Citation: 2013 TCC 351
Date: 20131031
Docket: 2012-3668(EI)
BETWEEN:
TINA KLASSEN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
Tina Klassen worked as the office
manager in a start up greenhouse farming operation. The business, Southpoint
Growers, was owned and operated by Ms. Klassen’s parents and her brother
in the form of a partnership. The business failed after one season and Ms. Klassen
then applied for benefits under the Employment Insurance Act.
[2]
By letter dated May 18, 2012, the
Minister determined that Ms. Klassen was not engaged in insurable employment on
the basis that the terms of the employment were not substantially similar to
arm’s length terms. Ms. Klassen submits that this determination is unreasonable
and has appealed to this Court.
[3]
The period at issue is from
January 1, 2011 to December 31, 2011.
Background facts
[4]
Ms. Klassen is a qualified and
experienced office administrator.
[5]
By way of a verbal contract, Ms.
Klassen was offered the position of office manager with Southpoint Growers at a
salary of $400 per week. The parties agree that this is a reasonable rate of
remuneration for a 16 hour work week. Ms. Klassen worked out of her home, where
she was also looking after her three children.
[6]
Ms. Klassen began by helping start
up the business without pay during the months of January and February 2011.
[7]
During March and April 2011, Ms.
Klassen received remuneration of only $75 per week which was to enable her to
qualify for maternity benefits. It was contemplated that the shortfall would be
made up from future pay cheques. Ms. Klassen did receive partial
reimbursement for the shortfall by receiving remuneration of $500 per week for
several weeks. However, the extra payments did not come close to achieving full
reimbursement.
[8]
The business was not successful
and it began to wind down after the growing season. In December 2011, Ms.
Klassen received only $150 per week in light of the poor financial condition of
the business.
[9]
In 2012, which is outside the
period at issue, Ms. Klassen continued to assist with the wind up of the
business without pay.
[10]
Although Ms. Klassen did not keep
track of her hours, she estimates that she generally worked 16 to 20 hours per
week, except for January, February and December when she worked approximately
25 to 30 hours per week.
[11]
Ms. Klassen’s duties required her
to travel between the farm and her office for which she received reimbursement.
She also kept a cell phone in order to be available for urgent business
matters.
[12]
The other workers at the farm were
migrant workers who were paid minimum wage on a regular basis.
Applicable
legislation
[13]
The applicable
legislative provisions are reproduced below.
5. (2) Excluded
employment - Insurable employment does not include
(a) employment of a casual
nature other than for the purpose of the employer’s trade or business;
(b) the employment of a
person by a corporation if the person controls more than 40% of the voting
shares of the corporation;
(c) employment in Canada by Her Majesty in right of a province;
(d) employment in Canada by the government of a country other than Canada or of any political subdivision of the other
country;
(e) employment in Canada by an international organization;
(f) employment in Canada under an exchange program if the employment is not remunerated by an employer that is
resident in Canada;
(g) employment that
constitutes an exchange of work or services;
(h) employment excluded by
regulations made under subsection (6); and
(i) employment if the
employer and employee are not dealing with each other at arm’s length.
(3) Arm’s
length dealing - For the purposes of paragraph (2)(i),
(a) 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; and
(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.
Discussion
[14]
As mentioned above, Ms.
Klassen submits that the Minister’s decision is not reasonable. The arguments
in her notice of appeal are briefly summarized below.
(a)
Other employers are
willing to help out employees in their life situations.
(b)
Ms. Klassen had the
necessary experience to perform this work, having performed similar work in a
welding shop.
(c)
The remuneration was
decided by the owners and the hours varied every week.
(d)
Ms. Klassen has three
young children and is in need of these employment insurance benefits.
[15]
The question to be decided is
whether it was reasonable for the Minister to conclude that Ms. Klassen and
Southpoint Growers would not have entered into a substantially similar contract
of employment if they were dealing at arm’s length.
[16]
Based on the evidence at the
hearing, I would conclude that the Minister’s decision was reasonable. I have sympathy for Ms. Klassen’
financial situation, but this is an extraneous factor that cannot be taken into
account in considering the Minister’s decision.
[17]
In my view, the evidence
concerning the remuneration received for the number of hours worked amply supports
the Minister’s decision. There are several months in which Ms. Klassen either
received no remuneration at all or significantly less than $400 per week, which
is agreed by the parties to represent an arm’s length wage for a 16 hour work
week. Ms. Klassen received partial reimbursement for the shortfall but it was
not a complete reimbursement. Ms. Klassen also worked significantly more than
16 hours per week in three of the months.
[18]
At the hearing, counsel for the
Crown raised an issue as to whether the unpaid work during January and February
should be taken into account.
[19]
The general approach to unpaid
work is set out in Dumais v MNR, 2008 FCA 301, at paragraph 32:
[32]
Three factors seem essential for the purposes of paragraph 5(2)(i)
when analysing the impact of unpaid work between related persons: the nature of
duties performed, their number and their frequency. These are, in fact, what
Justice Marceau in Pérusse, cited above, referred to as the circumstances that relate
to the terms of the contract and its conditions of performance: see
paragraph 5 of the reasons for that decision. The more similar the
duties performed at no charge are to those described under the contract for
paid work and the higher their number and frequency, the less likely and
reasonable it becomes to conclude that the employer and employee “would have
entered into a substantially similar contract of employment if they had been
dealing with each other at arm’s length”. If, as is the case here, one added
the factor of continuity in the delivery of services, the conclusion that the
employment must be excluded becomes inevitable.
[20]
The only time that Ms.
Klassen worked for no pay was during the months of January and February. Although
she claimed this period as qualifying for purposes of employment insurance, the
better approach is to consider this period as prior to the actual start of the
employment relationship. This is a common sense view, and is not inconsistent
with Dumais.
[21]
Even assuming that the
work done in January and February is ignored, however, the Minister’s decision is still very reasonable for
the reasons outlined above.
[22]
Ms. Klassen submits that other
employers would help out employees and that the remuneration was decided by the
employer. Neither of these factors are of assistance to Ms. Klassen. First, it
does not matter that the remuneration was decided by the employer. The relevant
question is whether the remuneration was arm’s length.
[23]
Second, it does not matter that
other employers may help out employees. This argument was made to counter the
Minister’s view that Ms. Klassen was not qualified for the work. I am satisfied
by the evidence that she was adequately qualified. It was not a case of an
employer helping out an employee. Rather, the situation involved an employee
helping out an employer. It may seem odd that employment insurance is denied in
these circumstances but this is the regime that Parliament has adopted.
[24]
Before concluding, I would mention
that the provision relied on by the Minister requires that Ms. Klassen be
related to the employer (s. 5(3)(b) of the Act). Ms. Klassen does
not challenge this aspect of the decision since she is related to all of the
partners. I will not consider this issue further except to say that it seems
reasonable to look to the relationship with the partners in this case.
[25]
The appeal will be dismissed, and
the decision of the Minister will be confirmed.
Signed at Toronto, Ontario this 31st day of October
2013.
“J. M. Woods”
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