Date: 20010725
Docket: 2000-1220-EI
BETWEEN:
HOWARD WELLMAN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasonsfor
Judgment
Beaubier, J.T.C.C.
[1]
This appeal was heard at St. John's, Newfoundland on July 13,
2001. The Appellant was the only witness.
[2]
The Appellant has appealed a determination under paragraph
3(1)(a) of the Unemployment Insurance Act that he
was not employed pursuant to a contract of service for the period
May 22, 1995 to December 15, 1995.
[3]
Paragraphs 4 and 5 of the Reply to the Notice of Appeal read:
4.
The Respondent informed the Appellant that it had been determined
that his engagement with the Payor during the period from May,
22, 1995 to December 15, 1995 (the "period in
question") was not insurable employment for the reason that
he was not employed pursuant to a contract of service.
5.
In making his decision, the Respondent relied on the following
facts:
(a) the Payor
incorporated under the laws of the Province of Newfoundland on
November 15, 1988;
(b) at all material
times the Payor's shareholders were the Appellant (35%),
Donald Barry (35%) and Brian Whitehorn (30%);
(c) Brian
Whitehorn was not employed by the Payor in any capacity;
(d) in 1988 Brian
Whitehorn paid $1,000 for his shares in the Payor and in 1997 he
sold them to the Appellant for $1;
(e) Brian
Whitehorn's only involvement with the Payor was to attend
annual meetings where the discussions centered around changes in
the Payor's address and the directors;
(f) Brian
Whitehorn was neither informed of nor consulted on decisions
which affected the direction of the Payor's business or its
operations;
(g) the Appellant
and Don Barry made all decisions regarding the Payor;
(h) the Appellant
and Don Barry represented themselves as 50% shareholders to the
Atlantic Canada Opportunities Agency (ACOA);
(i) the
Payor provided industrial vegetation control and most of the
contracts were with the provincial government and utility
companies;
(j) in
addition to industrial vegetation management, the Payor also
operated a number of divisions which included Nutri Lawn (lawn
care), Weed Free Lawn (lawn care, general contracting and
landscaping) and Pioneer Pest Control (pest control
services);
(k) the
Appellant was hired to supervise and oversee the contracts
obtained by the Payor which related to lawn care, herbicide
spraying and vegetation management as well as managing the field
work and supervising other workers;
(l) the
Appellant continued to perform duties for the Payor during
periods where he is not included on the payroll;
(m) the Appellant
was in control of his own employment and he decided when he would
be paid for his services and when he would not;
(n) there was no
contract of service between the Appellant and the Payor.
[4]
Assumptions 5(a) and (b) are true. Assumption 5(k) was not
refuted by the evidence.
[5]
Assumptions 5(e), (f) and (g) are not correct. On the evidence,
the original shareholders of Nfld. Vegetation Control Ltd. (the
"Payor") continued holding the same percentages of
shares until April 1997. Brian Whitehorn had 30%, Donald Barry
35% and the Appellant 35%. Both Mr. Barry and the Appellant were
employed by the Payor from the beginning. Mr. Whitehorn had a
good job and was planning to be employed by the company, but he
never was. However, the directors had informal meetings three to
six times per year and Mr. Whitehorn participated in these
while he was a director. There is one period when the Appellant
was the Payor's only director. At other times there were
other directors as well. However, Mr. Whitehorn, Mr. Barry and
the Appellant participated together in the decisions which
affected the direction of the Payor's business or its
operations while they were directors. Therefore, assumptions
5(e), (f) and (g) are wrong.
[6]
Assumption 5(h) is wrong. the Appellant and Donald did not make
this representation. The Appellant testified that he did not
recognize it (Exhibit A-R 1, Vol. 1, Tab 26). It
is dated February 15, 1996.
[7]
Assumptions 5(i), (j), (k) and (l) are correct.
[8]
With respect to 5(l), the Appellant performed administrative
duties for the Payor, including signing cheques, when he was not
on the payroll. He also continued to try out a plant sprayer
machine which the Payor was manufacturing during the period that
he was off the payroll.
[9]
Assumption 5(m) is not correct. The Court accepts the
Appellant's testimony that he and Messrs. Barry and Whitehorn
controlled his employment and, together, decided when he would be
paid for his services and when he would not. The Payor was in the
plant control business at its very beginning and this was, and
is, seasonal. However, the Payor always had an administrative
staff consisting, at least, of an office accountant and Mr.
Barry.
[10]
Assumption 5(h) is the subject of the dispute.
[11] The Payor
appears to have operated amicably and with a business that grew
rapidly throughout Newfoundland and Labrador. It was essentially
in the plant control business around industrial sites including
power line areas, industrial areas, oil operations and government
sites. In early 1997 the Appellant discovered that Mr. Barry had
been misusing about $79,000. On April 2, 1997, Mr. Whitehorn
transferred his shares to the Appellant for $1.00 and on about
April 7, 1997, Mr. Barry transferred his shares to the
Appellant for $75,000 and a 1/2 share in a building. Part of the
Respondent's argument is that this establishes that Mr.
Whitehorn was merely a nominal shareholder. However, in the
totality of evidence, the Court finds that Mr. Whitehorn was a
complete legal shareholder of his 30% who simply walked out of
the Payor during the difficulties of April 1997. (It is clear
that the three men based their values on their own "sweat
equity" and that Mr. Whitehorn had not yet paid in all of
the sweat to which the Payor was entitled from him.) At the same
time Mr. Wellman wanted Mr. Barry out of what had become a
good business, at any cost, because Mr. Barry could not be
trusted and he was handling the Payor's money.
[12] The
Respondent's theory that the Appellant controlled and was the
prime mover of the Payor is refuted by the evidence that Mr.
Barry was able to misappropriate over $79,000 from the Payer by
1997, and by the evidence that, in addition, the Appellant paid
him another $75,000 and part of a building to sell Mr.
Barry's shares to the Appellant in April 1997. If the
Appellant had enjoyed the control envisaged by the Respondent,
none of this would have happened. Finally, it should be noted
that all of this happened after the "period" in
1995.
[13] On the
other hand, most employees would not do duties on behalf of the
Payor while they were laid off. The Appellant did this, as stated
in paragraph [8] hereof.
[14] Using the
tests discussed by the Federal Court of Appeal in Wiebe Door
Services Ltd. v. M.N.R., 87 DTC 5025, in 1995 the Appellant
owned 35% of the Payor and did not control it; rather the Payor
controlled the Appellant's and the other employees' work.
The Payor owned the tools. Any profit or loss was the
Payor's. The Appellant's work was integrated into the
operations of the Payor. In fact and in law, the business of the
Payor was the Payor's, not the Appellant's.
[15] In
particular, the Appellant's work was outside of the
Payor's office premises, while Mr. Barry's was inside
- doing accounting, finance and administration. The
Appellant supervised employees and contractors of the Appellant
working on sites all over Newfoundland and Labrador. He was the
Payor's chief employee in supervising herbicide purchases and
applications and he bossed the workers in the field. Both he and
Mr. Barry obtained contracts for the Payor in the course of their
employment. Contract renewals were done in office and Mr. Barry
or the office accountant instructed the Appellant respecting
them. The Payor hired workers by the job, by the hectare, or work
to be completed, or by the hour or on a monthly basis. For each
year from 1995 through 1997 it hired about 100 workers. Now
it hires about 200 workers per year. The work was largely
seasonal, except for administration, but the Payor is almost on a
year-round basis at present. It now does domestic lawn work as
well as the industrial work it started with.
[16] The
Appellant is not its only shareholder. He owns about 69% of the
Payor at present. He is a high school drop out and his work
experience is not related to paperwork or accounting. The Court
accepts his testimony that, particularly in 1995 and 1997 he was
not familiar with finance, buy-sell contracts or corporate
matters. He says that he relied on others including Mr. Barry and
his lawyers and signed contracts on faith and signed blank
cheques. He is believed in part because of the foregoing, in part
because that is why the Payor hired other people, and in part
because he is obviously an outdoor person who has, with others,
helped to build the Payor into a success and he simply did not
have enough time to do it all or to do it all by himself.
[17] But a
very ordinary employee who wanted to get ahead in a growing
little corporation and who was interested in machinery might very
well drop into the office during his holidays or while he was
laid off, and sign something or do some more work on an
experimental machine. Especially if he did not have much money
with which to go on holidays - and the Appellant did not,
since his wages before withholdings were $850.00 per week in
1995.
[18] Moreover,
if he had been doing much administrative work, he might have
become aware of Mr. Garry' financial misappropriations before
1997. His failure to do so indicates that he was, as he
testified, signing blank cheques and not doing true
administration during his holidays.
[19] Based
upon these findings, the Appellant was employed from
May 22, 1995 to December 15, 1995 in insurable
employment pursuant to a contract of service with the Payor. The
appeal is allowed.
Signed at Ottawa, Canada, this 25th day of July, 2001.
"D. W. Beaubier"
J.T.C.C.
COURT FILE
NO.:
2000-1220(EI)
STYLE OF
CAUSE:
Howard Wellman v. M.N.R.
PLACE OF
HEARING:
St. John's, Newfoundland
DATE OF
HEARING:
July 13, 2001
REASONS FOR JUDGMENT BY: The
Honourable Judge D.W. Beaubier
DATE OF
JUDGMENT:
July 25, 2001
APPEARANCES:
Forr the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Kelly Smith Wayland
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1220(EI)
BETWEEN:
HOWARD WELLMAN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on July 13, 2001 at St.
John's, Newfoundland, by
the Honourable Judge D.W. Beaubier
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Kelly Smith Wayland
JUDGMENT
The
appeal is allowed and the decision of the Minister is vacated in
accordance with the attached Reasons for Judgment.
Signed
at Ottawa. Canada this 25th day of July 2001.
J.T.C.C.
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