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Reference: 2004TCC442
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Date: 20040628
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File: 2003-3647(EI)
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BETWEEN:
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LES ENTREPRISES GUY CHOQUETTE LTÉE,
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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
Savoie D.J.
[1] This
appeal was heard at Montreal, Quebec, on March 24, 2004.
[2] This
is an appeal on the insurability of the employment of Michel Choquette,
the worker, with the appellant during the period at issue, that is, from
January 1, 2000, to March 12, 2003.
[3] On July 11, 2003, the Minister of National
Revenue (the “Minister”) had informed the appellant of his decision that the
worker had held insurable employment during the period at issue.
[4] The Minister supported his decision on the
following assumed facts:
6.a) the appellant was
incorporated on October 7, 1974; (admitted)
b) the appellant
operated a business that sold and installed hardwood, inlay, ceramic, and
linoleum floor coverings; (admitted)
c) the appellant
employed approximately 10 to 15 employees; (admitted)
d) the worker
was the appellant’s manager; (denied)
e) the worker’s
duties consisted of managing staff, taking care of purchasing, negotiating with
customers, and looking after customer service; (subject to amplification)
f) the worker
worked in the appellant’s facilities; (denied)
g) the worker’s
work schedule was Monday to Friday, from 8:00 a.m. to 6:00 p.m., that is,
approximately 50 hours per week; (denied)
h) the worker
had a fixed salary of $43,000 per year; (admitted)
i) the worker
and the vendor were entitled to bonuses if the sales were good; (denied)
j) the worker
received weekly earnings paid by cheque; (admitted)
k) in carrying
out his duties, the worker followed the appellant’s instructions; (denied)
l) the worker
could not make any major decisions for the appellant; (denied)
m) the majority
shareholder came every two days to the appellant’s office; (admitted)
n) the appellant
had the authority to control the worker’s work; (denied)
o) all of the
material and equipment the worker used belonged to the appellant; (admitted)
p) the worker
had no expenses in carrying out his duties; (admitted)
q) the worker
had no risk of loss in carrying out his duties; (admitted)
r) the worker’s
duties were integrated into the appellant’s activities. (admitted)
7.a) the appellant’s shareholders with
voting rights were
Guy Choquette 80%
of the shares
Louise Choquette 10%
of the shares
the worker 10%
of the shares
(admitted)
b) Guy Choquette is Louise’s
husband and the worker’s father. (admitted)
c) The worker was related by blood
to a person who controlled the appellant. (admitted)
[5] The
appellant’s evidence revealed that the worker did nearly everything for the
administration of the appellant’s business. He looked after its management and
administration. His duties consisted of managing staff, taking care of
purchasing, negotiating with customers, and looking after customers. He was
responsible for hiring and dismissing employees. He was also in charge of the
business’s sales and development.
[6] The
worker carried out his duties using the appellant’s facilities, but he also
worked from his home, where he engaged in preparing bids, doing blueprint
reading, and phoning customers.
[7] He
himself determined his work schedule. He could have just as easily worked 15 to
20 hours per week as 60 to 70 hours whenever he wished, based on his duties in
the business.
[8] The
appellant’s agent denied that the worker and the vendor were entitled to a
bonus if the sales were good. The evidence revealed that, in contrast to the
vendor, the worker was entitled to a dividend.
[9] It
had been shown that the worker carried out his duties without being supervised
and without following the appellant’s instructions, and he was able to make
major decisions without the appellant.
[10] The appellant proved that the assumed fact stated in paragraph 6.n)
was false by using the testimonies of the worker and his father, Guy Choquette,
the 80% shareholder of the appellant’s voting shares.
[11] To illustrate the falseness of the Minister’s allegation that the
worker could not make major decisions for the appellant, the worker and his
father gave three examples where the worker’s will had prevailed over his
father’s. These examples were the project to add the hardwood sales service to
the business, the expansion of the plant, and the decision to paint the outside
of the appellant’s store pink.
[12] It was established that the worker’s salary had been determined by
Guy Choquette and the business’s accountant, but Mr. Choquette made it
clear that the worker had the authority to increase his salary if he wanted to.
The worker had the authority to hire and dismiss employees. If his father
disagreed with him, they discussed the situation, but the final decision was up
to the worker. The worker had begun to work at the appellant’s business while
he was a student. He had grown up in the business. It was shown that the
business would one day be passed on to him. The worker’s father said that the
business was the worker’s inheritance.
[13] The worker is the business’s only employee that was provided with a
car, gas, and a cellular phone. His father acknowledged that he had spoiled him
somewhat, which the worker admitted and added that he did what he wanted; he
made it clear that if he were not the son of the majority shareholder, he would
not have all of those benefits. The father shared that, to replace his son in
the business, he would have had to pay someone a salary of $55,000.00 to
$60,000.00. He acknowledged that, without his son, he would have had to put the
business up for sale.
[14] The appellant exercised no control over the worker, according to the
testimony of Guy Choquette, who said that the worker saw to everything. He also
took time off without notifying him. He acknowledged that he discussed things
with his son; that was all. Mr. Choquette said that he went to the business
three or four times per week to assist his son, who told him what to do.
[15] In cross-examination, the Minister’s counsel tried to illustrate the
appellant’s supervisory power over the worker. Guy Choquette said that the
worker could only negotiate a loan of $100,000.00 for the business. However,
without hesitating, he acknowledged that he could intervene if the worker dared
to negotiate a loan of $500,000.00, but he would hesitate to do so. Lastly, he
acknowledged that he had the authority to stop him, but he had by no means
thought of doing that.
[16] The Minister’s counsel tried to question the appellant’s figures with
regard to the worker’s salary by submitting Exhibit A-1, which described the
bonus paid to the worker, but the appellant maintained that it was not a bonus,
but actually a dividend; the appellant’s oral evidence on this matter was very
well documented. It was a dividend, not a bonus.
[17] The worker carried out some duties at his home so as to better take
care of his family responsibilities, which require that someone be at home for
his daughter Rebecca, who has to be accompanied regularly to speech therapy
sessions. It was also established that the worker took his son with him to
work, again to fulfill his family duty to take care of his son.
[18] It was shown that the worker had had the same salary for four years,
whereas the other employees in the business had had regular salary increases.
These are some of the conditions that led the appellant to argue that such
working conditions would not be acceptable in an arm’s length context. On this
point, the Minister’s counsel simply responded that these conditions are
completely normal in the context of a family business. The evidence submitted
by the appellant to show the key role the worker had in the business by making
major decisions, even against the will of the appellant’s majority shareholder,
made it clear to the appeals officer that the appellant had simply not spoken
about this during the examination. In any case, this Court had to take the
evidence presented at the hearing into account.
[19] In his testimony, the appeals officer tried to illustrate how he had
conducted his investigation to determine whether it was reasonable to conclude
that substantially similar working conditions could exist among unrelated
parties using the method, during the interview, of putting himself in the place
of the worker at arm’s length. Thus, he said, he had asked the employer whether
it would have hired the worker under these same conditions. But when he was
asked whether he had asked the appellant’s agent this question, he acknowledged
that he did not remember whether he had used this technique. This implied to
the appellant’s agent that the appeals officer had not applied himself to
reviewing the file in accordance with the criteria established in the case law.
[20] The evidence revealed that the worker was able to devote from 15 to 70
hours per week to his duties. The appellant argued that that was not the
schedule of a job at arm’s length. He argued that the same was true for the
working conditions, such as working at home to accommodate the worker’s family
duties toward his daughter or working at the appellant’s office with his son.
The appellant argued that, added to that was the flexibility of the worker’s
schedule, which allowed him four days of leave during the break week, for
personal reasons, and allowed him to take leave as he thought appropriate. The
appellant added that an employee at arm’s length would receive a regular salary
increase like the business’s other employees, whereas the worker had received
the same salary for four years. The appellant also argued that an employee at
arm’s length would not have his car, his gas, and his cellular phone provided
by his employer. The appellant asked whether an employee at arm’s length who
was entitled to six weeks of vacation would make do with taking only three. The
appellant’s majority shareholder, Guy Choquette, maintained that his son, the
worker, did whatever he pleased and had control of the business. He added that,
without his son, he would sell the company. He also maintained that replacing
his son, who received a salary of $43,000.00 per year, would cost him
$55,000.00 to $60,000.00.
[21] This Court had the opportunity to consider an issue similar to this
issue in Planchers de Bois Franc 2000 (Laval) Inc. v. Canada (Minister of National Revenue - M.N.R.), [2001] T.C.J. No. 479. In that case, as
in the instant case, the worker was the daughter of the father, the payer’s
majority shareholder. The factual situation in that case resembles the
situation in the instant case. I am citing paragraphs 19 and 20 of the
reasons of Deputy Judge Somers for this Court:
The worker worked both in and outside the store, that
is, she could do the accounting at home in the evenings, on weekends and even
during her holidays, or after her regular hours of work, without being
remunerated for overtime. According to the witness, the worker regularly worked
50 hours a week. The payer provided the worker with a vehicle for the needs of
the company and for her personal needs.
According to Maurice Lepage, the worker's
responsibilities increased over the years. Her salary was set at $21,000 a year
and she received that same salary during both peak and slow periods. A certain
Mr. Blouin, a sales clerk, received a salary of $26,000, even though he had
fewer responsibilities than the worker. According to Maurice Lepage, given her
responsibilities, the worker should receive $10,000 to $15,000 more per year.
[22] In that situation, Somers D.J. wrote his conclusion in
paragraph 24 as follows:
It is reasonable to conclude that the worker would not
have been hired on the same working conditions if she had been dealing with the
appellant at arm's length. Having regard to all the circumstances, the Court
finds that the worker did not hold insurable employment within the meaning of
paragraph 5(2)(i) of the Act since she and the appellant were not
dealing with each other at arm's length.
[23] In support of his claims, the appellant’s agent cited Edward Bergen
v. Canada (Minister of National Revenue - M.N.R.), [2002] T.C.J. No. 73 of this
Court, for which very similar facts to those of the instant case were reviewed
by Deputy Judge Porter.
[24] In paragraph 4 of this judgment, Deputy Judge Porter summarized the
facts as follows:
The material facts reveal that the Appellants, between
them, controlled 44% of the issued shares in the Corporation through their own
separate corporations, and that the remaining 56% of the shares were held by
other family members through their respective corporations. The Corporation
carried on a farm equipment manufacturing business. Thus, under the combined
effect of section 251 of the Income Tax Act and paragraphs 5(2)(i)
and 6(3)(a) of the EI Act, their employment, Edward as General
Manager, and Allan as Director of Operations, was automatically excluded by law
from insurable employment, subject to the exception contained in paragraph
5(3)(b) of the EI Act, whereby they are deemed to deal with each
other at arm's length if the Minister is satisfied of the various criteria set
out in that section and exercises his discretion to allow them through the
gate, so to speak. This the Minister has purported to do and it is those
decisions which are now in issue in these appeals.
[25] In that case, as in the instant case, it was established that the
workers performed their duties in the business’s office as well as in their
homes, and their hours were not recorded.
[26] Deputy Judge Porter allowed the appeal and wrote the following
conclusion:
Taking into account all of the
circumstances, including in particular the extensive hours and days put in by
the brothers, their opportunity to just take leave without permission from
anyone and still get paid, their willingness to reduce their paycheques if the
company was short of funds, their signing of guarantees for the company, I am
of the firm view that there was no independence of thought or purpose
prevailing between the company and the brothers, there was no adverse economic
interest, their stakes were inextricably woven together and there was not the
bona fide type of separate negotiation permeating their relationship that one
would expect to find existing between those traders in the marketplace to whom
I referred at some length. Accordingly, I hold that neither of them were
employed in insurable employment.
[27] In Bergen, above, the judge also supported
his decision on the fact that the appellants’ economic
interests were inexorably bound up with those of the company, as is true in this case between the
worker and the appellant. The following is his explanation:
I do not intend to set out all of the evidence again.
I have already referred to the significant facts. It is clear in my mind, that
the two brothers were the company. Their economic interests were inexorably
bound up with those of the company. Although perhaps they signed the guarantees
in their capacities as shareholders or directors, the fact that they did so
shows an inextricably inter-woven relationship between the company and the
brothers. Their economic interests were tied to the company and those of the
company were tied to theirs, to such an extent that it could not be said that
there was an independent or adverse economic interest existing between them.
They were the operating mind of the company; they themselves were related and
had a common family economic interest, which was indivisible from that of the
Company. This is exactly the situation contemplated by Parliament in setting up
the employment insurance scheme, to exclude persons, who are operating or
controlling their own businesses, in an entrepreneurial fashion, from
participating in that scheme and being able to claim benefits if their
employment fails.
[28] The evidence showed that Michel Choquette, the worker, was the
business’s operating mind. Earlier in these reasons, some examples were given
to show how this occurred, but that was not the purpose of the appeals
officer’s investigation.
[29] Continuing with Bergen, above, the judge had considered the
appellants’ specific schedule, which resembled the worker’s schedule in this
case. He wrote, and I quote:
[...] Thus, although their prime role was to manage the
business, they had to do whatever it took whenever there was work to be done.
Thus, neither of them worked regular hours. They worked in this way because
they felt they were the owners of the corporation, as opposed to being regular
employees. In assuming the Appellants worked regular hours, the Minister was
incorrect. They worked flexible but often long hours.
[30] The appellant’s agent thought it was advisable to cite Porter J. again
in the above case to illustrate how, in some cases, the Minister was able to
support his decision to exclude an employment from insurability on certain
facts, whereas those same facts were used to include employment on other
occasions. I am quoting paragraph 55 of Bergen here:
On top of that, there were an endless number of
differences between their status and regular arm's length employees. They are
typically matters which the Minister cites, in reported cases across the whole
of Canada, as being examples of not being in a
relationship substantially similar to one that would be entered into by people
dealing with each other at arm's length. In this case, the Minister seems to be
treating them in a different way. They include such things as the Appellants
bringing their own children into the facilities when they worked on Saturdays
and let them use corporate equipment, something forbidden to regular employees;
being able to use their corporate equipment at any time without reference to
anybody else; not being paid overtime or for statutory holidays; being prepared
to reduce their pay in bad times; being able to take time off anytime either of
them chose, without reference to the corporate schedule of two weeks vacation
taken at the same time every summer; and no reduction in their pay if they took
time off.
[31] When cross-examined by the appellant’s agent, the appeals officer gave
his interpretation of the Minister’s role in the application of paragraph 5(3)(b)
of the Employment Insurance Act (the “Act”). In his testimony, he said
that the Minister must determine whether the working conditions are reasonable.
The following is how Porter D.J. analyzed it in paragraph 58:
Evidence was also given by Janice Affleck, a CPP/EI
Rulings Officers with the Canada Customs and Revenue Agency. She had made the original
ruling and was called on behalf of the Minister to explain her reasons for that
ruling. She said she was aware of the duties and responsibilities of general
managers in businesses operating in small towns. She had found nothing unusual
in the terms of the employment of the Appellants. That was strange because,
with respect, there are a number of unusual aspects, to which I have already
referred. She went on to use a curious term. She said that she did not find
anything "unreasonable" about the employment "which would
exclude it from insurable employment". With respect, the issue here has
nothing to do with what is reasonable or unreasonable. Furthermore, the cart
seems to be in front of the horse, so to speak in her mind when she approaches
it from the point of view of nothing excluding the employment. Rather, when the
employment is excluded by law already, the question at this time is what is
there that would bring that employment into the fold of the insurable
employment under the EI Act.
[32] The worker, Michel Choquette, is the son of Guy Choquette, the
appellant’s majority shareholder. The worker and the employer, that is, the
appellant, are therefore related within the meaning of section 251 of the Income
Tax Act. Therefore, Michel Choquette’s employment is not insurable
employment under paragraph 5(2)(i) of the Act. But paragraph 5(3)(b)
of the Act prescribes the following:
(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.
[33] Therefore, further to the exercise prescribed in 5(3)(b) of the
Act, the Minister concluded that the worker’s employment was insurable since he
was satisfied that, having regard to all the above circumstances, it was
reasonable to conclude that the worker and the appellant would have entered into a substantially similar contract of
employment if they had been dealing with each other at arm's length.
Furthermore, the evidence revealed that the notion of the Minister’s role, in
accordance with the instructions of paragraph 5(3)(b) of the Act, as described by the appeals
officer at the hearing, had led to questions concerning the methodology used by
the officer when assessing the file. Therefore, a number of the facts assumed
by the Minister were ignored or wrongly appreciated.
[34] In this respect, it is appropriate to emphasize the importance in this
case of considering the principles established in Légaré v. Canada
(Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878,
in which Marceau, J.A. of the Federal Court of Appeal ruled as follows:
The Act requires the Minister to make a determination
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.
[35] With regard to the above, this Court must conclude, in light of the
legislation and case law cited, that the facts accepted by the Minister were
not correctly appreciated in the context in which they occurred, and the
Minister’s conclusion, considering the facts presented at the hearing, no
longer seems reasonable.
[36] Therefore, it is this Court’s duty to determine that it was not
reasonable to rule that the appellant and the worker would
have entered into a substantially similar contract of employment if they had
been dealing with each other at arm's length.
[37] For these reasons, this Court is compelled to conclude that the
worker’s employment was not insurable. The Minister’s decision is therefore
vacated.
Grand-Barachois, New Brunswick, this 28th day of
June 2004.
Savoie
D.J.
Certified
true translation
Colette Beaulne
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