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Citation: 2004TCC187
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Date: 20040318
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Docket: 2003-2414(EI)
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BETWEEN:
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GEN-U-WINE STORAGE SYSTEMS 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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REASONS FOR JUDGMENT
Sheridan, J.
FACTS
[1] Gen-U-Wine Storage Systems Inc.
appeals from the Minister's decision that one of its workers, Mr.
Robby Denomme, was employed in insurable employment in 2001. Mr.
Denomme was Gen-U-Wine's only witness. The Minister called Ms.
Laura Paradis, the CPP/EI Rulings Officer who conducted the
initial investigation into the insurability of Mr. Denomme's
employment.
[2] Mr. Denomme is the 26-year-old
step-son of the sole shareholder of Gen-U-Wine, Mr. Lance
Kingma. In 1995, Mr. Kingma moved Gen-U-Wine which, at that time,
built specialized wine storage units, from Toronto to Winnipeg.
Mr. Denomme, then 17 and having dropped out of high school, began
working as a general "shop boy" at Gen-U-Wine doing a range of
unskilled tasks. He was paid (according to Mr. Denomme) "the
lowest amount legally possible". Gen-U-Wine ran its business out
of an 800-square-foot shop with no office, a part-time
bookkeeper, a telephone and a fax machine.
[3] Sometime in 1998, Gen-U-Wine's
Toronto client went bankrupt throwing Gen-U-Wine into a financial
crisis. Mr. Kingma, convinced of the merit of his product,
struggled to salvage his business. Mr. Denomme was laid off, and
from October 1998 to March 1999, collected employment insurance
benefits. During this period, he and Mr. Kingma began to develop
a business plan, identify markets and expand the company's
business to include the design and distribution as well as the
manufacturing of Gen-U-Wine wine storage units.
[4] By 2001, he and his step-father
had weathered the storm of the two previous years. Mr. Denomme
was then a newly married man working in tandem with his
stepfather and committed to growing the new business. He
testified that during this period, he had at least one other
employment opportunity but he rejected that more lucrative and
less risky position with a well-established company, in favour of
getting in on the ground floor of his own small business
enterprise. In his new role, Mr. Denomme was travelling
extensively to introduce the product to potential dealers. His
duties didn't stop there, however. Mr. Denomme stated that he and
his stepfather made all business decisions together including the
decision to move the business, hiring staff and handling
financial matters. He "did everything", meaning whatever was
needed to make a "go" of the business. If, for example, the
company had a big order to fill and more hands were needed, he
would be back in the shop. After working in the office, he would
go home to paperwork. When Mr. Kingma was away, Mr. Denomme
handled the payroll and some banking duties, even though he
didn't have formal signing authority. He estimated that he worked
60-90 hours a week for which he was paid about $14 per
hour. The Minister argued that Mr. Denomme received a regular pay
cheque. Although Gen-U-Wine did issue a cheque to him roughly
every two weeks, that did not make it "regular" as that term is
normally understood. The amount of his cheque and when he could
cash it depended entirely on how much money there was in the
burgeoning company's account. Not until he had ensured that there
was enough in the account to cover it could his cheque be cashed.
He was able to make this verification because he, along with his
stepfather, was responsible for keeping an eye on the books. He
explained on cross-examination that he accepted such low wages
and irregular pay in the expectation that someday he will reap
the rewards of having established a successful company. As he
said, "That's what you do in small business."
ANALYSIS
[5] The parties agreed that Gen-U-Wine
and Mr. Denomme were not dealing with each other at arm's length.
The only issue for determination is whether it is reasonable to
conclude, pursuant to subsection 5(3) of the Act that Mr.
Denomme and Gen-U-Wine would have entered into a substantially
similar contract of employment if they had been dealing with each
other at arm's length. The relevant sections of the
Employment Insurance Act are set out below:
5. (1) 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;
(2) Excluded employment - Insurable employment does not
include
(i)
employment if the employer and employee are not dealing with each
other at arm's length.
(3) Arm's length dealing - 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.
[6] Pursuant to paragraph
5(2)(i), Mr. Denomme's employment is prima facie
excluded employment. The Minister exercised his discretion under
paragraph 5(3)(b) to deem that Gen-U-Wine and Mr.
Denomme were dealing with each other at arm's length and that
accordingly, Mr. Denomme's employment was insurable. Based on the
assumptions set out in the Reply, the Minister was satisfied that
an arm's length employee and employer would have entered into
a "substantially similar" contract. To succeed in this appeal,
Gen-U-Wine must show the Minister exercised his discretion
improperly by having done at least one of the following:
a) acted in bad faith or for an
improper purpose or motive; or
b) failed to take into account all of the
relevant circumstances, as expressly required by subparagraphs
5(3)(b); or
c) considered an irrelevant factor.[1]
[7] There is no suggestion that the
Minister acted in bad faith or improperly in reaching his
conclusions. The Court is satisfied on the evidence heard on the
appeal that many of the assumptions upon which the Minister's
decision was based were incorrect and/or incomplete.
Specifically, Gen-U-Wine has successfully demolished the
assumptions set out in paragraphs 8(d), (e), (f), (g), (h), (j),
(k), (l), (m), (n) and (o) of the Reply.
[8] By having failed to take into
account all of the relevant circumstances and/or considered
irrelevant factors in reaching his decision, the Minister
improperly exercised his discretion. Accordingly, the Court may
consider whether it is reasonable to conclude, 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, that an arm's
length employee and employer would have entered into a
substantially similar contract.
[9] The Court is satisfied that such a
conclusion cannot be drawn. Applying the criteria listed in
subsection 5(3) to the evidence heard, it is defies common
experience to conclude that an arm's length employee would have
willingly accepted such low wages or their haphazard payment. Nor
would he have worked such long hours in the face of such
uncertainty or undertaken such a variety of ever-increasing
responsibilities. It was only because of Mr. Denomme's
relationship with his stepfather and his faith that his
investment of time and effort will ultimately pay off to their
mutual benefit in a successful company that he is willing to make
such sacrifices.
[10] For all of these Reasons the appeal is
allowed and the decision of the Minister is vacated.
Signed at Ottawa, Canada, this 18th day of March 2004.
Sheridan, J.
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