[OFFICIAL ENGLISH TRANSLATION]
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Citation: 2004TCC512
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Date: 20040722
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Docket: 2004-376(EI)
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BETWEEN:
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AUTOBUS HÉLIE 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
Lamarre Proulx, J.
[1] These are appeals from three
decisions of the Minister of National Revenue (the "Minister")
dated October 30, 2003, to the effect that Messrs. Pierre,
Normand and Jocelyn Hélie held insurable
employment from January 1, 2002, to April 24, 2003.
[2] The Minister's decision was
rendered pursuant to paragraph 5(3)(b) of the
Employment Insurance Act (the "Act").
[3] The Minister based the decision on
the facts set out in paragraphs 6 and 7 of the Reply to the
Notice of Appeal (the "Reply") as follows:
6. The
Minister concluded that the workers were employed by the
Appellant under a contract of employment based on the following
presumed facts:
a) the
Appellant, which was incorporated in 1975, runs a bus
transportation firm;
b) the
Appellant's various transportation activities can be broken down
as follows:
- chartered
transportation (about 59% of activities);
- school
transportation (about 39% of activities);
- public
transportation (about 1% of activities);
- mechanical and
body and repair work (about 1% of activities);
c) the
Appellant operates in Quebec, Ontario, the Maritime provinces and
the United States;
d) in 2001 and
2002, the Appellant generated approximately $5 million in sales
per year;
e) in addition
to the 3 workers involved, the Appellant usually hires 2 office
employees, 10 vehicle mechanic and maintenance employees, and 60
drivers;
f)
Normand Hélie headed the sales and various modes of
transportation and charters division; he supervised the employees
in this sector (the drivers) and negotiated contracts in
conjunction with the firm's president;
g)
Jocelyn Hélie headed the mechanical division (the
garage); he supervised the employees in this sector and managed
inventories, verifications and ordered parts;
h)
Pierre Hélie headed the administrative division; he
managed the firm, analyzed financial statements, supervised
employees in this sector, hired staff and looked after the
day-to-day accounting at the Appellant's firm;
i) the
workers' schedule could be flexible, but each worked about 60
hours a week in 2002;
j) each
of the workers was on call every third weekend to attend to
drivers as required;
k) the workers
jointly made all key decisions involving the Appellant's
activities;
l) each
of the workers made day-to-day operational decisions in their
jurisdiction (division);
m) each of the
workers used an automobile provided by the Appellant, which
covered all related expenses;
n) the
Appellant paid for life insurance coverage for each worker;
o) the work
tools each of the workers used as part of their work belonged to
the Appellant;
p) the
compensation each worker received was determined by the Appellant
and was paid through direct deposit on a weekly basis;
q) in 2002,
each worker received a fixed amount of $1,200 a week; this amount
increased to $1,500 a week on January 1, 2003;
r)
during the period at issue, the Appellant paid each worker a
$15,000 bonus;
s) each worker
received fixed weekly compensation and did not run any risk of
financial losses or chances of financial profit as an employee of
the Appellant.
7. The worker
and the Appellant are related within the meaning of the Income
Tax Act because:
a) during the
period at issue, the Appellant's voting shares were distributed
as follows:
Normand Hélie had 33 1/3 %;
Jocelyn Hélie had 33 1/3 %;
Pierre Hélie had 33 1/3 %.
b) the
Appellant's shareholders (the workers) are brothers;
c) each of the
workers belongs to a related group that controls the
Appellant.
[4] The grounds upon which the
Minister based the decision that the employments were insurable
employment are provided in paragraph 8 of the Reply:
8. The
Minister also found that each of the workers and the Appellant
were deemed to be dealing at arm's length in this employment
because the Minister felt that having regard to all the
circumstances of the employment, it was reasonable to conclude
that each of the workers and the Appellant would have entered
into a substantially similar contract of employment if they had
been dealing with each other at arm's length:
a) each of the
workers received, for the approximately 60 hours of work,
reasonable weekly compensation given their duties and
responsibilities;
b) despite the
fact that each of the workers had extensive experience in their
respective areas of activities, they could not act alone and the
Appellant had the right to control their duties;
c) each worker
provided the Appellant with services on a continuous and annual
basis which corresponded to the period during which the Appellant
carried out activities;
d) the
services provided by each of the workers were an integral part of
the Appellant's activities and were essential to it running
properly.
[5] The following conclusion was
provided in the Notice of Appeal:
Given all the above-mentioned information, we therefore
conclude that the employments held by Messrs. Pierre, Jocelyn and
Normand Hélie was not insurable employment pursuant
to paragraphs 5(2)(i) and 5(3)(b) of the
Employment Insurance Act for the following reasons:
a) Messrs.
Pierre, Jocelyn and Normand Hélie deal at non-arm's
length with one another as well as with the Appellant;
b) a contract
of employment substantially similar to theirs would not have been
entered into or would not have been entered into with a person
not related to the firm because:
- if one of the
three workers stopped working for the firm, he would not be
replaced;
- the firm would not
offer an unrelated person the same salary;
- the firm would not
offer an unrelated person the same conditions of employment;
- among other
things, the three workers concerned set their own hours of work
and are not controlled;
- they decide how to
use their time and are free to delegate their work;
- when they delegate
their work, duties or responsibilities, they dictate how and when
the work must be performed;
- they are not paid
for any overtime worked;
- all three workers
have more paid vacation than the firm's other workers and can
also miss work for personal reasons if they wish;
- their duties
include taking turns being "on call" evenings, nights and
weekends for 15 days and an unrelated person would not
necessarily accept these additional responsibilities and if he or
she did, it would definitely not be without pay.
c) On the
contrary, an unrelated person hired to replace one of the three
workers concerned would not have received the same salary
treatment. Instead, he or she would have: been paid a
considerably smaller salary without a bonus; been paid for the
number of hours actually worked; had a set work schedule; had a
specific number of weeks of vacation paid for by the firm; and
not have been able to take more. This unrelated person
would not have had: a luxury car provided by the firm; the
authority to sign company cheques; and not have had access to the
firm's bank accounts.
The series of relevant factors concerning the employments in
question therefore demonstrates that the employments of Messrs.
Pierre, Jocelyn and Normand Hélie with Autobus
Hélie Inc. must be deemed excepted employment because
they deal at non-arm's length with one another and with the
Appellant and a similar contract of employment would not have
been entered into by the Payer and a person not related to
the firm.
[6] The three Hélie brothers
testified that they had purchased equal shares of the firm from
their father in 1979. The duties were divided up and that
same distribution has continued with the brothers working
autonomously and harmoniously.
[7] Profits have always been shared
equally and they have decided on them themselves. The
profits are shared in the form of salaries and dividends.
Thus, toward the end of the years at issue, the weekly salaries
doubled for several weeks. Substantial dividends are
paid. Exhibit A-1 contains the statement of
employment income earned between 1991 and 2003 which shows that
income quadrupled between 1991 and 2003.
[8] Each brother sets his own
schedule, and the timing and length of his vacation. The
Appellant sets the schedule for the other employees and they are
entitled to only two or three weeks of vacation a year.
[9] Each brother has cheque signing
authority. All three were entitled to use a luxury
automobile.
[10] The Appellant purchased two or three
other bus firms. It had retained the services of two key
employees from these firms. Messrs. Hélie
stated that the salaries of these excellent managers cannot be
compared with what they as manager owners earn.
[11] The Appellant took out a death and
disability insurance policy on the workers. If one of the
brothers died or became disabled, the insurance will pay his
share which will return to the surviving brothers.
According to the brothers, no one would be replaced in order to
perform the same duties and obtain the same rights and
privileges. The administrative and operational structures
would be modified accordingly.
[12] Mr. Normand Hélie was the
first to testify. His title on the Board of Directors is
Vice-Chairman. He usually works from 8:00 a.m. to 5:30
p.m. He can, however, arrive whenever he wants. He is
not accountable to anyone for his schedule. During a short
week, he can work between 25 and 30 hours, and 60 hours
during long weeks. The number of hours has no impact on his
compensation. He has six to eight weeks of vacation.
[13] Mr. Jocelyn Hélie is the
Secretary-Treasurer of the Board of Directors. His work
schedule is flexible. He usually arrives at about 8:00 a.m. and
leaves when he wants. He sets his own schedule. In
2002, he took a flying course during the week because it was
easier to obtain hours that suited him. He has 12 to 14
weeks of vacation a year.
[14] Mr. Pierre Hélie is the
Chairman of the Board of Directors. He arrives at the
office early, at 7:00 a.m. and usually leaves at about 3:00
p.m. He explained that there is one official board of
directors' meeting a year. During the year, the three
brothers meet at least once a month and sometimes more often at
breakfast or over a business lunch. They also see each
other regularly either at the firm's offices or at social or
sporting events.
[15] He stated that each brother is
autonomous in his area of activity. The employees who are
not related to the Appellant are supervised although the extent
of the supervision can vary from one to another.
Analysis
[16] The Appellant's counsel cited the
following decisions: Putter v. Canada (Minister of National
Revenue - M.N.R.), [2000] T.C.J No 92 (Q.L.);
Crawford & Co. Ltd. v. Canada (Minister of National
Revenue - M.N.R.), [1999] T.C.J. No 850 (Q.L.);
Bayside Drive-In Ltd. v. Canada (Minister of National
Revenue - M.N.R.), [1997] T.C.J. No 1212 (Q.L.);
Bergen v. Canada (Minister of National Revenue - M.N.R.),
[2002] T.C.J. No 73 (Q.L.); and St-Pierre v. Canada
(Minister of National Revenue - M.N.R.), [2003] T.C.J.
No 156 (Q.L.)
[17] The Respondent's counsel cited:
Roxboro Excavation Inc. v. Canada, [1999] T.C.J.
No 32 (Q.L.); [2000] T.C.J. No 799 (Q.L.); Groupe
Desmarais Pinsonneault & Avard Inc. v. Canada, [2002]
T.C.J. No 572 (Q.L.); Canada v. Jencan, [1998]
1 F.C. 187; Légaré v. Canada, [1999]
T.C.J. No 878 (Q.L.); Pérusse v. Canada,
[2000] T.C.J. No 310 (Q.L.); Miller v. Canada, [2002]
T.C.J. No 1498 (Q.L.); Quigley Electric Ltd. v.
Canada, [2003] T.C.J. No 1789 (Q.L.); Feader v.
Canada, [2004] T.C.J. No 236 (Q.L.) and Quincaillerie
Beaubien Inc. v. Canada, [2002] T.C.J. No 428
(Q.L.).
[18] Paragraph 5(2)(i) and subsection
5(3) of the Act read as follows:
5(2) Insurable employment does not include
...
(i) employment if the employer and employee are not dealing
with each other at arm's length.
Arm's length dealing
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.
[19] The issue is not whether the workers
are employees or self-employed workers. The income is
employment income. They are paid salaries by the
Appellant. The issue is whether the workers' conditions of
employment would be the same or similar to the employees who deal
with the employer at arm's length.
[20] The evidence clearly showed that the
workers' salary is not based on the work performed, but on their
being owners of the firm. The workers set their salaries
themselves. If one of the workers in question leaves the
firm, he will not be replaced by a person who will be entitled to
the same privileges. They are definitely very responsible
people, but they would obviously not receive the same salary if
they were not related to the Appellant. They are excellent
employees and their salary is what people doing the same work
receive. But it is not what the Hélie brothers
receive.
[21] The evidence also showed that the
Appellant does not hold the Hélie brothers accountable for
their hours of work. They use their discretion in choosing
their hours and days of work.
[22] I refer to a decision cited by counsel
for the Respondent, a decision where the facts are similar to
those in the case at hand, that is, in Roxboro Excavation
Inc. (supra). This decision was, however, based on
subsection 5(1) of the Act. The issue was whether the workers
were employees or self-employed workers and it was decided that
they were employees. It is not the disposition that is
examined in the case at hand.
[23] I nonetheless find it interesting to
cite Mr. Justice Marceau in Scalia v. Canada (Minister of
National Revenue - M.N.R.) (F.C.A.), [1994] T.C.J.
No 798 (Q.L.) concerning the independent relationship that
is necessary to the creation of a true subordinate relationship
and the consequence of the lack of this independence provided for
in paragraph 5(2)(i) and subsection 5(3) of the Act:
4 On analysing the evidence,
however, we find that the applicant had such ascendancy over the
company, its activities and the decisions of its board of
directors, which was composed of himself, his nephew and his
sister-in-law, that there could not have been the independent
relationship between himself and the company that is necessary to
the creation of a true subordinate relationship. It would perhaps
have been easier for the judge to refer, as did the Minister, to
the exception that was in force at the relevant time under
paragraph 14(a) of the Regulations, as interpreted and applied by
the courts, but ultimately the judge's approach was not in
error, since the control that a corporation which is an employer
may exercise over the person who completely dominates it is more
fictitious than real (as Parliament confirmed in 1990 when it
enacted the new paragraphs 3(2)(c) and (d) of the Act). The
judge's reasoning is therefore not in error and we would be
wrong to reject his conclusion solely on the ground that his
reasoning was unclear or equivocal.
[24] I also cite Mr. Justice Marceau in
paragraph 4 of the Federal Court of Appeal decision in
Légaré (supra):
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.
[25] He reiterated in paragraphs 13 to 15 of
Pérusse (supra):
13 It is clear from reading the
reasons for the decision that, for the presiding judge, the
purpose of his hearing was to determine whether the Minister, in
the well-known expression, had exercised "properly" the
discretion conferred on him by the Act to "recognize the
non-exception" of a contract between related persons. He
therefore had to consider whether the decision was made in good
faith, based on the relevant facts disclosed by a proper hearing,
not under the influence of extraneous considerations.
Accordingly, at the outset, at p. 2 of his reasons, the judge
wrote:
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The determination
at issue in the instant appeal results from the
discretionary authority provided for by the provisions of
s. 3(2)(c) of the Act, which reads as follows:
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The appellant was
required to discharge the burden of proof, on the balance
of probabilities, that the respondent in assessing the
matter had not observed the rules applicable to ministerial
discretion, and if this could not be done this Court would
not have no basis for intervening.
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And finally, his conclusion at p. 14:
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So far as the
appeal is concerned, I cannot allow it as the appellant has
not proven that the respondent exercised his discretion
improperly.
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¶ 14 In fact,
the judge was acting in the manner apparently prescribed by
several previous decisions. However, in a recent judgment this
Court undertook to reject that approach, and I take the liberty
of citing what I then wrote in this connection in the reasons
submitted for the Court:
Francine Légaré v. M.N.R.,
case No. A-392-98, and Johanne Morin v. M.N.R., case No.
A-393-98, dated May 28, 1999, not reported, at para. 4.
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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.
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¶ 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
to 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.
[26] This Court must therefore ensure that
the facts the Minister used were accurate, and whether or not
they were accurate, that they were correctly assessed given the
context in which they occurred. Based on paragraph 4 of the
Reply, the Minister deemed that each of the workers received
reasonable compensation for approximately 60 hours of work.
However, the evidence showed that the hours of work varied and
were at the workers' discretion. The number of days of
vacation was also at the worker's discretion. These are not
normal conditions of employment.
[27] The workers' compensation was increased
or decreased based on the firm's profits or based on the
Appellant's capital requirements. The compensation was not
based on the work performed, which was not the case of the
non-owner employees working in the same areas as the workers
concerned. For example, the salary of these employees was
never doubled for a number of weeks at the end of the fiscal
year.
[28] Mention is made in paragraph 4(b) of
the Reply of the Appellant's right to control the workers.
This is not a relevant criterion within the context of the
analysis of paragraph 5(3)(b). This is what Mr. Justice
Dussault of this Court wrote in Marché du Faubourg
Ste-Julie Inc. v. Canada (Minister of National Revenue -
M.N.R.) [2003] T.C.J. No 513 (Q.L.). Control is a
relevant criterion for subsection 5(1) of the Act. The
evidence nevertheless showed that the workers were extremely
autonomous, but one would nonetheless think that the Hélie
brothers had to work together to ensure that their firm was run
properly.
[29] In short and in conclusion, in my
opinion, it was not reasonable to conclude, having regard to all
the circumstances of the employment, including the remuneration
paid and the terms and conditions of the employment, that the
Appellant would have entered into a substantially similar
contract of employment with the Hélie brothers if there
had not been a non-arm's length relationship between it and the
brothers or, in other words, if the latter had not owned the
Appellant.
[30] The appeal is allowed and the
Minister's decisions overturned.
Signed at Ottawa, Canada, this 22nd day of
July, 2004.
Lamarre Proulx, J.
Certified true translation
Colette Beaulne
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