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Citation:2003TCC521
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Date:20030917
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Docket: 2003-122(EI)
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BETWEEN:
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MARLENE WENTZELL,
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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
Porter,
D.J.
[1] This appeal was heard at Calgary, Alberta on the 4th of
June, 2003. The Appellant, who was not present, was represented by her husband
Robert Wentzell, who also gave evidence on her behalf. He was the sole witness.
[2] The Appellant has appealed from the decision of the Minister of
National Revenue (hereinafter called the "Minister") dated November
7, 2002, that her employment with Robert L. Wentzell & Associates
Incorporated for the period April 22, 2001 to January 31, 2002 was not
insurable under the Employment Insurance Act (the "EI Act")
for the following reason:
...You were not dealing with Robert L. Wentzell &
Associates Incorporated at arm’s length and the Minister is not satisfied that
you and Robert L. Wentzell & Associates Incorporated would have entered
into a substantially similar contract of employment if you had been dealing
with each other at arm’s length. Therefore, Marlene Wentzell was engaged in
excluded employment.
The decision was
said to be issued pursuant to subsection 93(3) of the EI Act and was
based on paragraph 5(2)(i) thereof.
[3] The established facts reveal that Robert Wentzell
("Robert") at the material time owned 100% of the shareholding in
Robert L. Wentzell & Associates Incorporated (the "Payor"), which
was in the business of providing professional advice, cost benefit analysis,
contract evaluation, dispute resolution and mediation for capital projects and
programs. Robert was also at all material times, legally married to the
Appellant. Thus, pursuant to the EI Act and subsection 251(1) of the Income
Tax Act as related persons, they are in law deemed not to deal with each other
at arm’s length. Accordingly, the employment in question is, subject to the
exception contained in paragraph 5(3)(b) of the EI Act,
categorized as excluded employment, that is to say it is not employment which
triggers the payment of employment insurance benefits upon its termination. The
Minister has determined that the employment does not fall within the exception
and the Appellant has appealed from that decision.
The
Law
[4] In the scheme established under the EI Act,
Parliament has made provision for certain employment to be insurable, leading
to the payment of benefits upon termination, and other employment which is “not
included” and thus carrying no benefits upon termination. Employment
arrangements made between persons, who are not dealing with each other at arm’s
length, are categorized as not included. Brothers and corporations controlled
by persons related to them are deemed not to be dealing with each other at
arm’s length pursuant to subsection 251(1) of the Income Tax Act, which
governs the situation. Quite clearly the original purpose of this legislation
was to safeguard the system from having to pay out a multitude of benefits
based on artificial or fictitious employment arrangements; see the comments of
the Federal Court of Appeal in Paul v. The Minister of National Revenue,
#A-223-86 unreported, where Hugessen J. said:
We are all prepared to assume, as invited by appellant’s counsel,
that paragraph 3(2)(c) of the Unemployment Insurance Act, 1971,
and subsection 14(a) of the Unemployment Insurance Regulations have for
at least one of their purposes the prevention of abuse of the Unemployment
Insurance Fund through the creation of so-called “employer-employee”
relationships between persons whose relationship is, in fact, quite different.
That purpose finds obvious relevance and rational justification in the case of
spouses who are living together in a marital relationship. But even if, as
appellant would have us do, we must look only at spouses who are legally
separated and may be dealing at arm’s length with one another, the nature of
their relationship as spouses is such as, in our view, to justify excluding
from the scheme of the Act the employment of one by the other.
…
We do not exclude the possibility that the
provisions may have other purposes, such as a social policy decision to remove
all employment within the family unit from the operation of the Unemployment
Insurance Act, 1971, as was suggested by respondent’s counsel. (emphasis
mine)
[5] The harshness of this situation has however been
tempered by paragraph 5(3)(b) of the EI Act, which provides
for such employment between related persons deemed to be at arm’s length and
thus in turn to be treated as insurable employment, if it meets all the other
provisions, where the Minister is satisfied 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,
that it is reasonable to conclude that they would have entered into a
substantially similar contract if they had (in fact) been dealing with each
other at arm’s length.
[6] It may be helpful to reframe my understanding of
this section. For people related to each other the gate is closed by the
statute to any claim for employment benefits unless the Minister can be
satisfied that in effect the employment arrangement is the same as that which
unrelated persons, that is persons who are clearly at arm’s length, would have
made. If it is a substantially similar contract of employment, Parliament has
deemed it to be only fair that it should be included in the scheme. However,
the Minister is the gatekeeper. Unless he is so satisfied the gate remains
closed, the employment remains excepted and the employee is not eligible for
benefits.
[7] Subsection 93(3) of the EI Act
deals with appeals to and the determination of questions by the Minister. It
requires that:
The Minister shall decide the appeal
within a reasonable time after receiving it and shall notify the affected
persons of the decision.
[8] Thus, the Minister has no discretion whether or not to decide the
question. He is required by law to do so. If he is not satisfied, the gate
remains closed and the employee is not eligible. If however, he is satisfied,
without more ado or any action on the part of the Minister (other than
notification of the decision) the employee becomes eligible for benefits,
provided he is otherwise qualified. It is not a discretionary power in the
sense that if the Minister is satisfied he may then deem
the employment to be insurable. He must “determine the question” and depending
on that determination the law deems the employment to be either at arm’s length
or not at arm’s length. In this sense the Minister has no discretion to
exercise in the true sense of the word, for in making his decision he must act
quasi-judicially and is not free to chose as he pleases. The various decisions
of the Federal Court of Appeal on this issue reveal that the same test applies
as to a myriad of other officials making quasi-judicial decisions in many
different fields. See Tignish Auto Parts Inc. v. M.N.R., 185 N.R. 73, Ferme
Émile Richard et Fils Inc. v. M.N.R., 178 N.R. 361, Attorney General of
Canada and Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the Queen
and Bayside Drive-in Ltd., (1997) 218 N.R. 150.
[9] The function of this Court then, upon appeal, is
to review the decision of the Minister and decide whether it was arrived at
lawfully that is in accordance with the Act and with the principles of
natural justice. In the case Her Majesty the Queen v. Bayside (supra),
the Federal Court of Appeal laid out certain matters which should be considered
by this Court when hearing these appeals. These were:
(i) the Minister acted in bad faith or for an improper
purpose or motive;
(ii) the Minister failed to take into
account all of the relevant circumstances as expressly required by
paragraph 3(2)(c) of the Unemployment Insurance Act, now
subsection 5(3) of the EI Act; or
(iii) the Minister took into account an
irrelevant factor.
[10] The Court went on to say:
It is only if the Minister made one or
more of these reviewable errors that it can be said that his discretion was
exercised in a manner contrary to law, and ... the Tax Court Judge would be
justified in conducting his own assessment of the balance of probabilities as
to whether the respondents would have entered into substantially similar
contracts of service, if they had been at arm’s length.
[11] I remind myself, when
reviewing this case, that it is not for the Court to substitute its opinion of
the evidence for that of the Minister. However, if his or her manner of
arriving at the decision was unlawful in the context of the judgments set out
above, those affected parts of the stated facts may be disregarded and I must
then consider whether that which is left affords justifiable grounds for the
decision. If those grounds, standing alone, are sufficient for the Minister to
form a decision, albeit that the Court may not agree with it, the decision must
stand. If on the other hand there is no basis left upon which the Minister
might lawfully make such a decision, from an objective and reasonable point of
view, then such decision may be struck down and the Court can consider the
evidence before it on appeal and make its own decision.
[12] In summary then, if there
are sufficient facts before the Minister for his decision, it is his or her
determination to make and if he or she is “not satisfied”
it is not for this Court to substitute its view of those facts and say he or
she should have been satisfied. Similarly, if he or she was satisfied it is not
for this Court to substitute its view that he or she should not have been
satisfied (an unlikely scenario in any event). Only if the decision is reached in
an improper manner and it is unreasonable, from an objective point of view, on
the basis of the facts which were properly before the Minister, may the Court
interfere.
[13] I am fortified in this
approach by a number of decisions of various Courts of Appeal across the
country and the Supreme Court of Canada in related decisions concerning the
issue of various processes under the Criminal Code, which subsequently came to
be reviewed by the Courts and are in my view analogous to the present
situation. The standard of review of the validity of a search warrant was set
out by Cory, J.A. (as he then was) in Times Square Book Store, Re (1985)
21 C.C.C. (3d) 503 (C.A.), where he said that it was not the role of the
reviewing judge to look at or consider the authorization of a search warrant de
novo and it was not open to the reviewing judge to substitute his or her
own opinion for that of the issuing judge. Rather, on review, the first issue
to be decided was whether or not there was evidence upon which a justice of the
peace, acting judicially, could determine that a search warrant should be
issued.
[14] The Ontario Court of
Appeal reiterated and expanded upon this point of view in R. v. Church of
Scientology of Toronto and Zaharia (1987) 31 C.C.C. (3d) 449 C.A. leave to
appeal refused. In suggesting that the reviewing Court look at the “totality of
the circumstances” the Court said at 492:
Obviously if there is not such evidence to
provide a basis for such a belief (that a criminal offence had been committed) it
cannot be said that in those circumstances the justice should be satisfied.
There will, however, be cases where such evidence (showing reasonable grounds)
does exist and the justice could be satisfied but where he or she is not
satisfied and does not exercise his or her discretion in favour of issuing a
search warrant. In these circumstances, the reviewing judge must not say that
the justice should have been satisfied and should have issued the warrant.
Similarly, if the justice in such
circumstances says that he or she is satisfied and issues the warrant, the
reviewing judge must not say that the justice should not have been so
satisfied.
[15] The Supreme Court of
Canada endorsed this approach in R. v. Garofoli (1990) 2 S.C.R. 1421.
The late Mr. Justice Sopinka, when dealing with the review of the issue of an
authorization to wiretap, then said:
While a judge exercising this relatively
new power need not comply with the Wilson criteria, he should not
review the authorization de novo. The correct approach is set out in the
reasons of Martin J.A. in this appeal. He states,...
If the trial judge
concludes that, on the material before the authorizing judge, there was no
basis upon which he could be satisfied that the pre‑conditions for the
granting of the authorization exist, then, it seems to me that the trial judge
is required to find that the search or seizure contravened s. 8 of the Charter.
The reviewing judge does not substitute
his or her view for that of the authorizing judge. If, based on the record
which was before the authorizing judge as amplified on the review, the
reviewing judge concludes that the authorizing judge could have granted the
authorization, then he or she should not interfere. In this process, the
existence of fraud, non-disclosure, misleading evidence and new evidence are
all relevant, but, rather than being a prerequisite to review, their sole
impact is to determine whether there continues to be any basis for the decision
of the authorizing judge.
[16] This approach appears to
have been adopted by almost every appellate court in the country. (See R. v. Jackson
(1983) 9 C.C.C. (3d) 125 (B.C. C.A.); R v. Conrad
et al. (1989) 99 A.R. 197; 79 Alta. L.R.;
(2d) 307; 51 C.C.C. (3d) 311 (C.A.); Hudon v. R.
(1989) 74 Sask. R. 204 (C.A.); and R. v. Turcotte (1988)
60 Sask. R. 289; 39 C.C.C. (3d) 193 (C.A.); R. v. Borowski (1990)
66 Man. R. (2d) 49; 57 C.C.C. (3d) 87 (C.A.); Bâtiments Fafard Inc. et
autres c. Canada et autres (1991) 41 Q.A.C. 254 (C.A.); Société
Radio-Canada v. Nouveau-Brunswick (Procureur général) et autres (1991) 104
N.B.R. (2d) 1; 261 A.P.R. 1; 55 C.C.C. (3d) 133 (C.A.); R. v. Carroll
and Barker (1989) 88 N.S.R. (2d) 165; 225 A.P.R. 165; 47
C.C.C. (3d) 263 (C.A.); R. v. MacFarlane (K.R.) (1993)
100 Nfld. & P.E.I.R. 302; 318 A.P.R. 302; 76 C.C.C. (3d) 54
(P.E.I. C.A.). It seems to me most relevant to a review of the Minister’s
determination, which is itself a quasi judicial decision.
Part I – Analysis of the Minister’s Decision
[17] The Minister, in the Reply
to the Notice of Appeal signed on his behalf, was said to have relied upon the
following assumptions of fact (the agreement or disagreement of the Appellant I
have placed in parenthesis):
(a) the Payor's business
provides professional advice, cost benefit analysis, contract evaluation,
dispute resolution and mediation for capital projects and programs; (Agreed)
(b) Robert Wentzell
(hereinafter "the Shareholder") was the sole shareholder of the
Payor; (Agreed)
(c) the Appellant is the
wife of the Shareholder; (Agreed)
(d) the Appellant was
hired as an administrative assistant and her duties included answering phones,
dealing with clients, maintaining files, computer work, producing and proof
reading reports, photocopying, purchasing office supplies, paper work, and
maintaining the office; (Agreed)
(e) the Appellant worked
out of the Appellant's and Shareholder's home; (Disagreed. The work was done
at and from the Payor’s office at the home.)
(f) the Appellant
earned a set annual wage of $26,500 per year; (Agreed)
(g) the Appellant
received the following payments from the Payor: (Agreed)
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Date
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Amount
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Description
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18/7/2001
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$5,000.00
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salary for second quarter
2001
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18/7/2001
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$5,000.00
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salary for first quarter 2001
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$10,000.00
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(2001 total)
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Date
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Amount
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Description
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13/3/2001
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$2,433.06
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salary Oct, Nov, Dec 2000
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22/1/2001
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$5,460.00
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salary 2000
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13/8/2000
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$11,600.00
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salary 2000
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14/4/2000
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$1,400.00
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temp advance
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24/3/2000
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$2,433.06
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salary Jan, Feb, Mar
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$23,326.12
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(2000 total)
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15/1/2000
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$2,433.06
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salary for fourth quater 1999
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21/12/1999
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$4,000.00
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1999
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$6,433.06
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(1999 Total)
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(h) the Payor issued the
following T4s; (Agreed)
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Year
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Employee
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Earnings
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2001
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Appellant
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$26,500
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2000
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Appellant
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$26,500
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1999
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Appellant
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$17,000
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1999
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Shareholder
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$3,000
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(i) the Payor remitted
the following amounts with respect to the Appellant: (Disagreed. The
Appellant paid EI premiums in 1999 and 2000, plus additional premiums in 2001
over and above the $596.25.)
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CPP
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EI Tax
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2001
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$989.00
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$596.25 $3,500.00
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2000
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$897.00
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$1,873.76
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1999
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$472.50
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$2,322.76
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(j) the Appellant was
the only employee of the Payor during the period under review; (Agreed. She
was the only employee in Calgary. The Payor used an independent
contractor to do similar work in Halifax, Nova Scotia.)
(k) the Shareholder did
not receive any income from the Payor during the period under review; (Agreed)
(l) the Appellant did
not have set hours and days of work; (Agreed. If Robert was not around, the
Appellant would take messages and answer phones and faxes from clients.)
(m) the Appellant's hours
were determined by the tasks required to be completed; (Agreed)
(n) the Appellant's
hours were not recorded; (Agreed)
(o) the Appellant was
supervised by the Shareholder; (Agreed)
(p) the Payor provided
the tools and equipment required; (Agreed)
(q) the Appellant did
not have a chance of profit or risk of loss; (Agreed)
(r) the Appellant has not
assumed personal liability for the Payor; (Agreed)
(s) the Appellant's
employment was terminated when the Payor had no contracts; (Agreed)
(t) due to
confidentiality, the Payor would not have hired an unrelated person to perform
services the Appellant performed; (Disagreed)
(u) the Appellant
provided services to the Payor prior to the 1999 year and she was not paid for
these services; (Agreed)
(v) the Payor and the
Appellant did not deal with each other at arm's length;
(w) the Minister
considered all of the relevant facts that were available to him, including the
remuneration paid, the terms and conditions, the duration, and the nature and
importance of the work performed, and
(x) the Minister was not
satisfied that it was reasonable to conclude that the Payor 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.
(v), (w) and (x) Disagreed. These are the
decisions from which the Appellant has appealed.
[18] Robert gave evidence on
behalf of his wife, the Appellant, and I take it on behalf of his company, the
Payor.
[19] He provided documents to
show that EI premiums had been paid in 1999, 2000 and 2001 in excess of $596.25
recorded by the Minister. I am quite satisfied that Robert is a man of
integrity and is honest as the day is long. I have no hesitation in stating
that I accept his evidence unequivocally and that I am well satisfied that such
premiums were in fact paid as he claims. To the extent the Minister thought
otherwise, he was wrong. I am not sure, however, that one can say that this is
a relevant fact, because simple acceptance of the EI premiums by the Minister
does not estop him from making the decision he did. It is simply an irrelevant
factor to the issue at hand and to the extent the Minister took it in account,
he should not have done so.
[20] I also accept, with
respect to item (j), that there were no other employees employed by the Payor
in Calgary. However, he did engage a business agency to provide similar
services to him under a contract for services in Halifax. He was clear,
however, that these were independent contractors and thus, to that extent, the
Minister was correct in saying that the Appellant was the only "employee".
[21] With respect to items (l)
and (m), Robert said that basically his wife stepped in when he went away, to
accept telephone calls and faxes from clients or potential clients as they
needed to talk to a person, not just leave messages. She also proofread his reports. There was no
evidence given of the amount of time she spent doing this during the period in
question. She did not record her hours of work or days of work. She worked when
there was something to do, e.g. when Robert was away, and the Minister was correct
in saying that she did not have set hours or days of work. Indeed, most of her
work could be done from any telephone in the house and in fact, was done on her
cell phone when calls were call forwarded from the office phone.
[22] The last assumption with
which the Appellant was said to disagree was item (t). Again, I accept the
evidence given by Robert that he could have hired an unrelated person to do the
work in question and would have done so if his wife had not been available.
Again, the Minister was incorrect when he made this assumption of fact.
[23] Robert specifically agreed
with item (g) confirming that his wife’s annual salary was paid for the first
and second quarters of 2001 on the 18th of July of that year. He said it was
done this way because that is when he was paid by the client or clients.
Likewise, he paid the October, November and December salary for the year 2000
on the 13th of March 2001. Although he also paid the business management office
in Halifax the same way, he conceded that that was a contractual arrangement
with an independent business and that he had no other employee whom he paid up
to six months in arrears. In my view, this was a most relevant consideration
for the Minister to take into account.
[24] Robert, on behalf of his
wife, has raised the question of fairness and whether it is fair that he should
have to stack up on his own against 62,000 employees in the Federal Department
of Justice. With respect, that is not the point. There is one counsel
acting on behalf of the Minister and the Appellant could have had counsel in
the same way.
[25] Robert asked the question
whether the opinion of employees at Human Resources Development Canada or at
the Canada Customs and Revenue Agency are any more valuable than his own with
as many years of business experience behind him. Again, that misses the point
that the Minister, who acts through authorized officers, is charged by
Parliament to consider whether an exception to the general rule should apply,
that related people do not qualify for EI benefits in respect of
employment taking place between them, before public funds are disbursed under
the statute.
[26] When I consider all of the
evidence and the matters that the Minister took into account, even leaving out
the items that were incorrect or taking into account the matters such as the
payment of the EI premiums, I am overwhelmingly of the view that the Minister
was entitled to lawfully and objectively come to the decision that he did. In
particular, I note that no specific work or time was laid out in the evidence,
the Appellant was basically on standby, she was paid up to six months after the
event, she lived in the same house as the office but there is no evidence that
she spent any time in that office, and there is simply no detailed evidence of
what she did for her $26,500.00 per annum.
[27] The Minister is charged in
the statute with the responsibility to have regard to all the circumstances of
the employment, including the remuneration paid, the terms and conditions, the
duration and nature and importance of the work performed in order to decide if
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. The Minister decided it was not reasonable to so
conclude. There is no evidence of bad faith here. Even taking out of the
evidence matters which were wrong, he could, in my view, objectively and
lawfully have arrived at that conclusion on the remaining evidence. Of
particular note, in my view, is the fact that the operator of the business
office in Halifax, although an independent contractor, was paid for what it did
and the time it actually put into the work. The Appellant was not paid on that
basis. The Minister was certainly entitled to come to the conclusion that if
they had been dealing with each other at arm’s length, the remuneration
arrangement would not have been set up like it was.
[28] In the event, it is not
necessary for me to review the evidence afresh. The decision of the Minister
stands. In passing, though, I might add that I would not have had the slightest
hesitation in coming to the same conclusion on the evidence before me.
[29] In the event, the appeal
is dismissed and the decision of the Minister is confirmed.
Signed at Calgary, Alberta, this 17th day of
September 2003.
Porter,
D.J.
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