[OFFICIAL ENGLISH TRANSLATION]
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Citation: 2004TCC177
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Date: 20040317
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Dockets: 2003-2687(EI)
2003-2688(EI)
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BETWEEN:
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DENYSE MÉNARD AUDET,
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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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REASONS FOR JUDGMENT
Tardif, J.
[1] These two appeals concern the
insurability of work performed by the Appellant.
[2] The first docket is number
2003-2687(EI) and involves the period from January 1, 2001,
to April 18, 2002, and the work performed for
Jude Audet.
[3] The second docket is number
2003-2688(EI) and also involves the same period from January 1,
2001, to April 18, 2002, as well as a May 21, 2003,
determination. The payer of the remuneration at the time was Les
Placements Jude Audet Inc.
[4] The determination was based on the
following facts from docket 2003-2687(EI):
a) the Payer
ran a service station;
b) the Payer
was the sole proprietor of the business;
c) the Payer
went bankrupt on May 14, 2002;
d) the
Appellant is the Payer's spouse;
e) the
Appellant worked for the Payer as an office clerk;
f) the
Appellant's duties involved preparing orders, issuing paycheques,
paying bills, doing the accounting on the computer, making
deposits and carrying out the end-of-month reconciliation;
g) based on
the Payer's payroll register, the Appellant worked 40 hours a
week, and during the period at issue, the Appellant was also
entered as working 40 hours a week in the payroll register for
Les Placements Jude Audet Inc.;
i) in
fact, the Appellant worked for both payers simultaneously;
j)
before the period at issue, the Appellant had worked for years
for the Payer without any declared earnings;
k) during the
period at issue, the Appellant was entered in the Payer's payroll
register as receiving $480.77 a week in remuneration, while the
Appellant did not receive any pay from the Payer from September
9, 2001, to April 18, 2002;
l)
further, during the period at issue, the Appellant deposited two
of her paycheques into the Payer's bank account;
m) the Appellant did
not file a complaint with the Commission des normes du travail
[labour standards board] for unpaid salary;
n) the
Appellant did not make any claims for unpaid salary when the
Payer went bankrupt;
o) the Payer's
financial situation deteriorated during the period at issue;
p) the
Appellant sold some of her assets to finance the Payer's
business;
q) the
Appellant ran the risk of financial loss in the Payer's
business;
r) the
Payer suffered health problems on November 19, 2001, and was no
longer able to look after his property and his affairs;
s) further to
a Superior Court judgment, the Appellant was named the Payer's
curator on March 14, 2002;
t) the
Appellant has managed the Payer's business since
November 19, 2001;
u) the Payer
issued the Appellant a Record of Employment on May 20, 2002,
for the period from January 1, 1971[sic] to April 18,
2002, on which was indicated 2,120 hours of insurable employment
and a total of $5,192.37 in insurable remuneration for the last
27 weeks of the period;
v) after she
was supposedly laid off, the Appellant continued to render
services to the Payer until it went bankrupt;
w) after she was
supposedly laid off, the Appellant provided the Payer and Les
Placements Jude Audet with between 35 and 40 hours of
services a week;
x) the Record
of Employment did not contain accurate information on the period
worked, the hours worked or the remuneration received.
[5] The determination was based on the
following facts from docket 2003-2688(EI):
a) the Payer
was incorporated on December 19, 1989;
b) the Payer
ran a pool hall;
c) Jude Audet
was the Payer's sole shareholder;
d) the
Appellant is Jude Audet's spouse;
e) the Payer
went bankrupt on May 14, 2002;
f) the
Appellant worked as an office clerk for the Payer;
g) the
Appellant's duties involved preparing orders, issuing paycheques,
paying bills, doing the accounting on the computer, making
deposits and carrying out the end-of-month reconciliation;
h) based on
the Payer's payroll register, the Appellant worked 40 hours a
week, and during the period at issue, the Appellant was also
entered as working 40 hours a week in the payroll register for
the business of her spouse, Jude Audet, who ran a service
station;
i) in
fact, the Appellant worked for both payers simultaneously;
j)
before the period at issue, the Appellant had worked for the
Payer for years without any declared earnings;
k) during the
entire period at issue, the Appellant was entered in the Payer's
payroll register as being paid $192.31 a week when she did not
receive any remuneration from the Payer;
l) the
Appellant did not file a complaint with the Commission des normes
du travail [labour standards board] for unpaid salary;
m) the Appellant did
not make any claims for unpaid salary when the Payer went
bankrupt;
n) the Payer's
financial situation deteriorated during the period at issue;
o) the
Appellant sold some of her assets to finance the Payer's
business;
p) the
Appellant ran the risk of financial loss in the Payer's
business;
q) the Payer
suffered health problems on November 19, 2001, and was no longer
able to look after his property and his affairs;
r)
further to a Superior Court judgment, the Appellant was named the
Payer's conservator on March 14, 2002;
s) the
Appellant has managed the Payer's business since
November 19, 2001;
t) the
Payer issued the Appellant a Record of Employment on May 20,
2002, for the period from January 1, 1971[sic] to April
18, 2002, on which was indicated 2,120 hours of insurable
employment and a total of $5,192.37 in insurable remuneration for
the last 27 weeks of the period;
u) after she
was supposedly laid off, the Appellant continued to provide the
Payer with services until it went bankrupt;
v) after she
was supposedly laid off, the Appellant provided the Payer and Les
Placements Jude Audet with between 35 and 40 hours of
services a week;
w) the Record of
Employment did not contain accurate information on the period
worked, the hours worked or the remuneration received.
[6] Since the facts are related, it
was agreed that common evidence would be submitted for the two
dockets.
[7] As part of the two determinations,
the Respondent decided that the work performed by the Appellant
for and on behalf of Les Placements Jude Audet Inc. and Jude
Audet from January 1, 2001, to April 18, 2002, was not insurable
employment within the meaning of the Employment Insurance
Act (the "Act") because work performed by a person with a
non-arm's length relationship with the employer is not insurable
employment.
[8] The Respondent reached this
conclusion after examining and analyzing the facts deemed
relevant to assessing whether the work at issue had been
performed under terms and conditions comparable to those that
would have existed had the Payer and Appellant had an arm's
length relationship.
[9] After exercising its discretion,
the Respondent concluded that the work the Appellant performed
had been tailored to or influenced by the non-arm's length
relationship between the Appellant and her spouse.
[10] The Respondent also felt that the work
performed by the Appellant was not insurable employment as of
March 14, 2002, when she became her spouse's curator further to a
Superior Court order.
[11] From the outset, the Respondent
recognized that the Appellant had in fact worked and that her
work had been worthwhile, necessary and even essential to the
smooth running of the businesses controlled and run by her
spouse.
[12] The Respondent questioned whether the
salary was reasonable and pointed out numerous inconsistencies in
payroll entries, the absence of a paycheque and delays in cashing
them. The Respondent also mentioned the lack of control and
finally said that as of March 14, 2002, the Appellant had become
responsible for more than 40% of the corporation's voting
shares.
[13] For her part, the Appellant stated that
she had worked with and for her spouse without pay in the early
1980s. During an audit, the then accountant and the
Department of National Revenue recommended that the accounting
reflect the reality, hence the reason from that point on for the
Appellant being paid a salary in consideration for the work she
performed; the agreed upon remuneration was henceforth charged to
the various business activities in which her spouse was
involved. In other words, the salary the Appellant was paid
was divided among the various economic activities managed by her
spouse.
[14] There is no doubt that the Appellant
performed important work. She was paid for the work.
The work was performed on a continuous, non-stop basis over a
period of many years. The Appellant's duties are clearly
described in subparagraphs 5(f) and 5(g) of each docket.
They read as follows:
docket 2003-2687(EI):
f) the
Appellant's duties involved preparing orders, issuing paycheques,
paying bills, doing the accounting on the computer, making
deposits and carrying out the end-of-month reconciliation;
g) based on
the Payer's payroll register, the Appellant worked 40 hours a
week, and during the period at issue, the Appellant was also
entered as working 40 hours a week in the payroll register for
Les Placements Jude Audet Inc.;
docket 2003-2688(EI):
f) the
Appellant worked for the Payer as an office clerk;
g) the
Appellant's duties involved preparing orders, issuing paycheques,
paying bills, doing the accounting on the computer, making
deposits and carrying out the end-of-month reconciliation;
[15] The Appellant never therefore had a
chance to have the insurability of her employment assessed by the
Respondent because she never claimed nor received employment
insurance benefits over the many years preceding the period at
issue.
[16] A whole series of very unfortunate
events occurred at the end of the period at issue and they
clearly had a number of impacts on the way the work had up until
that point been performed, as well as on the accounting.
[17] The Appellant's spouse in fact suffered
such a serious stroke that he was unable to manage his person or
his affairs. The appellant was appointed curator on March
14, 2002.
[18] At the same time, both businesses for
which the Appellant had worked for a number of years were in
serious trouble and they were declared bankrupt.
[19] During this period when everything was
going wrong, the Appellant had to make many adjustments, make
difficult decisions; she simply had to adjust to living in a new
context where she no longer had any control.
[20] During this period of total collapse,
the Appellant clearly wanted to shelter her personal patrimony as
much as possible from the damaging consequences, it having
nothing to do with the insurability of her employment.
[21] The Respondent carefully analyzed all
the steps and actions taken by the Appellant and concluded that a
third party would never have acted the way she did, done as many
things for her employer and in the end accepted all of
it.
[22] In justifying its determination and
concluding that the employment was not insurable employment, the
Respondent did not distinguish between the steps and actions
taken by a person who worked for his or her spouse and those
taken in his or her capacity as the Payer's spouse within the
context of a serious stroke which left the Appellant's spouse a
complete invalid and facing financial collapse.
[23] The Appellant's spouse was a land
surveyor by training; the Appellant looked after the
administrative and clerical side of her spouse's professional
practice. She also ensured that both businesses, the
service station and the pool hall, ran smoothly, in addition to
carrying out secretarial work for a firm of land surveyors.
[24] Everything started going downhill in
2001 when the businesses started going to the dogs. At the
same time, the Appellant's spouse's health also deteriorated to
the point where he was totally incapacitated. The Appellant
then became the curator and the transfer of property added to her
already enormous problems.
[25] During this period, the Appellant
worked and looked after everything as circumstances dictated; she
became the captain. There are many facts from this period
that could justify excluding the Appellant's employment from
insurable employment, particularly if the facts in question were
analyzed out of their very specific context.
[26] In a recent decision in Louis-Paul
Bélanger v. M.N.R. (Minister of National Revenue),
[2003] F.C.J. No. 455, (Q.L.), the Honourable Justice
Létourneau of the Federal Court of Appeal wrote:
4.
At paragraph 20 of his decision, the judge
recognized that he had the right to examine the facts that were
before the Minister in order to "decide if these facts are
proven to be correct". But he did not carry out this
assessment. He merely stated that "[i]n view of all the
circumstances, I am convinced that the appellant did not succeed
in establishing, on a preponderance of the evidence, that the
Minister acted in a wilful or arbitrary manner". Clearly, he
relied on the case law before Pérusse and
Légaré, earlier cases which he in fact cited: see
paragraph 17 of the decision.
[27] This shift in jurisprudence was
explained very well in the following recent decisions:
a) Légaré
v. Canada (Minister of National Revenue - M.N.R.), [1999]
F.C.J. No. 878, (Q.L.); A-392-98 and A-393-98:
4. 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."
12. [...] And the
purpose of the 1990 exception was simply to reduce the impact of
the presumption of fact by permitting an exception from the
penalty (which is only just) in cases in which the fear of abuse
is no longer justified. From this perspective, after
identifying the true nature of the employment, the importance of
the duties and the reasonableness of the compensation, it is
difficult in our view to attach the importance the Minister did
to the facts he relied on to exclude the application of the
exception. It is the essential elements of the
employment contract that must be examined to confirm that the
fact the contracting parties were not dealing with each other at
arm's length did not have undue influence on the
determination of the terms and conditions of
employment.
b) Pérusse v. Canada
(Minister of National Revenue- M.N.R.), [2000] F.C.J.
No. 310, (Q.L.); A-722-97:
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 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 him not simply to substitute his 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.
c) Massignani v. Canada
(Minister of National Revenue - M.N.R.), [2003] F.C.J. No.
542, (Q.L.); A-458-01:
2. First, the
deputy judge failed to consider and fulfill his role under the
Unemployment Insurance Act, S.C. 1970-71-72. c. 48 (the
"Act"), paragraph 3(2)( c ), a role that this Court
described in Légaré v. Canada (1999), 246 N.R. 176
and Pérusse v. Canada (2000), 261 N.R. 150, which were
followed in Valente v. Minister of National Revenue , 2003 FCA
132 . This role does not allow the judge to substitute his
discretion for that of the Minister, but it does encompass the
duty to "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, ...
decide whether the conclusion with which the Minister was
'satisfied' still seems reasonable": see
Légaré, supra, at page 179, Pérusse, supra,
at page 162.
d) Louis-Paul
Bélanger, supra:
3. This role
does not allow the judge to substitute his discretion for that of
the Minister, but it does encompass the duty to "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, ... decide whether the
conclusion with which the Minister was 'satisfied' still
seems reasonable."
e) Francine Denis v.
M.N.R. (Minister of National Revenue), [2004] F.C.J.
No 26. (Q.L.):
5. The
function of the Tax Court of Canada judge in an appeal from a
determination by the Minister on the exclusion provisions
contained in subsections 5(2) and (3) of the Act is to
inquire into all the facts with the parties and the witnesses
called for the first time to testify under oath, and to consider
whether the Minister's conclusion still seems reasonable.
However, the judge should not substitute his or her own opinion
for that of the Minister when there are no new facts and there is
no basis for thinking that the facts were misunderstood (see
Pérusse v. Canada (Minister of National Revenue -
M.N.R.)...
[28] In the case at hand, the Respondent in
fact compiled the normally relevant facts with a view to making a
rational determination concerning the insurability of the
employment at issue.
[29] Despite the work carried out in this
regard, I feel that the Respondent's conclusion is totally
unreasonable for the following reasons. First, it presumes
that the Appellant was not paid for the weeks for which she did
not receive a cheque. Second, it completely ignores the
explanation to the effect that the pay she was owed was applied
against a debt incurred to acquire shares.
[30] Not having a cheque is not proof that
remuneration was not paid; a salary can be paid in cash, take the
form of an IOU, or, as in the case at hand, be used to pay off
part or all of a debt.
[31] The Respondent did not take into any
account whatsoever, facts identified during the investigation,
that is, a T-4 issued in the Appellant's name for the period at
issue and on which the amounts were exactly the same as those in
the payroll register and in the Appellant's claims.
[32] This was, of course, secondary
evidence, but it was nonetheless relevant and applicable in
support of the Appellant's claims. The Respondent left this
information completely out of its analysis and gave instrumental
importance to a fact stemming not from evidence, but from an
interpretation, that is, that the Appellant had not been paid for
and during certain periods.
[33] On the important issue of control, the
Respondent wrote the following in its report on Page 9 in Exhibit
I-7:
[...]
Control:
During the period at issue, the worker controlled her time and
efforts by concentrating on one of the Payers.
As of November 19, 2001, as a result of Jude Audet's
illness, she was responsible for running the Jude Audet
service station and the pool hall run by Les Placements
Jude Audet Inc.
[...]
[34] This assessment of the concept of
control is completely inappropriate. The Respondent
indicated initially that the Appellant had the expertise and
knowledge to carry out the work. Then, it wrote the
following under the heading of "Nature and Importance of the
Work":
[...]
The Appellant's accounting work was essential to the smooth
running of both payers.
[...]
[35] The fact that an individual knows the
work he or she must carry out perfectly, even better than his or
her employer, does not, however, mean that he or she is not
subject to some type of control.
[36] The Respondent concluded that the
Appellant's work was not controlled in any way; there is no
confirmation or support for this conclusion.
[37] The evidence basically showed that the
Appellant worked, was competent and knew a great deal about the
work she had to perform. Nothing in the facts leads to the
conclusion that the Appellant's spouse had ceased to exercise or
surrendered his authority to control. The Appellant's
autonomy stemmed from her expertise and know-how.
[38] The lack of remuneration, the
instrumental factor in the conclusions reached, was not a fact,
but stemmed from an interpretation of certain facts. The
Respondent made various extrapolations based on this false
premise which is contradicted by the T-4 slip.
[39] The employer's and the Appellant's
method of remuneration was obviously not the best, and I admit
that it was possible to draw certain conclusions from the various
facts, particularly further to a fact-by-fact analysis rather
than an overall approach taking the very special context into
account.
[40] The Appellant's explanations are
credible and completely realistic within the context and under
the particular circumstances of the period during which the
events occurred.
[41] The fact that the Appellant knew a
great deal about the nature of the work to be done and that she
performed it in her own way in no way proves that the employer
had abandoned his authority to control her actions or had
relinquished his authority over her.
[42] The Respondent seems to have completely
omitted from its analysis the extremely specific circumstances of
the portion of the period at issue when the Appellant's spouse
was experiencing extremely serious health problems.
[43] Again, counsel for the Respondent took
into account a number of facts that she took out of
context. She then grouped them together to draw conclusions
that were totally out of context.
[44] The conclusions drawn are completely
unreasonable in that they do not take into account the specific
context of the situation that prevailed when this information was
gathered.
[45] In making the provisions in paragraph
5(2)(c) of the Act, the legislator clearly wanted to avoid
abuses while not penalizing anyone because of their family or
business ties.
[46] Research and analysis conducted with a
view to discovering a work relationship between individuals
dealing at non-arm's length cannot completely remove the context
and certain extremely special circumstances from the
analysis.
[47] In other words, I do not think that the
legislator's intent was to force an individual who is working
with an individual with whom he or she has a non-arm's length
relationship to completely ignore or cut all ties and act as if
they did not exist.
[48] Special circumstances and a context can
explain and justify certain behaviour so that the series of facts
to be considered as part of a determination of the insurability
of an employment are not prejudiced.
[49] In the case at hand, as in any case of
this nature, it is important to take a step back to avoid not
seeing the forest for the trees.
[50] In the beginning, the Appellant
cooperated and worked to ensure that her spouse's business
activities ran smoothly. On the accountant's advice, it was
agreed that it would be a good idea for her to be
remunerated. The remuneration was divided among the various
business activities. She knew the work to be done well and
performed it in everyone's best interest. She put a great
deal into the work and everything seemed to run smoothly for a
number of years. At some point in time, business started
dropping off and, since it never rains but it pours, her spouse
suffered an extremely serious stroke.
[51] The Appellant, the Payer's spouse,
probably tried to salvage the situation, but she was clearly
unsuccessful because bankruptcy was declared. During this
time, the health status of her spouse did not improve and the
Appellant was appointed her spouse's curator on March 14,
2002.
[52] I feel that a clear distinction must be
made between the work the Appellant performed in her role as an
employee responsible for performing managerial duties and her
role as the spouse of a person who became suddenly and completely
incapacitated within the context of financial ruin.
[53] I, however, agree with the Respondent's
argument to the effect that as of March 14, 2002, when the
Appellant became the curator of her spouse's property, she could
no longer be subject to her spouse's authority to control.
[54] For all of these reasons, the appeals
are allowed, that is, the work the Appellant performed for the
Payer, Jude Audet, and for Les Placements Jude Audet
Inc., from January 1, 2001, to March 14, 2002, constituted
insurable employment.
Signed at Ottawa, Canada, this 17th day of March,
2004.
Tardif, J.
Certified true translation
Colette Beaulne
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