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Citation: 2004TCC630
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Date: 20040921
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Docket: 2004-255(EI)
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BETWEEN:
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MARIO BOLDUC,
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Appellant,
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and
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MINISTER OF NATIONAL REVENUE,
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Respondent,
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AND BETWEEN:
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Docket: 2004-256(EI)
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DANIEL HARVEY,
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Appellant,
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and
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MINISTER OF NATIONAL REVENUE,
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Respondent,
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AND BETWEEN:
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Docket: 2004-259(EI)
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RÉJEAN LAVOIE,
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Appellant,
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and
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MINISTER OF NATIONAL REVENUE,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] These three appeals concern the period
from January 1, 2002, to April 14, 2003. During that period, the three
Appellants held shares in the company Groupe Nettoyeurs de la Capitale Ltée. At
the time, each held 25% of the company’s capital stock. The company paid them
each a fixed salary of $525 per week.
[2] The
appeals were filed in response to the Respondent’s determination that the paid
work constituted a genuine contract of service in accordance with paragraph
5(1)(a) and sections 91 and 93 of the Employment Insurance Act
(the “Act”).
[3] As
the three appeals resulted from the same facts, the parties have agreed to
proceed on common evidence for the three files.
[4] The
Appellants were represented by Alain Picard, an accountant from the firm of
Coutu, Fortier et Associés. He undoubtedly drafted the Notice of Appeal for the
three appeals. It is appropriate to reproduce the Notice of Appeal in the Daniel Harvey
file (2004-256(EI)). The Notices of Appeal were more or less the same.
[translation]
...
Re: Réjean Lavoie
Your file no. CE0307-1105-4271
Daniel
Harvey Your file no. CE0306-5130-4412
Mario Bolduc
Your file no. CE0306-5130-5213
We would like to appeal
your decision of October 28, 2003, concerning my clients’ 2002 insurability
request for the company 9088-4719 Québec Inc. and Groupe Nettoyeurs de la
Capitale Ltée.
- They are the
principal directors and shareholders and they are the ones who make all the
decisions concerning the companies.
- Whether they work a
15-hour week or a 40-hour week, they earn the same salary.
- If they do not work for a
month, they earn the same salary.
- They guarantee all of the
companies’ debts.
- They are the ones who are fully
accountable and take all the risks.
- They have the power
to decide whether they want to give themselves a bonus at the end of the year.
- They are the ones who sign the
cheques.
- They are on call 24 hours a
day.
- If they are not there, the
companies have no purpose.
- There is no employee-employer
relationship.
- They determine their own work
schedules.
- Furthermore, if they
applied for unemployment, they would not be eligible to receive it.
Considering all of those points, I
would ask that you review the decision.
...
Alain Picard, CMA
...
[5] Further
to the Notices of Appeal, the Respondent submitted a Response to Notice of
Appeal. In the Daniel Harvey file (2004-256(EI)), the Respondent, among other
things, listed the facts assumed during the determinations that are under
appeal. It is not necessary to reproduce those assumptions in the three files
because the facts are more or less the same.
[6] I
will therefore reproduce the facts assumed in the Daniel Harvey file
(2004-256(EI)). They are as follows:
[translation]
(a) the Payor,
incorporated on July 1, 1996, operates a dry cleaning business;
(b) the Payor
owns a factory where the clothes are cleaned as well as six service counters;
(c) also, the
Payor serves almost 70 points of service, hotels or businesses, where he
collects the clothes and then returns them cleaned.
(d) the Payor
employs 30 to 40 people, depending on the period, including approximately 23
for the factory;
(e) during the
period in dispute, the Payor’s voting shares were held by:
- the Appellant, President, with
25% of the shares,
- Mario Bolduc, Vice-President,
with 25% of the shares,
- Réjean Lavoie, Secretary, with
25% of the shares,
- Alain Garon with 25% of the
shares;
(f) the
shareholders have an arms-length relationship;
(g) the Payor’s
four shareholders also each hold 25% of the voting shares in the company
9088-4719 Québec Inc. (the Company);
(h) the Company
also operates a dry cleaning business under the name Nettoyeur un seul prix;
(i) the Company
does not own a cleaning factory, it has everything cleaned at the Payor’s
factory;
(j) the Company
has four service counters;
(k) the Company
employs 12 employees;
(l) the Payor
and the Company are separate but associated entities and their headquarters are
located at the same address in Quebec City;
(m) each of the
Payor’s shareholders perform services simultaneously, within their field, for
both companies without regard to the time dedicated to each business;
(n) the Appellant
and Mario Bolduc are paid solely by the Payor while Réjean Lavoie is paid by
the Company;
(o) the
Appellant’s main duties, for either of the companies, include:
- training employees;
- solving computer problems;
- promotion and advertising;
- following up with clients;
- managing client claims;
- supervising employees;
(p) the Appellant
manages various establishments belonging to the Payor and the Company;
(q) the Appellant
can sign cheques on behalf of the Payor and the Company, but two signatures are
required for amounts exceeding $500;
(r) the Appellant
does not have to follow a specific work schedule but he generally works from
Monday to Friday, at least 40 hours a week;
(s) the Appellant
must consult the other shareholders before making a decision about the Payor’s
operations;
(t) the Payor
does not offer any fringe benefits to its employees, including the Appellant;
(u) the Appellant
uses his own car for work and assumes the costs incurred;
(v) except for
the car, the Payor provides the Appellant with all the material and equipment
required for his work;
(w) the Appellant
is required to perform the services himself; he cannot have someone else
perform his duties;
(x) the Appellant
received a fixed salary of $525 per week, through direct deposit;
(y) the duties
performed by the Appellant are essential to the efficient functioning of the
Payor’s operations.
[7] All
the facts were admitted, except paragraph 5(w), where it was indicated that the
Appellants were the only ones who could perform the duties assigned to them.
[8] To
put things in a proper perspective, I explained to the Appellants and their
Agent what they had to establish in order to obtain a decision in their favour.
In particular, I emphasized the fact that they had to make a clear distinction
between their status as shareholder and their status as an officer or head of
the business that worked for the company in which they held shares.
[9] From
reading the Notice of Appeal, it was clear that the Appellants did not see the
distinction between their rights and obligations as shareholders and their
rights and obligations as company employees. That observation results in
particular from the following elements of the Notice of Appeal:
- They are the
principal directors and shareholders and they are the ones who make all the
decisions concerning the companies.
- Whether they work a
15-hour week or a 40-hour week, they earn the same salary.
- If they do not work for a
month, they earn the same salary.
- They guarantee all of the
companies’ debts.
- They are the ones who are fully
accountable and take all the risks.
- They have the power
to decide whether the want to give themselves a bonus at the end of the year.
- They are the ones who sign the
cheques.
- They are on call 24 hours a
day.
- If they are not there, the
companies have no purpose.
- There is no employee-employer
relationship.
- They determine their own work
schedules.
- Furthermore, if they
applied for unemployment, they would not be eligible to receive it.
[10] The evidence in support of the appeals was primarily the testimony of
Mario Bolduc. He explained the work he did, as well as the involvement of his
colleagues, Daniel Harvey and Réjean Lavoie.
[11] He emphasized the fact that they were the only ones to assume the
risks and that, on a number of occasions, they had to reinvest in the business
while having to guarantee all the loans necessary for the operation and
development of the business.
[12] He also emphasized the excellent working relationship they had with
each other, adding that the strengths, skills and affinities of each of them
were put to use, as some found certain tasks easier than others. He stated that
they benefited from the strengths and the best efforts of all of them.
[13] There were a few times that he made the comparison with a couple to
explain that, on occasion, there were heated discussions where everyone spoke
bluntly. Since all three have the same percentage of shares, they discussed and
negotiated to in the end make majority decisions in an climate of consensus and
the one with a dissenting opinion accepted the decision made.
[14] He indicated that there was a cooperative and respectful atmosphere in
the context of a common interest the infinite purpose of which was the highest
level of profitability possible with a view towards development and
consolidation for the future.
[15] Despite the high level of trust and the cooperative atmosphere that
existed, Mr. Bolduc explained that there were certain rules and standards to
guarantee the efficient operation of the company. In concrete terms, they all
had equal responsibility when making decisions on important issues; there were
discussions, debates and decisions. For some more secondary, less important
aspects, they all had relative autonomy.
[16] Accordingly, if a cheque was for more than $500, a second signature
was required. He specified that they sometimes spoke to each other very
seriously. As for the organization of the work, they all had their
responsibilities, and they spoke regularly to ensure close follow-up of the
situation. For example, they all took turns being on call to ensure complete
continuity in the operations.
[17] Beyond all the explanations, the Appellant did not consider himself an
employee; he considered himself a shareholder, entrepreneur, officer, boss,
owner. Moreover, he specifically said that he did not think like an employee,
but rather like an employer. He also stated that an employee did not have the necessary
vision for long-term planning. According to the Appellant, the vision and the
interest of an employee are diametrically different than those of a boss. In
brief, the Appellant seemed to believe that an employee had to perform
essentially physical work, whereas the work of a director, officer or boss with
shares could not be performed under a contract of service.
[18] At this stage I must point out that a company is a legal entity
completely separate from the shareholders that manage and control it through
the shares they hold.
[19] To analyze and determine the nature of a work contract when a
shareholder performs work that is in keeping with the commercial orientation of
the business, it is essential to make a clear distinction between the actions
performed as a shareholder and those performed as part of the business’
commercial activities, even though this is not necessarily easy.
[20] A contract of service between individuals who deal with each other at
arms length is a legal transaction that can be very flexible in the expression
of the rights and obligations of the parties involved. However, it cannot
include an arrangement intended to interfere with the Act. It must be a genuine
contract where the presence of the key components is real. I am referring to,
in particular, the work and the resulting salary.
[21] To determine whether there is a contract of service, it is necessary
to consider all the facts relative to the work, the context and the working
conditions.
[22] Since Montreal
Locomotive Works Ltd v. McDonnaugh (1920), 61 S.C.R. 232 and Wiebe Door v. Canada, [1986] 3 F.C. 553, the courts, when they must
identify the nature of the contract, apply four tests, i.e. power to control,
chance of profit and risk of loss, ownership of tools and integration.
[23] Of those four tests, the most important, if not essential, is the
power to control at the origin of the relationship of subordination that must
exist in an employer-employee relationship. This power does not necessarily
have to be used, but it is imperative that the person who holds the power has
not waived it.
[24] In the case at bar, the main difficulty is the fact that the
Appellants totally confuse their status as company employees with their status
as company shareholders. A manager, a visionary, a foreman, a director general,
a general manager, etc. may very well perform their work under a contract of
service if they must account for their actions performed in the context of
their work.
[25] The evidence showed that the Payor company had established certain
rules (signature of two people on cheques for more than $500, period on call,
work specific to each person, a salary the amount of which was set in advance).
The fact that those elements had been set out in a harmonious and cooperative
atmosphere does not change the reality of the company, a distinct legal entity.
[26] If there was reprehensible or unacceptable conduct, the company would
have undoubtedly taken appropriate corrective action. It is clear that the
person at fault would have then expressed their disagreement and frustration,
but the majority would hold its position and the person at fault would then
have to make changes or leave the company. In that situation, the person
involved would have lost their employee status, but possibly kept their
shareholder status.
[27] In Roxboro
Excavation Inc. v. Canada (Minister of National Revenue –
M.N.R.), [1999] T.C.J.
No. 32, I stated the following. These are various points that I feel are
still very relevant and indicate that the appeals must be dismissed.
8 It was shown that each of the Théorêt brothers
had specific, defined responsibilities within Roxboro. Each of them
devoted most of his available time to that company, although they were each
also marginally involved in ensuring the efficient operation of the other
companies.
9 In exercising their respective responsibilities,
the Théorêt brothers had a fair degree of independence and managed their own
areas of activity quite freely. They did not have to ask for
permission when deciding when to take vacations; they could be absent without
having to give anyone an explanation. They each received more or
less the same salary, part of which was paid through consecutive weekly cheques for the same amount; the other part of their remuneration was paid
in the form of a bonus whose amount varied based on the financial performance
of Roxboro and/or the other companies.
...
18 The key issue in this case is basically whether
there was in 1996 a relationship of subordination between the company paying
the remuneration and the interveners. In other words, did the
company have the power to control and influence the work done by the Théorêt
brothers?
19 In this regard, I consider it important to point
out that the courts have often said that it is not mandatory or necessary that
the power to control actually be exercised; in other words, the fact that an
employer does not exercise its right to control does not mean that it loses
that power, which is absolutely essential to the existence of a contract of
service.
20 The power to control or the right to influence
the performance of work is the main component of the relationship of
subordination that lies behind a genuine contract of service.
...
22 In such cases, it is essential to draw a very
clear distinction between what is done as a shareholder and/or director and
what is done as a worker or non-management employee. In the case at
bar, that distinction is especially important.
23 Although the courts have identified four tests
to help in characterizing a contract of employment, the test relating to the
power to control is the most important; indeed, it is essential.
...
25 The power to control the performance of work is
what lies behind the relationship of subordination that is absolutely
fundamental to the existence of a contract of service within the meaning of the
Unemployment Insurance Act.
...
28 Was there a relationship of subordination
between the interveners and the company in and as regards the performance of
the work they did within the scope of their respective roles? I
believe that the company, which oversaw the work done by the Théorêt brothers,
had the full right and power to influence that work. The fact that
the company did not exercise that power to control and that those who performed
the work did not think they were subject to such a power or feel they were
subordinate in performing their work does not have the effect of eliminating,
reducing or limiting the power to influence their work.
...
30 I do not think that it is objectively reasonable
to require a total, absolute separation between the responsibilities that
result from shareholder status and those that result from worker
status. The wearing of both hats normally-and this is perfectly
legitimate-creates greater tolerance and flexibility in the relations arising
out of the two roles. However, combining the two roles produces
effects that are often contrary to the requirements of a genuine contract of
service.
31 In the case at bar, the fact that authority did
not seem to be exercisable against the Théorêt brothers and that decisions
concerning the company were made by consensus and collegially does not mean
that the company was deprived of its authority over the work done by the
interveners. The evidence did not show that the company had waived
its power to influence their work or that its right to do so was reduced,
limited or revoked.
[28] Accordingly, the appeal is dismissed.
Signed at Ottawa,
Canada, this 21st day of September 2004.
Tardif
J.
Translation
certified true
on this 21st day of
December 2004
Aveta Graham
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