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Citation: 2003TCC69
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Date: 20030225
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Docket: 2002-962(EI)
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BETWEEN:
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MONIQUE LEVESQUE,
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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
Angers,
J.T.C.C.
[1] The
appellant has appealed from a decision by the Minister of National Revenue
("the Minister") that her employment by Levesque Mécanique
Inc. ("the payor corporation") from May 3, 1999 to
March 17, 2000 and from February 19 to
June 29, 2001 ("the periods at issue") was not
insurable under the Employment Insurance Act ("the Act")
since the appellant and the payor corporation were not dealing with each other
at arm's length within the meaning of paragraph 5(2)(i) of the Act.
[2] In
reaching his decision, the Minister relied on the following assumptions of
fact, the truth of each of which was admitted or denied as indicated below:
(a) the payor
corporation was incorporated on or around October 11, 1991; its sole
shareholder is the appellant's spouse; (admitted)
(b) on
December 10, 1991, with her spouse, the appellant was a guarantor for
a loan in the amount of $105,000 negotiated on behalf of the payor corporation;
(admitted)
(c) since
February 16, 2000, the appellant has been a co-signor for a line of
credit in the amount of $25,000 on behalf of the payor corporation; (admitted)
(d) the payor
corporation's business is a service station, specializing in mechanical work
and also operating gasoline pumps; (admitted)
(e) the
appellant's duties were to help her spouse by being responsible for the
bookkeeping, accounts payable and accounts receivable, answering the telephone,
running errands, preparing and making the bank deposits, preparing the pump
attendants' work schedules, and pumping gasoline herself if necessary; (admitted,
since the period at issue)
(f) the
appellant performed similar duties for the payor corporation starting in 1991,
without being paid from 1992 to 1998, and without being on the payor
corporation's payroll; (admitted)
(g) the appellant
continued to perform similar duties outside the periods at issue without being
on the payor corporation's payroll; (denied)
(h) the payor
corporation issued cheques to the appellant both during and outside the periods
at issue; (denied)
(i) the
appellant and her spouse shared the income or wages received from the payor
corporation as follows:
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$300
per week each if they were both paid;
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$600
per week for the appellant if she was the only one of the two to be paid;
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$500
or $600 per week for the appellant's spouse if he was the only one of the two
to be paid;
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(denied)
(j) neither the
appellant nor the payor corporation recorded the appellant's hours of work,
although her wages were based on a 40-hour work week; (denied)
(k) the
appellant's services were required both during and outside the periods at
issue; (denied)
(l) the
appellant and the payor corporation are related persons within the meaning of
the Income Tax Act; (admitted)
(m) the appellant
and the payor corporation are not dealing with each other at arm's length; (admitted)
(n) 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 not
reasonable to conclude that the appellant and the payor corporation would have
entered into a substantially similar contract of employment if they had been
dealing with each other at arm's length. (denied)
[3] The
appellant explained that, during the first period at issue, she worked as an
accounting clerk for the payor corporation. Her duties were to be responsible
for the bookkeeping, to prepare the payor corporation's bank deposits, to
answer the telephone, and to serve the customers. She was paid $300 per 40‑hour
work week.
[4] During
the second period at issue, the appellant was required to take over the duties
of her spouse (who was also employed by the payor corporation) in addition to
her own duties. For all practical purposes, she was responsible for everything.
She stated that her additional duties were to be responsible for the employees'
pays and work schedules, to prepare the invoices, to drop off customers, to
negotiate the cost of repairs, and to approve credit to customers. She was
required to check the estimates prepared by the employees and to order the
parts required for repairs. During this second period, she was paid $600 per 40‑hour
work week. She acknowledged that, during the two periods at issue, it happened
that she worked overtime without being paid, even though her work schedule was
from 8:00 a.m. to 5:00 p.m.
[5] The
appellant explained that the work she did during the second period at issue became
necessary because her spouse had sciatalgia and was nearly always absent from
work or hardly ever went to work. She explained that she was hired because she
was familiar with the operations of the payor corporation's business and
because it would have been more expensive to hire someone else. She considered
her wages of $600 per week fully justified.
[6] The
appellant stated that, outside the periods at issue, she helped her spouse
balance the cash, prepare the bank deposits, and collect the accounts receivable.
She performed these duties without being paid. This point became relevant in
explaining why the deposit slips for some cheques deposited outside the periods
at issue referred to the appellant. The appellant explained this procedure by
noting that she cashed her family allowance cheque at the payor corporation,
which then deposited the cheque.
[7] On
her two applications for employment insurance (Exhibit A‑4), the
appellant indicated that lack of work was the reason her employment ended. She
explained that, when she was not working, her spouse was able to do all the
work. She added that, when she returned to work after a period of absence, she
had a great deal of work to do in bringing the payor corporation's affairs up
to date.
[8] Under
cross-examination, the appellant explained that the payor corporation employed
two mechanics, as well as young persons hired to pump gasoline in the evenings
and on weekends. She acknowledged that, on February 16, 2000, she was
a co-signor for the payor corporation's line of credit in the amount of
$25,000 and that, in 1991, she was a guarantor for a loan taken out
by the payor corporation in the amount of $105,000. She holds no shares in the
payor corporation and does not sit on its board of directors. She acknowledged
that her overtime is not recorded and that she is paid for a 40-hour work week.
The other employees are paid on an hourly basis. Only the persons who pump
gasoline are paid overtime. The two mechanics are the only employees who
receive paid statutory holidays or paid vacation leave.
[9] The
respondent called Germaine Landry, an Appeals Officer for the Canada
Customs and Revenue Agency, as a witness. Ms Landry adduced her report
(Exhibit I‑2) and explained how she carried out her investigation.
She interviewed the appellant and the representative of the payor corporation
by telephone and by correspondence. She also examined the documentation,
particularly the payor corporation's minute book, the 1999 general ledger, the
bank deposits, the appellant's pay cheques, the persons authorized by the payor
corporation to sign for banking purposes, the 1999 financial statements, and
the payor corporation's gross monthly income for the purposes of the quarterly
Harmonized Sales Tax remittances.
[10] This examination allowed Ms Landry to conclude that the payor
corporation's gross monthly income was steady during 1999 and 2000 and dropped
slightly in 2001, a situation that, according to the payor corporation, was
caused by an increase in the price of gasoline. The business was open seven
days per week including evenings; its hours of business varied depending on the
day of the week.
[11] Ms Landry also stated that during her interviews with the
appellant and the representative of the payor corporation they explained that
their wages were $300 per week each when they were both paid, being
careful to point out that more income tax was payable when only one person
earned $600 per week. However, they were unable to explain why the
appellant's spouse's wages were $500 per week from October 2000 to
February 2001.
[12] Ms Landry's investigation also showed that the appellant prepared
the payor corporation's bank deposits outside her periods of employment, and
that it happened that she cashed her family allowance and employment insurance
cheques at the payor corporation. It also happened that she was paid by the
payor corporation for cleaning work, without being on the payroll; the
appellant did cleaning work early in 1999, before the first period at issue.
[13] The other employees' wages vary from $320 per week for an
apprentice mechanic to $600 per week for the mechanic.
[14] In 1991, the appellant worked for the payor corporation and was paid
by it. As well, from 1992 to 1998, she worked for the payor corporation for five
hours per week, without being paid. The appellant considered that the work she
did at her home constituted work for the payor corporation, since at that time
the payor corporation's offices were located at her home.
[15] On the appellant's Record of Employment, the payor corporation
explained that the reasons the appellant's employment ended the first time, on
March 17, 2000, were not only a lack of work but also a cash flow
problem. The reasons her employment ended the second time were the fact that her
spouse returned to work from March 19, 2000 to
February 10, 2001 and the fact that the payor corporation was not
making a profit.
Law
[16] Before considering whether the Minister's
decision was justified, I must ask myself whether that decision resulted from the proper exercise of the Minister's discretionary
authority. Did the Minister act in bad faith or for an improper purpose? Did
the Minister fail to take into account all of the relevant circumstances, or
did the Minister take into account an irrelevant factor? Unless I find that the Minister exercised his
discretionary authority improperly, I have no jurisdiction to determine
whether, having regard to all the circumstances, it is
reasonable to conclude that the employer and the employee would have entered
into a substantially similar contract of employment if they had been dealing
with each other at arm's length (see Canada v. Jencan Ltd. (C.A.), [1998] 1 F.C. 187.
[17] The onus is on the appellant to establish that, in applying the
provisions of paragraph 5(3)(b) of the Act, the Minister
exercised his discretionary authority improperly.
[18] In accordance with Jencan, before this Court can intervene in
this case, the appellant must establish that the Minister took into account irrelevant factors or acted in
bad faith. In this case, the
evidence adduced leads me to conclude that the Minister analysed the two
periods at issue without actually distinguishing between them. Not only the pay
but also the payor corporation's needs were different during the second period
since the appellant was hired to replace her spouse, who was on sick leave.
[19] In my opinion, the fact that the worker was a guarantor for the loan
and a co-signor for the line of credit for the payor corporation is not a
relevant factor that must be taken into account unless it can be linked to an
obligation in the contract of service. Being a guarantor for the payor
corporation's loan and a co‑signor for its line of credit was required of
the appellant in her capacity as the spouse of the shareholder in the payor
corporation, not in her capacity as an employee. There is no evidence that the
appellant's employment was treated differently from that of an employee at
arm's length because of the fact that she was a guarantor for the loan and a
co-signor for the line of credit. Furthermore, the fact that she gained
experience with the payor corporation for nearly seven years on a voluntary
basis does not prevent the employer from entering into an employment contract
with a person not at arm's length who meets the requirements of
paragraph 5(3)(b) of the Act. In other words, a person not
dealing with the employer at arm's length may work on a voluntary basis and
subsequently be hired and have insurable employment, if that person meets the
requirements of the Act. The Minister should not take such a situation
into account unless it is possible to establish a direct link with the terms
and conditions of the employment.
[20] For these reasons, I find that the appellant has established on a
balance of probabilities that the Minister exercised his discretionary
authority improperly, and that I may review the facts and reach my own
conclusion on the basis of those facts.
[21] Concerning the second period at issue, from May 3, 1999 to
March 17, 2000, I find, as did the Appeals Officer, that the
appellant's wages of $300 per week were not excessive. As I mentioned
earlier, even though the appellant worked on a voluntary basis before the
period at issue, that factor did not prevent the payor corporation from hiring
her and paying her for her services. It is clear that her work was essential to
the business and that the payor corporation could justify hiring someone to do
it. The appellant worked a 40-hour work week; even if it happened that she
worked after her working hours, the evidence has not established that she did
so continually.
[22] There is nothing particular in the terms and conditions of employment
during the first period at issue that could allow me to find that the appellant
was apparently treated differently because she was not dealing with the
employer at arm's length. Statutory holidays are compulsory for all employees,
and the appellant is entitled to them. The responsibilities she assumed were
necessary to the business; the payor corporation was required to stop paying
her wages because of lack of funds. The appellant worked for a period of
46 weeks, which refutes the argument that the period of employment was
used solely to make her eligible for unemployment insurance benefits.
[23] It is true that the appellant's work was necessary to the business.
That said, I accept that under the circumstances the payor corporation was
justified in no longer paying her wages. The same thing would probably have
happened to an employee at arm's length, and the payor corporation would then
have relied on the appellant's doing the work on a voluntary basis. Concerning
the first period at issue, I find that, having regard to all the circumstances,
the appellant and the payor corporation would have entered into a similar
employment contract if they had been dealing with each other at arm's length.
The appeal concerning the first period at issue is allowed.
[24] Concerning the second period at issue, from February 19 to
June 29, 2001, I cannot make the same finding. The evidence has shown
that the work piled up until the appellant returned, since she stated that she
had a great deal of work to do in bringing the payor corporation's affairs up
to date. She was hired in order to replace her spouse, who was absent on sick
leave, and also because she was familiar with the operations of the business.
During the second period at issue, her wages were doubled on the ground that
she was required to assume double the responsibility. However, the evidence has
established that she was hired only to replace her spouse, not to continue
doing her own work. Her spouse received $500 per week, but she was paid
$600 per week to do the same work.
[25] Her job was to run the business; her role was more that of a boss or a
partner than that of an employee. Thus there is no doubt that her employment
was different from that of the other employees. The importance of her
responsibilities, the nature of her duties, and the fact that she continued to
work before and after the second period at issue mean that the parties would
not have entered into a similar employment contract if they had been dealing
with each other at arm's length. During this period, the appellant did her
spouse's work and her own work during the hours established for doing only one
of these jobs. If the appellant and the payor corporation had been dealing with
each other at arm's length, assuming these responsibilities would have been
impossible under the agreed-upon terms and conditions. The appellant's
employment during the second period at issue is therefore not insurable.
Accordingly, the appeal concerning the second period at issue is dismissed.
Signed at Edmundston, New Brunswick, this
25th day of February 2003.
J.T.C.C.
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