Team Insulation Company Ltd. v. M.N.R., docket 1999-1098-EI

Date: 20000318

Dockets: 1999-1099-EI; 1999-1098-EI

BETWEEN:

TEAM INSULATION COMPANY LTD., JARMILA MRNKA,

Appellants,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Bell, J.T.C.C.

ISSUE:

[1] The issue respecting the Appellant, Jarmila Mrnka ("Jarmila") is whether, during the period of July 1, 1996 to June 30, 1998 she was employed in insurable employment by Team Insulation Company Ltd. ("Team") within the meaning of section 5 of the Employment Insurance Act ("Act").

[2] The issue of Team is the same.

FACTS:

[3] Team was incorporated in 1977. It was and is in the business of installing insulation in residential and commercial buildings. Jarmila and her husband, Joe Mrnka ("Joe") each owned 50 percent of the shares of Team. During the period in question the business was conducted from the home of Jarmila and Joe. Jarmila's duties included making bank deposits, invoicing customers, answering the telephone and taking messages, payroll, collection of outstanding accounts and assisting with estimates for insulation jobs.

[4] Joe testified that his wife worked for Team for 15 years before any unemployment insurance deduction was made and that after being told in 1989 that such deductions should be made, Team commenced deducting and has done so since that date. He also said that after all those years of work, in 1998 the company's business decreased and revenue was approximately 33 percent lower. He said that there wasn't enough work for her and she, being unemployed, applied for Employment Insurance. He stated further that they were advised because of a non-arm's length relationship his wife was ruled ineligible to receive insurance payments.

[5] The Reply to the Notice of Appeal stated that Jarmila did not have "set hours of work". Joe agreed but testified that if they had to start at lunch time they would start at lunch time. He stated that if they had to work on Sunday, they would work on Sunday. Further, he said that if something had to be done overnight it was done overnight both by him and his wife. In this connection he stated that if he went home with blueprints at 5:00 o'clock in the afternoon and prices were to be computed for the next morning the two of them would stay up until midnight or 1:00 o'clock putting the estimate together. He added:

This is the way that small business operates.

He said that in addition to what was spelled out above his wife worked with him on the job site as a labourer at the beginning of Team's business. He said that Jarmila did not keep a record of the workers' hours. The Replies stated that Team did not "keep track" of the hours Jarmila worked. Joe testified that Team did not keep track of the hours of anyone. He said further that all employees, at the end of the pay period, brought their time sheets and basically made up their own pay cheques and he simply checked them and paid. He stated that the same thing happened with his wife and that in his business less paper is less work for him. He said that at one point they had between 10 and 12 employees but that now, because of lack of work, there are four only.

[6] He agreed with the Minister's assumption that Jarmila did not have an established rate of pay. He also said that his wife performed whatever duties were asked of her whenever they were needed. He stated that when he:

... got home and I need something done in a hurry, I tell her forget about everything and we are going to do this and it's -- I don't know any other way how to run this business.

[7] His evidence continued:

... they claim that she didn't have established rate of pay. It's true, yeah. Basically true til 1997 because after 22 years paying her whatever I could afford to pay her, you can see if you take her earnings from Canada Pension Plan that it varies from year to year pretty rapidly, but in 1997 and 1998 she somehow negotiated with me deal that she's going to get paid the same as everybody else which is $3,000 a month so I paid her those two years $3,000 a month. It was basically first time when she negotiated something with me. Of course, when you kind of look at it between year 1996 and 1997, they found out raise $15,000 a year they hit roof, because they saw, ah, this is the abuse in the system. But I think after 20 years --

[8] The Replies set forth that Team paid Jarmila $23,300 in 1996, $36,000 in 1997 and $18,000 for the first 6 months of 1998. Joe gave additional information, namely the following amounts in the following years:

1990 $32,000

1991 $31,000

1992 $21,500

1993 $16,500

1994 $19,500

1995 $25,000

1996 $23,300

1997 $36,100

1998 $18,000 for six months

[9] When asked how other employees were paid he said:

Other people, they are in production. We do install insulation. She was in the office, yeah, and this was the question of Revenue Canada, if I would pay somebody who I would hire for my wife's job the same money and my answer was there is no way that I would hire anyone else for non-productive work. The money has to stay in the family. This is simple like that. It's -- I don't know. I cannot see any other small business of my size who has a able wife or able relative to do non-productive work and hire somebody else from the outside to work because the competition is so tight and so big that you cannot afford this kind of arrangement. So, for me it was just hypothetical question because the situation never occurs. I cannot say I would hire somebody because I know I never will.

HIS HONOUR: But if you had to pay somebody else, if you had to hire somebody else, what would you -- would you have paid them the same amount of money?

A. After 20 years of employment, probably, yes.

[10] With respect to the Respondent's assumption that Team paid non-related workers a pre-determined wage which was established when those workers were hired, Joe responded that they were paid so much for doing so many square feet of installing insulation. He then described current house designs as being ridiculous because they are too difficult to insulate and that he adapted the workers' wages. He said that he worked with them everyday so that he knew some could not make the same production when insulating 20 foot high spaces and that their results varied. He stated that he gave them more money than they would normally have received. He also said that his son, Robert, was paid $3,000 per month for working every day on the job site as did Joe and that he also, after hours, did work formerly done by his mother. Joe said:

We don't have a nine to five.

He then said that he did some work formerly done by his wife and that Robert did some.

[11] With respect to the assumption in the Minister's Reply that Jarmila was not paid vacation pay or severance pay when she was laid off by Team, Joe said:

This is partially true and partially not true. Vacation pay is paid in our company the same as every other construction company on every pay cheque. If somebody has $3,000 a month $150 goes to vacation pay. The reason is simple, because in case they go to -- they are laid off and they will collect, I don't know, two and a half dollars of vacation pay, the waiting period will be two months.

He clarified this by saying that the vacation pay is included in every pay cheque instead of being paid when employees went on vacation.

[12] Joe then described how "we got burned for $25,000 and few other months we got burned for $10,000". He also described how little his men were paid in respect of work performed for a certain company that became insolvent.

[13] Respondent's counsel submitted that the issue was whether the Minister of National Revenue ("Minister") properly exercised his discretion in deciding that Jarmila's employment with Team was excluded from insurability under paragraph 5(3)(b) of the Act. He stated that by a combination of section 251 of the Income Tax Act and paragraph 5(3)(a) of the Act, Jarmila and Team were not dealing with each other at arm's length. He then referred to paragraph 5(3)(b) which reads:

if the employer is, within the meaning of that Act, related to the employee, they are deemed to deal with each other at arm's length if the Minister of National Revenue is satisfied that, having regard to all the circumstances of the employment, including due remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed, it is reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[14] Respondent's agent referred to Minister of National Revenue v. Wrights' Canadian Ropes Ltd., [1947] C.T.C. 1, at pages 13 and 14, which the agent summarized as saying that the Minister's decision is not to be arbitrary, vague and fanciful but legal and regular and that the Court should not interfere with that decision unless it is manifestly against sound and fundamental principles. He submitted that if the Court did find that the Minister exercised his discretion in a manner contrary to law it was reasonably open to him to conclude that Team would not have hired someone under substantially similar terms and conditions as Jarmila was hired if they had been dealing with each other at arm's length.

[15] He then submitted that Joe testified that:

He could not or would not have hired anyone himself under those same conditions.

[16] He said in summary that the evidence as a whole indicated that had Jarmila not been related to Team she would not have been engaged under a substantially similar employment contract.

ANALYSIS AND CONCLUSION:

[17] Desjardins, J.A. in Tignish Auto Parts Inc. v. M.N.R. (1994), N.R. 73, said at page 77:

... the court is entitled to examine the facts which are shown by evidence to have been before the Minister when he reached his conclusion so as to determine if these facts are proven. But if there is sufficient material to support the Minister's conclusion, the court is not at liberty to overrule it merely because it would have come to a different conclusion. If, however, those facts are, in the opinion of the court, insufficient in law to support the conclusion arrived at by the Minister, his determination cannot stand and the court is justified in intervening.

[18] There is no evidence that the Minister considered any facts other than those set out in the Replies. Accordingly he did not have the benefit of:

(1) Joe's evidence explaining why there were no "set hours of work" which gave specific examples of the work not being a 9 to 5 job.

(2) Joe's evidence that Jarmila had worked at the business for 22 years.

(3) Joe's evidence that Jarmila worked on the job site as a labourer at the beginning of Team's business.

(4) Joe's evidence regarding why Team did not keep a record of Jarmila's hours or indeed of any other employee's hours.

(5) Joe's evidence as to the work of Jarmila at home late into the night respecting the preparation of job estimates for the next morning.

(6) Joe's evidence that after 22 years of paying Jarmila what "I could afford to pay her" she negotiated with him to be "paid the same as everybody else which is $3,000 per month".

(7) Joe's evidence which showed Jarmila's remuneration for 9 years commencing with 1990 as opposed to the Minister's reference to 3 years only, namely 1996 for $23,300 and the two years under consideration here.

(8) Joe's evidence in response to a question as to whether if he had to pay somebody else would he have paid the same amount of money, namely:

"After 20 years of employment, probably, yes."

(9) Joe's evidence respecting vacation pay, namely that vacation pay was paid:

"in our company the same as every other construction company on every paycheque. If somebody has $3,000 a month $150 goes to vacation pay."

[19] Section 5(2)(b) of the Act refers to the Minister

"having regard to all the circumstances of employment".

These words cannot logically be interpreted to mean that an arm's length employee would have to be in the same position as Jarmila. Because she, as Joe's wife, was living with him she was available at unusual hours to perform required services. The Replies suggest that Jarmila should have had set hours of work and that the failure to have such a routine would influence the Minister in reaching his determination. One reality of the business world is that jobs don't necessarily involve the same regular daily hours. It would be erroneous to assume, simply on the basis of the above words, that an arm's length person could not reasonably be expected to enter into a "substantially similar contract".

[20] The facts shown by evidence to have been before the Minister may have been sufficient "in law to support the conclusion arrived at by the Minister"[1] but they were not all the facts.

[21] There are, one hopes, people willing to work at irregular hours and on terms and conditions not unlike those of Jarmila's employment. The failure of the Minister to have garnered the facts presented by Joe, and having them before him to consider, showing how Team's business was operated and Jarmila's role in that operation, resulted in his determination having been faultily made As set out in Tignish this Court is justified in intervening and, in so doing, allows the appeals of both Team and Jarmila.

Signed at Toronto, Canada this 18th day of May, 2000.

"R.D. Bell"

J.T.C.C.

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