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Citation: 2003TCC231
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Date: 20030417
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Docket: 2002-184(EI)
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BETWEEN:
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CABANONS MARCEL VÉZINA
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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AND
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Docket: 2002-179(EI)
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MARTIN VÉZINA,
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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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AND
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Docket: 2002-180(EI)
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DENISE VÉZINA,
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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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AND
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Docket: 2002-183(EI)
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RÉJEAN VÉZINA,
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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
Deputy Judge Somers, T.C.C.
[1] These appeals
were heard on common evidence at Québec, Quebec, on January 29, 2003.
[2] The appellants
appeal from the decisions of the Minister of National Revenue (the “Minister”)
that the employment held by Réjean Vézina, Martin Vézina and Denise
Vézina, the workers, during the period at issue, namely, from January 1, 2000,
to June 15, 2001, with Cabanons Marcel Vézina Inc., the appellant company, were
insurable because their employment met the requirements of a contract of
service and there was an employer-employee relationship between them and the
payer.
[3] Subsection 5(1)
of the Employment Insurance Act (the “Act”) reads in part as
follows:
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;
[…]
[4] Subsections 5(2)
and (3) of the Act read in part as follows:
(2) Insurable
employment does not include
[...]
(i) employment
if the employer and employee are not dealing with each other at arm’s length.
(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.
[5] Section 251 of the Income Tax Act reads in part
as follows:
Section 251:
Arm’s length.
(1) For
the purposes of this Act,
(a) related
persons shall be deemed not to deal with each other at arm’s length; and
[...]
(2)
Definition of “related persons”.
For the purpose of this
Act, “related persons”, or persons related to each other, are
(a) individuals
connected by blood, relationship, marriage or common-law partnership or
adoption;
(b) a
corporation, and
(i)
a person who controls the corporation, if it is controlled by one person,
(ii)
a person who is a member of a related group that controls the corporation; or
(iii)
any person related to a person described in subparagraph (i) or (ii); and
[...]
(c) any
two corporations:
(i) if they are
controlled by the same person or group of persons,
(ii)
if each of the corporations is controlled by one person and the person who
controls one of the corporations is related to the person who controls the
other corporation,
(iii)
if one of the corporations is controlled by one person and that person is
related to any member of a related group that controls the other corporation,
(iv) if one of the
corporations is controlled by one person and that person is related to each
member of an unrelated group that controls the other corporation,
(v)
if any member of a related group that controls one of the corporations is
related to each member of an unrelated group that controls the other
corporation, or,
(vi)
if each member of an unrelated group that controls one of the corporations is
related to at least one member of an unrelated group that controls the other corporation.
[6] The burden of proof lies with the appellants. They
must establish on a balance of probabilities that the Minister’s decisions are
wrong in fact and in law. Each case must be decided on its own merits.
[7] In making his decisions, the Minister relied on the
following assumptions of fact set out in paragraph 7 of the Reply to the Notice
of Appeal in docket 2002-184(EI), which were admitted or denied:
[Translation]
(a) the appellant company was incorporated on
November 6, 1987, but the business has been in operation for 30 years;
(admitted)
(b) during the period at issue, the shareholders of
the appellant company were: (admitted)
Marcel Vézina 55% of the shares
Réjean Vézina 25% of the shares
Denise Vézina 10% of the shares
Martin Vézina 10% of the shares
(c) Marcel Vézina is the spouse of Denise and the
father of Réjean and Martin; Denise is the mother of Réjean and Martin Vézina;
(admitted)
(d) Marcel Vézina is the only shareholder to have
invested financially in the business; (admitted subject to amplification)
(e) Marcel Vézina gave shares of the appellant
company to Réjean, Denise and Martin Vézina without consideration; (admitted)
(f) the important decisions of the appellant
company are made by all four shareholders; (denied)
(g) financing for the appellant company is secured
by the assets of the business; (denied)
(h) the appellant company operated a business of
selling garden sheds, snow removal and civil engineering; (admitted subject to
amplification)
(i) the appellant company was in operation
throughout the year; (admitted)
(j) the appellant company owned about ten trucks
and about twenty machines; (admitted)
Réjean
Vézina
(k) Réjean
is a heavy equipment operator; (denied)
(l) Réjean
had his competency cards from the Commission de la construction Québec;
(admitted)
(m) during
the period at issue, Réjean worked throughout the year for the appellant
company; (admitted)
(n) Réjean’s
duties consisted in snow removal at Complexe Desjardins, maintaining the
machinery and supervising employees at the appellant company’s garage;
(admitted subject to amplification)
(o) Réjean
had a variable work schedule that reflected his responsibilities; (admitted)
(p) Réjean
could not absent himself without permission; (denied)
(q) Réjean
worked 50 hours a week on average for the appellant company; (denied)
(r) Réjean
was paid according to the standards of the Commission de la construction du
Québec when he worked as a machine operator; (admitted subject to
amplification)
(s) in
2000, Réjean received a fixed weekly salary of $636 for 37 weeks; (admitted)
(t) in
2000, Réjean received a variable weekly salary of $1,063 or $1,329 in
accordance with the construction pay rate for 15 weeks; (admitted subject to
amplification)
(u) in
2000, Réjean also received a $10,000 bonus from the appellant company;
(admitted)
(v) in
2001, Réjean received a weekly salary of $1,000 for 16 weeks; (admitted)
(w) in
2001, Réjean received a variable weekly salary of $952 or $1,191 in accordance
with the construction pay rate for 7 weeks; (admitted subject to amplification)
(x) Réjean
was paid each week by cheque; (admitted subject to amplification)
(y) Réjean
did not invest money in the business; (admitted subject to amplification)
(z) Réjean
did not guarantee loans or lines of credit for the payer; (denied)
(aa) Réjean
had no expenses to pay in respect of his work; (denied)
(bb) in
respect of his work, Réjean assumed no risk of loss or chance of profit;
(denied)
(cc) all
of the tools and equipment used in Réjean’s work belong to the appellant
company; (denied)
(dd) Réjean’s
work was an integral part of the appellant company’s activities; (admitted)
Denise Vézina
(ee) Denise
is a secretary; (denied)
(ff) during
the period at issue, Denise worked throughout the year for the appellant
company; (admitted)
(gg) Denise’s
duties consisted of taking care of the appellant company's office, doing the
bookkeeping and selling garden sheds; (admitted subject to amplification)
(hh) Denise
had a variable work schedule; (admitted)
(ii) Denise
worked in the office of the appellant company; (admitted subject to
amplification)
(jj) Denise
worked 40 hours a week on average for the appellant company; (denied)
(kk) during
the period at issue, Denise was paid $600 a week; (admitted)
(ll) Denise
was paid each week by cheque; (denied)
(mm) Denise
did not invest any money in the business; (admitted)
(nn) Denise
had no expenses to pay in respect of her work; (denied)
(oo) in
respect of her work, Denise had no risk of loss or chance of profit; (denied)
(pp) all
of the tools and equipment used in Denise’s work belong to the appellant
company; (denied)
(qq) Denise’s
work was an integral part of the activities of the appellant company;
(admitted)
Martin
Vézina
(rr) Martin
is a civil engineering technician; (admitted)
(ss) during
the period at issue, Martin worked throughout the year for the appellant
company; (admitted)
(tt) Martin’s
duties consisted of preparing tenders for civil engineering projects, managing
projects, supervising employees and doing snow removal for Ultramar; (admitted
subject to amplification)
(uu) Martin
had a variable work schedule that reflected his responsibilities; (admitted)
(vv) Martin
could not absent himself without a reason; (denied)
(ww) Martin
worked 60 hours a week on average for the appellant company; (denied)
(xx) in
2000, Martin received an hourly wage of $10.40; (admitted)
(yy) in
2000, Martin received weekly earnings of $624 for 37 weeks and $582.40 for 8
weeks; (admitted)
(zz) in
2000, Martin received a variable weekly salary of $896.22 at the construction
pay rate for 4 weeks; (admitted)
(aaa) in
2000, Martin also received a $10,000 bonus from the appellant company;
(admitted)
(bbb) Martin
received weekly earnings of $1,000 for 22 weeks in 2001; (admitted)
(ccc) Martin
was paid each week by cheque; (admitted subject to amplification)
(ddd) Martin
did not invest any money in the business; (admitted subject to amplification)
(eee) Martin
did not guarantee loans or lines of credit for the appellant company; (denied)
(fff) Martin
had no expenses to pay in respect of his work; (denied)
(ggg) in
respect of his work, Martin had no risk of loss or chance of profit; (denied)
(hhh) all
of the tools and equipment used in Martin’s work belong to the appellant
company; (denied)
(iii) Martin’s
work was an integral part of the activities of the appellant company.
(admitted)
[8] The appellant company was incorporated on November 6,
1987, but the business had been in existence for 30 years. The appellant
company manufactures and sells garden sheds, performs snow removal contracts
and does engineering projects (highways and water systems).
[9] During the period at issue, the shareholders of the
appellant company were Marcel Vézina, Réjean Vézina, Denise Vézina and
Martin Vézina, holding respectively 55% , 25%, 10% and 10% of the shares.
[10] Marcel Vézina is the spouse of Denise Vézina, and they
are the parents of Réjean and Martin Vézina.
[11] Marcel Vézina is the only shareholder to have invested
financially in the business and he gave shares of the appellant company to his
spouse and two sons, without consideration.
[12] The important decisions of the appellant company were
made informally by the four shareholders.
[13] The business, having approximately 40 employees, was in
operation throughout the year. The appellant company had about ten trucks and
some twenty machines. The annual turnover was alleged to be about $5,000,000.
[14] Denise Vézina handled the bookkeeping, the office and
customer sales and she received weekly earnings of $600.00 a week.
[15] Réjean Vézina took care of the garage, mechanical
repairs for the machinery and work on the machinery for the highway projects
and was responsible for the snow removal, and he received weekly earnings of
between $636.00 and $1,329.00.
[16] Martin Vézina took care of the engineering, the tenders
for the road and water system work, and the snow removal as well and received
earnings of between $624.00 and $1,000.00.
[17] The three workers worked variable hours throughout the
year, while the workers who were at arm’s length had regular hours, namely,
about 40 hours a week and were paid for any overtime.
[18] The three workers had a fixed weekly salary regardless
of overtime.
[19] Réjean Vézina and Martin Vézina each received a $10,000
bonus for 2000.
[20] The three workers had a great deal of authority in the
business; they made decisions in their respective sectors of responsibility.
They each had the right to hire and fire employees and to make purchases.
However, when purchases of heavy machinery were to be made, the four
shareholders consulted one another.
[21] Martin Vézina handled the tenders and contracts and
could make decisions without consulting the other shareholders unless the
amounts involved were very high.
[22] The evidence did not show that the appellants
guaranteed loans or lines of credit for the appellant company. When Martin
Vézina signed contracts, he did so as a representative of the business and not in
his own name; in signing them, then, no personal undertaking was given.
[23] Sometimes the workers delayed cashing their weekly pay
cheques because the business was going through a slow period.
[24] The workers could take vacations without asking permission;
they just had to let the other shareholders know and ensure that their absence
would not get in the way of the smooth running of the business.
[25] Judge Tardif of this Court, in Roxboro Excavation
Inc. v. Canada (Minister of National Revenue - M.N.R.), [1999] T.C.J. No.
32, the facts of which are similar to those in the instant cases, concluded
that the employment held by the co-shareholders and workers was insurable
although the workers and the employer did not deal at arm’s length. Judge
Tardif’s decision was affirmed by the Federal Court of Appeal ([2000] F.C.J.
No. 799).
[26] In Roxboro, supra,
Judge Tardif said:
The evidence showed that Roxboro had two main lines of
business: industrial and commercial excavation and snow removal during the winter.
[...]
It was shown that each of the Théorêt
brothers had specific, defined responsibilities within Roxboro. Each of them
devoted most of his available time to that company, although they were each
also marginally involved in ensuring the efficient operation of the other
companies.
In exercising their respective responsibilities, the Théorêt
brothers had a fair degree of independence and managed their own areas of
activity quite freely. They did not have to ask for permission when deciding
when to take vacations; they could be absent without having to give anyone an
explanation.
[...]
The respondent argued that the Théorêt brothers were not
running their own business and were therefore employees of the company that
paid them their salaries.
[...]
The key issue in this case is basically whether there was in
1996 a relationship of subordination between the company paying the
remuneration and the interveners. In other words, did the company have the
power to control and influence the work done by the Théorêt brothers?
In
this regard, I consider it important to point out that the courts have often
said that it is not mandatory or necessary that the power to control actually
be exercised; in other words, the fact that an employer does not exercise its
right to control does not mean that it loses that power, which is absolutely
essential to the existence of a contract of service.
The power to control or the right to
influence the performance of work is the main component of the relationship of
subordination that lies behind a genuine contract of service.
Assessing whether or not a relationship
of subordination exists is difficult when the individuals who hold authority by
virtue of their status as shareholders and/or directors are the same individuals
who are subject to a power to control or to the exercise of authority in
respect of specific work. Put differently, it is difficult to draw a clear line
when a person is an employee and in part an employer all at the same time.
In such cases, it is essential to draw a
very clear distinction between what is done as a shareholder and/or director
and what is done as a worker or non-management employee. In the case at bar,
that distinction is especially important.
Although the courts have identified four
tests to help in characterizing a contract of employment, the test relating to
the power to control is the most important; indeed, it is essential.
[...]
I
do not think that it is objectively reasonable to require a total, absolute
separation between the responsibilities that result from shareholder status and
those that result from worker status. The wearing of both hats normally-and
this is perfectly legitimate-creates greater tolerance and flexibility in the
relations arising out of the two roles…
In the case at bar, the fact that
authority did not seem to be exercisable against the Théorêt brothers and that
decisions concerning the company were made by consensus and collegially does
not mean that the company was deprived of its authority over the work done by
the interveners. The evidence did not show that the company had waived its
power to influence their work or that its right to do so was reduced, limited
or revoked.
[...]
In the case at bar, all the circumstances of the employment
and the terms and conditions suggest that there was a genuine contract of
service that was in no way affected by the non-arm's-length relationship; in
other words, the company did not confer any advantage or benefit that it would
not have conferred on shareholders who were at arm's length. Conversely, the
Théorêt brothers were not penalized because of their family status.
[...]
Rather, their status as shareholders explains certain
differences, which are moreover not so significant as to vitiate those elements
that are fundamental and essential to the existence of a genuine contract of
service.
Furthermore, it is fairly common to see co-shareholders who,
because of their status, discipline themselves in the interest of the company
in which they are shareholders.
[...]
…Each case is sui generis, and it is a matter of assessing
and analyzing whether the encroachments of the powers resulting from
shareholder status significantly altered the elements essential to the
formation of a contract of service.
[27] The Minister relies on subsection 5(3) and
paragraph5(1)(a) of the Act.
[28] In Wiebe Door Services Ltd. v. M.R.N., [1986] 3
F.C. 553, the Federal Court of Appeal identified four basic elements that
determine whether there is a contract of service: (a) the degree or absence of
control exercised by the employer; (b) ownership of the tools; (c) the chance
of profit and the risk of loss; and (d) the degree of integration.
(a) the
degree or absence of control exercised by the employer
[29] In the instant cases, Marcel Vézina is the majority
shareholder and holds 55% of the shares of the business. In fact, he never
waived his right of oversight or his power of control. He also did not waive
the rights attached to his shares.
[30] The evidence showed that Marcel Vézina continued during
the period at issue to be, with 55% of the shares, the majority shareholder
and, most importantly, the company’s chief administrative officer.
[31] The evidence that was heard showed that Marcel Vézina,
the chief administrative officer, participated in shareholders’ meetings,
including those held on weekday evenings. The Minister submits that the fact
that these meetings were held informally and the fact that the important
decisions and the new directions to be taken by the business were discussed by
all four shareholders does not mean that the appellant company did not have
authority over the workers.
[32] In Groupe Desmarais Pinsonneault & Avard Inc. v.
Canada (Minister of National
Revenue - M.N.R.), [2002] F.C.A. No. 572, Noël
J. of the Federal Court of Appeal said:
In
concluding that there was no relationship of subordination between the workers
and the defendant, the trial judge does not appear to have taken into account
the well-settled rule that a company has a separate legal personality from that
of its shareholders and that consequently the workers were subject to the
defendant's power of supervision.
The question the trial judge should have
asked was whether the company had the power to control the way the workers did
their work, not whether the company actually exercised such control. The fact
that the company did not exercise the control or that the workers did not feel
subject to it in doing their work did not have the effect of removing, reducing
or limiting the power the company had to intervene through its board of
directors.
We would add that the trial judge could
not conclude there was no relationship of subordination between the defendant
and the workers simply because they performed their daily duties independently
and without supervision. The control exercised by a company over its senior
employees is obviously less than that exercised over its subordinate employees.
If the trial judge had recognized that
the defendant had a separate legal personality, as he should have done, and
analyzed the evidence in light of the applicable rules (Wiebe Door Services v.
M.R.N., [1986] 3 C.S. 553), he would have had no choice but to conclude that a
contract of service existed between the defendant and the workers.
(b) ownership of tools
[33] The testimony of the three workers shows that most of
the tools were provided by the appellant company. Denise Vézina provided a
coffee maker, Réjean Vézina a chain saw maintained by the appellant
company’s business and Martin Vézina provided his own drafting table on which
he prepared the tenders for the business.
[34] It is important to remember that, at the beginning of
his examination-in-chief, Marcel Vézina clearly stated, in answering a question
by his representative, that all the equipment was provided by the company,
Cabanons Marcel Vézina Inc.
(c) the
chance of profit and the risk of loss
[35] As
shareholders, the three workers’ chance of profit and risk of loss were limited
to each worker’s interest in the company, namely, 25% for Réjean Vézina, 10%
for Martin Vézina and 10% for Denise Vézina.
[36] As employees, they assumed no risk of loss and had no
chance of profit. None of them had made a financial investment in the business,
taken out a bank loan for the business or provided a personal guarantee for the
appellant company’s business.
[37] The three workers received a fixed salary and were paid
by cheque every week.
[38] According to the evidence, the workers did not, as
employees, have any chance of profit or risk of loss.
(d) integration
[39] By their activities and functions, the workers were
integrated into the operations of the business.
[40] It was shown that the workers were related to the
appellant company under a contract of service.
[41] Since there is a non-arm’s length relationship between
the workers and the company, it must be determined whether it is reasonable to
conclude that they would have entered into a substantially similar contract of
work without this relationship.
[42] The workers performed their respective duties
throughout the year and were committed to the company’s success. They were free
to organize their schedules according to the needs of the business and their
respective responsibilities. They worked between 60 and 80 hours a week. The workers
did not enjoy the same working conditions as the other employees who worked
approximately 40 hours a week and were paid an additional amount for any
overtime. Because of their status in the business, the workers could not be
restricted to a fixed schedule.
[43] The workers were paid a fixed salary depending on the
kind of work they did, and this salary was reasonable in the circumstances.
Moreover, at the end of the year, the workers Réjean and Martin Vézina each
received a $10,000 bonus based on their skill and how the business had
performed; this bonus could be considered as a supplement to their earnings in
compensation for the long hours they worked.
[44] The three workers could take vacations without asking
anyone’s permission, but they would notify the other shareholders and ensure
that their absence would not cause any problems for the smooth running of the
business. These terms and conditions of employment were specific to their
status in the company.
[45] The Minister correctly concluded that the appellant
company would have hired other workers on the same terms and conditions even if
they had not been dealing among themselves at arm’s length.
[46] In view of the circumstances in the instant case, the
Court is satisfied that the Minister correctly exercised his discretion.
[47] Consequently, the workers held insurable employment
during the period at issue since the employment met the requirements of a
contract of service.
[48] The appeals are dismissed and the Minister’s decisions
are confirmed.
Signed
at Ottawa, Canada,
this 17th day of April 2003.
D.J.T.C.C.
Translation certified
true
on this 30th day of
January 2004.
Leslie
Harrar, Translator
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