Date: 19990903
Docket: 98-34-UI
BETWEEN:
YVON VAILLANCOURT,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] The Appellant is appealing a decision of the Minister of
National Revenue (the "Minister") that he was not
in an insurable employment with 3051633 Canada Inc. for the
period from January 30, 1995 to January 12, 1996.
[2] The decision was rendered in application of
paragraph 3(1)(a) of the Unemployment Insurance
Act (the "Act").
[3] The facts relied on by the Minister are described at
paragraph 7 of the Reply to the Notice of Appeal
(the "Reply") as follows:
(a) prior to the period in question, the Appellant and Louis
Joly were equal shareholders in Custom Door & Specialty
(1987) Ltée, specialized in the installation of doors and
windows;
(b) Custom Door & Specialty (1987) Ltée ceased to
operate in October 1994;
(c) at all material times, the Appellant's spouse was
Lisette Lafrance;
(d) at all material times, Louis Joly's spouse was Monique
Robillard;
(e) in July 1994, Lisette Lafrance and Monique Robillard
incorporated and became the sole shareholders of the Payor's
business;
(f) the Payor's business was specialized in the
installation of doors and windows;
(g) Lisette Lafrance and Monique Robillard had no expertise in
the Payor's business;
(h) the Appellant and Louis Joly were hired by the Payor to
operate the Payor's business;
(i) the Appellant was looking after the construction sites and
Louis Joly was taking care of the administrative tasks;
(j) the Appellant and Louis Joly were responsible for all the
business decisions (operational, administrative and
financial);
(k) the Appellant was not supervised by the Payor;
(l) the Appellant was not controlled in any way by the
Payor;
(m) the Appellant and Louis Joly had signing authority for the
Payor;
(n) the Appellant's rate of pay was $40,000 per year paid
on a weekly basis;
(o) the Appellant and Louis Joly ran the Payor's business
as if it was their own business;
(p) there was no contract of service between the Appellant and
the Payor;
(q) the Appellant was not employed by the Payor pursuant to a
contract of service.
[4] The Appellant, in support of that he was in an insurable
employment, relied on the facts described at paragraph 5 of
the Notice of Appeal as follows:
A. The Employer was at all times a separate legal entity from
the Appellant. The Employer was incorporated on July 14, 1994 by
Lisette Lafrance and Monique Robillard who served as the sole
directors and sole shareholders of the corporation.
B. Shareholders meetings were held and financial statements
produced on behalf of the corporation.
C. The corporation employed approximately twelve to
fourteen employees, all full-time, in addition to the
Appellant.
D. The business of the Employer was year-round and did not
represent seasonal employment.
E. The Appellant was employed pursuant to an oral agreement
fixing not only the duties he was required to perform, but also
his hours of work, rate of remuneration, method of payment,
vacation time, and exclusivity of employment.
F. The Appellant's duties included the initial breakdown
of construction plans received from contractors. The Appellant
was required to review such plans and to determine the required
number and size of doors, baseboards and casing, and was
responsible for taking all measurements in relation to such. The
Appellant was further responsible for inspecting the work of
sub-contractors, and was occasionally required to carry out
minor repair work as well.
G. Approximately sixty percent of the Appellant's work was
carried out in the field at locations directed by the Employer,
primarily taking measurements, checking moulding and inspecting
the work of sub-contractors. The remaining forty percent of the
Appellant's work took place at the Employer's offices,
mainly reviewing and breaking down construction plans received
from contractors.
H. All major decisions taken by the Appellant with respect to
the business of the Employer were subject to the approval of
corporation. The Appellant was not free to vary his hours of work
nor did he have the authority to make decisions respecting the
ownership of the corporation.
I. The Appellant's hours of work were determined by the
corporation. The Appellant was required to work from 7:30 a.m. to
5:00 p.m., with a one-hour break for lunch, from Monday to
Friday, for a total of 42½ hours per week.
J. The Appellant was not free to determine his vacation
periods, and was required to obtain the authorization of the
corporation for such.
K. The Appellant's rate of pay, payment schedule and
method of payment were all determined by the corporation. The
Appellant was paid approximately $750 per week, in
bi-monthly instalments, by corporate cheque.
L. All applicable deductions including QPP, UI and Income Tax
were regularly deducted from the Appellant's
remuneration.
M. Tools used by the Appellant in his employment such as miter
saws, coping saws, cordless drills and tape measures were all
owned by the corporate Employer.
N. The Appellant was fully reimbursed for expenses incurred in
the performance of his duties for the Employer, upon providing
the Employer with invoices for such.
O. The Appellant was required to work full time for the
Employer and was not free to engage in additional employment at
such time.
P. The Appellant departed from the employer's employ due
to the corporation's decision to take on an additional owner.
The Appellant was unable to convince the corporation not to take
this decision, and lacked the decision-making power to prevent it
from doing so.
Q. Approximately one month following the Appellant's
departure from the corporation, the Employer hired another
individual to replace the Appellant and take on his primary
responsibilities.
[5] The Appellant testified. A book of documents comprising
Exhibits A-1 to A-7 was produced. Ms. Marie-Paule Germain,
Appeals Officer at Revenue Canada, testified for the
Respondent.
[6] The operational aspects of this case are well described in
the Notice of Appeal and the Reply. There is no dispute on that
aspect. There would be a dispute as to how the corporate control
was exercised although there was scant if not no evidence given
by the Appellant on how the corporate control was exercised by
the wives as shareholders and neither wives came to testify. The
argument weighed mostly on the existence of the corporate body
being distinct from that of the workers. Although there is a
mention in subparagraph 5(B) of the Notice of Appeal, that there
were shareholders meetings, there was no evidence adduced by the
Appellant to this effect.
[7] The Appellant admitted subparagraphs 7(a) to 7(k) and 7(n)
of the Reply. Respecting subparagraph 7(n) of the Reply, the
Appellant corrected it to state that he received his salary on a
bi-weekly basis.
[8]Ms. Germain related that she spoke with the wives of
Louis Joly and the Appellant, who were the shareholders, and
both told her that their husbands decided everything and that
they had nothing to do with the business of the corporation. For
example, it was not the wives, as shareholders, who decided the
salary of both Mr. Vaillancourt and Mr. Joly but the
latter themselves. The Appellant's wife stated to
Ms. Germain that she typed at night for the corporation in
the same manner as she used to do for Custom Door & Specialty
(1987) Ltée referred to in subparagraphs 3(a) and 3(b) of
the Reply. The Appellant and his partner continued to act in the
same manner as they were acting in Custom Door & Specialty
(1987) Ltée. The Appellant looked after the construction
site and Mr. Louis Joly after the administrative tasks.
Both were responsible for all the business decisions
(operational, administrative and financial).
[9] In the financial statements produced as
Exhibit A-2, page 4, entitled:
"Résultats", the salary of both the Appellant
and Mr. Vaillancourt is shown as being the salary of the
directors. There was a mention in the Notice of Appeal that the
corporation had employees but no salary of employees is shown in
the financial statements. I have to assume that the workers
worked in the capacity of contractors because there is an amount
shown for "Travaux à forfait" in the financial
statements.
[10] In these financial statements on the page entitled
"Notes complémentaires", it is shown that the
Appellant, Mr. Joly and their two wives have cautioned a
loan of $30,000 made by Mr. Ernie Charlebois for the
purchase of the equipment.
[11] Counsel for the Appellant referred to the decision of
this Court in Duchesne v. Canada [1995] T.C.J. No. 73. As
in my view, the aspect of control by the corporation over the
workers is one of the conditions of a contract of employment that
is missing in this appeal, I will quote the passages pertinent to
that aspect in the above-mentioned decision, at paragraphs 37 to
41, and 53 to 58 and 61 (pages 9, 10, 12, 13 and 14 of the
official translation):
[TRANSLATION]
It is appropriate here to reproduce a passage from
Andréa Landry Sexton rendered in 1991 by Hugessen,
Desjardins and Décary J.J.A. of the Federal Court of
Appeal[1] in which
four shareholders in that case had respectively held 17 per
cent, 17 per cent, 33 per cent and 33 per cent of
the company's voting shares. The Minister apparently found
that the employment held by the applicants was not insurable,
relying at the time on paragraph 14(a) of the
Unemployment Insurance Regulations ("the
Regulations") which read at the time as follows:
14. The following employments are excepted from insurable
employment:
(a) employment of a person by a corporation if he or his
spouse, individually or in combination, controls more than forty
per cent of the voting shares of that corporation;
The judges of the Federal Court of Appeal ruled as
follows:
In my view, the judge made an error of law in considering
only the administrative or operational control of the company.
What the regulatory provision speaks of is 40 per cent control of
the voting shares of the company, which is not at all necessarily
the same thing.
...
Determining the control of voting shares in a company is a
mixed question of law and fact. To begin with, it must be
determined who is the holder of the shares; then, the question is
whether there are circumstances interfering with the holder's
free and independent exercise of his voting right. and if
applicable, who may legally exercise that right in the
holder's place.
A person who has administrative or operational control of a
company does not necessarily control its shares; in fact, it
often happens in the modern business world that those responsible
for managing a company have few of its shares or none at
all.
In the case at bar the Tax Court of Canada judge concluded
that the applicants, who each held 17 per cent of the
company's voting shares, actually controlled it. While this
conclusion may be correct it in no way determines the control of
voting rights to the 33 per cent of the shares held by each
of the applicants' children. As the judge himself said,
Michel and Charlène Sexton "were owners and held the
de jure power to control the new company", and there is no
basis in the evidence for concluding that they ever gave up their
voting rights to the shares owned by them or in any way
interfered with the free exercise of that right.
Did the respondent prove in the instant case that the other
two shareholders, each holders of 33 per cent of the
payer's voting shares, had likely been or were prevented from
exercising their voting rights?
The Court does not believe so. The appellant's "de
jure" power cannot be attacked by mere claims to that
effect. Clear proof that 40 per cent of the voting shares
were actually held by the appellant would have been necessary. It
was not made. Control over the day-to-day and operational
management of the company differs from the control which the
shareholders derive from their voting rights.
Lastly, Hugessen J.A. concluded:
The Minister's position was based solely on
s. 14(a) of the Regulations, and not in any way on
allegations of sham or fraud. In these circumstances, and in view
of the absence of any evidence that Michel Sexton and
Charlène Sexton did not have free exercise of the
voting right to the shares held by them, the Tax Court of Canada
judge could not do other than allow the applicants' appeals
and find that each of them held insurable employment during the
period at issue.
...
The Tests
The four basic tests recognized by the case law in evaluating
a contract of service are well known:
(1) control;
(2) integration of the employee into the employer's
business;
(3) ownership of the tools;
(4) chance of profit and risk of loss.
Only the first and last of these tests will be considered, the
other two posing no problem in this case.
Control
The appellant testified that he was controlled by his son and
that his son was controlled by him (3.09).
As we have stated on many occasions, the degree of control
varies with the circumstances and depends to a large degree on
the nature of the work to be performed as well as the
worker's expertise.
The appellant in this case worked three days a week and his
son four days, always at the same places of work. Since each was
confronted with the work done by the other, the mutual control to
which the appellant testified was more than plausible in the
circumstances. Moreover, Pierre Sirois Inc. also controlled
all the work performed, including that of the payer's
employees (3.09).
Moreover, even if the evidence had shown that the appellant
was under no form of control by his son or
Pierre Sirois Inc., the principles arising from Lee
v. Lee's, supra, (4.02.4) [in fine] would
have satisfied the requirement of control over the appellant in
this case.
Lord Morris of Borth-y-Gest stated at page 425:
The fact that so long as the deceased continued to be
governing director, with amplitude of powers, it would be for him
to act as the agent of the respondent company to give the orders
does not alter the fact that the respondent company and the
deceased were two separate and distinct legal persons. If the
deceased had a contract of service with the respondent company,
then the respondent company had a right of control. The
manner of its exercise would not affect or diminish the right to
its exercise. But the existence of a right to control cannot
be denied if once the reality of the legal existence of the
respondent company is recognised. Just as the respondent
company and the deceased were separate legal entities so as to
permit of contractual relations being established between them,
so also were they separate legal entities so as to enable the
respondent company to give an order to the deceased.
(The emphasis is mine.)
In other words, the payer in this case, a person distinct from
the appellant, could control the work performed by the latter.
The appellant, in performing the work described above (3.01), was
acting under the payer's direction.
...
The respondent contended in this case that the incorporation
was merely a stratagem planned by the appellant for the purpose
of drawing unemployment insurance benefits. The Court has
concluded as to the true nature of the legal relationship between
the parties and that the appellant was entitled in the
circumstances to organize his affairs so as to receive
unemployment insurance benefits.[2]
[12] I agree with Counsel for the Appellant that the Court has
to take into account the legal entity of the Payor which is a
corporation. However, the Court has to analyse whether this
entity exercised control over the workers.
[13] The allegation that the shareholders did not exercise any
power of control over the workers was stated in the Reply to the
Notice of Appeal and in this regard was in conformity with the
decision of the Federal Court of Appeal in Landry,
Sexton v. M.N.R., May 10, 1991 (referred to before in
the Duchesne decision), that stated that if a decision of
the Minister is based on the fact that the corporation did not
exercise control over the workers, that allegation should be made
in the Reply.
[14] I believe it is also useful to refer to the comments of
Marceau J.A. of the Federal Court of Appeal in Scalia v.
M.N.R. (May 19, 1994) on the aspect of the employment
relationship between the corporation and the appellant:
On analysing the evidence, however, we find that the applicant
had such ascendancy over the company, its activities and the
decisions of its board of directors, which was composed of
himself, his nephew and his sister-in-law, that there could not
have been the independent relationship between himself and the
company that is necessary to the creation of a true subordinate
relationship. It would perhaps have been easier for the judge to
refer, as did the Minister, to the exception that was in force at
the relevant time under paragraph 14(a) of the
Regulations, as interpreted and applied by the courts, but
ultimately the judge’s approach was not in error, since the
control that a corporation which is an employer may exercise over
the person who completely dominates it is more fictitious than
real (as Parliament confirmed in 1990 when it enacted the new
paragraphs 3(2)(c) and (d) of the Act).
[15] In the case at bar, as in Scalia, the evidence did
not show that there was between the corporation and the Appellant
an independent relationship which would indicate the existence of
a relationship of subordination between the corporation and
himself. The corporate body did not have a mind distinct from the
one of the two workers. The shareholders stated to the Appeals
Officer that they took no decision, the workers did. There was no
evidence that they did any managing or took any decision with
respect to the corporation. The Court can only conclude, with
respect to the corporation’s shareholders, that they acted
only as nominees for the workers and that no control was
exercised by the corporation over the workers.
[16] Consequently, the alleged employment was not an insurable
employment within the meaning of the Act.
[17] The appeal is dismissed.
Signed at Ottawa (Canada), this 3rd day of
September 1999.
“Louise Lamarre Proulx”
J.T.C.C.
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