Date: 20000225
Docket: 96-814-UI, 96-815-UI
BETWEEN:
ROBERT FOREST,
FERME DES PEUPLIERS INC.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
AND
Docket: 96-816-UI, 96-817-UI
ROBERT FOREST,
AGRISEM INC.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasonsfor
Judgment
Garon, C.J.T.C.C.
[1]
These are four appeals against two decisions by the Minister of
National Revenue, both dated April 22, 1996, finding that the
employment of Robert Forest ("the individual
appellant") was not insurable under paragraph
3(2)(c) of the Unemployment Insurance Act
("the Act") during the periods covered by
the decisions. One of the decisions concerns the period from
November 18 to December 28, 1990. The other concerns the periods
from May 27 to December 27, 1991, May 25 to November
20, 1992, and May 17, 1993, to January 21, 1994.
[2]
The four appeals were heard on common evidence.
[3]
The assumptions made by the Minister of National Revenue with
regard to the individual appellant's employment during the
period from November 18 to December 28, 1990, are
substantially the same in both the individual appellant's
file (96-814(UI)) and the file of
Ferme des Peupliers Inc. ("the appellant Ferme
des Peupliers") (96-815(UI)). I will reproduce only
paragraph 5 from the individual appellant's file
(96-814(UI)). It reads as follows:
[TRANSLATION]
5.
In making his decision, the respondent Minister of National
Revenue relied, inter alia, on the following
facts:
(a) the payer was incorporated in 1975;
(b) André Forest, Rita Morin and Claude Forest are the
payer's shareholders;
(c) they own 98 percent, 1 percent and 1 percent,
respectively, of the voting shares issued by the payer;
(d) the appellant is André Forest's brother;
(e) the payer operates a business that specializes in the
growing of corn and soybeans;
(f) the appellant's work on the farm involved preparing
the land for sowing, applying herbicides and doing the
harvesting;
(g) when he was not working on the farm, the appellant also
provided services to the hardware store run by Agrisem inc.,
whose sole shareholder was Rita Morin, André Forest's
spouse;
(h) the appellant was paid $750 a
week;
(i) the remuneration paid
to the appellant was not reasonable given the nature of the work
done by him;
(j) since August 1994, the appellant has been working for
Agrisem inc. year-round and has been paid $350 a week;
(k) the appellant and the payer are not dealing with each
other at arm's length within the meaning of the Income
Tax Act;
(l) the payer would never have hired a person with whom it was
dealing at arm's length on terms the same as those offered to
the appellant, much less for such remuneration;
(m) from May 7 to November 17, 1990, there was a contract of
service between the appellant and the payer.
[4]
With the exception of subparagraphs (i) and (l), which were
denied, all the subparagraphs of paragraph 5 of the Reply to the
Notice of Appeal in the individual appellant's file
(96-814(UI)) were admitted, in some cases with an
explanation, on behalf of the individual appellant and the
appellant Ferme des Peupliers.
[5]
The Replies to the Notices of Appeal in the individual
appellant's file 96-816(UI) and the file of Agrisem
Inc. ("the appellant Agrisem")
(96-817(UI)) concern the individual appellant's
employment during the following three periods: May 27 to December
27, 1991, May 25 to November 20, 1992, and
May 17, 1993, to January 21, 1994.
[6]
The assumptions taken into account by the Minister of National
Revenue in finding that the individual appellant's employment
was uninsurable are substantially the same in these latter two
files. Those assumptions are set out in paragraph 5 of the Reply
to the Notice of Appeal in the individual appellant's file
(96-816(UI)), which reads as follows:
[TRANSLATION]
. . .
(a) the payer was incorporated in February 1986;
(b) Rita Morin is the payer's sole
shareholder;
(c) the appellant is Rita Morin's
brother-in-law;
(d) the payer operates a hardware
store and also sells seed and construction materials;
(e) the payer carries on its
activities year-round;
(f) the appellant's work mainly involved making deliveries
to customers, which took up about half of his time, and receiving
goods;
(g) the appellant also provided certain services to the farm
operated by Ferme des peupliers inc., 98 percent of the
shares of which were owned by André Forest, who is Rita
Morin's spouse and the appellant's brother;
(h) the appellant was paid $750 a week during the first two
periods at issue and $500 during the third;
(i) the remuneration paid to the appellant was not reasonable
given the nature of the work done by him;
(j) the payer claims that, during a good part of each of the
periods at issue, the appellant worked only every other week even
though he was the only person who had the licence required to
drive the payer's delivery truck;
(k) since August 1994, the appellant
has been working year-round for the payer and has been paid
$350 a week;
(l) the payer claims that the appellant worked 22 weeks during
the first period at issue, 14 weeks during the second and 20
weeks during the third;
(m) the weeks allegedly worked by the appellant do not
correspond to the payer's busy periods;
(n) the appellant and the payer are not dealing with each
other at arm's length within the meaning of the Income
Tax Act;
(o) the payer would never have hired a person with whom it was
dealing at arm's length on terms the same as those offered to
the appellant, much less for such periods of time and such
remuneration.
[7]
Subparagraphs (a) through (e), (h), (k), (l) and (n) of paragraph
5 of the Reply to the Notice of Appeal were admitted on behalf of
the individual appellant and the appellant Agrisem. Subparagraphs
5(f), (g), (i), (j), (m) and (o) were denied.
[8]
The individual appellant and his brother, André Forest,
gave evidence during the hearing of these appeals. Rita Morin,
the appellant Agrisem's sole shareholder, testified briefly
at the respondent's request.
[9]
André Forest testified that he has owned a farm in
St-Célestin since 1974, when he purchased it from
his father. In 1975, he incorporated the appellant
Ferme des peupliers. That corporation ran a dairy farm
until 1982, when the dairy operation was liquidated. The farm was
then used to grow corn and soybeans. During the periods at issue,
it was a very large farm as a result of the acquisition of
certain lands. The appellant Agrisem was incorporated in 1985 and
started selling small farm equipment, such as grain silos and
maple "cleaners". It purchased a small hardware store
in the same municipality, St-Célestin.
[10] The same
witness said that he hired the individual appellant in 1990. The
individual appellant had previously been a bulldozer, power
shovel and drainage tube layer operator, and he drove trucks. The
witness said that he was the only person who ran the appellant
Ferme des Peupliers. The appellant Agrisem was in the business of
selling seed and construction materials. It operated out of the
premises of the appellant Ferme des Peupliers, which was thus
able to obtain seed and herbicides at the wholesale price.
[11]
André Forest said that the individual appellant had lost
his job in 1989. He offered to hire him through the appellant
Ferme des Peupliers to perform very specific work—such as
levelling and draining the land—on the farm every other
week, having first told him that he could not pay him at the same
rate he had received from his former employer in 1989. The
individual appellant did not work at the hardware store in 1990.
The work on the farm, such as operating a laser drainage tube
layer, required special skills. André Forest said that he
himself was unable to operate such a machine.
[12] In May,
June, July, August and September 1990, the individual appellant
was paid every two weeks for one week of work. The witness said
that the individual appellant worked every week from November 18
to December 28, 1990. In 1990, he was paid $675 a week
by the appellant Ferme des Peupliers.
[13]
André Forest provided the following information on the
weeks worked by the individual appellant in 1991:
[TRANSLATION]
JEAN-PIERRE HINSE:
Q.
So in 1991, Mr. Forest, did your brother work only every other
week?
A.
We redid . . . it all depended on the work that had to be done .
. . in May, June, July and August, he worked every other
week.
Q.
Yes.
A.
In September too.
Q.
Yes.
A.
And in October, November and December, he worked regularly, every
week.
(Transcript, page 33, lines 24-25, and page 34,
lines 1-10.)
[14] With
regard to 1992, André Forest noted that the individual
appellant did not work in May, June, July, August and December
but stated that his services were used for one week in September
and all of October and November. Incidentally, according to that
witness, the period during which the individual appellant worked
for the corporate appellants in 1992 does not correspond to his
1992 period of employment at issue in this case.
[15]
André Forest was adamant that he was the one who decided
which weeks the individual appellant was to work after taking
into account his own cash situation and that of the corporate
appellants.
[16]
André Forest explained that, in early 1993, he and the
individual appellant met to discuss the work to be done for the
corporate appellants. He told the individual appellant that his
wages had to be reduced because of the serious financial problems
the two corporations in question were having. He also said that
there was less work to be done on the farm and that the appellant
Agrisem's activities had decreased to some extent. The
discussions led to the individual appellant's wages being
reduced and his work weeks being spread out.
[17] In 1991
and 1992, the individual appellant was paid $750 a week. His
wages were reduced to $500 a week for the weeks he worked in
1993. The individual appellant worked more at the hardware store.
In the spring of 1994, he was paid $920 for one week and $500 for
the other two weeks. During those three weeks, when
André Forest was out of the country, he had full
responsibility for the business run by André Forest.
Starting in August 1994, the individual appellant was employed at
$350 a week. He provided services on the farm and at the hardware
store in 1994. André Forest testified that he himself did
not receive a salary in 1994. He added that he hired the
individual appellant because he had work to be done.
[18] Mr.
Forest also said that Mr. Vignault, a person unrelated to him,
performed work on the farm and was paid $800 a week, or $20 an
hour; Mr. Vignault worked six weeks in 1991.
[19] For 1994,
the individual appellant was hired in the fall at $350 a week and
stopped working for the two corporate appellants in January 1995
because, according to André Forest, he [TRANSLATION]
"couldn't manage on those wages" given his family
responsibilities. The payer was unable to pay him enough. The
witness thereafter looked after the hardware store himself and
had the work that his brother had performed done by strangers at
a flat rate. He said that the work done at a flat rate cost him
[TRANSLATION] "much more" at that time than during the
period when work was done with the machines owned by one of the
corporate appellants and when the payer was using the individual
appellant's services. He referred, inter alia, to a
price of $165 an hour to obtain a combine with the services of a
driver.
[20] As
regards the work done for the appellant Agrisem, the individual
appellant delivered goods, as did André Forest and his
children occasionally. The payer also hired other people from
time to time. The work at the hardware store had become more
demanding.
[21]
André Forest confirmed that the individual appellant did
in fact work during the weeks in question. He was hired to do
work that had to be done. André Forest gave
explanations regarding the services provided by the individual
appellant during the periods at issue to an employee of the
department involved in administering the Unemployment
Insurance Act, who, according to the witness, refused to
understand.
[22] According
to the individual appellant's pay stubs for 1987, when he was
employed by Les Pavages de Nicolet Inc., which were filed, his
gross employment income exceeded $700 a number of times and could
even be as high as $1,000 a week. However,
André Forest said that he did not know the number of
hours per week that the individual appellant might have worked
for that former employer. He said that in 1990 the individual
appellant worked 11 or 12 hours a day, six or sometimes
seven days a week. He worked slightly fewer hours in 1991 and
1992, about 55 or 60 hours a week. The witness said that it would
have been difficult to find an employee—a
stranger—who would have agreed to work such a high number
of hours. If a stranger had agreed to do so, he would have given
that person the same wages.
[23] On
cross-examination, André Forest confirmed that he did not
have the impression that he was paying his brother too much. On
his own initiative, without his credibility having been
questioned by counsel for the respondent and without being
pressed by his questions, he added that a power shovel and
bulldozer operator was paid $10 to $12 an hour at that time; yet
during his direct examination, he had stated that a bulldozer or
power shovel operator earned about $16 to $18 an hour.[1] He also confirmed that
the individual appellant worked every other week in the spring.
When asked [TRANSLATION] "Why every other week? Why not
blocks of weeks?", he answered as follows:
[TRANSLATION]
A.
It was because the work was done that way and it enabled me to
see, because I always did things myself at our place.
Q.
In actual fact, he was paid every other week. Did he really work
every other week, or could things be shifted around?
A.
I wouldn't want to tell you a lie. I'm not telling you .
. . weeks being shifted around, no . . . I'm not telling you
that he didn't perhaps come take a look in the morning
sometimes when he wouldn't have been supposed to be working.
I wouldn't go . . . I wouldn't claim . . . But I can tell
you one thing: we tried as much as possible to make sure there
were no irregularities with the pays.
First reason: when I hired him, my brother was thirtysomething,
after all, and I was, I don't recall . . . it was, 1990,
that's 20 years. I'm 52. He was 32. He had
responsibilities, after all, and I had responsibilities. I
didn't go eat at their house and he didn't come eat at
ours just because he was my brother. You know, we each had our
own things going on. And I didn't hire him out of charity. He
was already earning those wages somewhere else. I don't know
whether he had enough love to come work for me for $300 less a
week, I can't . . . .
(Transcript, page 70, line 7, to page 71,
line 9.)
. . .
The week he didn't work, I was able to go round my fields and
see, well, that there was a ditch to be straightened out, a fence
to be taken down, a hedge to be removed, and I could combine my
work. Otherwise, I would have had to go do that work myself in
the evenings or have it done by other people.
And I estimated at the time that it cost me less to have it done
by someone, especially since I had it done at my own pace.
Whereas . . . the best example, one example, is when you have a
ditch to be dug, a ditch 200 feet long. If you bring in a
bulldozer, the guy's going to charge you for two hours of
transportation, and then he's not interested in coming to
work for 10 hours. He wants to come work for a week because the
basic costs are still there. But if I felt like having 100 feet
of ditch dug, I had 100 feet dug and then we stopped and we did
something else.
. . .
. . . Whereas we were doing it ourselves . . . as soon as a
little money came in, as soon as we saw that we could pay, we did
a bit. And we've done it slowly, a little at a time, right up
to this moment.
(Transcript, page 73, line 13, to page 74, line 7,
and page 74, lines 15-19.)
[24]
André Forest said that the individual appellant was paid
by the week; the weekly rate was not reduced to take account of
rainy days, which were not [TRANSLATION] "made up" the
following week. The same witness also explained that, near the
end of a work period in any given year, the individual appellant
worked uninterruptedly each week because the bulk of the work on
a grain farm must be done at the end of the fall. He explained
that the fall work could continue very late, sometimes until the
Christmas holiday period. He said that the grain's moisture
level has a significant impact on its quality and on the time it
should be harvested.
[25]
André Forest explained that the appellants Ferme des
peupliers and Agrisem are two closely related corporations that
are in effect run by the same person, namely him. The appellant
Agrisem sold seed and farm equipment. When the individual
appellant worked for that corporation, he mainly delivered seed
and wood.
[26]
André Forest was not clear about why the individual
appellant's wages, which were $675 a week in 1990, were
increased to $750 a week in 1991. After noting that the annual
sales of the two businesses had increased to over $1 million
at that time, he said that the wage increase may have been
attributable to extra work.
[27]
Incidentally, it was stated by counsel for the
appellants—and not disputed by counsel for the
respondent—that a special licence is required to drive a
truck weighing more than 4,500 kilograms. The truck used for the
business of each of the corporations weighed only 2,700
kilograms. André Forest explained that he was not sure
whether he knew at the time that he was allowed to drive the
truck in question.
[28] The
appellant Agrisem had $652,619, $703,056, $612,434 and
$689,112 in sales in 1991, 1992, 1993 and 1994 respectively. Its
net income for 1992, 1993 and 1994 was $8,630, $1,097 and
$7,668 respectively. Its fiscal year ended on February 28 of each
of those years.
[29] The
individual appellant testified quite briefly.
[30] He began
by saying that he had worked for Drainage Richelieu as a heavy
equipment operator before 1989. Immediately prior to his
employment with the appellant Ferme des Peupliers, he had worked
for Les Pavages de Nicolet Inc., where he was paid at two
different rates: he earned $12 an hour as a truck driver and just
over $21 an hour as a heavy equipment operator. He stopped
working for Les Pavages de Nicolet Inc. in the fall of
1989.
[31] The
individual appellant was unemployed when he started negotiating
the terms of his contract with André Forest, the
representative of the corporate appellants. He offered him his
services for a fixed salary. He corroborated
André Forest's version of the circumstances of
his employment for both of the corporate appellants. In
particular, he said that he worked an average of 60 to
70 hours a week in 1990 and about 60 hours a week in 1991,
1992 and 1993. He had his qualification [TRANSLATION]
"cards" from the Commission de la construction du
Québec as a heavy equipment operator. As the holder of a
class I licence, he was authorized to drive trucks, buses, taxis
and all other vehicles. He confirmed that he did not need a
special licence to drive the corporate appellants' truck
during the years at issue.
[32] He said
that, in 1991, 1992 and 1993, he worked mainly for the appellant
Ferme des Peupliers and occasionally made deliveries for the
appellant Agrisem. He confirmed that he did in fact work during
the weeks he noted down on the cards. He sent that information to
the unemployment insurance office.
[33] He stated
that in 1999 he worked for a firm in Ste-Victoire de Sorel as a
heavy equipment operator and was paid $15 an hour. He filed pay
stubs for the period from May 6 to August 5, 1999, showing that
he was paid $15 an hour as a heavy equipment operator and that he
worked 52 hours a week. He did 10 hours of overtime a week, since
the normal work week was 42 hours. He thus earned $850 a
week.
[34] He said
that, if he had worked for a stranger, he would not have agreed
to work so many hours for the same wages. He added that he would
have asked to be paid more. His home was adjacent to his
brother's. He worked every other week because his brother was
unable to pay the wages he wanted. He admitted that, by working
every other week, he received unemployment insurance benefits for
the week he did not work.
[35] The
testimony of Rita Morin, the individual appellant's
sister-in-law, did not contribute anything
significant.
Analysis
[36] In light
of the facts of these appeals, I must first determine the
lawfulness of the two decisions by the Minister of National
Revenue at issue in these appeals. In short, did the Minister of
National Revenue properly exercise the discretion conferred on
him by paragraph 3(2)(c) of the Unemployment Insurance
Act, that is, did he do so in a non-arbitrary manner
and by taking into account all of the relevant facts?
[37] Before
starting to analyse the facts of these appeals, I note that I
observed the behaviour of André Forest and the individual
appellant and they seemed to me to be honest people. I accept
their version of the facts.
[38] A number
of the allegations of fact relied on by the Minister of National
Revenue in support of his decisions were not disputed, as has
already been noted.
[39] The
dispute related in particular to the reasonableness of the
remuneration paid to the individual appellant by the two
corporate appellants Ferme des Peupliers and Agrisem during the
four periods at issue. In his argument, counsel for the
respondent did not claim that the individual appellant was paid
too much or too little. He pointed to the many fluctuations in
his remuneration during the four periods at issue. On the subject
of remuneration, the respondent, in paragraph 5 of the Reply to
the Notice of Appeal in each of the four files, simply stated
that "the remuneration paid . . . was not reasonable given
the nature of the work done by [the individual appellant]".
This statement is made with respect to the periods during which
the individual appellant was paid $675 and $750 a week as well as
to the period during which he was paid $500 a week.
[40] The
individual appellant's work during the periods at issue had
two components: he worked as both a heavy equipment operator and
a hardware store employee. The evidence as a whole shows that, in
1990, 1991, 1992 and 1993, he worked mainly on the farm as a
heavy equipment operator. This is especially true for the first
periods at issue. As a heavy equipment operator, his weekly rate,
taking into account the number of hours he worked, is equivalent
to about $12 or $13 an hour at the most for the periods prior to
1993. As a heavy equipment operator, the individual appellant was
a specialized, highly qualified worker. Immediately before the
first employment period at issue, the rate he was paid by another
employer was substantially higher than the $12 or $13 referred to
for a certain type of work and about the same for another type.
As for the component of his work involving services provided at
the hardware store—a component that was less important
during the periods at issue—it cannot have any significant
impact on the rate of remuneration that would normally have been
payable to a heavy equipment operator during the years in
question.
[41] The
testimony of the individual appellant and André Forest has
persuaded me that the individual appellant's remuneration was
reasonable during each of the periods at issue. It may even have
been a little low, especially during the period when he was paid
$500 a week. The corporate appellants' difficult financial
situation accounted, at least in part, for that reduction. The
nature of the work to be done in 1993 may have played a role. In
his argument, counsel for the respondent noted that the
individual appellant was paid $350 a week starting in August
1994. That rate of remuneration is also referred to in
paragraph 5 of each Reply to the Notice of Appeal. In this
regard, I must point out that that weekly rate of $350 applies to
none of the four periods at issue but applies rather to a period
after the last period at issue. Moreover, no evidence was adduced
by the respondent in support of the allegations concerning the
individual appellant's remuneration set out in subparagraph
5(i) of each Reply to the Notice of Appeal. The appellants have
proved that the individual appellant's rate of remuneration
was reasonable, as they had the burden of doing.
[42] I
conclude that the Minister of National Revenue's assumption
that the individual appellant's remuneration "was not
reasonable given the nature of the work done by him" is
unfounded and not based on a serious, objective review of all the
circumstances.
[43] The
allegation made in paragraph 5 of each of files 96-816(UI)
and 96-817(UI) that "the [individual] appellant's
work mainly involved making deliveries to customers . . . and
receiving goods" is also unfounded. The individual
appellant's work, especially during the work periods in 1991
and 1992, was mainly work done on the farm.
[44] The
assumption relied on by the Minister of National Revenue in files
96-816(UI) and 96-817(UI) that "the weeks
allegedly worked by the [individual] appellant do not correspond
to the payer's busy periods" has also been refuted by
the evidence. For example, in the fall of each of the years at
issue in those two appeals, there was a great deal of work to be
done on a grain farm and the individual appellant worked
uninterruptedly for several weeks at that time of year.
[45] The
allegation in subparagraph 5(j) in files 96-816(UI) and
96-817(UI), on which the Minister of National Revenue
relied, is also incorrect, since it has been shown—and this
is not disputed by the respondent—that a special
driver's licence was not required at the relevant times to
operate the vehicle used to make deliveries for one of the
corporate appellants.
[46] It can be
seen from the foregoing that the Minister of National Revenue
incorrectly assessed certain facts whose importance cannot be
questioned and thus improperly exercised the discretion conferred
by paragraph 3(2)(c) of the Act. His decision is
accordingly unlawful.
[47] I must
therefore form my own opinion after reviewing the relevant facts.
Given the evidence as a whole, it is likely that, in a situation
similar to the one involved in these appeals, an employer and an
employee who were strangers would have entered into contracts
substantially similar to those with which we are concerned in
this case. On the matter of remuneration, the terms of the
contract between the individual appellant and each corporate
appellant seem reasonable to me. It is true that the number of
hours of work is unusual, but taking all of the circumstances
into account, I am inclined to believe that a substantially
similar contract could have been entered into by a payer and an
employee dealing with each other at arm's length.
[48] All
things considered, I conclude that the individual appellant's
employment was insurable during the four periods at issue.
[49] For these
reasons, the appeals are allowed.
Signed at Ottawa, Canada, this 25th day of February 2000.
"Alban Garon"
C.J.T.C.C.
Translation certified true on this 28th day of September
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
96-814(UI)
96-815(UI)
BETWEEN :
ROBERT FOREST,
FERME DES PEUPLIERS INC.,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeals heard on common evidence with the
appeals of
Robert Forest (96-816(UI)) and
Agrisem Inc. (96-817(UI))
on August 17, 1999, at Drummondville, Quebec,
by
the Honourable Chief Judge Alban Garon
Appearances
Counsel for the
Appellants:
Jean-Pierre Hinse
Counsel for the
Respondent:
Yanick Houle
JUDGMENT
It is
ordered and adjudged that the determination of the question be
reversed and that the employment of the appellant Robert Forest
with the appellant Ferme des Peupliers Inc. is insurable for
the period from November 18 to December 28, 1990, in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 25th day of February 2000.
C.J.T.C.C.
Translation certified true
on this 28th day of September 2001.
Erich Klein, Revisor
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