Putter v. M.N.R., docket 1999-456-EI

Date: 20000215

Dockets: 1999-456-EI; 1999-457-EI; 1999-458-EI

BETWEEN:

DANIEL PUTTER, DAVID PUTTER, EQUINOX INDUSTRIES LTD.,

Appellants,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Rowe, D.J.T.C.C.

[1] Counsel for the appellants and Counsel for the respondent agreed the three appeals could be heard on common evidence. Equinox Industries Ltd. ("Equinox") appealed to the Minister of National Revenue (the "Minister") from a ruling that David Putter and Daniel Putter were in insurable employment with Equinox for the period January 1, 1997 to December 1, 1997. In response to the appeal, the Minister - on September 25, 1998 - by letter directed to each appellant, decided David Putter and Daniel Putter were employed under a contract of service with Equinox and that their employment was included in insurable employment as they and Equinox were deemed to deal with each other at arm's length within the meaning of paragraph 5(3)(b) of the Employment Insurance Act. The relevant part of the decision as it affects David Putter and Daniel Putter reads as follows:

"It has been decided that this employment was insurable for the following reasons: You were employed under a contract of service and, therefore, you were an employee. Although you were not dealing at arm's length with Equinox Industries Ltd., the Minister is satisfied that a substantially similar contract of employment would have been entered into if you had been dealing with each other at arm's length. Therefore, your employment was not excluded from insurable employment."

[2] It is conceded by Counsel for the appellants that all appellants are related within the meaning of the Income Tax Act as it applies to the relevant provisions of the Employment Insurance Act.

[3] David Putter testified he is a businessman and has worked for Equinox since 1978. Since 1986, he has been employed as General Manager. He assumed that position as a successor to his brother-in-law. Prior to 1986, David Putter stated he has been involved in pricing product, developing product lines and carrying out general administrative duties. Equinox was in the manufacturing business producing plastics and fibreglass products, bathware and various types of tanks for industrial and medical use in storing water, sewage, and chemicals. Also, Equinox manufactured sleds and toboggans for towing behind snowmobiles. At that time, his father controlled the corporation in the sense he was the head of the family even though his authority was not reflected in terms of legal ownership. It has never been considered that anyone but a family member would serve as General Manager of Equinox. The fortunes of the corporation went up and down but 1992 was a particularly bad year and David Putter indicated he spent a lot of time carrying out administrative functions, estimating jobs, and Equinox had to lay off employees due to a severe downturn in sales. During that period, he and his brother, Daniel Putter, worked harder and took over functions of people who had been laid off. Currently, Equinox employs 55 employees in the manufacturing process together with another 10 employees in the office. However, after 1992, when Equinox lost a large customer, the workforce had been reduced to between 15 and 18 people. It was necessary for David Putter and his brother to work long hours in order to build the company back to its former position. The decision to do so was obvious because "the company is everything and must go on - it supports the families". Judith Putter - his sister-in-law - is not active in the business. Employees working in the shop are paid an hourly wage and the office workers are paid a salary and commissions. The hourly workers record their hours by punching a time-clock. Office employees do not record their time. David Putter explained he comes and goes as he pleases and does not concern himself with the prospect of being fired by Equinox. The amount of money to be taken out of the corporation by way of salary or bonuses for himself and his brother was decided between themselves and the regular salary was set at $3,000 every two weeks. On occasion, he or his brother may need additional funds and will merely write a cheque on the corporate account. In such a circumstance, the drawing of money out of the corporation may not be equal as between the two of them. Their mother, Rochelle Putter, is not involved in the management of the business. Although David Putter indicated he could take time off as he chose, he had not taken a normal holiday for 8 or 9 years. During periods when he and his brother worked long hours, there was no compensation paid by Equinox in the form of overtime pay. During a particular production run of sleds and toboggans, he and his brother came to the shop at night in order to carry out quality control monitoring by examining the parts and method of assembly. In addition, they worked at packaging the products for delivery to the customers. If required, he would often work 80 hours per week but, on average, over the course of a year estimated his work week to be between 55 and 60 hours. Equinox runs multiple shifts in the course of the manufacturing business and problems may arise in the middle of the night. There is a company non-smoking policy which does not apply to him or his brother. Equinox has never reimbursed him for expenses incurred on behalf of the corporation because he has never bothered to submit an expense account. In 1997, he purchased a new computer and brought it from his home into the office at Equinox for company use. So far, the company has not paid him for that computer and it is of little concern to him. Equinox pays his salary and he has signing authority on the bank account. In 1994, he earned the sum of $131,000, in 1995, only $3,000, and in 1996 and 1997 the amounts of $76,561 and $81,538, respectively. David Putter is a Director of Equinox and Daniel Putter is President. David Putter stated he took weekends off during the winter and went to the cottage at the lake during the summer. Equinox has lines of credit at the bank and he and Daniel have signed personal guarantees. In 1997, he estimated he had guaranteed more than $100,000 in corporate debt. In his opinion, a stranger would be paid a much higher salary to act as General Manager of Equinox.

[4] In cross-examination, David Putter stated the role of General Manager is essential to the company. In 1997, Equinox was in the midst of a process of economic recovery and he does not believe any outsider would have worked as hard as he did for the compensation he and his brother received. Having been a member of the plastics manufacturing industry for more than 20 years and being aware of advertisements in trade publications, in his opinion, the salary paid to him was well below industry standards. He signed a completed Questionnaire – Exhibit R-1. The corporation would usually pay a bonus during the year in an amount between $5,000 and $10,000. The corporation held shareholders' meetings as required by law but his mother and sister would merely sign the prepared minutes and were not involved in the operations of the company. He agreed that a General Manager may put in extra time - but not for very long - if they are merely employees and he does not think most would give up weekends or attend at the plant - at night - in order to inspect product and assist in packing. Further, most individuals holding the position of General Manager would not have any ownership in the corporation. David Putter stated he did not anticipate that he would be replaced by any other person and would remain as General Manager of Equinox.

[5] Daniel Putter testified he is a businessman and the President of Equinox. He worked for the corporation for 15 years and was responsible for accounting functions. He and David Putter run Equinox as they see fit and do not consult with anyone else. Their work is not supervised. During 1997, Daniel Putter explained he would work at the office from 9:00 a.m. until 6:00 p.m. and then go home for supper after which he would return to the Equinox premises and supervise the evening shift at the manufacturing plant until 1:00 a.m. He followed this routine for three months and undertook this onerous task in order that the corporation could have a better financial year in 1998. In 1997, he drew out $3,200 every two weeks but would decrease or increase his pay after discussing the matter with David. He would be paid by Equinox even though he were unable to work due to sickness or an accident and could take time off for holidays as he chose. However, he has not taken a significant holiday for 12 years because he enjoys his work. He has never sought reimbursement for minor expenses incurred on behalf of the company. He hopes his six children will carry on the company after he is no longer active in its management. The shares in Equinox - previously held by their mother - were taken over by him and he and David - in the near future - will be purchasing the remaining shares held by their sister.

[6] In cross-examination, Daniel Putter stated he has not been called upon to pay on any personal guarantee in relation to Equinox debt. In the event he left the company, he does not think he would be replaced. The method of running Equinox has been on the basis that he and David operate it collectively and David could run the company without him if the need arose. He recalled signing the Questionnaire - Exhibit R-2. In his opinion, he and David could not have kept up the difficult working schedule required when they had to work day and part of the night for three months in order to complete a large order for the sleds.

[7] Counsel for the appellants submitted it was apparent on the evidence David and Daniel Putter had taken over running their father's business. David became General Manager and Daniel served as President and carried out corporate accounting functions. The evidence established an emotional commitment to the corporation interwoven with the family and much of the work done for the company was not in response to securing additional employment income or pursuant to any definite profit-sharing plan. Counsel submitted the evidence had rebutted a substantial number of the assumptions relied on by the Minister in arriving at the decision and it has been demonstrated that no arm's length General Manager or President of a corporation would have undertaken the burden of providing personal guarantees to secure company debt nor would they have worked the extensive hours required to restore the financial well-being of the corporation.

[8] Counsel for the respondent submitted that the Minister exercised the discretion required by the provisions of the Employment Insurance Act in a proper manner and that the Court should not intervene in that decision.

[9] In the case of Crawford and Company Ltd. and M.N.R. (unreported - 98-407(UI), 98-537(UI) and 98-538(UI)), a decision of Porter, D.J.T.C.C. issued December 8, 1999, Judge Porter considered the appeals of three employees of the corporation, of whom two were brothers, falling into the category of related persons within the meaning of the Income Tax Act. The remaining appellant was not a related person to the corporation and this required a separate examination of the facts as no discretion had been exercised by the Minister pursuant to paragraph 5(3)(b) of the Employment Insurance Act. The analysis undertaken by Judge Porter, as it pertained to the two brothers is extensive, and is relevant to the requisite analysis undertaken in the within appeals. For that reason, I am quoting extensively from the Crawford judgment because it accords with my understanding of the law and the facts in that case are substantially similar to the within appeals. At page 21, commencing at paragraph 58, Judge Porter stated:

"[58] In the scheme established under the EI Act, Parliament has made provision for certain employment to be insurable, leading to the payment of benefits upon termination, and other employment which is “not included” and thus carrying no benefits upon termination. Employment arrangements made between persons, who are not dealing with each other at arm’s length, are categorized as not included. Brothers and corporations controlled by them are deemed not to be dealing with each other at arm’s length pursuant to subsection 251(1) of the Income Tax Act, which governs the situation. Quite clearly the original purpose of this legislation was to safeguard the system from having to pay out a multitude of benefits based on artificial or fictitious employment arrangements, see the comments of the Federal Court of Appeal in Paul v. The Minister of National Revenue, (A-223-86) unreported, where Hugessen J. said

We are all prepared to assume, as invited by appellant's counsel, that paragraph 3(2)(c) of the Unemployment Insurance Act, 1971, and subsection 14(a) of the Unemployment Insurance Regulations have for at least one of their purposes the prevention of abuse of the Unemployment Insurance Fund through the creation of so-called "employer-employee" relationships between persons whose relationship is, in fact, quite different. That purpose finds obvious relevance and rational justification in the case of spouses who are living together in a marital relationship. But even if, as appellant would have us do, we must look only at spouses who are legally separated and may be dealing at arm's length with one another, the nature of their relationship as spouses is such as, in our view, to justify excluding from the scheme of the Act the employemt of one by the other.

...

We do not exclude the possibility that the provisions may have other purposes, such as a social policy decision to remove all employment within the family unit from the operation of the Unemployment Insurance Act, 1971, as was suggested by respondent's counsel.

[59] The harshness of this situation has however been tempered by paragraph 5(3)(b) of the EI Act, which provides for such employment between related persons to be deemed to be at arm’s length and thus in turn to be treated as insurable employment, if it meets all the other provisions, where the Minister is satisfied having regard to all the circumstances of the employment, including the remuneration paid, theterms and conditions, the duration and the nature and importance of the work performed, that it is reasonable to conclude that they would have entered into a substantially similar contract if they had (in fact) been dealing with each other at arm’s length.

[60] It may be helpful to reframe my understanding of this section. For people related to each other the gate is closed by the statute to any claim for insurance benefits unless the Minister can be satisfied that in effect the employment arrangement is the same as that which unrelated persons, that is persons who are clearly at arm’s length, would have made. If it is a substantially similar contract of employment, Parliament has deemed it to be only fair that it should be included in the scheme. However, the Minister is the gatekeeper. Unless he is so satisfied the gate remains closed, the employment remains excepted and the employee is not eligible for benefits.

[61] Subsection 93(3) of the EI Act deals with appeals to and the determination of questions by the Minister. It requires that “the Minister shall decide the appeal within a reasonable time after receiving it and shall notify the affected persons of the decision”.

[62] Thus, the Minister has no discretion whether or not to decide the question. He is required by law to do so. If he is not satisfied, the gate remains closed and the employee is not eligible. If however he is satisfied, without more ado or any action on the part of the Minister (other than notification of the decision) the employee becomes eligible for benefits, provided he is otherwise qualified. It is not a discretionary power in the sense that if the Minister is satisfied he may then deem the employment to be insurable. He must “determine the question” and depending on that determination the law deems the employment to be either at arm’s length or not at arm’s length. In this sense the Minister has no discretion to exercise in the true sense of the word, for in making his decision he must act quasi-judicially and is not free to chose as he pleases. The various decisions of the Federal Court of Appeal on this issue reveal that the same test applies as to a myriad of other officials making quasi-judicial decisions in many different fields. See Tignish Auto Parts Inc. v. M.N.R., 185 N.R. 73, Ferme Émile Richard et Fils Inc. v. M.N.R., 178 N.R. 361, Attorney General of Canada and Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the Queen and Bayside Drive-in Ltd., (1997) 218 N.R. 150.

[63] The function of this Court then, upon appeal, is to review the decision of the Minister and decide whether it was arrived at lawfully that is in accordance with the EI Act and with the principles of natural justice. In the case Her Majesty the Queen v. Bayside et al. (supra) the Federal Court of Appeal laid out certain matters which should be considered by this Court when hearing these appeals. These were:

...(i) the Minister acted in bad faith or for an improper purpose or motive, (ii) the Minister failed to take into account all of the relevant circumstances, as expressly required by s. 3(2)(c)(ii); or (iii) the Minister took into account an irrelevant factor.

[64] The Court went on to say:

It is only if the Minister made one or more of these reviewable errors that it can be said that his discretion was exercised in a manner contrary to law, and ... the Tax Court judge would be justified in conducting his own assessment of the balance of probabilities as to whether the respondents would have entered into substantially similar contracts of service if they had been at arm’s length

[65] I remind myself, when reviewing this case, that it is not for this Court to substitute its opinion of the evidence for that of the Minister. However, if his or her manner of arriving at the decision was unlawful in the context of the judgments set out above, those affected parts of the stated facts may be disregarded and I must then consider whether that which is left affords justifiable grounds for the decision. If those grounds, standing alone, are sufficient for the Minister to form a decision, albeit that the Court may not agree with it, the decision must stand. If on the other hand there is no basis left upon which the Minister might lawfully make such a decision, from an objective and reasonable point of view, then such decision may be struck down and the Court can consider the evidence before it on appeal and make its own decision.

[66] In summary then, if there are sufficient facts before the Minister for his decision, it is his or her determination to make and if he or she is “not satisfied” it is not for this Court to substitute its view of those facts and say he or she should have been satisfied. Similarly, if he or she was satisfied it is not for this Court to substitute its view that he or she should not have been satisfied (an unlikely scenario in any event). Only if the decision is reached in an improper manner and it is unreasonable, from an objective point of view, on the basis of the facts which were properly before the Minister, may the Court interfere."

[10] In the case of Adolfo Elia v. M.N.R. - A-560-97 - a decision of the Federal Court of Appeal dated March 3, 1998, at page 2 of the certified translation Pratte, J.A. stated:

"Contrary to what the judge thought, it is not necessary, in order for the judge to be able to exercise that power, for it to be established that the Minister's decision was unreasonable or made in bad faith having regard to the evidence before the Minister. What is necessary is that the evidence presented to the judge establish that the Minister acted in bad faith, or capriciously or unlawfully, or based his decision on irrelevant facts or did not have regard to relevant facts. The judge may then substitute his decision for that of the Minister."

[11] In Légaré v. Canada (Minister of National Revenue) [1999] F.C.J. No. 878 - another decision of the Federal Court of Appeal – Marceau, J.A. speaking for the Court stated at page 2 of the judgment:

"In this matter, the Court has before it two applications for judicial review against two judgments by a judge of the Tax Court of Canada in related cases heard on the basis of common evidence which raise yet again the problems of interpretation and application of the saving provision, subparagraph 3(2)(c)(ii). I say yet again because since its passage in 1990, several decisions of the Tax Court of Canada and several judgments of this Court have already considered what workable meaning could be given to subparagraph 3(2)(c)(ii). In reading the text, the problems it poses beyond its deficient wording are immediately obvious, problems which essentially involve the nature of the role conferred on the Minister, the scope of the Minister's determination and, by extension, the extent of the Tax Court of Canada's general power of review in the context of an appeal under section 70 et seq. of the Act.

While the applicable principles for resolving these problems have frequently been discussed, judging by the number of disputes raised and opinions expressed, the statement of these principles has apparently not always been completely understood. For the purposes of the applications before us, we wish to restate the guidelines which can be drawn from this long line of authority, in terms which may perhaps make our findings more meaningful.

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."

[12] I now turn to an examination of the evidence and the effect, if any, on certain assumptions set out in the Reply to Notice of Appeal of David Putter as having been relied on by the Minister in arriving at the decisions which are the subject of these appeals. There was no dispute with the Minister's assumptions as to the type of business carried on by Equinox or with regard to the shareholding structure and relationship of the relevant parties to each other - including other corporations owning shares in Equinox - or concerning the duties of David Putter and Daniel Putter as stated in paragraphs 6(a) to 6(p). However, at paragraph 6(p) of the Reply to the appeal of both brothers, the Minister assumed the following:

"Daniel Putter makes no financial decisions independently as all major decisions were discussed by all of the shareholders (same for David)."

[13] The evidence did not support that conclusion. David and Daniel Putter, although minority shareholders, operated the corporation on a collective basis involving only the two of them and the shareholders' meetings required by law were carried out in the form of prepared minutes which their mother and sister signed as they had no input into the day-to-day management of the business - or at all - from an operational standpoint. The Minister assumed the other 55 employees of Equinox were paid by the hour and that their hours were recorded and monitored and they received overtime pay. That is not entirely correct as the 10 office workers did not have time recorded and they were paid a monthly salary and not an hourly wage. The evidence did not support the response set forth in the Questionnaire - Exhibit R-2 pertaining to Daniel Putter - that the wages taken out of the company by David and Daniel Putter were set to cover basic personal expenses and the remainder was to be tied to company profits (paragraph (6)(s)). The salary taken out by each of the brothers was arbitrary and varied from year to year and appears not to be linked to any amount of corporate profit. In 1996, Equinox paid David Putter the sum of $76,561 and the corporation had a net loss of $14,000. In 1995, he withdrew $3,000 in salary and the corporation ended up the year with a loss of $4,000. In 1994, he was paid a salary of $131,000 and the corporation turned a profit of $133,000. Meanwhile, Daniel Putter was paid the following amounts: $156,000 in 1993 and 1994, $3,000 in 1995 and $89,561 in 1996. At paragraph 6(mm) of the Reply to Notice of Appeal of Daniel Putter the Minister assumed as follows:

"... he did not actually receive all of the $156,000 shown on his T4 for the 1994 year as some of this amount went into his shareholder's loan account with the corporation."

[14] The brothers withdrew amounts that were not equal, in accordance with their agreed-upon methodology for taking out money, as needed, under special circumstances. In addition, at paragraph 6(kk) the Minister relied on the advice flowing from David and Daniel Putter that the sum of $3,000 in 1995, taken as salary, was an amount resulting from following the advice of their accountant. However, in 1995 David received income in the sum of $75,000 through Jomat Enterprises Ltd., a corporation in which he held 2/3 of the shares. Daniel Putter - in 1995 - received income in the sum of $75,000 from Jaz Ventures Ltd., a corporation in which he held all the issued shares. At paragraph 6(y) - applying equally to David and Daniel Putter - the Minister assumed:

"David (Daniel) stated that he did not accumulate sick pay but would still receive his wage if he were unable to work for an extended period because he is family."

[15] At paragraph 6(z), the Minister accepted that Daniel and David chose their own hours of work and that they could take time off whenever they pleased (paragraph 6(x)). It did not matter to either of the brothers whether they were compensated by the corporation for small expenditures they each made on behalf of Equinox. That attitude is consistent with them regarding the corporation as merely a vehicle having a particular legal status for various purposes - including payment of income tax - but being an extension of their family in the form of a traditional enterprise which they had now taken over from their father and were running for the benefit of all the Putters. The salary of an ordinary General Manager of President of the corporation - not being shareholders or family members - would not vary as dramatically as those paid to David and Daniel over the years. It would be highly improbable that an outsider serving at a high level within Equinox would personally guarantee corporate debt or would work for years without proper holidays or put in 50 to 60 hours a week on average throughout the year without receiving - in return - some substantial compensation in cash or in the form of increased holidays or other perquisites. Similarly, the intensive efforts of both Daniel and David Putter - during a three-month period while undertaking the completion of a large order - would not be the norm for executives working all day in an office carrying out the administration of a mid-size business. It would be unreasonable to expect that type of employee to return at night and undertake menial labour such as supervising assembly, packing and labelling product until after 1:00 a.m. The Minister accepted the response of David and Daniel Putter that their salaries were below industry standard (paragraph 6(r)).

[16] It is apparent the Minister did not consider several relevant factors including the fact the brothers had signed personal guarantees and the extent of the hours worked without being adequately compensated therefor. Other times, the Minister's assumptions accord with the evidence, such as having assumed that the compensation paid to the Putters was below industry standards or that they could take time off as they chose or be paid even though they were not able to work for an extended period of time on the basis they were family members. The use to which some of the assumptions were put defies logic. Many of the assumptions support the view that the working relationship between David Putter, Daniel Putter and Equinox was not normal and that they had a free hand in many ways. At paragraph 6(s) the Minister - in each case - assumed that the wages of Daniel Putter and David Putter were set only to cover their personal basic expenses and the remainder of their remuneration was based on profits of the corporation. Assuming for the moment that was correct, how would that fact be indicative of an arm's length relationship with their employer? It is apparent the economic interdependence of the brothers and the corporation, with the corporation being an extension of the family - replete with tradition - was not considered in arriving at the decision. The payment of salary from year to year was dependent on accounting advice and they had each taken out money through a separate corporate vehicle. What General Manager in the capacity of employee is paid - in whole or in part - via his or her own incorporated entity? General Managers and Presidents of corporations generally have to answer on a regular basis to the Board of Directors and thereafter to the shareholders and do not have the right to govern the flow of compensation up or down merely by not writing cheques during a certain period or, in the alternative, taking out more money, as needed, without reference to anyone. In the within appeals, the Putters regarded the corporation - from the standpoint of being a paymaster - as little more than a family account upon which they could draw money, from time to time, provided there were sufficient funds in the corporate account during better financial times. On the evidence, there is no reason to suggest the decision of the Minister was the result, in whole or in part, from an exercise of bad faith or improper purpose or motive. However, in ignoring certain highly relevant matters and taking into account certain irrelevant, incorrect or ambiguous indicia in arriving at the decision, I find it necessary that I intervene on the basis the decision cannot objectively be sustained as a matter of law.

[17] Returning to the decision of Judge Porter in Crawford, supra, the summary of the facts as it relates to the decision to be made pursuant to paragraph 5(3)(b) of the Employment Insurance Act is relevant to the within appeals. At page 32, Judge Porter stated:

"[88] I do not propose to review all of the evidence a further time. It has already been amply canvassed. It is clear from the evidence that there was a total economic interdependence between the two Sharp brothers and Leslie Anderson on the one hand and the Corporation on the other hand. Their economic interests were totally intertwined, from the point of view of loans to the Corporation, bonuses paid by the corporation and guarantees signed by the employees. This type of situation is precisely that which the Minister usually cites in these appeals as the reason for refusing to exercise his discretion, under the section, to allow related people into the scheme. I would not go so far as to say that these employees operated this company as their alter ego, as if it was entirely their own business, but they were not far short of that situation. They clearly were together the operating mind of the Corporation. I gleaned that Leslie Anderson was in a sense a guiding father figure to the two brothers, installed long ago by their own father, to help them run the business, which he was turning over to them. None of the circumstances of their employment was the type of arrangement that one would expect to be made between employees and employers dealing with each other at arm’s length.

[89] Leslie Anderson talked of being ‘owners’ and about his ‘partners’. I have no doubt that is how they operated the Corporation, as their own personal business. That is not to say that they might not still be held to be dealing with each other at arm’s length, but clearly in this case there was not that spirit of adverse economic interest permeating their arrangements. I cannot help but think that if the Minister was viewing the situation from the other side of the fence, in the event that any of these three workers was attempting to claim employment insurance benefits, he would quickly be excluded. The appeals before this Court are rife with situations far less clear than this, where benefits have been declined on the basis that the parties were not dealing with each other at arm’s length.

[90] I have absolutely no hesitation in coming to the conclusion in this case that none of these three employees were dealing with the Appellant Corporation at arm’s length. Employees dealing with their employers at arm’s length, even when they are part of management, would not be arranging their employee bonuses to suit the tax needs of the Corporation, nor signing guarantees in the millions of dollars, nor making loans to the employer in the tens of thousands of dollars, nor be catapulted into management roles with no experience, nor be chauffeured around by other employees upon losing their driver’s license, nor have access not only to the financial records of the corporation but also have unrestricted access to the corporate bank account, nor enjoy the degree of flexibility in how they went about their work, in the manner that these three were able to do.

[91] On a final note it seems to me, in general terms, that quite clearly the scheme set up by Parliament excludes from insurable employment, those situations where people are in business for themselves, or have substantial control of the corporations for whom they work, either with persons to whom they are related or with whom they are not dealing at arm’s length. If in those situations the working relationship is substantially the same as that which exists between unrelated people dealing with each other at arm's length, then clearly Parliament has tempered the severity of depriving such people of the opportunity to participate, by giving the Minister a discretion to let them into the scheme. It seems clear that this process was not designed by Parliament to draw into the net of the employment insurance scheme, employment arrangements, where people are virtually operating their corporate businesses as their own business; where they are economically intertwined with their corporations to such an extent that there is really no adverse economic interest between them; where in essence they are entrepreneurs not workers engaged in employment.

[92] Whilst it is clear that there are many who make contributions to the scheme, who might never expect to claim from it, which is not the point, it is equally clear that the scheme is designed to be for the benefit of and to be supported by contributions from genuine employees and not from those, who somewhat go out on a limb to pursue their own entrepreneurial interests. Those who do that, take their own risks and are expected by Parliament to look after themselves in the event of bad times. The scheme has been very much set up for the benefit of those in regular employment situations and not for those in business for themselves. Clearly in the appeals at hand the three workers in question were effectively in business for themselves.

Conclusion

[93] I am of the view that there did not exist between each of the workers in these appeals and the Appellant Corporation, the degree of adverse economic interest such that one could say that there were separate interests. Their economic interests were clearly linked so closely with those of the Corporation, that the latter could not be said to be acting with a separate mind. The same kind of bona fide negotiating that would take place between those traders, strangers in the marketplace, to which I referred above, was not present in these arrangements. There was not the kind of independence of thought or purpose between the Corporation and the three individuals that one could say that they were dealing with each other at arm’s length. Accordingly, I hold that none of them were employed in insurable employment."

[18] I do not intend to reiterate the evidence in the within appeals because I have examined it in the course of the process leading up to my decision to intervene. It is reasonable to conclude that after 21 years and 15 years with the corporation, David and Daniel Putter, respectively, were not employed under circumstances - including consideration of their payment of salary (below industry standard), the amount of work performed, lack of holiday time, the ability to control their remuneration, the absence of any need to follow dictates of corporate structure in accordance with majority shareholding by others and, over the course of many years, putting themselves at personal risk for company debt, clearly established they would not have entered into a similar contract of employment with Equinox if they had been dealing with the corporation at arm's length. It strikes me it is difficult - on an objective basis - to assess whether it is reasonable to conclude that the parties would have entered into a substantially similar contract of employment unless there is some evidence before the Minister as to comparable salaries or working conditions within the same - or related - industry. There is obviously room for using a yardstick against which a particular employment is to be measured because the alternative would be to permit the parties themselves to put forward the proposition that, notwithstanding the deviation from normal business practices in a similar marketplace, they still would have entered into the contract of employment on a purely subjective basis. Certainly, that is how the process works when the shoe is on the other foot and benefits have been denied to claimants because their conditions of work for a related employer do not - when all the facts have been considered - measure up to the usual or normal conditions that applied - or could be expected to apply - to non-related workers under a substantially similar contract of employment.

[19] In 1935, Parliament introduced The Employment and Social Insurance Act as the first national scheme of unemployment insurance. In 1940, the Unemployment Insurance Act was enacted. On June 30, 1996 the curiously re-named Employment Insurance Act was proclaimed in force and the most salient features of the new legislation were to change entrance requirements based on hours worked - instead of weeks - and to tighten eligibility for benefits. Notwithstanding the changes, the purpose still remained to assist workers during periods of unemployment. I doubt the new legislation somehow included a new mandate to authorize the Minister through his or her officials to make decisions and issue assessments to family-owned corporations managed under circumstances similar to the within appeals unless some policy otherwise exists - apart from the legislation - to facilitate the fattening of the fisc.

[20] Each appeal is allowed and the decision in each instance is varied, to find, as follows:

- David Putter was employed under a contract of service with Equinox Industries Ltd. for the period January 1, 1997 to December 31, 1997 but he was not in insurable employment because he and the corporation were not dealing with each other at arm's length and, therefore, he was engaged in excepted employment within the meaning of the Employment Insurance Act.

- Daniel Putter was employed under a contract of service with Equinox Industries Ltd. for the period January 1, 1997 to December 31, 1997 but he was not in insurable employment because he and the corporation were not dealing with each other at arm's length and, therefore, he was engaged in excepted employment within the meaning of the Employment Insurance Act.

Signed at Sidney, British Columbia, this 15th day of February 2000.

"D.W. Rowe"

D.J.T.C.C.