REASONS
FOR JUDGMENT
Lamarre J.
[1]
These appeals were all heard on common evidence.
These are appeals from decisions of the Minister of
National Revenue (Minister) in which it was decided that the four appellants
did not hold insurable employment when they worked for Plomberie Guillemette
inc. (the payer) between 2008 and 2012 (the precise periods at issue are
different for each appellant during these years). The only ground relied on by the Minister is that their
employment was excluded from insurable employment under paragraphs 5(2)(i)
and 5(3)(b) of the Employment Insurance Act. Indeed, the Minister determined that the four appellants
were related to the payer under section 251 of the Income Tax Act (ITA),
and that it was reasonable to conclude that the appellants and the payer would
not have entered into a substantially similar agreement during the periods at
issue if they had been dealing with each other at arm’s length (based, among
other things, on the fact that they provided services to the payer while they
were laid off and that they were available [Translation]
“on call” at any time on cell phones provided by the payer). Other than the issue of arm’s length dealing, the Minister
did not question the existence of a true contract of employment between the
appellants and the payer.
[2]
The payer was incorporated
in 1982. Until October 9,
2009, there were only two shareholders, namely, Yves Guillemette (74%) and his
brother Normand Guillemette (26%).
[3]
On October 9, 2009, Normand Guillemette
transferred his shares to Sébastien Guillemette, Yves’ son and to
Sébastien’s friend, Jonathan Gélinas. Starting on that date, the shares were therefore divided as
follows: Yves Guillemette (74%), Sébastien Guillemette (14%), and Jonathan
Gélinas (12%).
[4]
The payer’s main business
activities are the installation and maintenance of heating systems. The payer
also sometimes provides some “on call” services and services related to air
conditioning systems.
[5]
Yves Guillemette, the
majority shareholder is a journeyman plumber and holds a contractor’s licence. He employs between five and ten employees
per year, based on the amount of work. He
explained that the business is cyclical, depending on contracts and calls.
The installation of heating systems is mostly done in
the fall and service mainly in the winter. The
sales figures indicate that busy periods are not always the same. In 2008, the
least busy period was during the summer (July, August and September); in 2009,
it was winter (January, February and March); in 2010, summer (July, August and
September); and in 2011, spring (April, May, June) (Exhibit I-1).
[6]
Yves Guillemette explained
that his business mainly provides services that are not governed by the
Commission de la construction du Québec (CCQ). From what I understand from his testimony, services
governed by the CCQ deal with new constructions and big construction sites,
which the payer does not do. For the type of
contracts that the payer accepted, it could hire workers at a lower cost (since
an employee governed by the CCQ could cost up to $30 per hour), even though
they had a certificate of qualifications entitling them to the CCQ rate.
[7]
During quiet periods, Yves
Guillemette explained that he laid people off without necessarily keeping the
most senior workers. He said
that he wanted to share the work time available with the highest number of
employees in order to keep them in case he obtained work on big construction
sites.
[8]
In addition, even during
layoff periods, his workers regularly dropped by the business; they could
provide some services (like going to pick up parts or signing for receiving
parts) and they kept the cell phones provided by the payer. For example, he
mentioned the name of a worker at arm’s length with the payer, Dave Buisson,
a journeyman plumber who worked for the payer for several years. Dave Buisson
was not present at court, however. Only his paystub for what seems to be 2006
was filed in evidence, and it can be seen from it that he did not systematically
work all of the weeks from January to August (Exhibit A-1).
[9]
Another worker, Simon
Julien, testified, however. He was apparently hired as an apprentice plumber or
as a warehouse clerk. He said that he had, first, worked for six weeks in
February and March 2008 for the payer and that he had not kept his cell phone
after he had left. He was rehired at the end of August 2010 and worked until
February 2011, then started again in mid-July 2011 and stayed until the end of
December 2011 (based on the information collected by a Canada Revenue Agency
(CRA) officer, Exhibits I-1, I-10 and I-11). Mr. Julien said that,
starting in 2010, he always kept his cell phone even during the period when he
did not work and he could sometimes provide some services without being paid.
[10]
Yves Guillemette filled out
time sheets for employees who worked at the office. They
were used to prepare pay and then destroyed. Workers “on call” filled out work orders, which were
destroyed as soon as clients were invoiced.
[11]
I will now discuss each
appellant’s case.
Normand
Guillemette
[12]
He was allegedly paid as an
employee governed by the CCQ to enable him to obtain a sufficient number of hours
(35,000) to be entitled to his pension. He has worked in plumbing since 1973,
but has only been a journeyman plumber for three years. In 2010 and 2011,
his salary was governed by the CCQ (payroll journal, Exhibits I-10 and I-11).
He generally did not agree to work less than 40 hours per week. We can
also see that he received employment insurance during weeks when he did not
work (Exhibit I-4). However, he had a cell phone provided by the payer every
year and provided some services during his periods of unemployment.
[13]
During the CRA’s
investigation, he had told the investigator, Danielle Bellefeuille, that
he was semi-retired. Through the payroll journal, she noted that he worked
either 40-hour weeks or not at all.
[14]
She also said that she noticed
in doing her investigation that, during his periods without work, he signed
many invoices for the payer and made and received many calls. However, if we examine the compilation of
details in Exhibit I‑1, we can see that he signed very few invoices
and that the number of calls varied from week to week. According to Ms. Bellefeuille, it was excessive for a
worker receiving employment insurance benefits.
[15]
Ms. Bellefeuille also
mentioned that he regularly received Records of Employment. When his benefits
ended, he re-filed the employment insurance claim.
Sébastien
Guillemette
[16]
He took a course to become a
plumber in 1997 and obtained all his hours to become a journeyman plumber. He worked as such until 2009, when he
left on parental leave. During that time, he
did not keep the payer’s cell phone. He came back in February 2010, but no
longer worked as a plumber and did an apprenticeship in business administration
to eventually take over his father’s business. His
salary decreased.
[17]
Ms. Bellefeuille noted that
he alternated with Jonathan Gélinas and that, during his layoff periods,
Sébastien made or received many calls on the payer’s cell phone. Note that Sébastien’s employment was
considered insurable in 2009 (Exhibit A-5).
Jonathan Gélinas
[18]
Jonathan took his training
as a refrigeration apprentice and met Sébastien in 1997. He is not related to the Guillemettes.
[19]
He began working for the
payer in 2008 under the supervision of Yves Guillemette. He went with him to the construction
sites and learned to make bids and do invoicing.
[20]
He said that he also did a
little research and development. He worked part time during long periods following a
depressive episode in 2007, and he has been on medication since then. When he started with the payer, he earned a low wage,
namely, $8.50 per hour. His salary increased
significantly up to $18 per hour in 2011. He
also occasionally provided services to the payer during layoff periods because,
he said, he lives very close. He always kept
the cell phone.
[21]
He was a co-shareholder of
another company with Sébastien Guillemette and his spouse at the time, Jennifer
Chabot. He apparently lent
the payer $55,000 without any repayment conditions or interest. This loan is reportedly still not repaid. A cheque for $20,000 dated July 13, 2010 (Exhibit I-13), was,
however, given to Ms. Bellefeuille and filed in evidence.
[22]
According to her, when
Jonathan received employment insurance, he reported a few hours of work for the
payer, but in reality he worked the entire day. This was not corroborated by Jonathan. His employment was considered insurable in 2009 (Exhibit
A-6).
Jennifer Chabot
[23]
She was Sébastien’s spouse
until July 2011, her last layoff date. She was a secretary and performed simple office tasks.
[24]
According to Ms.
Bellefeuille, she worked for the payer as well as for the city of
Trois-Rivières. She normally accumulated
more hours than the number required for employment insurance. However, when she received benefits, she used them up
before going back to work.
[25]
Ms. Bellefeuille still asked
that Ms. Chabot’s file be sent to the insurability division because she
believed that her periods of work did not correspond to the business’s activity
cycles. The only period at
issue is from December 27, 2010, to July 22, 2011. Before that, her employment was always considered
insurable.
Minister’s decision
[26]
Nicole Guy, appeals officer,
explained the reasons that prompted her to consider the four appellants’
employment to not be insurable.
[27]
After reading Exhibit I-1,
she noticed that one of the employees, Vincent Chabot, had practically
never been laid off. She
noted that shareholders laid themselves off before laying off other employees,
which she did not find to be normal for a business owner. She noted that they provided services while they were laid
off.
[28]
Normand Guillemette received
a salary governed by the CCQ, which was therefore much higher, in order to make
him eligible for pension benefits related to the CCQ. According to Ms. Guy, it was his non-arm’s length
relationship that made this possible.
[29]
According to her, the length
of employment was not in line with the payer’s economic cycle. According to her, Normand decided when he
worked. Jonathan and Sébastien alternated
their work periods.
[30]
She concluded that Yves
Guillemette managed the layoffs using a method that did not necessarily
correspond to the business’s economic needs.
Analysis
[31]
In the case of Normand
Guillemette, the Minister considered that he was remunerated differently from
the arm’s length employees of the payer. The Minister maintains, among other things, that, when Normand
worked, he was paid for 40‑hour weeks, while the others could receive
remuneration for a lower number of hours. I note to that end that other
employees could work some weeks of 8 hours, but also worked several weeks
of 40 hours, and in total, worked a higher number of hours than Normand
Guillemette in a year.
[32]
In addition, the Minister
considered that only Normand Guillemette was paid at the hourly rate set by the
CCQ. I have gone through the
pay stubs, filed in evidence as Exhibits I-10 and I-11, for 2010 and 2011. From
reading these documents (which indicate an acronym in the box entitled [Translation] “Union” or the word [Translation] “Construction” beside the
hourly wage or the expression [Translation]
“outside construction” to explain a lower rate in some weeks), I conclude that
other arm’s length employees were paid based on the CCQ rate (based on their
level of experience).
[33]
Another argument raised by
the respondent is that Normand Guillemette sometimes worked for the payer
without receiving remuneration. Based on the testimony of Yves Guillemette and Simon Julien, other
employees also had cell phones and could provide small services outside of
their work periods.
[34]
The Minister also argued
that Normand did not fill out time sheets. This was denied in evidence. Yves Guillemette testified that he himself filled out time sheets for
all office employees and those who worked outside of the office filled out work
orders, which were used to invoice clients for services. This was not
contradicted in cross-examination.
[35]
These documents were
destroyed after the hours were compiled to complete employee pays and invoices
for clients.
[36]
Nothing in the evidence
shows that only the arm’s length employees filled out time sheets or work
orders.
[37]
The Minister also considered
that Normand Guillemette was laid off more frequently and for longer periods of
time than other employees. I
noted from reading Exhibit I‑9 (which is a table of employment and
unemployment periods for each employee) that in 2008, there were only two
employees who worked more weeks than Normand Guillemette. In 2009, he worked 27
weeks in total and the six arm’s length employees from 2 to 31 weeks. In 2010,
Normand Guillemette worked 26 weeks, while Louis Labbé worked 22 weeks and
three other arm’s length employees worked between 38 and 41 weeks. In 2011, Normand Guillemette worked 25 weeks and seven
other arm’s length employees, worked between 5 and 35 weeks.
[38]
For Sébastien Guillemette,
the Minister concluded that he sometimes worked for the payer without being
paid and that he was paid for 80% to 90% of hours worked. In addition, the Minister stated that he
did not fill out time sheets and that he worked alternately with other non-arm’s
length workers. Ms. Guy mentioned that he
alternated with Jonathan Gélinas.
[39]
In his testimony, Sébastien
stated that he may have provided a few services to the business outside of his
employment periods. This
situation does not seem to be exclusive to Sébastien.
[40]
Ms. Bellefeuille documented
a significant number of calls on the payer’s cell phone made by Sébastien when
he was unemployed in 2010 and 2011 (Exhibit I‑12). However, I note that the same exercise
was not done for the other arm’s length workers, who were also given cell
phones by the payer. This makes it difficult to compare.
[41]
In addition, we do not know
if all of these calls were made for the payer, since each worker could use the
cell phone for personal purposes also.
[42]
With regard to alternating
work with other workers, particularly with Jonathan Gélinas, it is shown in the
table filed as Exhibit I-9, on Sébastien’s pay stub (Exhibit I-11) and by Sébastien’s
and Jonathan’s testimony that Sébastien came back to work after his parental
leave in February 2010. Jonathan
was on work stoppage in January 2010, worked two weeks full time in February
and started working part time again in March 2010. Jonathan explained that he suffered from burnout and
depression at that time, which made him unable to work full time. This seems to be corroborated by his medical file,
according to the information obtained by a doctor from the MRC de Maskinongé
health centre (Exhibit A‑9).
[43]
In 2011, Sébastien began
again to work full time in July and worked the equivalent of 3½ weeks from
January to July. Jonathan
worked 4 weeks in January (including one at the same time as Sébastien), 3
weeks in February, 2 weeks in March, 4 weeks in April (including one at the
same time as Sébastien), full time in May, June and July (while Sébastien
worked 64 hours in June and full time in July). Jonathan
worked part time in August and September (a total of 44 hours), while Sébastien
worked a total of 120 hours and of 80 hours in August and September
respectively. In October, November and
December, both worked full time. In the
circumstances, it seems difficult to conclude, as the Minister claims, that the
two workers necessarily alternated.
[44]
With regard to Jonathan
Gélinas, the Minister also stressed the fact that his pay had gone from $12 to
$18 per hour in 2010. I note
that the pay of Colette Guillemette, office clerk, increased from $12 to
$17 per hour in 2010, and that of Simon Julien, warehouse clerk, from $9.50 to
$12 per hour.
[45]
In 2011, Jonathan’s hourly
rate remained at $18, while that of Colette Guillemette increased to $20. However, the pay of Jennifer Chabot,
office clerk, increased from $11 per hour in 2010 to $12 per hour in 2011.
The pay of executive assistant, Jennifer Gélinas Beaulieu,
employed full time for the last four months of 2011, increased from $10 per
hour to $12 per hour; that of Dany Ross increased from $12 per hour to $13
per hour during 2011; and Simon Julien, warehouse clerk, was paid $12 per
hour in 2011.
[46]
With regard to Jennifer
Chabot, the Minister considered that she was laid off during periods of
significant activity of the payer and that her employment was not essential. It is apparent from the evidence that
Jennifer’s employment was terminated at the same time as she separated from
Sébastien.
[47]
The Minister also relied on
the fact that she returned to work on December 27, 2010, during a period
when the payer’s activity was less significant. I note, however, that there were several employees who
worked during the same period as Jennifer (Exhibit I‑9) and that the
termination of her employment can be very easily explained given her family
circumstances.
[48]
With regard to the factual
non-arm’s length relationship of Jonathan Gélinas and the payer, Jonathan
stated that he did not manage the payer’s business, which was Yves Guillemette’s
job. He received training
from Yves to do his job. His expertise was in refrigeration,
which was only a small part of the payer’s business. Jonathan held only 12% of the payer’s shares.
[49]
In my view, it is difficult
to say that Jonathan had a factual non-arm’s length relationship with the
payer. The evidence does not
show that he took part in the payer’s decisions. The fact that he lent it money does not mean that he began not dealing
with the payer at arm’s length in that it did not give him more shares in the
payer’s business. In addition, I am not at all satisfied that he was acting in
concert with Yves Guillemette, who was the directing mind of the payer, or that
he exerted any influence over him. (see Parill
v. Canada (M.N.R.), [1996] T.C.J. No. 1680 (QL)). I therefore consider that, even though his salary was
higher than that of other clerks, it is neither for the Minister nor for the
Court to become involved in the payer’s business decisions. Since I find that there is arm’s length dealing, I consider
that Jonathan’s employment was insurable (which, in the case of arm’s length
dealing, was not disputed by the Minister).
[50]
With regard to the three
other appellants who are related to the payer under section 251 of the
ITA, the role of this Court is to 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 (Légaré
v. Canada (Minister of National Revenue), 1999 CarswellNat 4187, [1999]
F.C.J. No. 878 (QL) (FCA), at para. 4).
[51]
I am of the view in this
case that most of the facts inferred or relied on by the Minister were not
altogether accurate and were not correctly assessed. It is true that one could infer that Yves Guillemette, the
owner of the business, seemed to manage the employment of his workers through a
certain rotation. He explained that he had to
do this to be able to ensure that they are there if needed for bigger
contracts. This is a justifiable business
decision. I note also that the evidence (among
other things, the quarterly sales figures) shows that the business did not
always follow the same cycle.
[52]
I note from the evidence
that all employees, in general, were treated in the same way and that Yves
Guillemette did not necessarily favour one over another. With regard to Normand Guillemette, it is
true that he acknowledged that he had kept his salary at the CCQ rate so that
he could eventually receive pension benefits. However,
Normand was not the only one who received an hourly rate set by the CCQ and,
because of this, it is not possible to claim that he was given preferential
treatment. With respect to his work schedule,
even though he worked only 40-hour weeks, his work schedule was equivalent to
that of the other workers.
[53]
With regard to Sébastien
Guillemette and Jennifer Chabot, I am of the view that the explanations and the
documentary evidence provided above in my reasons also show that the facts
underlying the Minister’s assumptions were not correctly assessed.
[54]
In conclusion, if the
respondent was of the view that the payer was trying to exploit the employment
insurance system by rotating its employees, he should have disputed the
existence of a contract of employment. But it is incorrect to conclude that the appellants
benefited from their non-arm’s length relationship. The evidence shows that arm’s length employees could also
get the same benefits (see Provost and Massignani v. M.N.R., 2005 FCA
165).
[55]
For these reasons, I am would
allow the appeals.
Signed at Ottawa, Canada, this 12th
day of January 2015.
“Lucie Lamarre”
Translation certified true
On this 14th day of May 2015
Margarita
Gorbounova, Translator
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