Date: 20000414
Docket: 98-584-UI
BETWEEN:
CLAUDETTE LORANGER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1]
This is an appeal from a determination made on February 18, 1998,
whereby work performed by the appellant for the periods from
January 1 to May 5, 1995, from January 8 to July 12, 1996, and
from January 6 to September 26, 1997, for
Ébénisterie Loranger Inc. was excluded
from insurable employment because of the non-arm's-length
relationship existing at the time between the appellant and the
payer.
[2]
In support of the determination, the respondent relied on the
following assumptions of fact:
[TRANSLATION]
(a)
the payer, which was incorporated on January 20, 1992, operates a
business specializing in the production of household kitchen
cabinets, custom-built furniture and counters;
(b)
Pierre Loranger, the appellant's spouse, holds 65% of the
shares of the payer, and the appellant holds the other 35%;
(c)
the appellant used a $14,000 investment to guarantee a $20,000
loan taken out by the payer for the purchase of a truck;
(d)
the payer has a $20,000 line of credit guaranteed by the 2
shareholders on a pro rata basis according to their percentage
holdings of the payer's shares;
(e)
until June 1997, the couple's residence was located next to
the building housing the payer's workshop and office;
(f)
the payer's administrative decisions are made jointly by the
appellant and her spouse;
(g)
the appellant had duties to perform both at the office and in the
shop;
(h)
at the office, the appellant took care of purchasing materials,
preparing a part of the bids, issuing invoices, preparing and
signing cheques, including pay cheques, keeping the accounts and
answering the telephone;
(i)
in the shop, the appellant helped the workers by doing sanding,
gluing and drilling and by performing maintenance and cleaning of
the shop and the furniture;
(j)
she received a fixed weekly salary of $400, based on 40
hours' work;
(k)
the appellant often worked more than 40 hours because some
clients met with them in the evening and on weekends;
(l)
she worked unpaid overtime;
(m) when
she was receiving employment insurance benefits, the appellant
continued to perform her office work without pay;
(n)
the appellant's alleged work periods did not always coincide
with the company's periods of activity;
(o)
in 1998, the appellant's hourly wage was reduced from $10.00
to $8.00 because, according to the appellant, the payer was
having financial difficulties, while, according to
Pierre Loranger, it was because he wanted to increase his
own salary.
[3]
Only the appellant testified in support of her appeal. Her
testimony basically repeated the facts that had been considered
in making the determination.
[4]
While she qualified some of the facts or fleshed them out with
additional details, in general, no new facts were adduced in
evidence.
[5]
The appellant was very open and straightforward in her testimony.
The respondent may have presented some of the facts in an
imprecise or incomplete manner, but the basic elements were all
correctly assessed, and the determination resulted from an
analysis in which no relevant fact was disregarded.
[6]
The appellant performed two separate functions for the
company.
[7]
First, she performed a shop worker's functions, carrying out
a number of duties, including in particular sanding furniture,
preparing the glue, gluing and drilling; she also took care of
shop and furniture maintenance and cleaning. She arrived early in
the morning to turn on the various pieces of equipment required
to manufacture the cabinets and some special-order furniture. For
this work, she received a fixed salary of $400, based on 40
hours' work.
[8]
Second, the appellant performed an entirely different kind of
work, just as important for the smooth operation of the company:
she handled all the administrative work.
[9]
She took care of purchasing materials, preparing a part of the
bids, issuing invoices, preparing and signing the pay cheques,
doing the bookkeeping, answering the telephone and making
remittances. The appellant also met with one or two clients per
evening, and generally three on Saturdays.
[10] According
to her, meetings with potential clients took between an hour and
an hour and a half per client. For the second component of her
duties, that is, her clerical, administrative and sales work, she
received no compensation and performed this work voluntarily, so
she testified, to help out her spouse.
[11] The
respondent's assessment of the situation, namely that the
appellant spent equal time and energy on each of the two
components of her work, annoyed counsel for the appellant, who
maintained that on the respondent's assessment, the appellant
would have worked 80 hours a week on average, which, in his
opinion, was inordinate, superhuman and impossible.
[12] The
respondent's interpretation was not, however, taken out of
thin air; it was taken from a declaration by the appellant dated
January 15, 1998. The appellant, on that date, signed the said
declaration, which was preceded by the following statement:
"I have read the declaration and I agree with its contents
and have received a copy of it." The declaration reads as
follows:
[TRANSLATION]
(Exhibit I-1)
INTERVIEW REPORT
Name of
interviewer
BPC-DPP
CEC SIN-NAS
Diane
Deslauriers
1058
2438
214 562 548
Address where interview was held
55 rue des Forges
T-Rivières, Que G9A 6A8
Date: JANUARY 15, 1998 Identification: Claudette
Loranger
RELEVANT INFORMATION:
Identified by her health card MARC 4753 0315.
The claimant works with her spouse Pierre Loranger in a
cabinet-making business, "Ébénisterie Loranger
inc.". The business is located behind their residence, and
the business and the house share the same telephone.
The business has existed since 1974. It was a registered
business in the beginning but was incorporated around 1991. The
claimant owns 35% of the shares and her spouse 65%. At first, she
received no salary for her work, but since about 1977 she has
been on the payroll.
She handles the pay. There are 3 workers employed in the shop.
She answers the telephone and does office work; she is not
familiar with the computer so she does all the bookkeeping
manually in the ledger and the accountant takes care of the
remittances at the end of the month. The claimant calculates the
rates for the bids using their own rate scales. She takes care of
shop and office maintenance. She also works in the shop, sanding,
gluing bands and/or wood, and operating the scroll saw; she does
not touch the big tools.
She states that 50% of her time is spent in the shop and
the other 50% is spent on office work.
She can work from 07:30 a.m. to 6:00 p.m. and occasionally in
the evening; she does not keep track of her time; she is paid for
40 hours a week by a cheque for $400.
When she works in the shop she receives compensation for her
work but when she does only office work she does not take any
pay, the reason being that the business is not profitable enough
to pay her a salary.
She does not want to look for work while the company is
operating because she can be called upon to work at any time. She
knows that she cannot look for work in her own field because she
is in competition with other businesses of the same kind. She has
experience in household maintenance, which is what she did before
working with her spouse.
. . .
I have read this declaration, I agree with its contents and I
have received a copy of it.
Signature: Claudette Loranger Date:
15-01-98
(Emphasis added.)
[13] In the
light of the evidence, my view is that the respondent exercised
his discretion correctly. The only criticism that could be
directed at the respondent is in respect of the following
allegations:
. . .
(c)
the appellant used a $14,000 investment to guarantee a $20,000
loan taken out by the payer for the purchase of a truck;
(d)
the payer has a $20,000 line of credit guaranteed by the 2
shareholders on a pro rata basis according to their percentage
holdings of the payer's shares;
. . .
(f)
the payer's administrative decisions are made jointly by the
appellant and her spouse;
. . .
[14] This
criticism does not appear to be key to me, nor is it decisive
with respect to the factors that guided the process leading to
the determination. Indeed, I think the fact that the appellant
was involved in financing the business was immaterial and should
not have been taken into consideration, since, as a shareholder,
it was quite normal that she would be called on to help with
financing the family business.
[15] It is
just as normal and reasonable that a shareholder would
collaborate and participate in making the decisions relating to
the affairs of the company in which that shareholder has an
interest.
[16] In this
respect, the appellant wore a separate hat, that of shareholder.
Her status as a shareholder could justify or explain her
performance of certain duties whose purpose was the sound
management and smooth development of the company. She could
perform some unpaid work without thereby affecting her status as
a worker or employee of the company.
[17] Such
duties or involvement should not however have taken up her time
to the point of themselves constituting a real workload. On the
other hand, it is equally normal that a spouse would collaborate
with and support her financial partner, especially if he is
running a small family business.
[18] In this
case, much more than that was involved. The unpaid work performed
by the appellant represented a real workload. In addition, that
unpaid work was the bread and butter of the business. Indeed the
duties performed were absolutely essential for the day-to-day
operation of the business. In other words, the business could not
have functioned without the appellant's unpaid work.
[19] Reception
of and sales to customers were an essential component of the
operation of the business. The same is true of all the
administrative work, which went far beyond the minimum level of
co-operation that would be explainable by the appellant's
status as a shareholder and spouse.
[20] The
appellant was the one who took care of the accounting with
respect to pay, remittances, payment of accounts, orders, etc.
Moreover, I understood from her testimony that this work took
priority over her duties as a shop worker. She stated in fact
that she had had to be away from the shop on occasion to perform
her "administrative" work.
[21] This
explanation qualifies and puts in its proper perspective the
appellant's own assessment that she spent 50 percent of her
time as a worker and 50 percent on her other administrative and
sales functions, since I understand that the appellant devoted
perhaps some thirty hours to her duties as a worker for the
company and an equal amount of time to sales and
administration.
[22] During
the periods in issue, the appellant performed very important work
that generally required putting in more than sixty hours a week.
This work, consisting of two separate components, was required,
necessary and essential for the smooth operation of the
business.
[23] However,
for one of these components, she received remuneration and for
the other she received no salary. The component for which she
received no remuneration was just as, if not more, important than
the one for which she did receive a salary.
[24] Moreover,
the unpaid work was performed throughout the year while the paid
work was required only during a certain period of the year. This
is all shown on the records of employment referring to the
periods in issue.
[25] A final
very important point that could by itself suffice to establish
the validity and accuracy of the respondent's analysis is the
following allegation:
(o)
in 1998, the appellant's hourly wage was reduced from $10.00
to $8.00 because, according to the appellant, the payer was
having financial difficulties, while, according to
Pierre Loranger, it was because he wanted to increase his
own salary.
[26] On this
question, the appellant explained that the change took place when
her spouse wanted to buy a vehicle. To make the purchase, he had
to obtain a loan from a financial institution, and in order to
get the credit he needed, it was important to submit a file
showing his income to be higher. The appellant and her spouse
therefore decided to raise the income of one to the detriment of
the other.
[27]
Specifically, the appellant agreed that her salary would be
reduced by 20 percent to allow her spouse to obtain a loan.
[28] The
evidence unequivocally showed that the appellant had been a
generous collaborator who gave her utmost to the business which
she owned jointly with her spouse. For this substantial
involvement, she drew a reasonable salary for a small part of the
time she worked and even then only for part of the year. And what
is more, she agreed at once to a significant salary cut to enable
her spouse to improve his credit file.
[29] Would an
unrelated person have agreed to do so much in return for so
little? Could a person dealing at arm's length have been as
willing, generous and helpful?
[30] There is
no doubt that no third party would have agreed to give so much to
a business with which he was dealing at arm's length. In
point of fact, the employment insurance benefits were used to pay
for the essential services of a person who was indispensable to
the smooth operation of the business. In other words, the
appellant worked all year long and did not lose her job; she
merely selectively reduced one component of her workload.
[31] In the
circumstances, the respondent judiciously exercised his
discretion. Moreover, there is no doubt that, if the exercise of
discretion had been wrongful, this Court would have had to
dismiss the appeal after reanalysis. The respondent made no
significant error, and the determination resulted from a
reasonable and appropriate appraisal of the facts.
[32] For these
reasons, the appeal must be dismissed.
Signed at Ottawa, Canada, this 14th day of April 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 28th day of February
2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
98-584(UI)
BETWEEN:
CLAUDETTE LORANGER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on March 17, 2000, at
Trois-Rivières, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the
Appellant:
Bernard Vézina
Counsel for the
Respondent:
Alain Gareau
JUDGMENT
The appeal is dismissed and the Minister's decision confirmed
in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 14th day of April 2000.
J.T.C.C.
Translation certified true
on this 28th day of February 2001.
Erich Klein, Revisor
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