Date: 19971017
Dockets: 96-1054-UI; 96-1055-UI
BETWEEN:
MONIQUE LACASSE, CHARLES LACASSE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
Reasons for Judgment
Léger, D.J.T.C.C.
[1] By consent of the parties, these appeals were heard on
common evidence at Québec, Quebec, on September 16,
1997.
[2] The appellants are husband and wife and were the
shareholders of Centre de Chaussure Ste-Claire Inc. Charles
held 23 of the 25 shares and Monique held the remaining two. On
June 25, 1993, the appellants sold all the shares of the
said Centre to 3092-1688 Québec Inc., which became
the sole shareholder of the payer. A contract of sale signed by
the parties concerned fixed the selling price at $160,000,
$140,000 of which represented the value of inventory.
[3] Clause 20.1 of the contract of sale
(Exhibit A-1) reads as follows:
[TRANSLATION]
In consideration of a salary of five hundred dollars per week
($500/week) on the basis of five days per week over a period
of five months in the first two years commencing on the date
of this contract, the vendor undertakes to cooperate with the
purchaser by supporting it and giving it the benefit of his
advice and knowledge on the practices of the trade as currently
carried on by the corporation. A schedule shall be determined in
advance by the parties in accordance with the agreement to be
reached. Likewise, the purchaser undertakes to employ the vendor
in customer service for those 10 months spread over a
two-year period. The work weeks shall be continuous and
uninterrupted.
[4] The vendor is defined in the contract of sale as being the
appellants and the purchaser as being 3092-1688
Québec Inc., the sole shareholder of which is
Gaétan Laflamme.
[5] The appellant Monique Lacasse worked as a saleswoman
for Centre de Chaussure Ste-Claire Inc. for more than
23 years and was laid off by the purchaser, which had become
the payer, on July 10, 1993. The female appellant was thus
eligible for unemployment insurance benefits at that time.
[6] The evidence shows that the appellant Charles Lacasse
continued to provide services to the payer until
November 26, 1993. The payer used the appellant’s
services until that date in order to comply with clause 20.1
of the contract of sale. Since the period of employment exceeded
20 weeks, this theoretically made the appellant
Charles Lacasse eligible for unemployment insurance
benefits. Again, to comply with the contract of sale, the payer
hired the appellant Monique Lacasse on July 18, 1994,
for a period of 20 weeks, which enabled her to reapply for
unemployment insurance benefits.
[7] Taking into account the weekly salary of $500 paid to the
appellants over a period of 10 months, as stipulated in
clause 20.1 of the contract of sale cited above, the total
amount paid would have been $20,000; based on this amount, we can
estimate that, if the appellants each received unemployment
insurance benefits for 40 weeks, the total amount of those
benefits would theoretically have been about $30,000. Added to
the selling price, these amounts, totalling $50,000, would bring
the total selling price to $210,000.
[8] We can see that, when the contract was negotiated, the
vendor declared to the purchaser that such a requirement would
not cost much since, for income tax purposes, the salaries would
be expenses deductible from business income. Furthermore, the
amounts received by the appellants in respect of unemployment
insurance benefits had to be paid by the Commission, not by the
purchaser. This was a cleverly contrived scheme put together by
the vendor.
[9] The Court considered the possibility that the combined
effect of clause 20.1 of the contract of sale and of the
other evidence was that the employment was excepted under
paragraph 3(2)(c) of the Unemployment Insurance
Act. When they negotiated this clause of the contract, were
the parties dealing with each other at arm’s length?
[10] Clause 3.1 of the contract of sale
(Exhibit A-1) reads in part as follows:
[TRANSLATION]
3.1 In consideration of this sale, the vendor
acknowledges that it has received this day from the purchaser the
sum of sixty-five thousand dollars ($65,000), for which
release is hereby given by the vendor
Charles A. Lacasse, and full and final release is given
by the vendor Monique Morissette.
The balance of ninety-five thousand dollars ($95,000)
will be payable to the vendor Charles A. Lacasse only,
as follows:
(a) An amount of sixty thousand dollars ($60,000) on or
around July 1, 1993, or not later than July 9, 1993, to
be paid out of the proceeds of a loan in the form of a line of
credit issued to the corporation by the Ste-Claire Caisse
populaire Desjardins, 135-A, Rue Principale,
Ste-Claire, upon conveyance of inventory to the creditor,
the Ste-Claire caisse populaire, by the corporation.
(b) The sum of thirty-five thousand dollars ($35,000)
in 20 equal and consecutive semi-annual principal payments
of $1,750 each, in Canadian dollars, the first payment falling
due on December 19, 1993, and the others successively on
June 19 and December 19 each year until June 19,
2004, on which date any outstanding balance will become
immediately payable without notice or formal demand of any
kind.
The outstanding balance will bear interest at the rate of
seven per cent calculated as of June 19, 1993. This
interest will be payable at the same time as the aforementioned
principal payments and will also bear interest at the same rate,
without any requirement of notice or of a formal demand, starting
on that date, the whole without prejudice to the right to require
immediate payment upon forfeiture of the term, as stipulated
below.
[11] Clause 4.1.7 of the said contract of sale dealing
with the guarantees provided to the vendor by the purchaser reads
as follows:
[TRANSLATION]
A number of shares proportionate to the balance of the selling
price of the shares sold will be placed in trust with
Jean-Marc Fortier, notary, with the stipulation
that, if the purchaser does not remit on time the payments owed
on the selling price or does not meet his obligations, the shares
will then be transferred back to the vendor, unless the said
vendor decides to exercise his other remedies to obtain payment
of the balance of the selling price.
[12] The contract of sale also contains a no-competition
clause (clause 9.1) which applies for a period of five years
within a radius of 20 miles of the present limits of the
municipality of Ste-Claire.
[13] In accordance with clause 19.1 of the contract, a
mortgage of $35,000 was granted on an immovable as a guarantee of
payment of the balance of the selling price.
[14] I have long been familiar with the law governing
insurable contracts of employment. Counsel submitted the
following judgments to me:
Léon Guérette c. M.R.N., [1991]
A.C.I. No. 824 (90-293(UI)), Ginette Grenier v.
M.N.R. (96-1627(UI)) and
Johanne Gervais v. M.N.R. (F.C.A.
A-502-93).
[15] I carefully reviewed these decisions. However, each
appeal is different and, although the applicable principles of
law are the same, each appeal must be decided having regard to
the circumstances revealed by the evidence.
[16] In the instant appeals, are we dealing with a contract of
service or a contract for services? The evidence showed that
significant sums had to be paid by the purchaser over a long
period of time. It was therefore in the vendor’s interest
to cooperate with the purchaser so that the business would
continue to prosper and the purchaser could meet its obligations
and pay the balance of the selling price. There were therefore
elements such as the risk of loss and the lack of integration of
the employees into the payer’s business and these elements
involved criteria which enable us to resolve the above
question.
[17] Having considered the whole of the evidence and having
heard the arguments of counsel, the Court finds that the amounts
paid to the appellants, allegedly in respect of salary in
accordance with clause 20.1 cited above, were merely a
supplementary consideration in addition to the selling price. The
Court further concludes that the said employment described in
clause 20.1 was merely held pursuant to a contract for
services and was not insurable employment under
paragraph 3(1)(a) of the Unemployment Insurance
Act.
[18] For all these reasons, the Court dismisses the appeals
and affirms the decisions of the Minister of National
Revenue.
"C.I.L. Léger"
D.J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 26th day of June
1998.
Erich Klein, Revisor
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