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[OFFICIAL ENGLISH
TRANSLATION]
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Citation: 2003TCC499
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Date: 20030731
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Docket: 98-209(UI)
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BETWEEN:
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FERNAND HUARD,
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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
Tardif,
J.T.C.C.
[1] This
is the appeal from a determination dated February 24, 1998.
[2] Upon
exercising the discretion provided for by paragraph 3(2)(c) of the Unemployment
Insurance Act (the "Act"), the respondent concluded that
the work performed by the appellant should remain excepted from insurable
employment because he and 3094‑1546 Québec Inc., which is directed and
controlled by his spouse, were not dealing with each other at arm's length.
[3] The
periods in issue are from September 6, 1993, to June 4, 1994, from
February 6 to June 9, 1995, and from August 28, 1995, to
June 21, 1996.
[4] At the
start of the hearing, I explained at length to the appellant the parameters of
his burden of proof. As he was representing himself alone and without any
witnesses to support his appeal, I also warned him of the potential
difficulties in proving a genuine contract of service without the testimony of
one of the contracting parties, that is the representative of the company that
had paid his remuneration.
[5] Despite
the warnings, the appellant chose to proceed without making any change to his
strategy.
[6] The
appellant first admitted that he performed appreciably the same work as he had
previously done for the account and benefit of "Laidlaw". For his
previous employer, he said and repeated that he had worked more or less
70 hours a week at an hourly rate of $10, whereas, for the work concerned
by the appeal, he had received the same weekly remuneration, but for 40 hours
of work. There was thus a wage difference of $5 an hour: $10 an hour when he
worked for Laidlaw and $15 an hour when he worked for 3094‑1546 Québec
Inc., which was directed by his spouse.
[7] In the
employment in issue, he also received $0.30 per kilometer to cover his truck
expenses. According to the appellant's testimony, it had cost substantially
more than that to use his truck. He even said that he had lost money, as the
allowance received did not cover all expenses incurred.
[8] The
appellant also admitted that the duration of all the periods of employment in
issue corresponded exactly to the number of weeks required to qualify for
unemployment insurance benefits. He also admitted that he had resumed his work
after exhausting all the benefits to which he was entitled.
[9] During
the periods when he received benefits, he regularly did the same work, bundled
together in a single day, and received wages in such a way that that had no
effect on his benefits.
[10] Pierre‑Paul Tremblay
and Yvon Comtois testified at the respondent's request. Mr. Comtois
explained the content and the reasons for his analysis. He also emphasized the
various factors that had led him to conclude that a third party would not have
had substantially similar working conditions in similar circumstances.
[11] He
mainly emphasized two factors. First he said that the appellant had received
the highest wages of the payer company's employees, and, second, the business
received very large amounts of income during the periods when the appellant was
unemployed; conversely, when the appellant was at work, the income of the
business was not very high.
[12] Mr. Comtois
admitted that he had communicated his decision very quickly after the interview
with the appellant. He even admitted that the interview had in fact served only
to confirm or substantiate the conclusions drawn from the analysis of the
documentary evidence.
[13] He
admitted that he had not compared working conditions with those of the
appellant's former employment with Laidlaw. As to wages, he said that the
appellant had received the highest remuneration, although he had not
exhaustively analyzed the job descriptions for each of the salaries compared.
[14] As to
the conclusion that the appellant had worked during periods when income was
relatively low and had not worked during periods when income was high, he
essentially stated that the figures spoke for themselves and that he had not
thought it useful or necessary to delve more deeply into those issues.
[15] The
appellant answered by saying that his wages could not be compared to those of
other employees of the company since he had absolutely not done the same kind
of work, being in fact the company's utility man, whereas the others had
essentially acted as salesmen.
[16] As to
his periods of employment analyzed on the basis of the company's income, he
contended, though without bringing evidence, that the company's cash inflows
had nothing to do with his periods of employment. It would have been very
important to have the views of more qualified persons than him to explain this
very important element.
[17] In
light of the evidence adduced, it appears that Mr. Comtois drew hasty
conclusions from the findings of the analysis and of certain documentary
evidence.
[18] Based
on that information, he drew the conclusions that are at the origin of the
determination. The information considered might have permitted or justified
other conclusions than those formed. Hence it would have been important to take
the analysis of the various findings further.
[19] The
speed of the decision-making process after the interview also suggests that the
decision, to a large degree, was already made at the time of the meeting with
the appellant and the business's executive officer.
[20] I
believe that the interview essentially served to confirm a decision that
mentally had already been made. The interview served instead to verify and
supplement the investigation that had been limited at that point to the
documentary evidence.
[21] For all
these reasons, I find that the appellant discharged his first burden of proof
by showing that the respondent acted in a very hasty and hurried manner on the
basis of certain arithmetical findings.
[22] The
exercise of discretion was vitiated by a serious breach of a fundamental rule,
the audi alteram partem rule. The interview was merely a formal, not a
substantive exercise.
[23] Consequently,
the facts should be reanalyzed for the purposes of determining, on the basis of
the tests established by law, whether the work performed by the appellant
during the periods in issue was similar or comparable to the work he would have
performed for the account and benefit of a company with which he was dealing at
arm's length.
[24] On that
point, the appellant admitted that the work performed for the account and
benefit of the company controlled by his spouse was appreciably comparable to
the work he had previously done for Laidlaw.
[25] However,
he also said he had received the same weekly wage for far fewer hours; he thus
affirmed that, during the periods in issue, he had worked an average of
approximately 40 hours a week, whereas he had worked some 70 hours a
week for Laidlaw. He received $10 an hour at Laidlaw, $15 an hour at 3094‑1546
Québec Inc. This is the first, very important distinction.
[26] The
appellant also said that the work with his previous employer had been a
year-round annual employment, whereas the job with the payer company was more
of an ad hoc employment corresponding precisely to what he needed in order to
qualify for unemployment insurance.
[27] The
work resumptions were triggered by fairly particular conditions in that they
always occurred after the number of weeks of employment insurance had been
entirely exhausted.
[28] To sum
up, in each of the three periods in issue, the appellant worked only for the
period of time required to qualify for unemployment insurance, after which he
received the maximum amount of benefits payable, and did so for three
consecutive years. He resumed work after completely exhausting unemployment
insurance benefits.
[29] Layoffs
must have an economic justification (surplus inventory, economic slowdown,
mechanical breakdown, declining demand, consequence of competition, plant
closing, bankruptcy, departmental closing and so on). The same is true of work
resumptions (increased demand, economic recovery, and so on).
[30] Layoffs
and work resumptions are events arising in situations shaped by essentially
economic concerns, not by the desire to take maximum advantage of the unemployment
insurance program. Insurance benefits are payable during actual periods of
unemployment.
[31] It
could have been argued that chance was involved during one specific period, but
not in three consecutive periods. Here again, it would have been very important
for the person directing and controlling the company to come and explain these
repeated chance situations.
[32] On this
point, the appellant's only answer and explanation was that he had not acted
illegally. Indeed, there is nothing illegal in working the required number of
weeks and subsequently receiving unemployment insurance benefits for a planned
period.
[33] However,
unemployment insurance is not a business subsidization program; it is
essentially a support program for those who lose their jobs.
[34] A
genuine contract of service is part of an economic reality in which hirings
correspond to a need and layoffs are generally a consequence of a slowdown in
operations.
[35] The
reasons for both hiring and laying off must stem from the economic situation,
not the requirements of the Unemployment Insurance Act.
[36] The
appellant submitted no plausible evidence as to the reasons why he was laid off
in the various periods, nor did he explain the reasons why he returned to work.
Here again, it would have been important to hear the version of the person who
theoretically controlled the company.
[37] These
are decisive elements, sufficient to conclude that the appellant's conditions
of employment were neither comparable nor similar to those that a third party
could or should have had. Instead there was a scheme essentially for the sole
purpose of reducing the payroll by making use of the unemployment insurance
program.
[38] Furthermore,
other facts and elements confirm that the appellant's conditions of employment
were very particular. Following the layoffs, the appellant continued to work
one day a week and received remuneration which did not penalize him from the
standpoint of his unemployment insurance benefits.
[39] Here
again, this is a plausible and possible scenario in any business on certain
occasions. In the instant case, this was a systematic way of doing things. It
is quite surprising that a business whose economic purpose is carried out
year-round operates on the basis of the right of its principal employee, the
appellant, to receive unemployment insurance benefits.
[40] The
fact that the investment to incorporate the company was taken out of the joint
account of the appellant and his spouse and the fact that the appellant's wages
were deposited to the same joint account are not decisive factors in
themselves. However, they are significant details in the overall context.
[41] In
justifying the many particular aspects of his case, the appellant repeated that
the company was a very small SME and that he had not acted unlawfully or
fraudulently.
[42] Indeed
there is no question of fraud. The legislator has excepted from insurable
employment the work of persons not dealing with each other at arm's length, but
has nevertheless provided that, if the work is performed on terms and
conditions comparable to those that would have prevailed between third parties
in the same circumstances, the initially accepted employment could become
insurable.
[43] Such
provisions are not so flexible as to include employment that is excepted from
insurable employment merely on the ground that the case is deserving of
sympathy. The legislator has set down specific tests for determining whether a
contract of employment has been shaped or affected by non-arm's length dealing
between the parties to the contract of employment.
[44] In the
instant case, it was shown on a balance of probabilities, through the sole
testimony of the appellant, whereas his spouse, the sole shareholder of the
company, did not see fit to speak in support of the evidence, that the
appellant's contract of employment during the periods in issue was marked and
shaped to a high degree by non-arm's length dealing.
[45] With
respect to a contract of service, the notion of control cannot be presumed.
Control must be proven and the presence of both parties to the contract of
employment is obviously preferable for that purpose.
[46] The
appellant's only explanation was that the company was a very small business.
[47] The
provisions of the Act are not based on the size of the employer company.
The legislator essentially wanted to prevent the abuses that can be made easier
where the parties of the contract of employment are not dealing with each other
at arm's length.
[48] The
evidence in the instant case revealed the following elements.
·
The
appellant received a wage comparable to the one he had previously received in
the same type of commercial activity, but for more than 20 fewer hours per
week.
·
The
company was incorporated using funds from a joint account.
·
The
duration of the appellant's employment was shortened from that of an employment
held year-round in the same economic sector to the number of weeks necessary to
qualify for unemployment insurance, for the three periods in issue.
·
During the
three periods in issue, the appellant resumed his work immediately after
exhausting his unemployment insurance benefits.
·
The
appellant used a truck the operating expenses of which were very high and
received only $0.30 per kilometer, which, in his view, was utterly unreasonable
compensation.
·
He did not
work during certain periods when the income of the business was at its highest.
·
He worked
during certain periods when income was below average.
·
Although
the economic activities of the business generated income every month, the
appellant, during the long periods when he was not working, accumulated work,
which he performed in a few hours in a single day and received remuneration
such that his benefits were in no way affected.
·
The person in a position to explain the large and significant fluctuations
in the income of the business did not testify. The person controlling the
employer company did not testify.
[49] In
conclusion, the appellant did not discharge the necessary burden of proof in
order to win his case. Instead the evidence showed on a balance of
probabilities that the appellant enjoyed a special contract of employment,
shaped much more to take maximum advantage of the unemployment insurance
program than on the basis of the economic needs and realities of the company
from which he received his remuneration.
[50] As the
appellant's spouse did not testify, certain aspects of the evidence remained
vague and unclear. The Court must make do with the appellant's version. In view
of this absence, it might be tempting to conclude that the appellant occupied
and assumed a much more strategic role than that of an ordinary employee
subject to an employer's authority. Although this was an important aspect, the
evidence was not sufficient to draw any conclusions in this regard, except that
the evidence regarding the relationship of subordination was distinctly
deficient.
[51] This
major evidentiary deficiency is in addition to a preponderance of proof that,
during the periods in issue, the appellant did not perform work as part of a
contract that was valid or similar to the contract he would have had if he had
performed the work for a company with which he was dealing at arm's length.
[52] For
these reasons, the appeal must be dismissed.
Signed at Ottawa, Canada, this 31st day
of July 2003.
J.T.C.C.
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