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Citation: 2004TCC572
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Date: 20040819
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Docket: 2003-1939(EI), 2003-1940(EI)
2003-1941(EI), 2003-1942(EI)
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BETWEEN:
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ACTECH ELECTRICAL LIMITED, GRACE BUNTING,
ACTION ELECTRICAL LTD. and BLAKE BUNTING,
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Appellants,
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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
Mogan J.
[1] The
appeals of Actech Electrical Limited v. Minister of National Revenue (Court
File 2003-1939), Grace Bunting v. Minister of National Revenue (Court
File 2003-1940), Action Electrical Ltd. v. Minister of National
Revenue (Court File 2003-1941) and Blake Bunting v. Minister of National
Revenue (Court File 2003-1942) were heard together on common evidence. The
appeals of Actech Electrical Limited ("Actech") and Grace Bunting are
connected because (i) at all relevant times Grace was employed by Actech; and
(ii) their common issue is whether Grace's employment by Actech was insurable
for purposes of the Employment Insurance Act (the "EI Act").
Similarly, the appeals of Action Electrical Ltd. ("Action") and Blake
Bunting are connected because (i) at all relevant times Blake was employed by
Action; and (ii) their common issue is whether Blake's employment by Action was
insurable for purposes of the EI Act.
[2] Actech
and Action are both wholly-owned subsidiaries of Bunting Holdings Limited
("BHL"). The issued shares of BHL are owned 67% by Donald Bunting and
33% by his wife Grace Bunting. Donald and Grace have three sons: Damon, Brad
and Blake. Actech and Action are both engaged in the electrical contracting
business. Grace has worked in the family business for many years. Blake has
worked for Action since 1996. Prior to 2001, Grace and Actech assumed that her
employment was insurable under the EI Act and premiums were paid
accordingly. Also, Blake and Action assumed that his employment was insurable
under the EI Act and premiums were paid accordingly. Commencing in 2001,
the four Appellants (Grace, Actech, Blake and Action) took the position that
neither Grace nor Blake was engaged in insurable employment for purposes of the
EI Act.
[3] Section
5 of the EI Act is the principal provision concerning "insurable
employment". I will set out those parts of section 5 which I regard as
most relevant to decide these four appeals.
5(1) 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;
(b) …
5(2) Insurable
employment does not include
(a) employment
of a casual nature other than for the purpose of the employer's trade or
business;
(b) the
employment of a person by a corporation if the person controls more than 40% of
the voting shares of the corporation;
(c) …
(i) employment
if the employer and employee are not dealing with each other at arm's length.
5(3) For the purposes of
paragraph (2)(i),
(a) the question of whether persons are not dealing
with each other at arm's length shall be determined in accordance with the Income
Tax Act; and
(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.
[4] The
parties are in agreement that, at all relevant times, Grace and Actech did not
deal at arm's length; and Blake and Action did not deal at arm's length. The
Appellants rely on paragraph 5(3)(b) to argue that neither Grace nor
Blake was engaged in insurable employment during 2001.
The Facts – Grace Bunting
[5] The
only witness who testified at the hearing was Donald Bunting, husband of Grace,
father of Blake and controlling shareholder of BHL. Donald was born in 1943.
Under the Alberta apprenticeship program, he registered with a qualified
electrician; worked for a number of years; and became a journeyman electrician
in 1968. He qualified as a master electrician in 1970. Donald and Grace were
living in Sherwood Park (a suburb of Edmonton) in 1973 when he decided to go
into business for himself. He caused Action to be incorporated and started
working from his home. Grace was involved from the beginning doing the
paperwork while Donald did the electrical work.
[6] Action
was successful from the start. Donald built up the business over the years
until 2001 when Action and Actech together employed between 60 and 65 persons.
When Donald decided to expand into British Columbia, he incorporated Actech in
that province to carry on the same business as Action in Alberta. Action and
Actech do not work in the area of houses and individual residences. They do
electrical contracting for commercial, industrial, institutional, hotel and
apartment building operations. Although Actech operates only in British
Columbia, it is managed and administered from Action's corporate facility at
7931 Coronet Road in Edmonton, Alberta. In Donald's view, this is the head
office of his corporate activities and any reference to "the office"
or any similar facility is a reference to 7931 Coronet Road.
[7] I
will first consider the employment of Grace by Actech. Her corporate title is
"secretary/treasurer" but her business card shows
"administrative assistant". She has her own office on the main floor
at 7931. Donald is president of both Action and Actech and serves as office
manager at 7931. Faye Atkinson was controller of Action and Actech in 2001 but
she left in September 2002, and a woman whom Donald referred to as
"Betty" was the new controller at the time of the hearing. There are
four administrative support staff who work under Donald and Betty, all women,
whom Donald referred to as Grace, Audrey C, Linda and Audrey K. It is necessary
to describe briefly, in a general way according to Donald's evidence, the
services performed by the women referred to in this paragraph.
[8] Although
Grace is currently on the payroll of Actech, she has been working in Donald's
business since he started on his own in 1973. As stated above, she started
doing the paperwork (billing customers, paying suppliers, banking, etc.) while
he did the electrical work. In 2001, she was paid a salary of approximately
$600 per week based on a rate of $15.00 per hour for 40 hours. It is a fact,
however, that Grace did not work a 40-hour week in 2001 because she did not
come to the office on Wednesdays. She worked Mondays, Tuesdays, Thursdays and
Fridays and she had flexibility as to when she would arrive and leave. Donald
stated that Grace would generally come to the office by 9:30 a.m. and leave
around 5:00 p.m. Because she was on salary, she was not required to record her
hours. She has signing authority on all cheques which can be issued by Action
and Actech. She does some banking and will pick up drawings from the
engineering firm on her way to work. Grace and Donald would each call in if
they were going to be late on a day when they would otherwise be expected at
the office. She drives a 1993 model car which she owns personally but Action
pays for its gas and maintenance.
[9] Grace
is away from the office three weeks each summer to work at a church camp, and
she takes three weeks at some other time of the year to vacation with her
husband, Donald. When she is at the office, Grace shares administrative duties
with Audrey C, Linda and Audrey K. This involves typing quotations and
contracts; storing and retrieving business information on the computer;
answering the telephone; photocopying; and replacing any of the other three
administrative assistants when they are absent or on lunch break. Linda Schofield
does the payroll and is responsible for the apprenticeship program. When Linda
goes on vacation, Grace does the payroll and would do it for a week or two
before Linda leaves to make sure that she has the correct rates of pay and
source deductions.
[10] Donald, Grace and Betty (controller) are the only persons in the
office who do not have a timesheet. Betty is on a salary which is based on a
rate of $15.00 per hour for a 40-hour week. Donald said that the office
computer takes any salary and converts it to an hourly rate over 80 hours being
the two-week pay period. The other three administrative staff (Audrey C, Linda
and Audrey K) were all paid at the rate of $12.00 per hour. Audrey C processed
supplier invoices while Audrey K (a part-time employee) did the accounts
receivable and payable. Audrey K was paid an extra $10.00 every two weeks to
reimburse her for trips to the bank.
[11] Exhibit A-2 is a copy of a loan agreement between Action and the
Alberta Treasury Branches ("ATB") dated October 4, 2001 in which
Donald Bunting and Grace Bunting each offer a limited continuing guarantee
in the amount of $200,000 with respect to a loan and line of credit extended to
Action. In my view, Grace's guarantee to ATB is not a term and condition of her
employment (within the meaning of paragraph 5(3)(b) of the EI Act)
but arises from her being Donald's wife and her owning one-third of the shares
of BHL, the parent company of Action.
Analysis
[12] The appeals of Grace and Actech are based on their common claim that
she was not engaged in insurable employment in 2001. As stated in paragraph 4
above, it is agreed that Grace and Actech did not deal at arm's length.
Therefore, on the plain meaning of paragraph 5(2)(i), Grace's employment
by Actech is not insurable. But under paragraph 5(3)(b), Grace and
Actech are "deemed to deal with each other at arm's length" if the
Minister of National Revenue (the "Minister") is satisfied that,
having regard to certain facts, "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".
[13] It has long been established that the Minister may determine under
paragraph 5(3)(b) whether certain employment is insurable in a particular
case where the non-arm's length employer and employee share the view that the
employment is insurable and premiums are remitted accordingly. The character of
the Minister's determination under paragraph 5(3)(b) is described as
"ministerial discretion" but it is still a determination based on
fact and law. See Attorney General of Canada v. Jencan Ltd., [1998] 1
F.C. 187 and cases cited therein. In some recent appeals to this Court, the
Appellants have asked if the Minister may determine under paragraph 5(3)(b)
whether certain employment is insurable where the non-arm's length employer and
employee share the view that the employment is not insurable and no premiums
are remitted. This is the precise question raised in these appeals.
[14] Appellants' counsel referred to the legislative history of paragraph
5(3)(b) to argue that it is purely remedial in the sense that it permits
a worker (related to her employer) to demonstrate to the Minister's
satisfaction that her employment should be insurable notwithstanding the
relationship. To support his argument, he quoted the following passage from the
judgment of Marceau J.A. in Perusse v. Canada, (2000) F.C.J. No. 310:
5 When in 1999 (sic)
Parliament decided to moderate the fundamental and "irremediable"
rule that excluded from insurable employment any employment of a person by his
or her spouse (the former s. 3(2)(c)), it chose to do so by altering its
legislative technique to make the fundamental exclusion remediable. …
[15] In a recent decision of this Court (C&B Woodcraft Ltd. v.
M.N.R., 2004TCC477), my colleague, Judge Woods, summarized the legislative
history of paragraph 5(3)(b):
10 The legislative history suggests that
paragraph 5(3)(b) was enacted as a relieving measure so that persons
would not be denied employment insurance benefits unless the denial could be
justified on a basis other than the relationship between the parties. Prior to
the enactment of paragraph 5(3)(b) in 1990, a person who was employed by
a spouse was simply excluded from the employment insurance scheme. In the case
of Canada v. Druken, [1989] 2 F.C. 24 (F.C.A.), this exclusion was held
to be discriminatory and contrary to the Human Rights Act. As a result,
the provision was struck down and held to be unenforceable. The Druken
decision led to an amendment to the legislation shortly thereafter. The new
provision, now in paragraph 5(3)(b), ensures that a person will not be
denied employment insurance benefits if the employment terms are essentially
arm's length terms.
[16] Returning to the argument of Appellants' counsel, there is no doubt in
my mind that paragraph 5(3)(b) was intended by Parliament to be remedial
following the decision of the Federal Court of Appeal in Druken. It does
not necessarily follow, however, that paragraph 5(3)(b) is a one-way
street permitting the Minister to determine that a non-arm's length employee is
engaged in insurable employment when the employee wants that result but
prohibiting the Minister from determining that a non-arm's length employee is
engaged in insurable employment when the employee does not want that result. In
my view, the EI Act is unusual because, on the one hand, it may be
regarded as a taxing statute collecting premiums to create a fund (see sections
67, 68, 82 to 85, 92 and 103) while, on the other hand, it may be regarded as
social legislation paying benefits to unemployed persons (see sections 7 et
seq). Regarding the EI Act as a taxing statute, I am influenced by
the following provisions:
67 Subject to
section 70, a person employed in insurable employment shall pay, by deduction
as provided in subsection 82(1), a premium equal to their insurable earnings
multiplied by the premium rate set under section 66, 66.1 or 66.2, as the
case may be.
68 Subject to sections 69
and 70, an employer shall pay a premium equal to 1.4 times the employees'
premiums that the employer is required to deduct under subsection 82(1).
82.(1) Every employer paying
remuneration to a person they employ in insurable employment shall
(a) deduct the
prescribed amount from the remuneration as or on account of the employee's
premium payable by that insured person under section 67 for any period for
which the remuneration is paid; and
(b) remit the
amount, together with the employer's premium payable by the employer under
section 68 for that period, to the Receiver General at the prescribed time and
in the prescribed manner.
85(1) The Minister may assess
an employer for an amount payable by the employer under this Act, or may
reassess the employer or make such additional assessments as the circumstances
require, and the expression "assessment" when used in this Act
with reference to any action so taken by the Minister under this section
includes a reassessment or an additional assessment.
92 An employer who has been assessed under section
85 may appeal to the Minister for a reconsideration of the assessment, either
as to whether an amount should be assessed as payable or as to the amount
assessed, within 90 days after being notified of the assessment
103(1) The Commission or a
person affected by a decision on an appeal to the Minister under section 91 or
92 may appeal from the decision to the Tax Court of Canada in accordance with
the Tax Court of Canada Act and the applicable rules of court made
thereunder within 90 days after the decision is communicated to the Commission
or the person, or within such longer time as the Court allows on application
made to it within 90 days after the expiration of those 90 days.
[17] Paragraph 5(3)(b) clearly authorizes the Minister to make a
determination (which the Courts have characterized as "ministerial
discretion") when the employer and employee do not deal with each other at
arm's length; but I find nothing in the language of that paragraph which
restricts the circumstances in which the Minister may make a determination if
the fundamental condition is present: i.e. the employer and employee are not at
arm's length. Accordingly, I reject the Appellants' argument that there is some
impediment to the Minister concluding, in particular circumstances, that
certain employment between a non‑arm's length employer and employee is
insurable when one or both of the parties regard such employment as not
insurable.
[18] I come back to Grace's employment by Actech. The dominant fact is
that, in 2001, she had worked in the business for 28 years, since its
inception. She is the wife of the founder and a one-third owner. She is
experienced, trustworthy and responsible. Her son, Blake, is employed in the
business as an heir apparent. Although she did not testify, I conclude that she
has a deep and abiding interest in the prosperity and survival of the family
business. Her remuneration of approximately $30,000 per year is not
unreasonably high or low having regard to the other administration staff. Her
privileges with respect to car maintenance and flexible hours are the kind of
privileges that could be earned by any long-term, arm's length employee of a
family business if that employee were experienced, trustworthy and responsible.
In terms of the duration and importance of her work, Donald stated that if
Grace stopped working, he would have to hire a replacement worker.
[19] In a family business, there will frequently be minor variances between
the terms of employment of a family member and the terms of a stranger doing
comparable work, but any responsible family member would have a more vested
immediate interest and a greater long-term equity in the success of the
business than a stranger. None of Grace's terms of employment were
outrageously, or even unreasonably, beneficial with respect to her status in
the business. There is not sufficient evidence to persuade me that the Minister
exercised his/her discretion under paragraph 5(3)(b) in a manner
contrary to the law with respect to Grace.
The Facts – Blake Bunting
[20] I will now consider the employment of Blake by Action. Blake graduated
from university in 1996 with a degree in business. He is not a qualified
electrician but he started to work for Action in 1996 immediately after
graduation and has worked there ever since. In 2001, he did the invoicing on
all matters and progressive billing on the large contracts. By 2001, Action had
developed four separate departments which may be summarized as follows:
(i) Electrical
contracting: bidding on large projects; designing and installing for a
particular owner when the work is not put out to tender e.g. Grand Okanagan
Resort.
(ii) Electrical
service: motors and data lines; fire alarms; all services other than lighting.
(iii) Lighting
retrofit: regular ongoing contracts to change all the lights in particular
buildings like schools, hospitals, etc.
(iv) Lighting
maintenance: contacts with particular buildings to maintain and repair the
lighting on scheduled calls.
[21] In 2001, Blake was manager of the lighting maintenance department, and
he was responsible for the office computer system. His hours were approximately
7:30 a.m. to 5:30 p.m. which works out to about 45 hours over a five-day week.
In 1996, when Blake started work, he was paid at the rate of about $15.00 per
hour and, by 2001, his remuneration was based on a rate of about $23.00 or
$24.00 per hour. At that time (in 2001), the managers of the other three
departments were also paid in the range of $22.00 to $24.00 per hour. An
employee whom Donald referred to as "Boyd" was the chief estimator
and was paid the same as or a little more than Blake in 2001.
[22] Donald stated that he regards himself as a humane owner/manager in the
sense that he is able to retain competent employees within the business over a
long period of time. Donald also stated that Blake had to earn the respect of
the other employees and managers, and he (Blake) could do so only if he was
treated more or less on the same terms. In cross-examination, Donald
acknowledged that he does not want the other employees or managers to look at
Blake and think "he's the prince". In Donald's view, respect has to
be earned.
[23] Donald relies on Blake to promote the family business because Donald
prefers to do other things within the business. The Company had Edmonton Oiler
hockey tickets and promotes a golf tournament by making a contribution to
charity. Blake uses the hockey tickets more than other managers and attends the
golf tournament on behalf of the business. Blake would also invite clients to
lunch and a golf game more often than Donald and the other managers. Some
persons might regard those duties as perks of Blake's job but Donald does not
regard them as perks because he (Donald) prefers to build the business in other
ways.
[24] Blake has more latitude with respect to time off and vacations because
he does not have to ask for a particular time but makes his own plans and then
informs Donald. Blake has employee benefits with the office staff under the
"clerical plan" which probably has a few more benefits than the plan
for hourly‑rated workers. A new employee is entitled to two weeks'
vacation while a senior employee is entitled to three or more weeks. Donald
states that Blake could take more than three weeks' vacation but Donald could not
recall if Blake ever had.
[25] In paragraph 19 above, I stated that in a family business, there will
frequently be minor variances between the terms of employment of a family
member and the terms of a stranger doing comparable work. Those variances exist
in the circumstances of Blake's employment by Action but, in my view, they are
only minor variances. Looking at the big picture, I see Blake as a full‑time
employee in constant attendance at the family business, with managerial
responsibilities and having to earn the respect of all employees and other
managers. Blake has a business degree which he uses to earn his place in the
business.
[26] Donald has built a substantial business since 1973 with more than
60 employees; well beyond the "mom and pop operation". Blake's
hours seem normal and there is no evidence that he is not a dedicated and
responsible employee. In a dispute under paragraph 5(3)(b) where the
non-arm's length employee is or was engaged in genuine full-time and
responsible employment, I will not be distracted by only minutiae which
attempt to make the non-arm's length employee appear different from the arm's
length employee. If the Minister was concerned only with minutiae, then it was
easier to conclude that the contract of employment was "substantially
similar" to an arm's length contract. There is not sufficient evidence to
persuade me that the Minister exercised his/her discretion under paragraph
5(3)(b) in a manner contrary to the law with respect to Blake.
[27] The four appeals of Actech, Grace, Action and Blake are dismissed.
Signed at Ottawa, Canada, this 19th day of
August, 2004.
Mogan
J.
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