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Citation: 2003CCI115
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Date: 20030319
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Docket: 2002-1282(EI)
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BETWEEN:
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DIANE ST-PIERRE,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Deputy Judge Somers, T.C.C.
[1] This appeal was heard at Québec, Quebec, on January 31, 2003.
[2] The appellant appeals from the decision of the Minister of National Revenue (the "Minister") that the employment held with Alain Morel, the payer, during the periods at issue, namely, from June 16 to November 8, 1997, from June 29 to September 18, 1998, from June 28 to September 10, 1999, and from June 11 to September 15, was not insurable because this employment did not meet the requirements of a contract of service; there was therefore no employer-employee relationship between the appellant and the payer.
[3] Subsection5(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] The burden of proof lies with the appellant. She must establish, on a balance of probabilities, that the Minister's decision is wrong in fact and in law. Each case must be decided on its own merits.
[5] In making his decision, the Minister relied on the following assumptions of fact set out in paragraph 5 of the Reply to the Notice of Appeal, which were admitted or denied by the appellant:
[Translation]
(a) in 1997, the payer purchased Motel le Pellerin from his father; (admitted)
(b) the payer is the sole owner of the business; (admitted)
(c) the motel had 7 bedrooms, each having two beds; (admitted)
(d) the payer's business was in operation from the end of May to the end of September each year; (admitted)
(e) during the years at issue, the operation of the Motel resulted in losses each year (admitted)
Year Gross revenues Losses
1997 $10,747 $5,681
1998 $18,967 $3,061
1999 $19,566 $4,122
2000 $29,702 $3,133
2001 $23,189 $3,385
(f) the appellant had been the payer's friend since 1995; (admitted)
(g) during the years at issue, the appellant and the payer lived at the Motel and shared living quarters; (admitted)
(h) on March 4, 2002, the payer told a representative of the respondent that he had purchased the business to create employment for the appellant; (denied)
(i) the appellant was hired as manager and chambermaid; (admitted)
(j) the appellant's duties consisted of taking reservations, renting the rooms, cleaning the rooms and taking care of the laundry; (admitted)
(k) during the periods at issue, the appellant received an hourly wage of $7.00 in 1997, $7.42 in 1998, $7.75 and $8.64 in 1999, $13.58 in 2000 and $12.48 in 2001; (admitted)
(l) the appellant's salary increase was not justified in view of her duties; (denied)
(m) on November 9, 1997, the payer issued a record of employment to the appellant for the period beginning on June 16, 1997, and ending on November 8, 1997, that indicated 924 insurable hours and total insurable earnings of $320.80 a week; (admitted)
(n) on September 21, 1998, the payer issued a record of employment to the appellant for the period beginning on June 29, 1998, and ending on September 18, 1998, that indicated 552 insurable hours and total insurable earnings of $4,114.41; (admitted)
(o) on September 15, 1999, the payer issued a record of employment to the appellant for the period beginning on June 28, 1999, and ending on September 10, 1999, that indicated 500 insurable hours and total insurable earnings of $4,371.32; (admitted)
(p) on September 18, 2000, the payer issued a record of employment to the appellant for the period beginning on June 11, 2000, and ending on September 15, 2000, that indicated 560 insurable hours and total insurable earnings of $7,909.72; (admitted)
(q) on September 15, 2001, the payer issued a record of employment to the appellant for the period beginning on June 11, 2001, and ending on September 14, 2001, that indicated 560 insurable hours and total insurable earnings of $6,988.00; (admitted)
(r) the records of employment do not reflect the reality in terms of the hours worked and the periods worked by the appellant; (denied)
(s) the appellant provided services to the payer before and after the periods at issue; (denied)
(t) on November 15, 2001, in her statement to a representative of HRDC, the appellant said that she acted as a replacement and cleaned without pay before and after the periods of work indicated on her records of employment; (denied)
(u) on November 15, 2001, in his statement to a representative of HRDC, the payer said that the appellant occasionally worked before and after the periods of work shown on her records of employment; (denied)
(v) on December 3, 2001, in his statement to a representative of the respondent, the payer said that the appellant continued to provide services without pay before and after the periods that she worked; (denied)
(w) on December 5, 2001, in her statement to a representative of the respondent, the appellant said that she continued to provide services without pay before and after the periods that she worked; (denied)
(x) on March 4, 2002, in his statement to a representative of the respondent, the payer said that he had had the appellant work in 1997 until November 8 so that she could have enough hours to qualify for employment insurance; (denied)
(y) the payer and the appellant entered into an arrangement in order to qualify the appellant to receive employment insurance benefits while continuing to provide services to the payer. (denied)
[6] In 1997, the payer bought Motel le Pellerin, a seven-room motel, with two beds per room, from his father, and he is the sole owner.
[7] The payer's business operated from the end of May to the end of September every year. From 1997 to 2001, that is, during the periods at issue, the business had operating losses, as appears in subparagraph 5(e) above.
[8] The appellant had been the payer's friend since 1995 and the couple lived at the motel and shared living quarters. The appellant was hired as manager and chambermaid. Her duties consisted of taking reservations, renting rooms, cleaning the rooms and taking care of the laundry. During the periods at issue, the appellant received an hourly wage of $7 in 1997, $7.42 in 1998, $7.75 and $8.64 in 1999, $13.58 in 2000 and $12.48 in 2001.
[9] The appellant admitted the truth of the contents of the records of employment as stated in subparagraphs 5(m) to (q) above.
[10] The payer, Alain Morel, stated that the motel consisted of cabins furnished for lodging only and that the reception office was situated in the residence he shared with the appellant.
[11] During the periods at issue, the payer worked at Val Cartier, he was a soldier. According to his testimony, he returned to the motel once or twice a week; he could therefore keep track of the appellant's hours of work.
[12] The motel was open during the summer season. The payer determined the appellant's hourly wage, and she was paid by cheque. The beginning and the end of the appellant's periods of work were determined according to the needs of the business.
[13] The appellant said that she worked for the payer during the periods at issue and that her hourly wage, as stated in subparagraph 5(k) above, was determined by the payer. According to her, the payer returned to the motel every weekend and at that time checked the work she had accomplished during the week. The appellant admitted that she had provided services to the payer outside the periods at issue without receiving any pay.
[14] The appellant admitted that she received a salary increase in 1999 and 2000, but said she did not know the reason for the increase. The payer told the Court that he had given her the increase because he was not at the motel as much and hence the appellant's responsibilities were accordingly greater.
[15] Photocopies of the motel's customer registration forms were filed as Exhibits I-2 to I-6, and the appellant admitted that she had completed them. A table filed as Exhibit I-7 shows the weeks during the periods at issue for which the appellant received a salary. The table also shows that the appellant worked for the payer outside the periods at issue.
[16] The Minister based his decision on paragraph 5(1)(a) of the Act and not on paragraph 5(2)(i). The fact that the appellant and the payer had been friends since 1995 and shared the same living quarters does not permit a conclusion that they were not dealing at arm's length under the Act. A de facto non-arm's length relationship cannot be presumed; it must be proved. Therefore, the Minister was correct to base himself on paragraph 5(1)(a) of the Act. The Minister admitted that the appellant provided services to the payer but argued that they were not provided under a bona fide contract of service.
[17] According to his testimony to the Court, the payer admitted that he had purchased the motel in order to create jobs. He said that he had hired the appellant, because she was unemployed and, moreover, he wanted to invest in this business. The payer worked at Val Cartier and returned to the motel every weekend; there was therefore some control over the appellant's work. The degree of control is one of the requisite tests for a determination of whether work is performed under a contract of service. In the instant case, although there was a degree of control, the Court must ask itself whether there was a bona fide contract of service.
[18] The business catered to tourists. The evidence showed that the business operated from the end of May to the end of September every year and that July and August were the busiest months. As alleged in subparagraph 5(e) of the Reply to the Notice of Appeal, the business was in a deficit position during the periods at issue, and this assumption was admitted.
[19] The appellant was paid on an hourly rate determined by the payer. Concerning the appellant's salary increases, the payer said that they were justified because he worked away from the Motel and therefore the appellant's responsibilities were greater. The appellant's records of employment for 2000 and 2001 indicate that she acted as the manager of the motel, while there is nothing in the evidence to prove that her responsibilities were greater during those years; the mere indication of the word "manager" in the box marked "occupation" does not make the appellant a manager.
[20] A table filed as Exhibit I-10 shows that the payer was unemployed for a number of weeks during the years from 1997 to 2001. The Court notes that in his testimony the payer stated that the appellant's responsibilities increased over the years since he was not present at the business during the week, while the table shows that he was on the premises for a number of weeks during the periods at issue.
[21] The payer acknowledged that for 1997 the appellant needed 910 insurable hours of employment to qualify for employment insurance benefits. For the period of 1997, the record of employment (Exhibit I-1) shows that the appellant worked until November 8, while business operations stopped towards the end of September. According to the table (Exhibit I-10), the payer was unemployed for a number of weeks between October and November of that year.
[22] The appellant explained to Yvon Comtois of the Canada Customs and Revenue Agency that she had worked until November 8, 1997, because the payer had made renovations to the motel and that she subsequently had to do the clean up without pay.
[23] For the years 1998 to 2001, according to the records of employment (Exhibit I-1), the appellant worked between 500 and 560 hours; this is just above the number of hours required to qualify for employment insurance benefits. There is nothing wrong in working enough hours to qualify for employment insurance benefits, but the Court must closely scrutinize the reasons for it.
[24] Regarding the salary paid to the appellant, Yvon Comtois stated in his appeal report (Exhibit I-9):
[Translation]
Moreover, these wages for a receptionist and chambermaid are in no way reasonable and are higher than the wages paid for this kind of activity and this kind of employment. According to the wage guide of the Institut de l'information sur le marché du travail, wages vary between $7.50 and $8.16 an hour, depending on the business.
[25] The evidence does not support the reasonableness of this conclusion since he did not verify the average salary for a "manager" because he did not believe that the appellant really held such a position.
[26] The appellant and the payer admitted to the investigators and the Court that the appellant worked for the payer's business without pay. Moreover, the documents filed in evidence indicate that the appellant looked after the motel, whereas she did not appear on the payroll. The appellant was not obligated to provide services to the payer without payment especially since she paid $300 in rent to the payer. The unpaid work shows that there was no bona fide contract of service.
[27] In Thibeault v. Canada (Minister of National Revenue - M.N.R.), [1998] T.C.J. No. 690, Judge Tardif of this Court, at paragraphs 26 and 29 of his decision dated August 14, 1998, wrote:
The unemployment insurance scheme is a social program whose aim is to support those who lose a real job. It is definitely not a scheme under which it suffices to pay premiums for a certain period of the year in order to have automatic entitlement to benefits.
Of course, it is neither illegal nor reprehensible to organize one's affairs so as to profit from the social program that is the unemployment insurance scheme, subject to the express condition that nothing be misrepresented, disguised or contrived and that the payment of benefits occur as a result of events over which the beneficiary has no control. Where the size of the salary bears no relation to the economic value of the services rendered, where the beginning and end of work periods coincide with the end and the beginning of the payment period and where the length of the work period also coincides with the number of weeks required to requalify, very serious doubts arise as to the legitimacy of the employment contract. Where the coincidences are numerous and improbable, there is a risk of giving rise to an inference that the parties agreed to an artificial arrangement to enable them to profit from the benefits.
Judge Tardif's decision was affirmed by Desjardins J.A. of the Federal Court of Appeal, who wrote as follows in her judgment of June 15, 2000:
The Tax Court of Canada judge correctly considered the issue of whether there was a bona fide employment relationship between the claimant and the Coopérative forestière de Girardville from May 4 to July 10, 1992.
[28] In Laverdière v. Canada (Minister of National Revenue - M.N.R.), [1999] T.C.J. No. 124, Judge Tardif of this Court wrote as follows:
This assessment applies to all the periods at issue involving the two appellants. The terms and conditions of a genuine contract of service must centre on the work to be performed, on the existence of a mechanism for controlling the performance of the work and, finally, on the payment of remuneration that basically corresponds to the quality and quantity of the work done.
[...]
Any contract of employment that includes special terms can generally be set up only against the contracting parties and is not binding on third parties, including the respondent.
This is the case with any agreement or arrangement whose purpose and object is to spread out or accumulate the remuneration owed or that will be owed so as to take advantage of the Act's provisions. There can be no contract of service where there is any planning or agreement that disguises or distorts the facts concerning remuneration in order to derive the greatest possible benefit from the Act.
The Act insures only genuine contracts of service; a contract of employment under which remuneration is not based on the period during which work is performed cannot be defined as a genuine contract of service. It is an agreement or arrangement that is inconsistent with the existence of a genuine contract of service since it includes elements foreign to the contractual reality required by the Act.
[29] The evidence showed that the objective of the payer and the appellant was to make it possible for her to receive the maximum benefits under the Act. Furthermore, one of the reasons why the payer purchased the motel was to secure a job for the appellant.
[30] The terms and conditions of employment show that the payer and the appellant entered into an arrangement in order to qualify her for employment insurance benefits. The evidence showed that the appellant continued to provide services to the payer before and after the periods at issue without being paid.
[31] In light of the evidence and the authorities consulted, the appellant did not hold insurable employment during the periods at issue because the employment did not meet the requirements of a bona fide contract of service.
[32] Consequently, the appeal is dismissed, and the Minister's decision is confirmed.
Signed at Ottawa, Canada, this 19th day of March 2003.
D.J.T.C.C.
Translation certified true
on this 30th day of January 2004.
Leslie Harrar, Translator
Authorities consulted
Wiebe Door Services Ltd. v. Canada (Minister of National Revenue - M.N.R.), [1986] 3 F.C. 553;
Thibeault v. Canada (Minister of National Revenue - M.N.R.), [1998] T.C.J. No. 690;
Coopérative forestière de Girardville et M.R.N., Federal Court of Appeal, Docket A-587-98;
Laverdière v. Canada (Minister of National Revenue - M.N.R.), [1999] T.C.J. No. 124.
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