[OFFICIAL ENGLISH TRANSLATION]
Date: 20010129
Docket: 1999-3411(EI)
BETWEEN:
JOSÉE GIRARD,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
AND
Docket: 1999-3412(EI)
MARIO TREMBLAY,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Charron, D.J.T.C.C.
[1] These appeals were heard on common
evidence at Québec, Quebec, on November 23, 2000, to
determine whether the appellants held insurable employment within
the meaning of the Unemployment Insurance Act and the
Employment Insurance Act¾in the case of
Josée Girard¾from May 6 to August 2, 1991, from
September 3 to November 8, 1991, from March 26, 1992, to June 11,
1993, and from March 15, 1995, to March 15, 1996, and¾in
the case of Mario Tremblay¾from August 20, 1990, to July
24, 1992, from August 2, 1993, to February 11, 1994, from June
12, 1994, to December 29, 1995, from April 15 to December 10,
1996, and from January 6 to February 7, 1997, when they were both
employed with Gertrex R.S.I. Inc., the payer.
[2] In a letter dated May 19, 1999,
the Minister of National Revenue (the "Minister")
informed the appellant, Josée Girard, that her employment
during the periods at issue was not insurable because, in his
opinion, she would not have entered into a similar contract of
service with the payer had they been dealing at arm's
length.
[3] In a letter dated May 19, 1999,
the Minister informed the appellant, Mario Tremblay, that his
employment was insurable from August 20 to November 17, 1990.
However, the employment from November 18, 1990, to June 29, 1996,
and from June 30, 1996, to February 7, 1997, was not insurable
because, in his opinion, 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, the appellant would not have entered into a
similar contract of service with the payer if they had been
dealing with each other at arm's length.
Statement of facts
[4] The facts on which the Minister
relied in making his decision are stated in paragraphs 5 of the
Replies to the Notices of Appeal as follows:
Josée Girard (1999-3411(EI))
[TRANSLATION]
(a) The payer,
incorporated on November 12, 1986, operates a renovation and
interior decoration business for commercial and industrial
buildings. (admitted)
(b) Pauline
Tremblay, the appellant's mother-in-law, was the sole shareholder
of the payer. (admitted)
(c) Gilles A.
Tremblay, the spouse of Pauline Tremblay and the father-in-law of
the appellant, was the director of the payer; it was he who
qualified the company with the Régie de la Construction du
Québec. (admitted)
(d) The company owns
the building where it is located and in which it leases six other
commercial spaces. (admitted)
(e) The appellant
worked for many years in the payer's head office as a secretary
and receptionist. (admitted)
(f) During the
periods at issue, the appellant apparently made a $7,000
interest-free loan to the payer. (denied)
(g) The appellant
alleges that her hours of work were compiled by the payer,
whereas Gilles A. Tremblay, the sole director of the payer, did
not know the appellant's hours of work. (denied as written)
(h) The appellant
claims that she worked from 8:30 a.m. to 4:30 p.m., from Monday
to Friday, during the periods at issue, whereas she only worked a
few hours a week during weeks when she was receiving
unemployment/employment insurance benefits. (denied as
written)
(i) When she
was entered on the payroll full-time, the appellant received a
fixed remuneration of $500 a week and this (admitted) was without
taking into account the hours actually worked. (admitted with an
explanation)
(j) During the
periods at issue, the appellant received from the payer $4,700 in
1993 and $2,000 in 1995, in addition to her remuneration
(denied)
(k) The appellant is
entered on the payroll when her spouse is not and is not entered
on the payroll when her spouse is entered full-time. (denied)
(l) The
appellant rendered services to the payer throughout the year;
there was an arrangement between her and the payer to let her
qualify for unemployment/employment insurance benefits between
her alleged periods of work. (denied)
(m) The records of
employment submitted by the appellant do not reflect the reality
as to the periods worked and the remuneration earned.
(denied)
Mario Tremblay (1999-3412(EI))
[TRANSLATION]
(a) The payer,
incorporated on November 12, 1986, operates a renovation and
interior decoration business for commercial and industrial
buildings. (admitted)
(b) Pauline
Tremblay, the appellant's mother, was the sole shareholder of the
payer. (admitted)
(c) Gilles A.
Tremblay, the spouse of Pauline Tremblay and the appellant's
father, was the director of the payer; it was he who qualified
the company with the Régie de la Construction du
Québec. (admitted)
(d) The company owns
the building where it is located and in which it leases six other
commercial spaces. (admitted)
(e) Gilles A.
Tremblay has little involvement in the business and entrusts its
management to the appellant and his spouse. (denied)
(f) The
appellant is not a member of the board of directors but could
sign the payer's contracts and sign cheques on the payer's
behalf. (admitted)
(g) The appellant
has worked for the payer since 1986 and his chief duties may be
summarized as follows: consulting plans, making bids, meeting
clients, signing and carrying out contracts, supervising the work
and working with employees on the job sites. (admitted with an
explanation)
(h) The appellant
had a free hand over all the payer's activities; without his
contribution, the company would not have been in business.
(denied as written)
(i) The
appellant worked anywhere between 20 and 60 hours and sometimes
as much as 80 hours a week, depending on the contracts obtained
by the payer. (admitted)
(j) The
appellant was the directing mind of the payer, which was in
operation throughout the year, even though he claims he was
without work for long periods of time during the periods at
issue. (denied)
(k) The appellant
claims that he received a fixed remuneration that did not reflect
the hours actually worked, even though he received from the payer
approximately $4,350 in 1993, $18,356 in 1994, $10,000 in 1995,
$26,000 in 1996 and $2,540 in 1997 over and above his
remuneration. (denied)
(l) During the
periods at issue, the appellant made cash advances to the payer,
he guaranteed loans and, on several occasions, he mortgaged his
own residence for the payer. (denied)
(m) The appellant's
alleged periods of work did not correspond with the payer's
periods of activities. (denied)
(n) The appellant
rendered services to the payer throughout the year; there was an
arrangement between him and the payer to let him qualify for
unemployment/employment insurance benefits between his alleged
periods of work. (denied)
(o) The records of
employment submitted by the appellant do not reflect the reality
as to the periods worked and the remuneration earned.
(denied)
[5] The appellants admitted all of the
facts alleged in the subparagraphs of paragraphs 5 of the Replies
to the Notices of Appeal, except those they denied, as indicated
in parentheses at the end of each subparagraph.
Testimony of Mario Tremblay
[6] Mr. Tremblay has been an
estimator-installer of interior systems for the payer's company
since 1986. His father, Gilles Tremblay, is the one who qualified
the payer until 1997. Mario's duties consisted of meeting
clients, making bids and estimates and acting as the payer's
foreman. He produced in evidence as Exhibit A-1 various contracts
carried out from 1990 to 1996. The payer installed drywall,
suspended ceilings and insulation under Mario's control. In 1991,
the payer did approximately $13,000 - $14,000 worth of business.
When the payer obtained contracts, it had them carried out by
subcontractors (Exhibit I-1).
Testimony of Josée Girard
[7] Ms. Girard is the payer's
secretary and her duties are to answer the telephone, take care
of the bookkeeping and accounts receivable, pay suppliers, make
bank deposits, type bids, make source deductions, prepare pay
cheques, collect rents and the accounts receivable. She was paid
$500 a week by cheque but had no fixed schedule. During periods
of unemployment, Josée Girard received $100 a week to do
small jobs that could not be put off. She reported her salary to
unemployment insurance and her status as the spouse of Mario
Tremblay and daughter-in-law of Ms. Tremblay (Exhibit A-3).
Revenue Canada considered that her work was insurable and paid
her unemployment benefits until 1995.
Testimony of Linda Bousquet
[8] Ms. Bousquet, a collections
officer, reviewed the appellant's file and ruled on its
insurability. She discovered that Josée Girard received
amounts totalling $4,700 in 1993 and $2,000 in 1995, in five
separate payments. Her husband received $4,350 in 1993, $18,356
in 1994, $10,000 in 1995, $26,000 in 1996 and $2,450 in 1997.
These amounts are not salaries but rather advances on the payer's
income.
New testimony of Mario Tremblay
[9] The amounts Mario Tremblay
received from the payer are not remuneration but merely the
reimbursement of amounts he lent to the payer's company.
Analysis of the facts in light of the law
[10] It must now be determined whether the
activity carried on by the appellants is included in the concept
of insurable employment, that is, whether there was a contract of
service and, second, whether the appellants would have received
such generous salaries if they had been dealing with the
payer at arm's length. I will first deal with the existence
of the contract of service and then with the non-arm's length
relationship.
[11] The case law has laid down four
essential tests for identifying a contract of employment. The
leading case is Montreal v. Montreal Locomotive Works
Ltd., [1947] 1 D.L.R. 161. Those tests are: (1) control, (2)
ownership of the tools, (3) chance of profit and (4) risk of
loss. The Federal Court of Appeal added thereto the "degree
of integration" in Wiebe Door Services Ltd. v.
M.N.R., [1986] 3 F.C. 553, but this list is not
exhaustive.
[12] The evidence did show that the work
performed by the appellants was done under the payer's
supervision and that there was a relationship of subordination
between the appellants and the payer. It was the payer that owned
the business necessary for carrying out its activities. The payer
alone could make profits or incur losses in operating its
business, not the appellants, who merely received a fixed salary.
The tools of work belong to the payer. Finally, the appellants
performed their work on the payer's job site and were well
integrated into its business. I therefore find that the payer was
operating a business and that the appellants were employed by it,
subject to what follows.
[13] The issue now is the non-arm's length
relationship. Did the respondent act properly in exercising his
discretion under subparagraph 3(2)(c)(ii) of the
Unemployment Insurance Act, now paragraph 5(3)(b)
of the Employment Insurance Act?
[14] Subsection 3(2) of the Unemployment
Insurance Act reads in part as follows:
3(2) Excepted employment is
...
(c) subject to
paragraph (d), employment where the employer and employee are not
dealing with each other at arm's length and, for the purposes
of this paragraph,
(i) the
question of whether persons are not dealing with each other at
arm's length shall be determined in accordance with the
provisions of the Income Tax Act, and
(ii) where the
employer is, within the meaning of that Act, related to the
employee, they shall be 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.
...
[15] Under section 251 of the Income Tax
Act, related persons are deemed not to deal with each other
at arm's length. Where persons are related to each other,
there cannot be insurable employment unless the Minister of
National Revenue is satisfied otherwise in accordance with
subparagraph 3(2)(c)(ii) of the Unemployment Insurance
Act, now subparagraph 5(3)(b) of the Employment
Insurance Act.
[16] The Federal Court of Appeal has
rendered a number of important decisions respecting the
application of paragraph 3(2)(c) of the Unemployment
Insurance Act, now subparagraph 5(2)(i) of the
Employment Insurance Act.
[17] In the first of these decisions,
Tignish Auto Parts Inc. v. M.N.R. (185 N.R. 73),
dated July 25, 1994, the Federal Court of Appeal cited counsel
for the respondent, in whose opinion it concurred:
Under the authority of Minister of National Revenue v.
Wrights' Canadian Ropes Ltd., contends the respondent,
unless the Minister has not had regard to all the circumstances
of the employment (as required by subparagraph 3(2)(c)(ii) of the
Act), has considered irrelevant factors, or has acted in
contravention of some principle of law, the court may not
interfere. Moreover, the court is entitled to examine the facts
which are shown by evidence to have been before the Minister when
he reached his conclusion so as to determine if these facts are
proven. But if there is sufficient material to support the
Minister's conclusion, the court is not at liberty to
overrule it merely because it would have come to a different
conclusion. If, however, those facts are, in the opinion of the
court, insufficient in law to support the conclusion arrived at
by the Minister, his determination cannot stand and the court is
justified in intervening.
[18] There are thus four tests that the Tax
Court of Canada can apply in deciding whether it is justified in
intervening:
the
Minister of National Revenue
(1) has not had regard to all the
circumstances;
(2) has considered irrelevant
factors;
(3) has acted in contravention of some
principle of law; or
(4)
has based his decision on insufficient facts.
[19] InFerme Émile Richard
et Fils Inc. (178 N.R. 361) dated December 1, 1994, the
Federal Court of Appeal summarized Tignish Auto Parts Inc.
as follows:
. . . As this court recently noted in Tignish Auto Parts
Inc. v. Minister of National Revenue, July 25, 1994,
A-555-93, F.C.A., not reported, an appeal to the Tax Court of
Canada in a case involving the application of s. 3(2)(c)(ii) is
not an appeal in the strict sense of the word and more closely
resembles an application for judicial review. In other words, the
court does not have to consider whether the Minister's
decision was correct: what it must consider is whether the
Minister's decision resulted from the proper exercise of his
discretionary authority. It is only where the court concludes
that the Minister made an improper use of his discretion that the
discussion before it is transformed into an appeal de novo and
the court is empowered to decide whether, taking all the
circumstances into account, such a contract of employment would
have been concluded between the employer and employee if they had
been dealing at arm's length.
[20] On this point, in Attorney General
of Canada v. Jencan Ltd. (1997), 215 N.R. 352, Isaac,
C.J. of the Federal Court of Appeal, writing for the Court, held
as follows:
The Deputy Tax Court Judge, however, erred in law in
concluding that, because some of the assumptions of fact relied
upon by the Minister had been disproved at trial, he was
automatically entitled to review the merits of the determination
made by the Minister. Having found that certain assumptions
relied upon by the Minister were disproved at trial, the Deputy
Tax Court Judge should have then asked whether the remaining
facts which were proved at trial were sufficient in law to
support the Minister's determination that the parties would
not have entered into a substantially similar contract of service
if they had been at arm's length. If there is sufficient
material to support the Minister's determination, the Deputy
Tax Court Judge is not at liberty to overrule the Minister merely
because one or more of the Minister's assumptions were
disproved at trial and the judge would have come to a different
conclusion on the balance of probabilities. In other words, it is
only where the Minister's determination lacks a reasonable
evidentiary foundation that the Tax Court's intervention is
warranted . . . . An assumption of fact that is disproved at
trial may, but does not necessarily, constitute a defect which
renders a determination by the Minister contrary to law.
[21] It seems clear from the evidence
adduced and the documents filed by the parties that the Minister
had regard to all the circumstances, ruled out irrelevant
factors, acted in accordance with the recognized principles of
law and based his decision on sufficient facts; in view of the
many contradictions found in the evidence and considering that
the rest of the evidence is sufficient to justify the
Minister's decision that the parties would not have entered
into a similar contract if they had been dealing with each other
at arm's length, the appeals are dismissed and the
Minister's decisions are confirmed.
Signed at Ottawa, Canada, this 29th day of January 2001.
D.J.T.C.C.
Translation certified true
on this 25th day of February 2003.
Sophie Debbané, Revisor
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