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Citation: 2003TCC449
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Date: 20030708
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Docket: 2002‑4649(EI)
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BETWEEN:
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MATÉRIAUX ÉCONOMIQUES
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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DANIEL ST‑PIERRE,
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Intervener.
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[OFFICIAL ENGLISH
TRANSLATION]
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REASONS FOR JUDGMENT
Somers, D.J.T.C.C.
[1] This appeal was
heard at Montréal, Quebec, on April 25, 2003.
[2] The appellant
institutes an appeal from the decision of the Minister of National Revenue (the
"Minister") according to which the employment held by Daniel St‑Pierre,
the worker, when in its service during the period in issue, from January 1
to December 7, 2001, was insurable because it met the requirements of a
contract of service; there was an employer-employee relationship between the
appellant and the worker.
[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] The burden of
proof is on the appellant. It had to show on a preponderance of proof that the
Minister’s decision was unfounded in fact and in law. Each case stands on its
own merits.
[5] In making his
decision, the Minister relied on the following assumptions of fact, which were
admitted or denied:
[TRANSLATION]
(a) the appellant was incorporated on October 1, 1998,
following a merger; (admitted)
(b) the appellant operated two divisions, one in the field of
concrete sawing and drilling and the other in water treatment and septic tank
manufacturing; (admitted)
(c) the persons who held the voting shares of the appellant were:
René St‑Pierre 75 percent
of shares
the worker 25 percent of
shares (admitted)
(d) René St‑Pierre is the worker's brother; (admitted)
(e) the business is operated year round; (admitted)
(f) the appellant had approximately 40 employees; (admitted)
(g) the worker was the vice-president and person responsible for
the water treatment division; (admitted)
(h) the worker worked year round; (admitted)
(i) the worker's duties were to prepare bids, train technicians,
design new products and supervise all treatment division staff; (denied)
(j) the worker had no fixed work schedule; (admitted)
(k) the worker rendered services to the appellant 40 to
60 hours a week; (denied)
(l) the worker received fixed remuneration of $1,153.85 a week
paid by direct deposit; (admitted)
(m) the worker had an automobile supplied by the appellant; (admitted)
(n) all the worker's expenses related to his duties were borne by
the appellant; (admitted)
(o) the worker was not personally liable for the appellant's loans,
leases or contracts; (denied)
(p) the worker had no chance of profit or risk of loss apart from
his salary; (denied)
(q) the worker worked on the premises of the appellant
90 percent of the time; (denied)
(r) all the equipment that the worker used belonged to the
appellant; (admitted)
(s) the services rendered by the worker formed an integral part of
the appellant's activities. (admitted)
[6] The appellant was
incorporated on October 1, 1998, following a merger. The appellant
operated two divisions, one in the field of concrete sawing and drilling and
the other in water treatment and septic tank manufacturing. The shareholders of
the appellant were René St‑Pierre and the worker, who held
respectively 75 percent and 25 percent of the voting shares; the two
shareholders are brothers.
[7] The business is
operated year round and has approximately 40 employees. The worker was the
vice-president of the appellant and the person responsible for the water
treatment division. He had no fixed scheduled and worked 40 to 60 hours a
week year round for fixed weekly remuneration of $1,153.85, which he determined
himself. In addition to his salary, he received an RRSP (registered retirement
savings plan) from the appellant every year, the amount of which was based on
the company's performance. In that year, he received $13,000.
[8] The worker stated
in his testimony that he managed the water treatment division, supervised the
plant and hired employees, of whom there were 15 in summer and approximately
eight to 10 in winter. The worker belongs to a number of associations for the
purpose of making his company visible and attends conferences in other
countries, including France and the United States.
[9] The worker
obtains an identity card and a building contractor's licence every year.
[10] According to the
worker's submission, he only takes vacation at Christmas, in addition to a few
leave days when he attends conferences, whereas the other, arm's length
employees have two to four weeks' vacation a year. He stated that he took three
to four days' vacation with his wife and three children during the construction
vacation weeks. He added that, because of his responsibilities during peak
periods, he could work as much as 80 hours a week, approximately
40 hours during slower periods.
[11] The appellant
provided the worker with a vehicle worth approximately $50,000 and paid the
related automobile expenses. The worker used the computers, one at home, the
other at the office, that were the property of the appellant.
[12] The worker stated
that he did not sign personal guarantees for the appellant and added that he
had turned down employment offers from American companies offering him annual
remuneration of $50,000 to $100,000.
[13] In
cross-examination, the worker admitted that he had completed a questionnaire
(Exhibit I‑1) in which he stated that his hours of work varied
between 40 and 60 a week, whereas he said at the hearing that those figures
represented an average. The answer to question 2 in that questionnaire
reads in part as follows:
[TRANSLATION]
Any
other employee performing the same work would receive less remuneration and
fewer benefits than Daniel for similar work and responsibilities.
[14] The worker also
stated in cross-examination that, based on their seniority, other employees
received RRSPs from the appellant of lesser amounts than his.
[15] The Notice of
Appeal (Exhibit I‑2) reads:
[TRANSLATION]
Daniel St‑Pierre's
salary for such duties, responsibilities and commitments is lower than, and not
at all comparable to what is offered in the market; the conditions would not be
accepted by a person dealing at arm's length;
[16] The worker
admitted that he had had a conversation with the appeals officer whose report
was filed as Exhibit I‑3. That report reads in part as follows under
the heading "WORKER'S VERSION", at page 4:
[TRANSLATION]
As to
his salary, we asked him whether such a salary would be paid to an equally
qualified third person.
He
thought so. He said that his salary was not unreasonable or too high in view of
his duties and responsibilities.
He
said that he regularly did business with engineering firms, and he thought that
their salaries were appreciably the same.
[17] In
cross-examination, the worker stated that he did not remember that part of the
questionnaire. He added that only part of his work was done as a consultant.
[18] René St‑Pierre,
the worker's brother, testified at the hearing of this appeal. He stated that
he managed the other division of the business, concrete sawing and drilling,
and his annual salary was $75,000.
[19] This witness was
not all aware of the worker's movements, despite the fact the two worked in the
same administrative offices. He said that the worker had a free hand in
managing his division since it was he who had created it.
[20] According to his
submission, the administrative decisions were made in a collegial manner at
quarterly meetings attended by this witness, the worker and the controller.
[21] Nathalie Dorais‑Pagé,
an appeals officer with the Canada Customs and Revenue Agency, gave her version
of the facts at the hearing of this appeal. She said that, in preparing her
report (Exhibit I‑4), she had contacted a certain
Nicole Charbonneau of Conseil Taxes ‑ representing the appellant ‑
on May 2 and 3, 2002, June 20, 2002 and July 5, 2002, in
addition to the telephone conversations she had with René St‑Pierre
on May 30, 2002, and the worker on September 18 of that same year.
[22] According to that
report, the appeals officer obtained certain information from René St‑Pierre
and the worker, including the following:
[TRANSLATION]
Gross
monthly sales since January 1, 2001, have amounted to $3,489,681.00 for
the sawing and drilling division and $1,731,845.00 for the treatment division.
The
worker's remuneration was $1,153.85 a week paid by direct deposit. In
determining his remuneration, Daniel St‑Pierre considered the
profits generated by the treatment division. He increased his salary based on
the division's growth.
Mr. St‑Pierre
worked an average of 60 hours a week to perform all his duties. He spread
his work over an entire week. He had no pre-established schedule; he determined
his own hours of work without considering those of anyone else.
The
business plan and position were created on the basis of Daniel St‑Pierre's
skills. Mr. St‑Pierre is entirely independent in his duties. He is
subject to no supervision and is accountable to no one.
[23] The appeals
officer also gathered some information during a telephone conversation with the
worker, including the following:
[TRANSLATION]
The
company is divided into two business lines, which are entirely independent and
self-contained. The treatment division represents approximately 25 percent
of the payer's level of business activity.
Mr. St‑Pierre
works between 60 and 80 hours a week. His home computer is networked with
the office.
In
addition to the remuneration, the payer buys RRSPs in the names of the two
shareholders of the company. The shareholders receive group insurance and life
insurance. Daniel St‑Pierre has a vehicle supplied by the payer. The
salaries of the shareholders are based on the divisions' profits.
Daniel St‑Pierre
considers himself the directing mind of the treatment division. However, he
increasingly delegates duties to François Gélinas.
[24] The following
information noted in the appeals officer's report comes from the CPT‑1
form (Exhibit I‑1):
[TRANSLATION]
Any
other employee performing the same work would receive less remuneration and
fewer benefits than Daniel for similar work and responsibilities.
Daniel
is not supervised in the performance of his duties and responsibilities in the
business. He enjoys almost total independence in performing his duties.
Daniel
is not responsible for the losses, expenses or damage he might cause, barring
obvious wrongful intent.
Daniel's
experience in his brother's business is a major contribution to the company's
success. Nevertheless, the salary and working conditions in which he performs
his duties grant him very special status.
[25] Under the heading
"Analysis of Documents", the appeals officer noted that "the
number of employees of the payer declined from 46 in 1999 to 41 in 2000, and
increased to 80 in 2001" and that, according to the appellant's payroll
journal, the treatment division had nine workers and income varying from
$12,810 to $57,180 in 2000 and nine workers on the payroll and income varying
from $15,363 to $61,124 in 2001. She also noted that the following
contributions were made to RRSPs in the shareholders' names for 1999, 2000 and
2001: $6,750, $6,750 and $10,485 respectively for the worker and $13,500,
$13,471 and $13,500 for René St‑Pierre.
[26] In rebuttal,
René St‑Pierre stated that, if he had had to hire a person dealing
at arm's length to replace the worker, the conditions would not have been the
same. He added that the appellant would not pay the same amount into an RRSP
for a person dealing at arm's length with the company. He added that a third
party would require more vacation than the worker enjoyed.
[27] The point for
determination is whether there was a contract of service between the appellant
and the worker, and, for that purpose, the elements that constitute the
relationship between the parties must be analyzed.
[28] In Wiebe Door
Services Ltd. v. M.N.R., [1986] 3 F.C. 553, the Federal Court of
Appeal established four tests for determining the contractual relationship
between the parties: (a) control, (b) ownership of the tools,
(c) chance of profit or risk of loss and (d) integration of the
employee's work into the employer's business.
(a) Control
[29] The evidence
revealed that the worker had almost complete freedom of action in his division
of the business. The important decisions concerning the business were made by
the front office; administrative decisions were made in a collegial manner at
quarterly meetings attended by the worker, his brother René St‑Pierre
and the controller. The two brothers consulted each other if necessary; their
offices were located on the same premises. Even if the worker was not in fact
supervised, the employer had a sufficient supervisory right for there to be a
contract of service.
(b) Ownership
of Tools
[30] The evidence is
irrebuttable: the equipment and tools belonged to the appellant.
(c) Chance
of Profit or Risk of Loss
[31] The worker
received a regular salary in addition to other benefits related to his work;
there was therefore no chance of profit or risk of loss.
(d) Integration
of the Employee's Work into the Employer's Business
[32] The worker worked
for the appellant; the appellant could not have operated without his direct
management. The worker was therefore integrated into the appellant's
operations.
[33] Upon consideration
of the four elements cited above, it is reasonable to conclude that there was a
contract of service between the appellant and the worker.
[34] The appeals
officer examined the worker's conditions of employment because the worker was
related to a group that controlled the appellant in accordance with
paragraph 5(2)(i) and subsection 5(3) of the Act and
section 251 of the Income Tax Act.
[35] In Roxboro
Excavation Inc. v. Canada (Minister of National Revenue ‑ M.N.R.),
[1999] T.C.J. No. 32, Judge Tardif of our Court wrote as follows:
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.
[...]
Was
there a relationship of subordination between the interveners and the company
in and as regards the performance of the work they did within their respective
roles? I believe that the company, which oversaw the work done by the Théorêt
brothers, had the full right and power to influence that work. The fact that
the company did not exercise that power to control and that those who performed
the work did not think they were subject to such a power or feel like they were
subordinate in performing their work does not have the effect of eliminating,
reducing or limiting the power to influence their work.
[...]
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 benefits 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.
The
weight of the evidence is that the Théorêt brothers' concern was the company’s
interests; they stood together and were determined to do everything they could
to maintain the company’s financial health. How did the fact that they were
brothers change their relationship with the company? There was no evidence
adduced on this point.
[...]
Furthermore,
it is fairly common to see co‑shareholders who, because of their status,
discipline themselves in the interests of the company in which they are
shareholders.
That decision by Judge Tardif was
confirmed by the Federal Court of Appeal ([2000] F.C.J. No. 799).
[36] The worker
received fixed weekly remuneration of $1,153.85 paid by direct deposit, and his
brother, René St‑Pierre, was responsible for the other division of
the business, received a weekly salary of $1,718; no sound evidence was brought
showing that those salaries were unreasonable.
[37] The worker
received certain benefits, such as the use of an automobile and the expenses
relating to that automobile were borne by the appellant as well as group and
life insurance. In addition, the worker received RRSPs paid for by the
appellant every year. Other workers employed by the appellant also received an
RRSP each year, but the amount was lower than that granted to the two
shareholders; this variance in the RRSP amounts may be explained on the basis
of the worker's increased responsibilities and work.
[38] The worker took no
regular vacation as the appellant's other employees did; he took leave at
Christmas and a few days during the year to attend conferences outside the
country. This way of taking vacation was not imposed on him by the appellant;
it was he who decided on it.
[39] The worker held an
executive position in the business and had an interest in its success, which
explains why he worked long and irregular hours.
[40] It cannot be found
on the evidence brought before the Court that the Minister improperly exercised
his discretion. The appellant was unable to show on a preponderance of proof
that the Minister acted in a wilful or arbitrary manner; he indeed exercised
his discretion in accordance with paragraph 5(2)(i) and subsection 5(3)
of the Act.
[41] The appellant and
the worker were related persons; the employment held by the worker is insurable
since a similar contract of employment would have been entered into if the
parties had been dealing with each other at arm's length.
[42] The appeal is
dismissed and the decision rendered by the Minister is confirmed.
Signed at Ottawa, Canada,
this day of July 2003.
Deputy Judge Somers
Cases considered
Bayside Drive‑In Ltd. v. Canada
(Minister of National Revenue ‑ M.N.R.), [1997] F.C.J. No. 1019;
Bérubé v. Canada (Minister of National
Revenue ‑ M.N.R.),
[1998] T.C.J. No. 1032;
Dockerty v. Canada (Minister of National
Revenue ‑ M.N.R.),
[2000] T.C.J. No. 690;
Duchesne v. Canada (Minister of National
Revenue ‑ M.N.R.),
[1995] T.C.J. No. 73;
Industries J.S.P. Inc. v. Canada
(Minister of National Revenue ‑ M.N.R.), [1999] T.C.J. No. 423.
Translation certified true
on this 3rd day of February 2004.
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