;
(l) the Worker followed
Marcel Veuilleux's instructions in performing her
duties;
(m) the Appellant had the power to control
the Worker's work;
(n) the Worker was paid $1,000 a
week;
(o) the Worker was paid by direct deposit
every two weeks;
(p) all the materials and equipment that the
Worker used belonged to the Appellant;
(q) the Worker had no personal financial
interest in the business and bore no financial risk;
(r) the Worker had to bear no
financial risk in performing her duties;
(s) the Worker's duties were
integrated into the Appellant's operations;
6. The Worker and the Appellant
are related persons within the meaning of the Income Tax
Act because:
(a) the sole shareholder of the
Appellant was Marcel Veuilleux;
(b) the Worker is
Marcel Veuilleux's spouse;
(c) the Worker is related to
Marcel Veuilleux, who controls the Appellant.
7. The Minister also determined
that the Worker and the Appellant were deemed to be dealing with
each other at arm's length in the context of this employment
because he was satisfied that it was reasonable to conclude that
the Appellant and the Worker would have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length, having regard to the
following circumstances:
(a) the Worker was always paid;
(b) the remuneration paid to the Worker was
reasonable in view of the duties performed and her level of
responsibility in the business;
(c) the Worker's hours of work
were regular and not excessive;
(d) the terms and conditions of the
Worker's employment were reasonable;
(e) the Worker worked for the
Appellant without any work stoppage;
(f) the Worker's work coincided
with the Appellant's needs;
(g) the duration of the Worker's
employment was reasonable;
(h) the Worker's work was
essential to the proper operation of the Appellant's
business;
(i) the work performed by the
Worker was important to the Appellant's business;
(j) the nature and importance of the
Worker's work were reasonable.
[3] All the facts were admitted, with
the exception of subparagraphs 5(j) and (l), 7(c), (d), (e),
(f) and (j), which were denied; the Appellant knew nothing of the
assumed facts stated in subparagraph 7(g).
[4] The Respondent stated a number of
facts, many of which were couched in standard boilerplate. The
evidence brought by the Appellant and the Intervener, however,
focused on the aspects that were genuinely important and relevant
in determining whether their non-arm's length dealing
influenced the contract of employment in issue.
[5] The Intervener and her spouse
testified. The Respondent did not call any witnesses. The
evidence showed that, during the period in issue, the Intervener
enjoyed most of the rights and privileges normally reserved for
the owner of the business.
[6] Whereas the other employees of the
business received the paid vacation leave provided for by the Act
or the usual vacation, that is, the equivalent of
four percent minimum up to six percent of wages based
on seniority, the Appellant received paid leave equal to
eight weeks of vacation a year, approximately
16 percent of her salary.
[7] She was responsible for hiring,
training and dismissing most of the employees of the
business.
[8] She could be absent at any time
and plan her work around her family and personal concerns, as she
wished and at her own convenience, without having to ask
anyone's permission.
[9] Whereas all employees'
absences due to illness had to be justified by a medical
certificate, the Intervener did not have to explain or give
reasons for her absences due to medical or any other reasons.
[10] When absent, employees saw their wages
cut by an amount consistent with the duration of the absence. The
Intervener stated that she had received the same salary
regardless of her hours of work or the duration of her
absence.
[11] At one point, the Intervener received a
$17,000 pay increase justified on the grounds of an improved
standard of living in view of the fact that business was good.
The wages of the other employees were based on their experience
and ability, not at all on the prosperity or profits of the
business.
[12] Having the complete confidence of her
spouse, the owner of the business, the Intervener enjoyed status
comparable to what she would have had if she had been a
co-owner.
[13] To conclude, as the Respondent did,
that the work performed by the Intervener was comparable to the
work that a person dealing at arm's length could and should
have done is simply unreasonable and utterly unjustified.
[14] This is a case in which the analysis
was likely shaped by a concern that had absolutely nothing to do
with the facts, the sole purpose being to make a finding that
would enable him to collect employment insurance premiums.
[15] It is surprising to see in some cases,
including this one, how certain analysts can reach utterly
contradictory conclusions based on appreciably the same
facts.
[16] In the instant case, if the Appellant
had claimed employment insurance benefits, I am convinced that
the determination would have been that the employment had to be
excluded on the grounds of non-arm's length dealing. Such a
finding moreover would have been appropriate.
[17] The determination of the nature of a
contract of employment has absolutely nothing to do with premiums
or benefit entitlement.
[18] The obligation to pay premiums and the
right to receive benefits arise from the nature of a contract of
employment; they must never be a factor in defining the nature of
the legal relationship. Some analysts seem deeply influenced by
these rights or duties in analyzing the facts of such a case.
[19] In the case at bar, the available and
relevant facts do not in any way justify the determination that a
third party would have enjoyed a substantially similar contract
of employment to that of the Intervener.
[20] The weight of the evidence is that the
work performed by the Intervener for the Appellant was in no way
similar or comparable to that which the other employees performed
or which a person responsible for the same administrative work
should or could have performed. The Intervener's conditions
of employment were much more comparable to those of an owner or
co-owner of a business than those of an employee.
[21] As the Intervener's work was
subject to paragraph 5(2)(i) of the Employment
Insurance Act, it must therefore be excluded from insurable
employment. The appeal is therefore allowed.
Signed at Ottawa, Canada, this 13th day of September 2004.
Tardif J.
Certified true translation
Colette Dupuis-Beaulne
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