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Citation: 2003TCC817
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Date: 20031117
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Docket: 2002-3372(EI)
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BETWEEN:
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WESTERN VARIETIES WHOLESALE (1994) LTD.,
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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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Docket: 2002-3373(EI)
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AND BETWEEN:
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RICHARD AWID,
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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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Docket: 2002-3374(EI)
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AND BETWEEN:
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KEMAL AWID,
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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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Docket: 2002-3375(EI)
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BETWEEN:
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THEODORE AWID,
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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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Docket: 2002-3376(EI)
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BETWEEN:
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LILA AWID,
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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
Miller J.
[1] These
five appeals, pursuant to the Employment Insurance Act (the "Act"),
were instituted by the Awid family and Western Varieties Wholesale (1994) Ltd.
(the "Company") to appeal against the decision of the Minister of
National Revenue (the Minister) that the four individual Appellants are deemed
to be at arm's length with the Company. The Minister found that, in accordance
with section 5 of the Act, the Awids would have entered substantially
similar employment contracts if they had been dealing with the Company at arm's
length.
[2] Richard
Awid, Kemal Awid, Theodore Awid (Ted) and Lila Awid, the individual Appellants,
maintained they were not dealing at arm's length with the Company for the
period from January 1, 2001 to March 7, 2002 and, therefore, were not in insurable
employment. As has been well established in cases of this nature, this is a
two-stage process; the first stage is to review the Minister's decision
rendered pursuant to paragraph 5(3)(b) of the Act in light of the
facts as proven at trial, in order to determine whether the decision was both
lawful and reasonable; the second stage arises only if it is found that the
Minister's decision was either unreasonable or unlawful, in which case the
Court is to make its own determination as to the applicability of paragraph
5(3)(b).
[3] All
four individual Appellants testified, as did their brother Jim Awid, a former
shareholder of the Company. The story of the Awid family is quite a remarkable
one. The Appellants are four of 16 siblings. Their father first opened a couple
of stores in Edmonton, having first emigrated to Winnipeg, Manitoba, before
moving on to Alberta. The Appellants' two oldest brothers became involved in
the wholesale business and in the 1950s bought their own business. They first
dealt in dry goods and expanded to include giftwares in the 1960s. They
operated under the name Western Varieties Wholesale. A number of the siblings
worked in the business.
[4] In
1993-1994, the Company was struggling financially and illnesses of the older
brothers caused Kemal, Theodore, Lila and Jim to consider taking over the
family business under the auspices of Western Varieties Wholesale (1994) Ltd.
As they explained, they did not want the name to disappear. They clearly felt
there was goodwill connected to the name "Western Varieties". They
arranged financing with CIBC by each pledging their Registered Retirement
Savings Plans as collateral. They carried on with their respective
responsibilities, though now as owners, as to each a 25 per cent
interest. They gave themselves titles: Kemal was general manager, Theodore was
manager, Lila was office manager and Jim was president. It was clear from their
testimony this was more to accommodate the formalities of the bank's
requirements than any serious desire to have titles. There was no written job
description. Two of four were required for signing authority at the bank.
[5] While
I will describe each of their roles in more detail later, there was a
consistent theme from their evidence that each of them, including Richard,
would do whatever had to be done to keep the business operational. This
included making coffee, dealing with customers, shovelling snow, delivering a
pickup, bank runs, writing up orders and the list went on.
[6] The
four shareholders would hold shareholder meetings regularly for purposes of
making major decisions. They would vote at such meetings. Richard was invited
to attend.
[7] When
the four siblings took over in 1994, the business was unable to pay them,
though after a couple of months some minimal wages were paid. A few months
later, on the advice of their accountant, they agreed to $3,250 a month each.
They would receive a small advance mid-month, with the balance at month end. As
the office manager in the group, Lila would know the Company's finances and
would occasionally not cash her cheque for weeks. No bonuses were ever paid.
Profits were left in the family business. The $3,250 monthly wages have not
varied since the mid‑90s, and apart from Lila's withholding cashing
cheques, have been paid regularly and consistently.
[8] The
Company's business was that of a wholesaler, serving customers primarily in
Western Canada by supplying every variety of dry goods, housewares, clothes,
linens, giftwares and toys. It would also occasionally locate particular goods
such as fridges or stoves for particular customers. A major part of the
Company's business was providing toys for customers' Christmas parties. Kemal
estimated this would represent 50 to 70 per cent of the Company's business.
This involved finding the toys, which meant a trip to Montreal and Toronto in
the New Year, shipping the toys to the warehouse, wrapping them, labelling and
delivering them. The period from mid-October to mid-December was consequently
the Company's peak season. This required hiring an additional 10 to 15
employees. During the rest of the year, the four individual Appellants, and
until later in 2001, Jim Awid, the older brother, would be able to run the
business with two or three other staff and an occasional bookkeeper. One full‑time
staff, Jan Watson, had been with the family business for over 25 years.
[9] During
the peak season, the business would open Saturday as well as the regular
business hours Monday to Friday. The Appellants would however work well into
the night during this two-month period. I will now paint a picture of each
individual Appellant's, Jim Awid's and Jan Watson's employment arrangement.
Kemal Awid
[10] Kemal would start his days at 6:30 a.m., as often he would be dealing
with Eastern Canada. From January to October he would normally leave work at
closing time – 4:30 p.m. He would often work one-half day on Saturdays. During
the peak season he would work until 9 or 10 in the evening.
[11] Kemal's primary responsibility was the purchasing of the non-toy dry
goods such as housewares. He made the annual Eastern swing with Ted and helped
with the Christmas rush. He likewise assisted the others in whatever way was
required. He indicated he felt very underpaid, earning probably not much more
than minimum wage. Why did he do it? Because it was a family business with
loyal customers, and he enjoyed it.
[12] When asked about vacations, he seemed somewhat puzzled as to what he
would be entitled to. He had only taken five days in the last two or three years.
It became clear the Awid family simply did not do holidays. Even on a day off
he would phone in and come back to the office if needed. He felt he could come
and go as he pleased during the day, and would do so on business errands, but
limited his personal errands.
[13] Kemal also acknowledged that he used his own car for business purposes
(deliveries and bank runs, for example) without ever charging the Company for
related vehicle expenses. He would also bring in his own tools on occasion if
anything required fixing. He would also incur incidental meal expenses with
customers or while at trade shows, which were not expensed to the Company.
[14] Kemal explained that there was nothing formal for paid sick leave, but
the family would get paid while unrelated employees would not. He described his
job as important to the business and as one that he handled competently.
Theodore (Ted) Awid
[15] Ted confirmed that the titles that each of the siblings had given
themselves were just names for bank purposes. He described his duties as
primarily in connection with the purchase of toys for the Christmas customers,
though likewise acknowledged he handled shipping and receiving, packing,
janitorial, customer relations, delivery and even banking on occasion. Basically
he did whatever needed doing. If he could not do something the others would
chip in. There was no formal job description.
[16] Ted could only guess at his take-home pay, though actually did not
seem concerned about the amount, other than feeling it was extremely low for
what he did. He felt he could get three times this wage anywhere else. He
stated that he worked 50-to 60-hour weeks from January to October and 80-hour
weeks in the busy Christmas season. He too did the work because he loved it,
and that it is simply what you do in a family business. He indicated that in
the early stages he had to dip into savings to make ends meet.
[17] Like the rest of the family Ted took minimal vacation time, citing
just three weeks in the last four years, though suggesting he could have taken
more had he wanted to. While he felt he could come and go as he pleased he
tried not to conduct personal work during regular business hours.
[18] Ted sometimes brought his own tools to work to effect repairs. He
never charged the Company nor did he charge the Company for the use of his car
or for other minor incidental expenditures such as the occasional customer's
lunch.
Richard Awid
[19] Richard was a teacher for many years but upon his retirement in 1999,
he joined his sister and brothers in the family business. As a younger man he
had often helped out in the business. His job was primarily tied in with the
children's Christmas party aspect of the business, which required the packaging
and delivering of 40,000 to 50,000 gifts. He stated that such volume required
year-round effort. He too did odd jobs around the work place including changing
lights, cleaning floors, delivery and pick-up, bank runs and packing. As he
said, there was always some kind of crossover with the other positions.
[20] Unlike the others, Richard was not a shareholder. He punched a time
card and was paid on a hourly basis ($8.50 per hour), however he stated that he
spent a lot of extra time at the business unaccounted for. He estimated a 50-55
hour workweek though only punched in 40 hours. Why – because as the universal
theme went – it was a family business. He considered overtime as donated hours
to helping the family. He felt he could ask for a greater wage but did not want
to, as he did not want to move into a higher tax bracket. He believed he could
get time off whenever he wanted and could come and go as he pleased. Sometimes
he would punch in and sometimes he would not. He too would bring the odd bit of
equipment such as pliers or snow shovels to work when necessary. He also relied
on his personal vehicle without any claim against the Company.
[21] On going through the Canada Customs and Revenue Agency (CCRA)
employment questionnaire in cross-examination, which Richard had signed, he
acknowledged several errors in the responses. For example, he did not own
shares nor was he a director of the Company. It is clear that all four
individual Appellants' questionnaires were identical, regardless of particular
circumstances.
[22] Richard would occasionally sit on shareholders' meetings though not a
shareholder, and would take part in major decisions, which impacted on the
Christmas party business.
Lila Awid
[23] When Lila and her three brothers, Jim, Kemal and Ted decided to
continue to run the family business in 1994, none of them were hired as such
for any particular position. She simply carried on doing what she had
previously done for the two oldest brothers when they were in charge; that is,
handle the majority of the office work. This included handling accounts
payable, accounts receivable, filing, dealing with customers, shipping,
cleaning, doing orders, delivery and pickup, packing, and as she put it,
"everything". She even supplied food for staff and customers
regularly. At Christmas time she and the family supplied all the food for the
office party at no charge to the Company.
[24] Lila drew the same wage as her brothers, as according to her, they
wanted to be fair to one another. At the outset in 1994, she drew nothing for
several weeks and tucked into her savings to survive. Since then, if finances
warranted, she would not cash a cheque for weeks or months. She estimated she
worked 60‑65 hours a week in the off peak times and 80-85 hours a week in
the busy Christmas season. She felt she was "absolutely underpaid"
and only did it because it was a family business – it was in her blood.
[25] Lila maintained she had not taken a holiday since 1980 and presumed
she had accumulated probably 20 years of vacation time. In 2001, she was off
work for several months due to a foot injury. She was advised by an Employment
Insurance official that she could not get employment benefits for this period.
The Company ultimately paid her salary while she was away.
Jim Awid
[26] Jim Awid was not an Appellant. He is the brother of the individual
Appellants and the former president of the Company. He had a falling-out with
the others in 2001, resigned and sold his 25 per cent interest to them. There
has been little, if any, communication between Jim and the others since that
time. He is somewhat bitter. The individual Appellants were universal in citing
the reason for Jim's departure as his reluctance to sign, with the others, for
the corporate borrowings. Jim painted a slightly different picture in that he
felt that the Company was seeking too great a loan, and he did not wish to
commit to that extent, but would have agreed to the lesser amount finally
negotiated. While the individual Appellants were guarded in their description
of Jim's departure, it was evident there was some sense amongst them that he
was not pulling his weight. Regrettably, this has developed a rift in the
family.
[27] Jim's view of his siblings' remuneration and hours worked differed
from the Appellants. He suggested Ted and Lila were overpaid for what they did.
Given the family acrimony, I attach less weight to Jim's testimony in this
regard.
Jan Watson
[28] Ms. Watson did not testify. She was the only long-term (25 years)
unrelated employee. She too was not an Appellant. The Appellants claimed she
knew the business well, though could not completely fill in properly for Lila
during her sick leave. Ms. Watson worked more on the floor as opposed to in the
office. She punched in and was paid an hourly wage. She too put in long hours
during the peak season for which she was paid overtime. She took no part in the
family decisions on major corporate issues. She reported mainly to Kemal, but
also to the others.
[29] In summary, with respect to the working arrangement, the Awid family
is a hardworking group, loyal to their business and certainly prepared to do
whatever it takes to remain viable. They do not distinguish between themselves
by titles nor by their different hats as shareholders, directors and employees.
They make major decisions as a group and always try to reach consensus.
[30] Mr. Orest Slywka, the CPP/EI appeals officer, also testified. As an
appeals officer, he approached the Company as he did any other file, as a fresh
appeal. While all he would have before him would be the prior rulings file, he
acknowledged that he owed no deference to the rulings officer. Upon receipt of
this file, he sent out questionnaires to the Awids and the Company, and
received back four identical questionnaires from the individual Appellants, as
well as the corporate questionnaire. Upon reviewing the questionnaires and the
rulings officer's report, he noted some contradictions. He felt the rulings
report was more significant. He did not follow up with the Awids. He relied on
the Provincial Labour Standards website to conclude that the remuneration to
the individual Appellants was in the market, though at the low end in
comparison with other sales-like positions. On May 29, 2002, he issued a CPT110
Report, recommending the Awids be found to be in insurable employment. This was
forwarded to his supervisor, Ronald Smith, who signed the decision the next
day, and mailed it to the Appellants that same day. It stated:
It has been decided that this
employment was insurable for the following reason: Kemal Awid, Theodore Awid,
and Lila Awid were engaged under contracts of service and therefore they were
employees of yours. The Minister is satisfied that you and Kemal Awid, Theodore
Awid, and Lila Awid would have entered into substantially similar contracts of
employment if you had been dealing with each other at arm's length.
Analysis
[31] Mr. Coward, Appellants' counsel, set the context for the issue in
these appeals as follows. The Awids always paid the employment insurance
premiums. They had done so since 1994 when they took over the business. But, as
non-arm's length employees, they should have been prima facie excluded
from the employment insurance scheme. That is what paragraph 5(2)(i) says. Only
if the Minister is satisfied, pursuant to paragraph 5(3)(b) that it is reasonable
to conclude that they would have entered a substantially similar contract of
employment, if they had been dealing at arm's length, do they get swept into
the employment insurance regime. So, the Appellants kept paying the premiums.
Now they want them back. This is not a situation of the Appellants wanting in
and trying to satisfy the Minister of the arm's length nature of the
employment. This is a matter of the Minister trying to satisfy himself to bring
the reluctant Appellants into the scheme. This appears to run contrary to the
Government's questionnaire, which states that the employees must supply details
of the working arrangement to satisfy the Minister that the arrangement was in
fact different.
[32] The Crown argues that notwithstanding the questionnaire, the
legislation is clear in that the Minister need be satisfied on this point, but
does not place the onus on the Appellants to satisfy the Minister. It is simply
the Minister's job to make a determination relying on the non-exhaustive factors
cited in the section itself. It is helpful at this stage to reproduce the
section in question:
5(3) 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.
Mr. Coward emphasized that paragraph 5(3)(b) is a remedial measure,
designed to assist the related employee who would otherwise be excluded.
[33] To consider the Minister's decision and replace it with my own
decision, it must be established that:
(a) The Minister
acted in bad faith or for an improper motive or in contravention of some
principle of law; or;
(b) failed to take into account all relevant circumstances;
or;
(c) took into account any irrelevant factors.
[34] Dealing with the first arm of this three-pronged analysis, I am
satisfied there has been no evidence of bad faith or improper motive. The issue
is whether the Minister acted unlawfully in breaching any principles of natural
justice. The Appellants contend the Minister has, and cite the following
instances of such breach:
(i) reaching a
decision based primarily on the Rulings file, which was never shown to the
Appellants;
(ii) at the appeals
level, a fresh look according to the appeals officer, the appeals officer
received questionnaires from the Appellants which contradicted parts of the
Rulings report and did nothing other than discount the answers in the
questionnaires; and
(iii) the appeals
officer's supervisor sent notices of the decision to the Appellants the day
after receiving the appeals officer's recommendations, offering no explanatory
reasons for the decisions other than a repetition of paragraph 5(3)(b).
[35] While the Respondent acknowledged the process leaves something to be
desired, she maintains the Minister has done what was statutorily required. The
Appellants had two opportunities to make their position clear – first to the
Rulings officer and second to the appeals officer through the questionnaire.
How much more opportunity must the Minister provide, the Respondent asks. And,
yes, agrees the Respondent, the notification is not lengthy, but it does
stipulate that the Minister found the employment contracts substantially
similar to arm's length employment contracts. No principles of natural justice
have been breached, especially given the Appellant's final opportunity to
appeal to this Court.
[36] If the appeal to this Court was simply for a redetermination of the
substantive issue, I might agree with the Respondent on the latter point, but
this hearing is more in the nature of a judicial review of the Minister's
decision. The principles of natural justice should be applied to the process
prior to knocking on the Tax Court's door, rather than somehow viewing this
Court as some saviour of the principles of natural justice for Appellants such
as the Awids.
[37] The Appellants referred me to my decision in Bancheri v. M.N.R. for support of a
finding that the Minister's actions were unlawful. That situation had a element
of bad faith which is not present in this case. Do the faults in the procedure
followed by the Government in this case, which have been adequately outlined in
the three points above, absent that bad faith, constitute sufficient breaches
to justify a review? Before answering that question I would add that the very
delivery of the questionnaire to the Appellants, framed as it was, putting an
onus on them to prove the dissimilarity with an arm's length employment
contract is an additional fault in the process.
[38] It is, as the Respondent pointed out, the Minister's job to make an
objective determination. The legislative starting point is that the Awids are
excluded due to their non-arm's length relationship. The Minister's approach,
through the questionnaires, of insisting the Awids prove the dissimilarity of
their contracts with arm's length contracts is misleading: it is certainly not
an objective approach. It suggests to the Appellants that you are in the scheme
unless you can prove otherwise.
[39] Relying on the Rulings report, which was never shown to the
Appellants, in and of itself is not determinative of an unfair procedure, but
relying on it because of contradictions with answers in the subsequent
questionnaire, without affording the Awids the opportunity to explain those
contradictions, is a serious denial of a right to be heard. The appeals officer
never spoke to the Awids. He never contacted them to ask for an explanation of
the differences between their written answers on the questionnaire and verbal
answers they gave to someone else. Had the questionnaire been consistent with
the Rulings report, further follow-up may not have proven necessary. But in
acknowledging that he simply relied more on the Rulings report with no further
contact with the Appellants, the appeals officer denied the Appellants the
right to answer, the right to be heard.
[40] Finally, the form of the decision would not of its own constitute a
severe enough breach to justify a review. It is not sufficient to simply
regurgitate the provisions of the Act. In saying this, I am not
suggesting a 25-page tome on the subject is required, but certainly some expansion
of the factors relied upon would be in order. For example, in reviewing the
remuneration factor, a statement to the effect the Appellants' remuneration was
compared to information obtained from labour standards, and was found to be in
the market range, albeit at the low end, would be helpful. Also, it would be
enlightening to the Appellants to see some reference to the regularity of pay.
This does not require hours of work. I say this as I am aware of the practical
application of a concern regarding the Minister's procedure. Do these concerns
translate into costly, labour intensive, time-consuming procedures for which
the government may be undermanned? I think not. The answer is not more appeals
officers spending a great deal more time. The answer is sufficient disclosure,
objective questionnaires, where warranted appropriate follow-up,
concluding with understandable reasons not limited to a repetition of the
legislation. These have not been egregious breaches, requiring monumental
effort to rectify, but cumulatively they justify the Court's intervention.
[41] While I am prepared to review the Minister's decision based on my
finding thus far, I can reach the same conclusion considering the other two
stages of the first arm of the analysis; that is, the issues of whether the
Minister failed to consider relevant or considered irrelevant factors. Justice
Marceau clarified this aspect of the review in Légaré v. M.R.N. where he indicated:
[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.
[42] Were the facts the Minister relied on real and correctly assessed in
this case, now fully appreciating the context as has been presented at trial? I
do not believe they were, as a review of those facts set out in the
Respondent's Reply will reveal. It will not be necessary to go over every fact,
which the Respondent pleaded, but I will highlight several which have satisfied
me on this point. All references are to paragraph 7 of the Minister's Reply to
Notice of Appeal.
7 In deciding
as he did, the Minister relied on the following assumptions of fact:
...
(f) Kemal Awid
was hired as a general manager and his duties included overseeing the business
operation, purchasing house wares and miscellaneous items, hiring staff,
dealing with clients, and helping out at Christmas;
(g) Theodore Awid
was hired as a manager and his duties included overseeing the purchasing of
toys and other merchandise;
(h) Lila Awid was
hired as an office manager and her duties included receivables, payables,
bookkeeping, paper work, freight issues, supervising office staff, hiring, and
dealing with clients;
(i) Richard Awid
was hired to organize the Christmas gifts for client Christmas parties and to
obtain new clients;
[43] These statements all suggest a
"hiring" took place for specific, identifiable positions. That is
simply not the context. No one actually hired the four individual Appellants as
such, and certainly not for specific positions. Kemal, Lila and Ted were all
family members carrying on doing what they had been doing for years, but as of
1994, on becoming owners, and all that entailed (specifically the new hats of
shareholders and directors), they also agreed amongst themselves for bank
purposes to give themselves titles. There were no formal hirings, or job
descriptions. The Awids simply acted as entrepreneurial owners/managers and
agreed amongst themselves they would do what was necessary to keep the business
viable. With respect to Richard, upon retirement, it was clear that he would be
welcome to join the family firm on a similar basis as the rest of the family;
that is, you work as long and as hard as it is necessary.
[44] 7(l) The Workers' wages were not unreasonable. Mr. Slywka testified that he compared the
Awids' salary to those of sales representatives based on a provincial labour
standards website. He acknowledged that the high end of that information was
over $125,000 annual salary, and that the Awids' wages were at the low end of
the range. The individual Appellants testimony was universal on this issue –
they believed they were underpaid. They only worked for the Company for this
wage because it was family. They drew the same salary since taking over the
business since 1994. Kemal, Ted and Lila had all worked in the business for
years. These were not junior employees just starting out but people in their
50s and 60s, in the twilight as opposed to dawn, of their careers. This context
satisfies me the Crown's assessing of the wages being "not
unreasonable" inaccurately describes the situation.
[45] 7(p) The Appellant's payroll was handled by a payroll service. This is not the case.
[46] 7(t) The Workers were entitled to paid vacation leave. While the individual Appellants
acknowledged they were likely entitled to paid vacation leave, they were all
flummoxed by what that actually meant. It was telling that Lila's answer to the
question of how much vacation she felt entitled to was "20 years" not
two or three weeks as one might suspect. The Appellants did not take
significant vacations. In the few days they might take time off, they felt
compelled to stay in touch with the office. I find that failing to take into
account all the circumstances of the vacation issue was a significant disregard
of the relevant facts.
[47] 7(y) The Workers normally did not come and go as they pleased. While the Appellants acknowledged they
did not normally come and go as they pleased, it was not because they felt any
contractual obligation not to (indeed they all believed they could come and go
and all did to a small degree) but due to their dedication to their family
business.
[48] 7(cc) The Appellant provided all of the tools and equipment required
including a fully furnished work location. A glaring exception to this statement is that all
individual Appellants relied on their own vehicles to assist in carrying out
their responsibilities. No charges were claimed by them from the Company for
such use. A minor point as well is that all individual Appellants stated they
brought their own small equipment such as screwdrivers or hammers to work, for
minor repairs.
[49] 7(dd) The Workers did not incur any expenses in the performance of
their duties. The Appellants
indicated that in dealing with customers that they would sometimes pay for
incidental disbursements such as lunches, and oftentimes nothing got charged to
the Company.
[50] From these examples, I conclude that the underpinning of the
Minister's decision is subject to review, as the facts have not been correctly
assessed having regard to the context of the family business and the terms
under which the Awids operated. I believe the Awids have presented new facts
and provided a context which suggest the facts the Minister relied upon were
misunderstood.
[51] To proceed then to the second stage of the analysis, having determined
the Minister's decision is reviewable, I will determine if the individual
Appellants and the Company are deemed to deal at arm's length; that is, would
they have entered into a substantially similar contract of employment if they
had been dealing with each other at arm's length.
[52] This is not a case of fictitious jobs for family members. There is
simply no question of the legitimacy of the Appellants' positions. This is a
story of a hard‑working family where lines of responsibility overlap
amongst family members, decisions are by consensus and work is everything.
"Vacation" appears to be a dirty word. So, on attempting to answer
the question of the substantial similarity with an arm's length employment
contract, I am not faced with the usual dilemma of being satisfied there are
enough trappings of full-time legitimate, relevant, important work. That is not
the issue. Here there is no question all four individual Appellants were
engaged in meaningful, full-time employment, which they handled competently.
The question is whether the circumstances of such employment are substantially
similar to an arm's length employment contract. Certainly, none of the
Appellants thought so. They were each individually incredulous that anyone
would ever consider working under these conditions in anything other than a
family business. I should note that none of the Appellants were present for
each others' testimony, at their own request.
[53] The Respondent says this is exactly the type of family employment
situation which paragraph 5(3)(b) was intended to cover.
[54] The legislation requires that I consider "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".
Remuneration
[55] In 1994, Ted, Kemal and Lila started their owner/manager wholesale
business drawing little salary. After a few months, upon the advice of their
accountant, they decided to draw $3,250 a month each, a salary which has not
changed to this day. While the amount may be within the realm of what someone
in the arm's length contract might draw in a managerial sales position, I note
the following significant differences from an arm's length contract:
- the employees set their own wage;
- the employees never got paid overtime;
- the employees
never sought an increase but drew an amount based more on needs than on jobs
worth;
- the employees got paid for sick time; and
- the employees never received bonuses.
Terms and Conditions
[56] The terms and conditions of the Awids employment are most illustrative
of the chasm between their arrangement and an arm's length arrangement. In particular,
I rely upon the following factors:
- the employees'
duties were not those of employees hired for specific duties. Though each of
the individual Appellants did have major areas of responsibility, the Awids
were expected to, and did, cover for one another, as well as doing anything and
everything that needed attention to keep the family business going.
- the employees
provided their own vehicles, as well as less significant tools to assist in the
performance of their responsibilities. None of them submitted an expense
account to the Company for such use.
- the employees
incurred incidental expenses, such as customers' lunches, which came from their
own pockets, for which they were not reimbursed.
- most telling was
Lila's description of the staff's Christmas party; the family provided all the
food not from the Company's coffer but from their own resources.
- entitlement to
vacation was a fiction for these employees, and even when they took a day here
or there, there was an expectation they would check in at the office.
- the employees
could come and go as they pleased, but did not abuse that right. Clearly
business came first.
- the employees are
not accountable to any boss and perform their work unsupervised. They are in
their position as long as they want to be. As Lila put it, if there are any
disagreements about work they simply talked it through.
Duration and nature and importance of work
[57] The employees were all long-term employees with full-time important
jobs, which they handled competently. In this regard, yes, they were engaged in
similar employment to an arm's length employee, but this must be put in
context. The Awids were principals of their distributorship business: their
relationship with the Company was premised on that basic understanding. Even
Richard, who was not an owner, was invited to participate in the decisions
which would affect the direction and ongoing viability of the business. The
Awids were not in any sense in any subordinate position. They called the shots
including the terms of their own employment arrangement, and I am satisfied
they could change those terms whenever and however they wanted. That is not the
type of third-party employment arrangement I believe is to be captured by
paragraph 5(3)(b) of the Act.
[58] Although the circumstances in Crawford Ltd. v. M.N.R. were different, I
endorse the following comments of Judge Porter:
91 On a
final note it seems to me, in general terms, that quite clearly the scheme set
up by Parliament excludes from insurable employment, those situations where
people are in business for themselves, or have substantial control of the
corporations for whom they work, either with persons to whom they are related
or with whom they are not dealing at arm's length. If in those situations the
working relationship is substantially the same as that which exists between
unrelated people dealing with each other at arm's length, then clearly
Parliament has tempered the severity of depriving such people of the
opportunity to participate, by giving the Minister a discretion to let them
into the scheme. It seems clear that this process was not designed by
Parliament to draw into the net of the employment insurance scheme, employment
arrangements, where people are virtually operating their corporate businesses
as their own business; where they are economically intertwined with their
corporations to such an extent that there is really no adverse economic
interest between them; where in essence they are entrepreneurs not workers
engaged in employment.
92 Whilst it
is clear that there are many who make contributions to the scheme, who might
never expect to claim from it, which is not the point, it is equally clear that
the scheme is designed to be for the benefit of and to be supported by
contributions from genuine employees and not from those, who somewhat go out on
a limb to pursue their own entrepreneurial interests. Those who do that, take
their own risks and are expected by Parliament to look after themselves in the
event of bad times. The scheme has been very much set up for the benefit of
those in regular employment situations and not for those in business for
themselves. Clearly in the appeals at hand the three workers in question were
effectively in business for themselves.
[59] I find Kemal, Ted and Lila were effectively in business for
themselves. Although Richard was not an owner, he acted like one. In his case,
I am also influenced by his dictating the wages for which he wanted to work, a
lesser wage than what he knew he could have demanded elsewhere.
[60] In summary, the remuneration and terms and conditions of the
Appellants' employment are sufficiently dissimilar from an arm's length
arrangement to find the Appellants are excluded from insurable employment. The
context of their employment as principals of a family business reinforces this
view.
[61] I allow the appeals and refer the matter back to the Minister of
National Revenue on the basis that the individual Appellants are excluded from
insurable employment. I make no award of costs.
Signed at Ottawa, Canada, this 17th day of
November, 2003.
Miller
J.
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