Levac v. M.N.R., docket 98-1039-UI

Date: 19990715

Docket: 98-1039-UI

BETWEEN:

THÉRÈSE LEVAC,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1] This is an appeal from a determination dated September 3, 1998 by which the respondent concluded that the work performed by the appellant, Thérèse Levac, with Xébec Inc. from February 19, 1992 to March 31, 1998 was not insurable employment on the ground that she and the person who controlled the company that paid the remuneration were not dealing with each other at arm's length.

[2] In support of his conclusion, the respondent made the assumptions of fact set out in paragraph 5 of the Reply to the Notice of Appeal as follows:

[TRANSLATION]

(a) The payer, which was incorporated in 1967, operates a business manufacturing air dryers for air compressors used in large factories.

(b) The payer's shareholders were:

Claus Brand with 66 2/3% of the shares

Krista Brand, Mr. Brand's former spouse, with 33 1/3% of the shares.

(c) The payer's shares were sold to third parties and Mr. and Mrs. Brand are no longer shareholders of the company.

(d) The payer was operated year-round with 40 employees in the following professions: there were welders, electricians, plumbers, engineers, draftsmen, a secretary, a salesman and an accountant.

(e) The appellant, Claus Brand's de facto spouse, has worked for the payer, and essentially for Mr. Brand, since 1992.

(f) Mr. Brand was an inventor specializing in the payer's field of activity and generally worked at his home (which was also that of the appellant).

(g) The appellant worked at the couple's home at the following duties: she filed "blues" (plans prepared by Mr. Brand), made photocopies, cleaned and tidied the office and residence and occasionally chauffeured Mr. Brand, who no longer had a driver's licence.

(h) The appellant had no work schedule to meet, her hours were not recorded by the payer and she could engage in other household activities.

(i) The appellant mainly used tools and equipment belonging to Mr. Brand himself.

(j) The appellant received fixed weekly remuneration paid by cheque.

(k) The appellant claims that she received gross weekly remuneration of $323 for 35 hours of work, whereas the payer's pay records indicate that she was paid $413 gross per week.

(l) The work performed by the appellant for the payer is hard to quantify; she performed certain duties for the payer while at the same time carrying out personal tasks.

[3] In her testimony, the appellant admitted the great majority of the alleged facts. Using binders containing tables and grids, she explained the activities in which she was mainly involved on the job. She also stated that she had worked during the period at issue as a chauffeur for her spouse, who had to travel across North America for his business. She indicated that she worked more intensely and actively as a chauffeur during the year in which her spouse lost his driver's licence. She also explained and described the manual work in which she was involved for the construction of certain prototypes.

[4] The appellant's spouse, Claus Brand, supplemented the appellant's evidence by testifying that his spouse had helped him considerably and that the work she had performed was essential and fundamentally important for the business. He also stated that the company reimbursed the vehicle expenses. He explained that the appellant's salary was fixed on the basis of comparisons, advice from the company's accountant and the situation as a whole. He also noted that Ms. Levac's participation had been beneficial, particularly when business got very difficult during the recession. Lastly, he explained that the appellant's lay-off was forced by the sale of his business.

[5] The respondent analyzed the circumstances and terms and conditions of the performance of the appellant's work and concluded that, had there been an arm's-length relationship, the appellant and the company, which was controlled by her spouse, would not have entered into a substantially similar contract of employment.

[6] The period at issue, or the duration of the employment, was six years. The appellant received a salary of approximately $400 a week for her work.

[7] According to the respondent, following an analysis of the case, a description of the appellant's duties was set out in subparagraph (g), which reads as follows:

(g) The appellant worked at the couple's home at the following duties: she filed "blues" (plans prepared by Mr. Brand), made photocopies, cleaned and tidied the office and residence and occasionally chauffeured Mr. Brand, who no longer had a driver's licence.

[8] The respondent drew the following conclusions on the basis of the uninterrupted duration of the employment, which was remunerated at a reasonable salary of approximately $400:

(h) The appellant had no work schedule to meet, her hours were not recorded by the payer and she could engage in other household activities.

(l) The work performed by the appellant for the payer is hard to quantify; she performed certain duties for the payer while at the same time carrying out personal tasks.

[9] While the legislator has conferred significant power on the respondent by granting him broad discretion under paragraph (3)(2)(c) of the Unemployment Insurance Act, this alone is insufficient to allow him to draw quick, unjustified and essentially intuitive conclusions.

[10] Where there is a non-arms-length relationship between the payer and an employee, the salary is often observed to be higher than that paid for similar employment where the parties are dealing with each other at arm's length. The work performed frequently does not coincide with the needs of the business or is performed during periods when the payer business has little or no need of labour. Although the argument of chance is often made, the start and end of employment periods are sometimes based on eligibility for, and the duration of, unemployment insurance benefits.

[11] These are factors which raise doubts as to the existence of genuine employment and which considerably facilitate decisions as to whether employment is insurable.

[12] However, there are cases where the salary is more than reasonable, actual work is performed, the business can afford to pay the salary agreed upon, the employment is continuous over a period of a number of years and, lastly, the lay-off is justified on reasonable grounds which cannot be doubted or even be open to discussion.

[13] These are facts which, without necessarily creating a presumption, should at least induce those who hold discretionary power to analyze the situation more carefully.

[14] In this type of situation, a case should be analyzed somewhat more rigorously and conclusions should not be drawn essentially on the basis of unfounded perceptions or pure intuition.

[15] In an age when society has evolved to the point where it rightly permits work to be done at home—I am thinking in particular of those who work in their homes on a computer—I often get the impression, and this case is a good example, that the respondent would like employment insurability to be subject to proof beyond any doubt that the work completely occupied a specific number of hours; that he would like hours to be clearly defined and recorded, work to be very rigorously controlled and monitored at all times and, lastly, the start and end times of daily work periods to be confirmed by time cards, which, however, are increasingly absent from the workplace.

[16] In the computer era, when work is being done from the home and employees participate or are partners in the management of their businesses, I believe this conservative notion is passé or at the very least debatable. It is now an accepted fact that harmony, trust and cooperation are more effective concepts for ensuring quality and productivity. Absolute authority, often expressed through close supervision, where the payer must constantly be at his employee's heels, is disappearing. The description of duties, the very specific time required to perform these duties and available free time are definitely relevant factors, but their relative importance must be assessed in an overall context. They must not constitute the sole basis of a determination.

[17] In the instant case, the balance of evidence shows that the respondent failed in his obligation to make a reasonable, objective and serious assessment of the facts and of the terms and conditions of the performance of the appellant's work.

[18] It is also clear on the balance of evidence that the work performed met the requirements of insurable employment as it was comparable and similar to employment which a third party could have held in similar circumstances. Furthermore, the work in question was done pursuant to a genuine contract of service in that it was subject to the payer's power of control. The appellant had no chance of profit or risk of loss and, for the purposes of her work, used the material and equipment provided by the company, which reimbursed any expenses she incurred.

[19] In addition, I think it material to refer to the recent judgment in Francine Légaré v. Minister of National Revenue, A-392-98, in which Marceau J.A. of the Federal Court of Appeal wrote:

The Act requires the Minister to make a determination based on his own conviction drawn from a review of the file. The wording used introduces a form of subjective element, and while this has been called a discretionary power of the Minister, this characterization should not obscure the fact that the exercise of this power must clearly be completely and exclusively based on an objective appreciation of known or inferred facts. And the Minister's determination is subject to review. In fact, the Act confers the power of review on the Tax Court of Canada on the basis of what is discovered in an inquiry carried out in the presence of all interested parties. The Court is not mandated to make the same kind of determination as the Minister and thus cannot purely and simply substitute its assessment for that of the Minister: that falls under the Minister's so-called discretionary power. However, the Court must verify whether the facts inferred or relied on by the Minister are real and were correctly assessed having regard to the context in which they occurred, and after doing so, it must decide whether the conclusion with which the Minister was "satisfied" still seems reasonable.

[20] For the above reasons, the appeal is allowed on the basis that the work performed by the appellant during the period at issue was done pursuant to a genuine contract of service.

Signed at Ottawa, Canada, this 15th day of July 1999.

"Alain Tardif"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 30th day of May 2000.

Erich Klein, Revisor