Calvert v. M.N.R., docket 1999-2127-EI

Date: 19991122

Docket: 1999-2127-EI

BETWEEN:

CONSTANCE MARIE CALVERT,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

CAIN, D.J.T.C.C.

[1] This appeal was instituted by Constance Marie Calvert, hereinafter referred to as the "Appellant", in respect to a ruling of the Minister of National Revenue, hereinafter referred to as the "Respondent", that the former was not employed in insurable employment by Belshaw Construction Ltd., hereinafter referred to as "the Company", for the period August 28, 1997 to August 28, 1998, within the meaning of the Employment Insurance Act, hereinafter referred to as the "Act".

FACTS

[2] The Appellant and the Respondent agree to the following facts as they relate to the time period in issue.

[3] The Company operates a contracting business, both commercial and industrial.

[4] Mark Ian Johnson hereinafter referred to as "Johnson" is the sole shareholder of the Company, controls the day-to-day operations of the business, makes all of the business decisions related to that operation and has the sole signing authority over bank accounts and loans associated with that business.

[5] Johnson is not married to the Appellant but does have a conjugal relationship with the Appellant which had produced two children.

[6] The Appellant was hired by the Company as receptionist/bookkeeper under a verbal agreement.

[7] The Appellant's duties were to set up a computerized office, act as receptionist, process the incoming and outgoing mail, liaise with the Company's accountant, look after the corporate files and do the banking for the Company.

[8] The place of business of the Company was originally at the home of Johnson in Bradford, Ontario but was later transferred to an industrial building at New Market Ontario and the Appellant carried out her duties at both places.

[9] The Appellant was hired on the basis of a five-day week, Monday to Friday from 8:00 a.m. to 5:00 p.m.

[10] The Appellant was paid $600 weekly.

[11] The Appellant was paid an annual salary of $31,200 for her services while during the same period Johnson drew only $250 a week and took an annual bonus of $12,000 for a total of $20,400.

[12] The Appellant operated a business called "Mary Folklorist" which was owned jointly by she and Johnson.

[13] The Company provided all of the office equipment at no cost to the Appellant.

[14] The Company employed three persons which included the Appellant and Johnson.

[15] The Appellant is related to Johnson within the meaning of section 251 by virtue of the operation of subsection 252(4) of the Income Tax Act.

[16] The Respondent relied on the following additional facts in making his decision which the Appellant does not agree with:

- the Appellant worked Monday to Friday, 8:00 a.m. to 5:00 p.m.;

- the Appellant's hours of work were determined by Johnson;

- the Appellant's hours of work were not recorded;

- the Company provided a company vehicle and a cellular phone to the Appellant.

- the bookkeeping function was minimal since there was only one other worker and sales were decreasing;

- the employment of the Appellant during the relevant period was to permit her to qualify for employment insurance and was not based on any business consideration or need;

- the Appellant was not dealing with the Company at arm's length;

- taking into account all of the above circumstances, it was not reasonable to conclude that the Company 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.

APPELLANT'S EVIDENCE

[17] The Appellant testified, that prior to obtaining a BA with a major in drama from the University of Windsor in the early 1990's she was a receptionist/bookkeeper where her duties included typing and business finance for her employer, the fundamentals of which she learned with courses and on the job training. She then moved on and became office manager for a New Market, Ontario glass company where her duties were similar to that performed with the Company.

[18] Following her graduation she established a business of puppetry called "Mary Folklorist" for the purpose generally of entertaining children's groups and particularly to enter into contacts with school boards to provide an assist to teaching through puppetry. She was initially successful but ultimately came to depend on school contracts. The business proved viable until the recent cut backs in school budgets in Ontario and the last contract was completed in the fall of 1998. That contract was similar to other contracts that she had in that the school board in question paid her $8,000 of which $6,500 was used to pay a trained instructor who was contracted to perform the service and expenses. With only one employee in 1998, namely the trained instructor, supervision was minimal and was conducted from the home usually on the telephone. While Johnson was a partner in this enterprise no evidence was led to show when the Appellant and Johnson began cohabiting or when he became a partner in the business.

[19] While carrying on this business, she became executive Director of the Ontario Puppetry Association. Her duties included receiving phone calls, site manager for all exhibits put on by the Association, liaison with the Board of Education in respect to the benefit of puppetry in the classroom and generally pushing the ideals and aims of the Association. This was a part-time job and she was paid when she was actively working for the Association. Between 1992 and 1995 she was paid between $15,000 and $20,000 a year.

[20] The Appellant is still married to her first husband but has now two children as a result of her conjugal relationship with Johnson. She entered into the relationship on the understanding that he would provide a home for she and her children and she would provide for her own personal expenses and pay the cost of all groceries. When the puppetry business started to wind down in 1997, she began looking for jobs. At about the same time the Company experienced a boom that produced in excess of $1,700,000 of business. With her education experience and background she was looking for employment that would provide her with sufficient income to maintain the independence of the relationship she had established with Johnson. From her inquiries from various established businesses she found with her qualifications that $30,000 a year was the going rate. When Johnson asked her to work for the Company she set that salary as the minimum she would accept.

[21] She was hired by the Company at $600 a week for a five-day work week from 8:00 a.m. to 5:00 p.m. daily. Records of the Company were introduced in evidence (Exhibit A-1) and show these as the hours worked. While there was no on-site supervision, since the operation was basically a one man operation with two employees, Johnson did not feel that on-site supervision was required for the Appellant since they were living in a conjugal relationship and it was as much in her interest to perform the function of receptionist and bookkeeper to ensure that the business operated efficiently. However both the Appellant and Johnson testified that the former worked many hours in excess notwithstanding the weekly salary agreement. Johnson would arrive at the office late in the afternoon from construction sites with work that had to be done then and the Appellant would perform those tasks.

[22] One of the tasks that she performed for which she was specifically trained for was to convert the Company's manual accounting system to a computer based system. The Company's accountant, one R. Gordon Oliver, was hired by the Company to oversee this conversion and in a letter directed to one J. Moras at Revenue Canada dated December 7, 1998 (Exhibit A-2) said as follows:

"Please be advised that I was initially retained by Belshaw Construction to provide assistance to the company to convert a manual accounting system to a computer based system. In that regard, I worked very closely with Constance who had administered and maintained all the records of the company including the manual accounting records and had started to use computer software to track the operations of the business.

During the time that I worked with Constance to complete the accounting conversion I had almost no contact with Mr. Johnson. I worked exclusively with Constance and would have been unable to complete the conversion without her personal knowledge of the business and its transactions. The reason that I had almost no contract with Mr. Johnson was that he was rarely in the office during "regular" business hours because he was supervising and co-ordinating the completion of jobs at the various construction sites.

In summary, it is my opinion that it would have been impossible for the Company to conduct its business without full-time administrative and accounting support staff. I would also advise that it would have been considerably more expensive for the Company to retain my services for the accounting conversion if the company did not have the availability of Constance and her personal knowledge and was required to hire a staff accountant from the labour pool in the local area.

...

During the time that I worked with Constance at Belshaw Construction's offices, it became clear that she was required and able to provide the accounting and administrative support the company required. The amount that Constance was paid to provide these services was clearly very reasonable in the circumstances. Indeed, as I have pointed out, it is almost impossible to find the combination of accounting and administrative skills in one employee. If Belshaw did not have the availability of Constance I would suggest that it would have required two permanent part-time employees each working 20 plus hours per week to provide the support that Belshaw required during the time period in question."

[23] In addition, the Appellant was required to retrieve and resurrect the accounting system of the firm when the hard drive on the Company's computer "cooked" during her term of employment.

[24] Johnson testified as to the history of the Company and the work that the Company was involved in during the time in issue.

[25] The Company was incorporated in 1988 but lay dormant until 1995. During the intervening years he became associated with one Kamo and did work almost exclusively in respect to expansions within Ontario for a nation linen supply company.

[26] In 1995, Kamo decided to retire and Johnson reactivated his company and took over the work to be performed for the linen supply company. During 1996 he did almost $600,000 worth of work and in 1997, with the linen supply company involved in several expansions, he contracted for $1,700,000 of construction work. It was at this time that he moved his office operation from his home and leased space in an industrial park and began to look for a qualified office manager and accountant. His business was booming and he required additional help.

[27] Johnson admits that the Appellant used a company vehicle to travel from home to the office while the office was located outside of the home and used the vehicle on Company business during working hours. The cellular phone that the Appellant used was one provided by the Company's telephone carrier free when the Company engaged the carrier's service and did not represent a cost to the Company.

[28] The Company was extremely busy in 1997 but active contracts neared completion in January 1998. During the fall of 1997 and the winter of 1998 the Company continued to bid on contracts but bidding had become very competitive and he was unable to win any new major contracts. He undertook small renovation jobs to meet the payroll and during the period January 1998 to August 1998 sales dipped to $40,000.

[29] At the end of February of 1998 he moved his office operation back to the house to save money but was reluctant to let the Appellant go in case he was successful in obtaining new contracts.

DECISION

[30] The Federal Court of Appeal in Attorney General of Canada (Applicant) and Jencan Ltd. (Respondent) (June 24, 1997, 215 N.R. 352) set out the criteria by which the Tax Court of Canada should exercise its jurisdiction in dealing with determinations of the Respondent made by the exercise of his discretion under subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act (now paragraph 5(3)(b) of the Employment Insurance Act). These criteria may be summarized as follows.

[31] In the exercise of its jurisdiction, this Court must exhibit a high degree of judicial deference in reviewing the Minister's determination. While the Court has authority to decide questions of law and fact, the Court's jurisdiction is circumscribed.

[32] While the process is called an appeal, in reality the process most resembles a judicial review, where the Court does not have to decide whether the Respondent's determination was correct but whether it resulted from a proper exercise of his discretionary authority.

[33] Failure to take into account all of the relevant circumstances required by the Employment Insurance Act or taking into consideration irrelevant facts would result in an improper exercise of that discretion.

[34] The Court does not have the right to substitute its decision for that of the Respondent because the Court would have come to a different conclusion on the facts relied on by the Respondent. However since the Appellant is not privy to the Respondent's decision and has the onus of proving his or her case, the Appellant has a right to bring new evidence to challenge the assumptions of facts relied by the Respondent. If after considering all of the evidence, the Court finds the facts on which the Respondent acted are insufficient in law to support his determination, the Court is justified in scrutinizing that determination and if it finds it legally wanting, of intervening.

[35] An assumption of fact that is disproved at trial may not necessarily constitute a defect which renders the Respondent's determination contrary to law. It will depend on the strength and weakness of the remaining evidence. The Court must go one step further and ask itself whether without the asumption of fact that have been disproved there is sufficient evidence to support the Respondent's determination.

[36] While the qualifications of the Appellant were not questioned by the Respondent, the testimony of the Appellant, Johnson and the evidence contained in the letter from the Company's accountant, the Court is more than satisfied that $600 a week was a reasonable salary for the services provided by her. That testimony was not cross-examined on and it satisfies the Court that the remuneration is at what might be called the market rate.

[37] Counsel for the Respondent submitted that I should view with some suspicion the fact that accurate records were not kept of the Appellant's hours of work and that she was not supervised. I am satisfied from the evidence that the agreed rate of remuneration was $600 a week, that the employment records verified that she did in fact work at least 40 hours a week.

[38] Counsel further submitted that the Appellant was not supervised. This was a small company with two major employees, Johnson, the Appellant and a labourer who assisted Johnson on the various jobs. The Appellant was the conjugal companion of Johnson and not a stranger. She was someone in whom Johnson had trust and from the evidence it is clear to the Court that trust was well placed.

[39] In support of his determination, the Respondent stated that the Company supplied the Appellant with the tools to do her work, namely the office equipment. The Court finds that ground to be irrelevant since the supply of the tools of work is standard practice in a contract of service and the Appellant's work with the Company was a contract of service.

[40] The Company's business was not a large one. However it experienced a large volume of business in 1997, $1,700,000 in sales, compared with the very slow year 1998 when it only was able to find $40,000 worth of sales by August. The contracts of 1997 were basically completed by January 1998. Clearly the activities of the Company in August 1997 justified the engagement of a person with the qualifications of the Appellant taking into consideration particularly the special task that the Company had for such an employee to perform and the qualifications of the Appellant to perform that work.

[41] The fact that Johnson only drew approximately $20,000 as salary during the period while the Appellant was paid approximately $10,000 more was a factor that the Respondent apparently felt was compelling. Johnson testified that was all he required during that period and that testimony was not challenged.

[42] It is clear that during January and February of 1998 the Company was actively pursuing and tendering for work that if landed would have resulted in a continuation of the activity generated in 1997. However it failed to land any new contracts.

[43] The Company decided at the end of February to relocate its office to the home of Johnson in Bradford, Ontario and the Court is satisfied that the need to have a person of the qualifications of the Appellant after March 15, 1998, no longer existed and from that date the Appellant's employment would no longer meet the requirements necessary to qualify for a deemed arm's length relationship under paragraph 5(3)(b) of the Act. The Court fixes the date of March 15, 1998 taking into consideration that until the end of February the Company was actively seeking contracts and it would have been inappropriate to lay off staff until it was clear that the Company would not be maintaining it 1997 level of activity.

[44] The Respondent's decision determined that the period August 28, 1997 to August 28, 1998 was not a term of insurable employment for the Appellant. However from the evidence adduced the Court is satisfied that during a portion of the term of employment in issue there was insurable employment, namely from August 28, 1997 to March 15, 1998. The Court after considering all of the evidence finds that the assumed facts which the Respondent used to support his determination are insufficient in law as it relates to the period August 28, 1997 to March 15, 1998. The Respondent's assumption that there was no business consideration or need to engage the Appellant and the only reason the Appellant was hired was to permit her to become eligible to draw employment insurance is not supported by the evidence and that assumption, in the Court's view, was at the basis for the Respondent's determination. The business consideration and the need was the computerization of the Company's accounting system and the engagement of a competent office manager during a boom period experienced by the Company. Without evidence to support the Respondent's basic assumption, the other assumptions are not sufficient to support his determination. The Court is justified in intervening and as the Federal Court of Appeal has said, exercising the discretion conferred by paragraph 5(3)(b).

[45] The Appellant was a new entrant into the work force in that she was not engaged in insurable employment for the year prior to her engagement. This is inferred by the evidence of the Appellant and no evidence was led by the Respondent to the contrary.

[46] Paragraphs 7(3)(a) and (b) and 7(4)(a) of the Employment Insurance Act read as follows:

"(3) An insured person who is a new entrant or a re-entrant to the labour force qualifies if the person

(a) has had an interruption of earnings from employment; and

(b) has had 910 or more hours of insurable employment in their qualifying period.

(4) An insured person is a new entrant or a re-entrant to the labour force if, in the last 52 weeks before their qualifying period, the person has had fewer than 490

(a) hours of insurable employment;

..."

[47] The Appellant had an interruption of earning from her employment with the Company on August 28, 1998.

[48] Subsections 14(1) and (2) of the Employment Insurance Regulations read as follows:

"14.(1)Subject to subsections (2) to (7), an interruption of earnings occurs where, following a period of employment with an employer, an insured person is laid off or separated from that employment and has a period of seven or more consecutive days during which no work is performed for that employer and in respect of which no earnings that arise from that employment, other than earnings described in subsection 36(13), are payable or allocated.

(2) An interruption of earnings from an employment occurs in respect of an insured person at the beginning of a week in which a reduction in earnings that is more than 40 per cent of the insured person's normal weekly earnings occurs because the insured person ceases to work in that employment by reason of illness, injury, quarantine, pregnancy or the need to care for a child or children referred to in subsection 23(1) of the Act.

..."

[49] The Court is not certain from the evidence which of the above subsections applies to the Appellant but she might possibly be caught under both. In any event from the evidence she ceased work by reason of pregnancy on or after August 28, 1998 and there was the requisite reduction in earning as stipulated in subsection (2).

[50] It should be noted that "interruption" in the above subparagraphs is in respect to "earnings from employment" and not earnings from "insurable employment". The Appellant was employed by the Company from August 28, 1997 to August 28, 1998. The Court has found that during that term a portion of that employment was "insured employment". From August 28, 1997 to and including March 15, 1998, the Appellant would have worked 28 weeks and at 40 hours per week, a total of 1,120 hours well in excess of the 910 hours required by section 7 above.

Accordingly pursuant to subsection 103(1) of the Act, the Court varies the determination of the Respondent by finding that the Appellant was engaged in insurable employment with Belshaw Construction Ltd. from August 28, 1997 to and including March 15, 1998.

Signed at Rothesay, New Brunswick, this 22nd day of November 1999.

"Murray F. Cain"

D.J.T.C.C.