REASONS
FOR JUDGMENT
D'Arcy J.
[1]
The Appellant is appealing a decision of the
Minister of National Revenue (the “Minister”) that it employed Brett and Brian
Alcorn in insurable employment during the period from January 1, 2010 to April
26, 2013 (the “Relevant Period”).
[2]
Brett and Brian Alcorn are two of the adult
children of William (“Bill”) and Barbara Alcorn. Bill and Barbara Alcorn own,
through a holding company, all of the shares of the Appellant.
[3]
Bill Alcorn testified during the hearing. As I
will discuss, his credibility was seriously damaged on cross-examination.
Summary of Facts
[4]
Bill Alcorn began a business in 1985 of
renovating homes in Calgary. In 1991, he hired two arm’s length employees, who
continued to work in the business until 2009 in one case and 2010 in the other.
The business was transferred to the Appellant in July 1996.
[5]
Brian Alcorn started working for the Appellant
part-time in 2005, while he was attending university. He became a full-time
employee in 2009. Brett Alcorn joined the Appellant in 2007 on a full-time
basis. Brian and Brett Alcorn apprenticed with the Appellant and graduated from
the apprenticeship program in 2010 as carpenters.
[6]
During the Relevant Period, the Appellant had at
least two other employees, who were not related to the company.
[7]
Bill Alcorn is the controlling mind of the
Appellant. Brian and Brett Alcorn do not own shares of the Appellant, are not
officers or directors of the Appellant and do not have signing authority over
the Appellant’s bank account. Bill Alcorn testified that he hopes that at some
point in the future his two sons will take over the business carried on by the
Appellant.
[8]
During the Relevant Period, Brian and Brett
Alcorn physically performed work at the Appellant’s various work sites,
including framing homes, drywalling homes, and carpentry work. In addition,
they supervised the other employees and the subtrades, ensured that the work
was completed in a timely fashion, picked up any required supplies and
materials, accepted delivery of supplies and materials ordered by the Appellant
from third parties, and ran the business when Bill Alcorn was on holidays.
The Issue Before the Court
[9]
Paragraph 5(2)(i) of the Employment
Insurance Act (the “Act”) states that insurable employment does not
include employment if the employer and employee are not dealing with each other
at arm’s length.
[10]
Paragraph 5(3)(a) of the Act
provides that “the question of whether persons are not dealing with each other
at arm’s length shall be determined in accordance with the Income Tax Act.”
Both parties accept that, under the relevant provisions of the Income Tax
Act, the Appellant is not dealing at arm’s length with either Brian or
Brett Alcorn.
[11]
However, paragraph 5(3)(b) of the Act
reads as follows:
(b) 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 the 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.
[12]
During the Relevant Period, the Appellant paid
premiums under the Act in respect of the employment of Brian and Brett
Alcorn. It then submitted a request to the Canada Revenue Agency (the “CRA”)
for a refund of employment insurance premiums remitted during the period from
January 1, 2010 to April 26, 2013 in respect of Brian and Brett Alcorn’s
employment with the Appellant.
[13]
The Minister refused the request. She determined
that it was reasonable to conclude that the Appellant and each of Brian and
Brett Alcorn would have entered into substantially similar contracts of
employment if they had been dealing with each other at arm’s length.
[14]
It is the Appellant’s position that paragraph
5(3)(b) does not apply to deem the Appellant to deal at arm’s length
with either Brian or Brett.
[15]
My colleague Justice Campbell, in Porter v.
MNR
summarized this Court’s role in an appeal involving subsection 5(3) of the Act
as follows:
[. . .] the
function of this Court is to verify the existence and accuracy of the facts
relied upon by the Minister, consider all of the facts in evidence before the
Court, including any new facts, and to then assess whether the Minister's
decision still seems "reasonable" in light of findings of fact by
this Court. This assessment should accord a certain measure of deference to the
Minister.
[16]
In summary, the issue before the Court is, having
regard to all of the circumstances of Brian and Brett Alcorn’s employment with
the Appellant, was it reasonable for the Minister to conclude that the parties
would have entered into a substantially similar contract of employment if they
had been dealing with each other at arm’s length.
The Appellant’s First Argument
[17]
The Reply lists 56 assumptions that the Minister
relied on when reaching her conclusion. The Appellant did not rebut most of
these assumptions.
[18]
The assumptions show that the Appellant
generally treated Brian and Brett in the same manner as its arm’s length
employees (the “unrelated employees”). The Appellant hired all employees for an
indefinite period, and provided each employee with instructions on how to
perform the work. All employees worked on the same work sites and performed the
same building and renovation tasks.
[19]
All employees of the Appellant, including Brian
and Brett Alcorn, were only paid for the hours noted on their time sheets; they
were paid bimonthly, received 10% vacation pay and belonged to the same benefit
plan. Workers were not paid if they were sick and could not report to the work
site.
[20]
I recognize that Brian and Brett provided
services that were not provided by unrelated employees. They were the only
supervisors, the only employees (other than Bill Alcorn) permitted to deal with
customers and suppliers, and the only employees who stored the Appellant’s
equipment at their homes. In addition, Brett Alcorn maintained the Appellant’s
computer.
[21]
Brian and Brett Alcorn’s and the unrelated
employees’ rate of pay was “based on industry standards.” However, Brian and
Brett were paid between $0.50 and $1.50 more per hour than the unrelated
employees as a result of their higher level of responsibility. The Appellant also provided
them with cell phones and contributed to the payment of the cost of their
vehicles.
[22]
Brian and Brett Alcorn also received
substantially higher bonuses than the unrelated employees.
[23]
In my view, the additional remuneration paid to
Brian and Brett Alcorn is similar to the amounts the Appellant would have paid
to an unrelated party who performed the same role. In particular, I would
expect the Appellant to have paid a higher bonus to an employee who was
directly involved in the success of the business.
[24]
During his testimony, Bill Alcorn focused on
four other areas that he felt reflected facts that either were not taken into
consideration by the Minister or were inconsistent with the Minister’s
conclusion. These areas related to the assignment of work, the provision of
tools, the provision of vehicles, and the requirement to work overtime. Bill
Alcorn’s testimony in chief with respect to these four areas seriously damaged
his credibility. As I will discuss, on cross-examination he either changed his
story or qualified his previous testimony.
[25]
The first area Bill Alcorn focused on was the
ability of Brian and Brett Alcorn to pick their own jobs. He testified that he
allowed them to pick jobs in the southern part of Calgary since this was close
to their home. He described how unrelated employees never had the opportunity
to pick their jobs; they were assigned to the jobs that Brian and Brett
“weren’t at”.
[26]
On cross-examination, Bill Alcorn testified that
the unrelated workers always had to be supervised. As a result, when there were
two or more work sites, he would send Brian to one work site and Brett to another.
This directly contradicted his testimony in chief. In addition, Bill Alcorn
testified that at least 40% of the time the Appellant only had one job site.
[27]
The second area addressed by Bill Alcorn related
to the provision of hand tools. During his testimony in chief, Bill Alcorn
testified that the unrelated employees were expected to have their own tools,
but Brian and Brett Alcorn used tools provided by the Appellant. On cross-examination, counsel
for the Respondent took Mr. Alcorn to Exhibit R-1, a submission that the
Appellant made to the CRA, in which the Appellant states that Brian and Brett
Alcorn provided their own hand tools.
Bill Alcorn then testified that all employees, including Brian and Brett were
required to provide their own hand tools.
Mr. Alcorn’s testimony was not clear with respect to which employees, if
any, provided their own speciality tools.
[28]
The next area discussed by Bill Alcorn was the
trucks used by Brian and Brett Alcorn. During his testimony in chief, Bill
Alcorn testified that the Appellant owned the trucks and paid for any
maintenance or fuel costs. Trucks were not provided to the unrelated workers.
[29]
On cross-examination, Bill Alcorn stated that
only his sons were required to have trucks. His sons needed the trucks to pick up
materials and take them to the job sites. He also testified that Brian and
Brett each paid approximately 50% of the purchase price of his truck. He felt
that this represented payment for their personal use of the trucks.
[30]
The last area dealt with by Bill Alcorn was
overtime. During his testimony in chief he implied that only Brian and Brett
worked on weekends.
However, during cross-examination he admitted that unrelated employees also
worked weekends if their services were required to get a job done.
[31]
Bill Alcorn’s testimony on cross-examination
with respect to hand tools, the trucks and overtime supports the Minister’s
conclusion.
[32]
After considering the facts relied upon by the
Minister and the additional facts presented at trial, I have concluded that the
Minister’s decision was reasonable.
The Appellant’s Second Argument
[33]
The Appellant’s second argument is that
paragraph 5(3)(b) of the Act does not grant the Minister the
authority to deem Brian and Brett Alcorn and the Appellant to have dealt with
each other at arm’s length. It is the Appellant’s position that paragraph 5(3)(b)
only applies where the parties wish the employment of the non-arm’s length
party to be insurable.
[34]
Counsel for the Appellant argued, relying upon
obiter comments of this court in C&B Woodcraft Ltd. v. Minister of
National Revenue
(“C&B Woodcraft Ltd.”) that, as a result of the Federal Court of
Appeal’s decision in Druken,
Parliament changed the law such that related individuals were no longer
insurable. However, Parliament provided an exemption for persons who wished to
be insurable.
[35]
He submitted that if a person related to the
employer wishes to be insurable, then the Minister must make an assessment
under the relevant provisions of the Act as to whether that person
should be made insurable. It is the Appellant’s position that the Minister can
only make such a determination if the related employee wishes to be considered
an insurable person under the Act. The Minister cannot make the
determination if the related employee does not wish to be considered an
insurable person under the Act.
[36]
Counsel for the Appellant argued that this is
consistent with the scheme of the Act and would not result in employees
abusing the system since only employees who pay premiums can collect benefits.
[37]
Paragraph 90(1)(a) allows an employee, an
employer and the Canada Employment Insurance Commission (the “Commission”) to
request an officer of the CRA authorized by the Minister to make a ruling on
whether an employment is insurable.
[38]
Under paragraph 5(1)(a), insurable
employment is employment in Canada under an express or implied contract of
service, written or oral. This is subject to the exclusions set out in subsection
5(2). As noted previously, paragraph 5(2)(i) states that insurable
employment does not include employment if the employer and employee are not
dealing at arm’s length.
[39]
Paragraph 5(3)(b) states that, for the
purposes of paragraph 5(2)(i), if the employer is related to the
employee they will be deemed to be dealing with each other at arm’s length if
the Minister is satisfied, having regard to certain specified circumstances,
that 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.
[40]
In Actech Electrical Ltd. v. Minister of
National Revenue,
Justice Mogan, after considering C&B Woodcraft Ltd, determined
that the Minister had the discretion to include related employees and employers
within the ambit of the employment insurance program. He stated the following:
[13] . . . In
some recent appeals to this Court, the Appellants have asked if the Minister
may determine under paragraph 5(3)(b) whether certain employment is
insurable where the non-arm's length employer and employee share the view that
the employment is not insurable and no premiums are remitted. This is the
precise question raised in these appeals.
[14] Appellants'
counsel referred to the legislative history of paragraph 5(3)(b) to
argue that it is purely remedial in the sense that it permits a worker (related
to her employer) to demonstrate to the Minister's satisfaction that her
employment should be insurable notwithstanding the relationship. . . .
[16] Returning to
the argument of Appellants' counsel, there is no doubt in my mind that
paragraph 5(3)(b) was intended by Parliament to be remedial following
the decision of the Federal Court of Appeal in Druken. It does not
necessarily follow, however, that paragraph 5(3)(b) is a one-way street
permitting the Minister to determine that a non-arm's length employee is
engaged in insurable employment when the employee wants that result but
prohibiting the Minister from determining that a non-arm's length employee is
engaged in insurable employment when the employee does not want that result. In
my view, the EI Act is unusual because, on the one hand, it may be
regarded as a taxing statute collecting premiums to create a fund (see sections
67, 68, 82 to 85, 92 and 103) while, on the other hand, it may be regarded as
social legislation paying benefits to unemployed persons (see sections 7 et
seq) . . .
[17] Paragraph
5(3)(b) clearly authorizes the Minister to make a determination (which
the Courts have characterized as "ministerial discretion") when the
employer and employee do not deal with each other at arm's length; but I find
nothing in the language of that paragraph which restricts the circumstances in
which the Minister may make a determination if the fundamental condition is
present: i.e. the employer and employee are not at arm's length. Accordingly, I
reject the Appellants' argument that there is some impediment to the Minister
concluding, in particular circumstances, that certain employment between a non‑arm's
length employer and employee is insurable when one or both of the parties
regard such employment as not insurable.
[41]
I agree with the conclusion of Justice Mogan. In
my view, paragraph 5(3)(b) clearly provides the Minister with the
unfettered authority to make the requested determination; there is no ambiguity
in the legislation.
[42]
The Appellant is asking me to find that
Parliament intended a related employee to have the option of opting into the
employment insurance program.
[43]
Such discretion is not provided in the words of
the legislation. As counsel for the Respondent noted, the Minister’s role is to
make a determination under paragraph 5(3)(b) once a request for a ruling
is made by an employer, an employee or the Commission under paragraph 90(1)(a).
[44]
Further, paragraph 5(3)(b) provides the
Minister with the ability to limit abuses of the employment insurance program.
The program is self-funding. Where related employers and employees contract
with one another, one of the abuses that may arise is short-term work aimed at collecting
insurance benefits.
[45]
For example, if the Minister was only entitled
to apply paragraph 5(3)(b) if a related employee made a request under
paragraph 90(1)(a), then the related employee could chose not to pay
premiums when the business in question is doing well. The employee could then
elect into the program (by requesting a ruling) when it appeared the business might
be forced to shut down due to financial difficulties. This could result in the
employee paying premiums for a short period and then collecting benefits under
the self-funding program. In my view, this is the very type of abuse that
paragraph 5(3)(b) is intended to stop.
[46]
For the foregoing reasons the appeal is
dismissed, without costs.
Signed at Ottawa,
Canada, this 26th day of February 2015.
“S. D’Arcy”
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