Steeves v. M.N.R., docket 2000-3619-EI

Date: 20010320

Docket: 2000-3619-EI

BETWEEN:

JUDY A. STEEVES,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Bowman, A.C.J.

[1]            This is an appeal from a decision of the Minister of National Revenue that the appellant was not engaged in insurable employment by Steeves' Ranch Ltd. All of the shares of Steeves' Ranch Ltd. (the "payor") were owned by the appellant's mother-in-law, Elizabeth Steeves. Roger Steeves, the appellant's husband, was the president.

[2]            The appellant of course was not at arm's length with the payor and they were related. Therefore her employment was excepted employment for the purposes of section 5 of the Employment Insurance Act, unless 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.

[3]            The Federal Court of Appeal has said on a number of occasions that the words "if the Minister is satisfied ..." confer on him a form of administrative discretion and that a two-step process is required in appeals from such a determination.

[4]            The first step is to decide whether the discretion has been properly exercised. If it has been, the court has no right to substitute its judgement for that of the Minister.

[5]            In this initial determination it is necessary to ask questions such as: did the Minister take into account all relevant facts; did he base his decision on facts that he should not have; did he proceed upon an erroneous principle of law; did he observe the principles of natural justice such as audi alteram partem; was the discretion exercised in a capricious way; did he base his decision on facts that are wrong?

[6]            In cases of this sort, typically, the first time the appellant/applicant is made aware of the basis of the Minister's decision is in the reply to the notice of appeal where the respondent pleads "assumptions" in the same way he would in an ordinary income tax appeal. It is not an ordinary income tax appeal at all. It is an appeal from what the Federal Court of Appeal tells us is an act of administrative discretion which raises a whole array of legal considerations.

[7]            In these cases seldom is the person called who has purportedly exercised the discretion. We are not informed of the name or title of the person and have no way of determining whether he or she had the authority to do so.

[8]            Unsatisfactory as the situation is, I must deal with the case as it is presented to me.

[9]            Paragraph 8 of the reply sets out the facts upon which the Minister purportedly exercised his discretion. It reads:

8.              In making his decision, the Respondent relied on the following facts:

(a)            the Payor incorporated in the Province of New Brunswick on April 23, 1986;

(b)            at all material times, Elizabeth Steeves, the Appellant's mother-in-law, was the sole shareholder in the Payor;

(c)            Elizabeth Steeves passed away in March, 1999;

(d)            at all material times, Roger Steeves, Elizabeth Steeves son and the Appellant's spouse, was the President and sole director in the Payor and an associated company, Canadian Syrup Inc.;

(e)            Roger Steeves was responsible for the day to day operations and made all corporate decisions for the Payor and Canadian Syrup Inc.;

(f)             the Payor and Canadian Syrup Inc. operated year round without seasonal fluctuations;

(g)            the Payor's revenues were from a mail delivery contract with Canada Post and from leasing part of its 400 acres of land to Canadian Syrup Inc. and an unrelated company, Hilltop Hog Ltd.;

(h)            the Appellant was hired by the Payor under the title of office manager;

(i)             the Appellant's duties for the Payor included delivering mail under the Canada Post contract, collecting rents and handling complaints from Canadian Syrup Inc. and Hilltop Hog Ltd., caring for the buildings and the grounds which included hiring contractors or maintenance people, mowing the lawn and snow removal;

(j)             the Appellant's duties for Canadian Syrup Inc. included laundry, cleaning the office, answering the phone, dealing with customers and suppliers, and entering invoices into the Payor's computer, accounts payable and accounts receivable and general office work;

(k)            of the 64 calendar weeks included in the period in question, the Appellant was included on the Payor's payroll for 21 weeks at $120 per week, for 4 weeks at $360 per week and for 39 weeks at $480 per week;

(l)             the Appellant performed substantially the same duties during each of the 64 calendar weeks included in the period in question;

(m)           the Appellant was in receipt of Employment Insurance benefits for the 21 weeks that she was paid $120 by the Payor;

(n)            for the 28 weeks immediately prior to the period in question, the Appellant was in receipt of Employment Insurance benefits and was not paid full or partial wages by the Payor;

(o)            prior to the period in question, the Appellant performed services for the Payor without remuneration;

(p)            for the 6 weeks immediately subsequent to the period in question, the Appellant was waiting for or was in receipt of Employment Insurance benefits and was not paid full or partial wages by the Payor;

(q)            subsequent to the period in question, the Appellant performed services for the Payor without remuneration;

(r)             the Appellant was not paid or paid reduced wages during the periods where the Payor did not have funds available to pay her;

(s)            the Payor's financial position and not the level of services provided by the Appellant determined whether the Appellant was included on the payroll and how much she was paid;

(t)             the Appellant was related to the Payor within the meaning of the Income Tax Act;

(u)            the Appellant was not dealing with the Payor at arm's length;

(v)            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 not reasonable to conclude that the Appellant and the Payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[10]          The simple fact of the matter is that none of the facts pleaded, either individually or cumulatively, support the conclusion allegedly reached by the Minister in paragraph (v). The business of the company, Steeves' Ranch Ltd., was managed by the appellant's husband, Roger Steeves. He had developed a form of maple syrup substitute and in promoting its sale throughout the world had to be absent for extended periods of time in Europe and the Far East. He needed someone whom he trusted to run the business when he was not there and his wife, the appellant, was a logical choice.

[11]          In general, she was on the payroll when he was away and was taken off it when he was at home and when she was not needed. Sometimes she would put in time when she was needed even when her husband was home.

[12]          The Crown seemed to place some importance on the fact that sometimes she would answer the telephone even when she was not on the payroll. This I regard as insignificant in the overall picture. It is certainly no reason to exercise the discretion against the appellant.

[13]          What seems to have troubled the respondent is that the appellant was sometimes on the payroll and sometimes not, and that she worked sometimes 40 hours per week, sometimes 10 hours per week and sometimes 30 hours per week. Paragraph (k) of the so-called assumptions was correct, paragraphs (l), (r) and (s) were not, on the evidence.

[14]          This is the only basis upon which it was attempted to uphold the exercise of discretion. It is not an appropriate basis for doing so. The evidence is clear that the appellant worked as she was needed. She worked full time when her husband was away and occasionally part time when he was home. This appears to be a perfectly normal commercial arrangement. What would have been abnormal would be if he had kept her on the payroll and paid her when she was not needed.

[15]          I find that the discretion was exercised upon the basis of facts that were either wrong or did not justify the conclusion reached by the Minister. Accordingly the exercise of discretion must be set aside.

[16]          I come now to the second part of the case: how should this court decide the question in paragraph 5 of the Employment Insurance Act? I have no hesitation in concluding, on the evidence of Mr. and Mrs. Steeves, 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 the appellant and the payor would have entered into a substantially similar contract of employment if they had been dealing at arm's length.

[17]          Her pay ($12 per hour) was reasonable and was not challenged. The work was important — indeed, essential — to the companies to which she rendered services. She worked as she was needed. Exhibit A-1, the Manager Job Requirements, sets out accurately what her duties were. Some of these changed in the period in question after the payor divested itself of some property. This is not abnormal in the context of the payor's business, particularly given the lengthy absences of the president.

[18]          The appeal is allowed and the determination of the Minister that the appellant was not engaged in insurable employment in the period in question is vacated.

Signed at Hamilton, Canada, this 20th day of March 2001.

"D.G.H. Bowman"

A.C.J.

COURT FILE NO.:                                                 2000-3619(EI)

STYLE OF CAUSE:                                               Between Judy A. Steeves and

                                                                                The Minister of National Revenue

PLACE OF HEARING:                                         Moncton, New Brunswick

DATE OF HEARING:                                           March 6, 2001

REASONS FOR JUDGMENT BY:                      The Honourable D.G.H. Bowman

                                                                                Associate Chief Judge

DATE OF JUDGMENT:                                       March 20, 2001

APPEARANCES:

Agent for the Appellant:                                     Roger Steeves

Counsel for the Respondent:                              Christa MacKinnon

                                                                                John Bodurtha, Esq.

COUNSEL OF RECORD:

For the Appellant:                

Name:                      --

Firm:                        --

For the Respondent:                                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                Ottawa, Canada

2000-3619(EI)

BETWEEN:

JUDY A. STEEVES,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Appeal heard on March 6, 2001, at Moncton, New Brunswick, by

The Honourable D.G.H. Bowman, Associate Chief Judge

Appearances

Agent for the Appellant:             Roger Steeves

Counsel for the Respondent:      Christa MacKinnon

                                                John Bodurtha, Esq.

JUDGMENT

          It is ordered that the appeal from the decision of the Minister of National Revenue made under the Employment Insurance Act that the appellant was not engaged in insurable employment in the period in question be allowed and the decision be vacated.

Signed at Hamilton, Canada, this 20th day of March 2001.

"D.G.H. Bowman"

A.C.J.