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Citation: 2003TCC606
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Date: 20030910
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Docket: 2001-3131(EI)
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BETWEEN:
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VANESSA HEATHER VALENTE,
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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
O'Connor, J.
[1] The issue in this appeal is
whether the Appellant ("Worker") was, in respect of the
period July 7, 1999 to January 31, 2001, engaged in
insurable employment with Profile Tile Inc. ("Payor") a
Toronto based company, the sole shareholder of which was the
Worker's father, Carmen Valente ("Carmen"), thus
resulting in the Worker and the Payor being not at arm's
length..
[2] The applicable provisions of the
Employment Insurance Act S.C. 1996 c. 23 are:
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;
...
(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 purpose of
paragraph (2)(i),
(a) the
question of whether persons are not dealing with each other at
arm's length shall be determined in accordance with the
Income Tax Act; and
(b) if the
employer is, within the meaning of that Act, related to the
employee they are deemed to deal with each other at arm's
length if the Minister of National Revenue is satisfied that,
having regard to all the circumstances of the employment,
including the remuneration paid, the terms and conditions, the
duration and the nature and importance of the work performed, it
is reasonable to conclude that they would have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length.
Background
[3] The issue in this appeal was first
heard by MacLatchy D.T.C.J., - Valente v. Canada
[2002] T.C.J. No. 287.
Deputy Judge MacLatchy in dismissing the appeal concluded as
follows:
15. It is incumbent on the
Payor to convince this court that one of the enumerated errors
was committed by the Minister in reaching his decision. The Payor
has not done so. There did not appear any substantial evidence
... to support a claim that in exercising his discretion the
Minister took into account an irrelevant factor or that he failed
to take into account all of the relevant circumstances ... In the
circumstances, it was reasonable for the Minister to conclude
that the Payor and the Worker would not have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length.
16. As there is no
reviewable error provided by the Payor and the Worker, this Court
must accord due deference to the Minister's decision.
In overturning this decision of MacLatchy D.T.C.J.
the Federal Court of Appeal at [2003] FCA 132
stated:
Having carefully considered the submissions of counsel and the
reasons for the decision of the Tax Court Judge, we are all of
the view that the Tax Court Judge erred in law in reaching his
conclusion. In particular, he failed to consider the directions
of this Court in Légaré v. Ministre du
Revenue National (1999), 246 N.R. 176, [1999] F.C.J. No. 878 (QL)
(F.C.A.) and Pérusse v. Canada (Minister of National
Revenue) (2000), 261 N.R. 150, [2000] F.C.J. No. 310 (QL)
(F.C.A.). These cases mark a departure from earlier decisions in
defining the role of the Tax Court in considering appeals from
Ministerial determinations under paragraph 5(3)(b) of the
Employment Insurance Act, S.C. 1996, c. 23. This application will
be allowed with costs. The decision of the Tax Court will be set
aside, and the matter will be referred back for a new hearing
before a different Tax Court Judge.
[4] Thus the Federal Court of Appeal
has delineated a new judicial approach towards appeals of such
Ministerial determinations. The earlier approach and the one that
guided MacLatchy D.T.C.J. was analyzed in Canada (A.G.) v.
Jencan Ltd. [1998] 1 F.C. 187 and The Queen v. Bayside
Drive-In Ltd. (1997) 218 N.R. 150, both decisions of the
Federal Court of Appeal.
[5] According to those decisions, the
Minister had a quasi-judicial discretion in determining whether
"it is reasonable to conclude that ... a substantially
similar contract of employment" would have resulted between
the non-arm's length parties had they been arm's length.
As such, the Court must respect and defer to, and not interfere
with, the Minister's decision unless arrived at in an
unlawful manner - e.g. 1) if the Minister acted in bad
faith or for an improper motive, 2) if the Minister failed to
take into account all of the relevant circumstances as expressly
required by the provision, or 3) if the Minister took into
account an irrelevant factor.
[6] The new judicial approach is
summarized by Marceau J.A. in Légaré as
follows [paragraph 4]:
The Act requires the Minister to make a decision 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.
[7] After quoting the above, Marceau
elaborates in Pérusse at paragraph 15:
The function of an appellate judge is thus not simply to
consider whether the Minister was right in concluding as he did
based on the factual information which Commission inspectors were
able to obtain and the interpretation he or his officers may have
given to it. The judge's function is to investigate all the
facts with the parties and witnesses called to testify under oath
for the first time and to consider whether the Minister's
conclusion, in this new light, still seems "reasonable"
(the word used by Parliament). The Act requires the judge to show
some deference towards the Minister's initial assessment and,
as I was saying, directs him not simply to substitute his own
opinion for that of the Minister when there are no new facts and
there is nothing to indicate that the known facts were
misunderstood. However, simply referring to the Minister's
discretion is misleading.
[8] The "New Hearing"
ordered by the Federal Court of Appeal was held before me at
Toronto, Ontario on August 8, 2003. Counsel for the parties
submitted a Partial Statement of Agreed Facts and this was
supplemented by the testimony of the Worker and Carmen.
[9] The said Partial Statement reads
as follows:
The Appellant and the Respondent admit the truth of the
following facts for the purposes of the within appeal:
1.
Profile Tile Inc. (hereinafter "Profile") is a Toronto
based company that has been operating for more than 25 years in
the retail tile and carpeting business and the custom interior
renovation business.
2.
All of the issued and outstanding shares in the capital of
Profile are owned by Carmen Valente.
3.
Carmen Valente is the Appellant's father.
4.
At the relevant time, the day-to-day operations at Profile were
managed by Carmen Valente and Silvio Quattrociocchi.
5.
During the period beginning on or around July 7, 1999 and ending
on or around January 31, 2001 (the "relevant period"),
the Appellant was employed by Profile in, without limitation, a
customer service, sales and marketing, design and display, and
bookkeeping and administrative capacity.
6.
From the commencement of the "relevant period" to
approximately February 3, 2000, the Appellant earned and was paid
approximately $575 per week ($450 per week (payable
bi-weekly by cheque) and $500 per month (payable monthly by
direct deposit)).
7.
From February 3, 2000 to approximately the third or fourth week
of June, 2000 (the "Non-Pay Period"), the Appellant
agreed to defer the receipt of her salary in an effort to assist
and ameliorate Profile's short term cash flow problems during
said period.
8.
From approximately the third or fourth week of June, 2000 to
January 31, 2001, the payment of the Appellant's salary
resumed and the Appellant earned and was paid approximately $750
per week, payable bi-weekly, during said period.
9.
On or about the beginning of February, 2001, the Appellant left
her employment with Profile on account of maternity leave.
10.
On April 15, 2001, the Appellant appealed to the Respondent to
determine whether her employment with Profile from July 8, 1999
to January 31, 2001 was "insurable" for employment
insurance purposes.
11.
On May 30, 2001, the Respondent advised the Appellant that he had
determined that the Appellant's employment with Profile from
July 8, 1999 to January 31, 2001 was not "insurable"
for employment insurance purposes for the reason that the
Appellant and Profile were not dealing with each other at
arm's length, within the meaning of paragraph 5(2)(i)
of the Employment Insurance Act (Canada).
12.
In making his determination, the Respondent "assumed"
(as set out in paragraph 6(f) of the "Reply") that
"the Appellant's remuneration was excessive, compared to
other employees with more responsibilities". The Respondent
admits that his assumption in paragraph 6(f) of the
"Reply" is incorrect. Save and except for during the
"Non-Pay Period", the Appellant's remuneration was,
at all times, commensurate with the remuneration received by
other arm's length employees at Profile with similar
responsibilities.
13.
In making his determination, the Respondent "assumed"
(as set out in paragraph 6(i) of the "Reply") that
"the Appellant received a bonus from [Profile], yet other
employees dealing at arm's length with [Profile] did not
receive a similar bonus". The Respondent admits that his
assumption in paragraph 6(i) of the "Reply" is
incorrect. The Appellant did not receive any form of
"bonus" dissimilar to bonuses that may have been
received by other arm's length employees at Profile with
similar responsibilities.
14.
In making his determination, the Respondent "assumed"
(as set out in paragraph 6(j) of the "Reply"), that
"the Appellant's hours of work were not recorded, which
is not common when parties are dealing at arm's length".
The Appellant admits that she did not record her hours of work
while working at Profile. However, the Respondent admits that the
Appellant was a salaried employee and was not required to record
her hours, and that the overwhelming majority of employees
working at Profile were not required to record their hours of
work. The Respondent admits, therefore, that his assumption in
paragraph 6(j) is partially incorrect (as it relates to other
arm's length employees).
15.
The Appellant admits that she is "related" to Profile
within the meaning of the Income Tax Act (Canada).
16.
The Appellant admits that she did not always cash her pay cheques
on a timely basis as assumed by the Respondent in paragraph 6(h)
of the "Reply".
17.
The Respondent admits that, save and except for the Appellant not
getting paid during the "Non-Pay Period" and save and
except for the Appellant not always cashing her pay cheques on a
timely basis, there was nothing untoward or unusual about the
Appellant's employment with Profile during the "relevant
period".
[10] As indicated above, the Minister in
exercising his jurisdiction under paragraph 5(3)(b) of the
Act, was not satisfied that it was reasonable to conclude
that the parties would have entered into a substantially similar
contract of employment if they had been dealing with each other
at arm's length. The Minister thus decided that the work was
not insurable and as mentioned above Deputy Judge MacLatchy
accepted that determination.
[11] I have considered the facts set forth
in the "Partial Statement of Agreed Facts" as well as
the following facts or clarifications of those in the said
Statement, namely:
(a) There was a valid reason for the Worker being employed,
namely an employment gap resulted when the Worker's mother
left her position with the Payor.
(b) When the Worker left her work she was approximately eight
and a half months pregnant.
(c) In addition to general office duties the Worker was
engaged in customer service, drafting, dealing with cheques, the
safe, mail, invoices, quotations for work, drafting, dealing with
ads and providing customer assistance. The Worker had not only
general office skills but also skills particular to the work
performed by Profile, having obtained some of these work skills
as a result of her years at Humber College, experience on the job
and training by co-employees.
(d) The Worker worked 5 days a week from 9:00 a.m. to 5:00
p.m. and it was admitted by both the Worker and Carmen that the
Worker was occasionally late but not excessively and on most
occasions made up for time missed.
(e) The Worker was aged about 20 when work commenced and 22
when work terminated.
(f) The only persons who submitted hours or kept track of
hours were the workers in the workshop, not those in the
office.
[12] On the threshold question and applying
the criteria of the new approach analyzed above I am satisfied
that I am entitled to review the Minister's decision and make
my own.
[13] Having considered all the facts
established in the Partial Statement of Agreed Facts and revealed
by the testimony I conclude as follows:
1. The factor of not being paid for 5
months is not, when considered in the light of all the other
factors (the whole picture) sufficient to lead to a conclusion
that the employment relationship was unreasonable. I am partially
influenced in this conclusion by the fact that the unpaid amounts
were later paid to the Worker either wholly or substantially by
the raise in salary from $575 per week to $750 per week.
2. The non-cashing of cheques
similarly is not sufficient. Actually that factor results in a
benefit flowing from the Worker to the Payor, not the opposite
and the jurisprudence has analyzed this factor in that context.
Although, the non cashing extended over a lengthy period of time,
that is not so unusual in a non-arm's length situation,
especially given the particular facts in this case of the
financial difficulties that the business was going through.
3. The main factors, in my opinion are
the skills of the Worker, the hours worked, the need for her
employment in the business when her mother left leaving a gap,
the reason for her termination, i.e. pregnancy and moreover as
stated in paragraph 17 of the Partial Statement of Appeal Facts,
the fact that with the exceptions noted, there was nothing
untoward or unusual about the Worker's employment.
[14] In conclusion for all of the foregoing
reasons, in my opinion on a balance of probabilities, having
regard to all of 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 the parties would have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length.
[15] Consequently, the appeal is allowed and
the decision of the Minister is vacated.
Signed at Ottawa, Canada, this 10th day of September 2003.
O'Connor, J.
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