Date: 19991020
Dockets: 96-1834-UI; 97-100-UI; 96-1835-UI
BETWEEN:
MATTHEW McCARTHY,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
AND
BETWEEN:
LEROY McCARTHY,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Bowie, J.T.C.C.
[1] These three appeals are brought from determinations of the
Minister of National Revenue that the employment of Matthew
McCarthy and Leroy McCarthy for the relevant periods of time
was not insurable employment by reason of paragraph
3(2)(c) of the Unemployment Insurance Act. The time
periods in question for Matthew McCarthy are August 15, 1994 to
January 6, 1995 and May 1, 1995 to September 22, 1995. For Leroy
McCarthy the period is May 1, 1995 to October 27, 1995.
[2] The two Appellants are brothers, and during those time
periods they were employed as labourers by McCarthy Brothers
Limited (the company). Although there was some confusion in the
evidence about the shareholdings in that company, it is not now
disputed that Francis McCarthy was, at the material times, the
beneficial owner of all, or virtually all, of the shares. Francis
McCarthy is the father of the two Appellants. There is therefore
no doubt that the relationship between the Appellants and the
company was not an arm's length one.
[3] The appeals come to this Court in the following way. The
two Appellants applied for unemployment insurance benefits, after
being laid off at the end of the periods of employment set out
above.[1] Their
applications for benefits were reviewed by the appropriate
officer of the Department of Human Resources Development, who
then requested a ruling from the Minister of National Revenue
(the Minister) under the Unemployment Insurance Act as to
whether the employment could be considered insurable employment.
These matters do not move swiftly. Matthew McCarthy had made his
second application for benefits before the first one had become
the subject of a decision. All three applications came to be
dealt with together, and a rulings officer of Revenue Canada,
having interviewed the applicants and their father by telephone,
and having reviewed certain documents obtained from the company,
concluded that their employment was not insurable employment. An
appeals officer of Revenue Canada reviewed the file that had been
accumulated by the rulings officer, and interviewed the
applicants and Francis McCarthy by telephone. She also had
several telephone conversations with Kathleen McCarthy, the wife
of Francis McCarthy, who does office work and bookkeeping
for the company. Her investigation culminated in a report of 11
pages which concluded with this recommendation:
It is recommended that Minister's Notification be issued
to the effect that Matthew McCarthy, while engaged by McCarthy
Brothers Ltd. during the period in question, was not in insurable
employment pursuant to the provisions of paragraph 3(2)(c)
of the Unemployment Insurance Act.
I note that the recommendation makes no specific mention of
Leroy McCarthy, but the following appears at the bottom of page
2: "PLEASE NOTE THAT THIS IS MASTER FILE FOR ASSOCIATED FILE
0272385 Leroy McCarthy". The appeals officer's report
was signed by her on June 10, 1996, and it was apparently signed
by somebody whose title was "Reviewer", on June 18,
1996. It was then passed to the Chief of Appeals, who signed a
form letter to each of the Appellants advising them of the
adverse results. The operative paragraph of those letters reads
as follows:
It has been decided that this employment was not insurable for
the following reason: - the employment was not at arm's
length between McCarthy Brothers Ltd and yourself.
[4] Effectively, then, these appeals are from the conclusions
and recommendations of the appeals officer, which derived legal
substance from their endorsement by the Chief of Appeals, acting
under the authority delegated by the Minister to the person
holding that office.
[5] The provision of the Act that governs is subsection
3(2):
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,
...
(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.
[6] It is clear from the jurisprudence that I am justified in
interfering with the Minister's determination under this
subparagraph only if it established before me that the
Minister's discretion was not exercised in a manner
consistent with the law. Then, and only then, I may substitute my
discretion for that of the Minister, based upon all of the
evidence before me.[2] I must, therefore, first review the decision-making
process within Revenue Canada, to determine whether or not it was
conducted in accordance with the principles which control the
exercise by Ministers of discretionary power that has been given
to them by statute.
[7] The two Appellants and their father, Francis McCarthy, all
testified, among other things, as to the interviews with them
which were conducted by telephone by Mr. Brittain, the rulings
officer, and by Germaine Landry, the appeals officer. Mr.
Brittain and Ms. Landry also testified as to these interviews,
and as to the manner in which they arrived at their conclusions.
There was substantial disagreement among them as to what was said
during the telephone interviews. They all appeared to me to be
credible witnesses, and I think it likely that there were genuine
misunderstandings during the interview process, both as to the
questions being asked, and as to some of the answers being given.
Mr. Brittain and Ms. Landry both arrived at the conclusion
that there were discrepancies in the account of the working
relationships that they were given by Matthew McCarthy,
Leroy McCarthy and Francis McCarthy. To some extent, these
inconsistencies resulted from answers given to them by Francis
McCarthy. For example, he would not acknowledge to them that his
son Matthew was living in a common-law relationship with
Thérèse Caissie, who was the company's
bookkeeper. From all of the evidence, I conclude that there was
nothing sinister about this, but that Francis McCarthy simply did
not accept the relationship that existed, and so would not
acknowledge it to a stranger over the telephone.
[8] Differences in the use of terminology led the rulings
officer and the appeals officer to believe that the Appellants
had run the company while their father was recovering from
by-pass surgery. This was certainly not the case. In fact,
Francis McCarthy ran the company before, during and after his
hospitalization. One of the Appellants indicated to them that he
was supervised in his work by his father, and the other indicated
that he was supervised by Rod Demmings. In fact, the two
brothers worked from time to time at different job sites, and
both their father and Mr. Demmings supervised them from time to
time. Both Mr. Brittain and Ms. Landry placed great significance
on these and other rather insignificant discrepancies. Ms.
Landry, in her report, said as follows:
NOTE:We have noted the following conflicting statements
between the payor and the two workers, and also their version of
the facts to Rulings Officer, Bob Brittain.
1. Voluntary work: The workers both stated that they
had never worked on voluntary basis for the payor. The payor, on
the other hand stated that they both did, (As he had previously
stated to Rulings Officer – specifically for Mathew
McCarthy from March 1, 1995 until May 1, 1995, and from Sept. 23,
1995 to November 1995).
2. Hours of work: Leroy McCarthy stated that he worked
from 6:30 am to 5:30 pm, Monday to Friday and Saturday until
noon. Matthew McCarthy stated that he worked from 7 or 7:30 a.m.
to 5 or 5:30 pm, Monday to Friday, and occasionally on Saturday
until noon. The payor, on the other hand stated that their hours
were neve fixed, due to the nature of the work.
3. Supervision: Leroy McCarthy stated that he was
supervised by Ron Demmings who was foreman. Matthew McCarthy
stated that he was supervised by his father.
4. Payor's illness & subsequent return to work:
Matthew McCarthy's signed statement to HRD officials
indicates that he & brother Leroy were running the business,
since their father had gotten sick a few years ago, and that he
no longer worked other than advising them. During the course of
our interviews, both workers and the payroll stated that Francis
McCarthy had returned to work in the Spring of 1994; however,
Francis McCarthy had previously advised Rulings Officer, on
January 1st, 1996 that he was then only just getting back
"in the groove" of work.
5. Therese Caissie's relationship: The payor stated
that she was not related to the family and that she did not live
in common-law with any family member either. Matthew McCarthy
stated that Therese is his common-law spouse.
On the next two pages of her report the following appears:
... Due to conflicting statements from all parties
involved, it was difficult to confirm, if in fact the workers
were running the business for the payor during his illness. Based
on their lack of honesty, we can only conclude that they likely
were, based on the signed declaration of Matthew McCarthy to HRD
officials. It would appear that the payor's true intentions
were to accommodate his sons and possible other family members as
well for UI benefits.
...
... We have noted several discrepancies in their
statements and their lack of honesty was evident.
Based on these noted facts, we can only conclude that the
employment was not treated at arm's length between the
workers and the payor.
[9] This conclusion that the Appellants had been dishonest in
their attempts to obtain unemployment insurance benefits amounted
to a finding of criminality on their part. In my view, it was not
a finding warranted by the evidence. Equally important, it was a
finding arrived at, at least in part, on the basis of information
obtained and impressions formed from the interviews with their
father, and from the information as to company records obtained
from their mother, about which they apparently knew nothing. It
was wrong to make such a serious finding against them, without
first giving them the opportunity to explain these apparently
conflicting facts. It is clear from the evidence given before me
that most, if not all, of those conflicting facts were
susceptible of an explanation which was consistent with the
Appellants being quite honest and straightforward in their
dealings with the Department of Human Resources Development and
Revenue Canada. The Minister's obligation to afford
procedural fairness to the Appellants,[3] or applicants as they were at that
time, was breached, and the decision therefore cannot stand.[4]
[10] I do not mean to suggest that in every case the applicant
for benefits must be told exactly what information the
Minister's employees have obtained from other sources. The
exact components of the right to procedural fairness vary with
the circumstances of the case. What is essential is that the
individual must know the case he has to meet, in order to be able
to do so. That right is all the more important in a case such as
this, where what is alleged amounts to fraud in the pursuit of
benefits, which is, of course, an offense.
[11] In accordance with the judgment in Jencan, it is
now my task to consider all the evidence before me, and to come
to a conclusion as to whether, having regard to various factors
referred to in subparagraph 3(2)(c)(ii) of the Act,
it might reasonably be concluded that these two Appellants would
have been employed by the company upon substantially similar
terms if they and the company had been dealing with each other at
arm's length.
[12] The position taken by the Appellants in their evidence,
and supported by the evidence of their father, was that they were
treated in the just the same way as all the other employees of
the company. Francis McCarthy testified that they, like all the
other employees, were laid off and rehired according to the order
of seniority. He also testified that they were junior employees,
that their duties were the same as those of others who had been
longer with the company, and that they were treated in exactly
the same way as those other employees at the job site. As I
understood the evidence, all the employees had esssentially the
same duties and responsibilities except Mr. Demmings, who was the
foreman, and Richard Sirois, who was a concrete finisher. On
cross-examination, Francis McCarthy admitted that the wages of
Matthew and Leroy were reduced at times when the company had cash
flow problems, although the wages of other workers were not
because, as he put it, the others were married and had
children.
[13] Marshall Wright was an employee who was junior to the
Appellants. He earned $8.00 per hour in the 1994 construction
season, and for the first three weeks of 1995. His rate was
increased to $10.00 per hour for the week of April 21, 1995
and following. The Appellants were paid between $9.50 and $11.00
per hour during 1994, and $10.00 per hour from May 1995 onward,
but with their vacation pay deferred.
[14] Such evidence as there was concerning the nature of the
work done by the two Appellants and the other employees suggests
that the Appellants were being paid at a rate commensurate with
the conditions, duration, nature and importance of the work they
performed, in relation to the rates paid to other employees doing
similar work. The foreman, Rod Demmings, was paid a somewhat
higher rate than others. Richard Sirois was a concrete finisher,
and was paid a flat weekly salary, which gave him substantially
higher weekly earnings than the other employees, who were paid
hourly. The Appellants' rates of pay seem to have been
similar to what arm's length employees were paid to do the
same job. Marshall Wright was paid less in 1994, but he was
inexperienced at that time. Much was made of the fact that after
August, 1994, the vacation pay of the Appellants was deferred to
be paid the following spring, rather than being paid with their
weekly pay. The suggestion was that this was a significant
difference from the other similar employees. What the Act
requires is that it be reasonable to conclude that, if dealing at
arm's length with each other, the Appellant and employer
would have entered into a substantially similar contract. I do
not consider this minor variation in the terms of employment to
be so significant that one could not reasonably so conclude. It
is clear from the evidence of the Appellants that they did not
consider either the minor reductions that they took in their pay,
or the deferral of their vacation pay, to be significant changes
in the terms of their employment. It should not be forgotten that
in parts of the country where employment is scarce, many people
would prefer to make minor concessions when the employer's
cash flow requires it, rather than find themselves unemployed.
Like many small businesses, McCarthy Brothers Limited is
susceptible to cash flow difficulties. I do not consider it
unlikely that arm's length employees would make the minor
concessions that these Appellants made in order to keep their
jobs.
[15] Considering all of the evidence, then, and having regard
to all of the factors spelled out in
subparagraph 3(2)(c)(ii) of the Act, I am of
the view that it would be reasonable to conclude that the two
Appellants and the company would, if they had been dealing with
each other at arm's length, have entered into substantially
similar contracts of employment for the periods in question.
[16] The appeals are therefore allowed and the determinations
are referred back to the Minister for reconsideration and
redetermination on the basis that Leroy McCarthy for the
period May 1, 1995 to October 27, 1995 and Matthew McCarthy
for the periods August 15, 1994 to January 6, 1995 and
May 1, 1995 to September 22, 1995, were engaged in insurable
employment.
Signed at Ottawa, Canada, this 19th day of October, 1999.
"E.A. Bowie"
J.T.C.C.
Email this Content