Bernier v. M.N.R., docket 96-1620-UI

Date: 19971127

Docket: 96-1620-UI

BETWEEN:

SYLVIE BERNIER,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Garon, J.T.C.C.

[1] This is an appeal from a decision dated June 12, 1996, by the Minister of National Revenue that the appellant's employment when she was employed by André Murray, proprietor of Cantine des Îles Enr., the payer, during the periods set out below was excepted from insurable employment on the ground that the appellant and the payer were not dealing with each other at arm's length. According to the pleadings, the periods in issue are as follows:

from May 14 to August 29, 1993,

from May 29 to August 27, 1994, and

from June 11 to September 2, 1995.

[2] In the Reply to the Notice of Appeal, the Minister of National Revenue did not rely on paragraph 3(1)(a) of the Unemployment Insurance Act and thus did not submit that there was no contract of service. He relied instead on paragraph 3(2)(c) of the Unemployment Insurance Act, in accordance with the decision under appeal. At the hearing, counsel for the respondent expressly stated that she was relying solely on paragraph 3(2)(c) of the Unemployment Insurance Act and thus argued that the appellant's employment in issue here was excepted from insurable employment.

[3] In concluding that the employment was excepted from insurable employment because the appellant and payer were not dealing with each other at arm's length, the respondent relied on the allegations of fact set out in paragraph 5 of the Reply to the Notice of Appeal. Paragraph 5 reads as follows:

[TRANSLATION]

In rendering his decision, the respondent Minister of National Revenue relied inter alia on the following facts:

(a) the payer operates a snack bar in a trailer in Matane;

(b) the snack bar is open from early May until late September each year;

(c) the appellant has been the payer's de facto spouse for a number of years;

(d) the appellant worked as a manager/cook for the payer;

(e) the appellant's duties were to prepare meals, serve customers, prepare orders, shop for groceries and supervise the other employees;

(f) the appellant worked an average of 60 to 70 hours a week, seven days a week, for a weekly salary of $520;

(g) the appellant had one day's leave per month;

(h) the other two employees had a rotating schedule of from 10 to 45 hours a week and were paid at an hourly rate of from $5.70 to $6.50;

(i) the appellant's terms and conditions of employment were substantially different from those of the other two employees;

(j) the appellant's alleged periods of employment do not coincide with the business's periods of activity or with the periods actually worked by the appellant;

(k) the appellant's alleged period of employment for each year coincides with the number of weeks required to qualify for unemployment insurance benefits;

(l) the appellant and the payer were not dealing with each other at arm's length within the meaning of the Income Tax Act;

(m) had it not been for the relationship between the appellant and the payer, the appellant would never have been hired to perform such work; and

(n) the payer would never have hired a person dealing with him at arm's length on the same conditions as those offered to the appellant, much less for the periods concerned;

[4] The payer testified for the appellant. The appellant herself did not testify, but counsel for the parties assumed that the appellant would have corroborated the payer's version of the facts.

[5] Marie-France Drouin, a Revenue Canada appeals officer, was the only witness for the respondent.

[6] The appellant admitted subparagraphs 5(a), (c), (d) (e) and (l) of the Reply to the Notice of Appeal and denied or had no knowledge of the other allegations in paragraph 5.

[7] André Murray testified that he has worked as a cook for 18 years. The appellant herself has worked in canteens for a number of years and thus has extensive experience in this kind of business.

[8] The trailer housing the canteen was purchased by the payer in April 1992. The canteen is located near the islands in Matane, Quebec. The payer took out a loan to make the purchase and he alone signed for the loan.

[9] The payer holds a town permit to operate the business and pays the town rent.

[10] The building where the canteen is located does not have a heating system and is not insulated.

[11] The payer determined the hours of work of the canteen's employees.

[12] Mr. Murray stated that the appellant worked 60 to 70 hours a week during the periods in issue and was paid at a weekly rate of $520.00, as alleged in paragraph 5 of the Reply to the Notice of Appeal. Francis Simard, manager of the Caisse populaire de Ste-Félicité, informed the payer that this rate was reasonable compared to market standards. The other two employees received the minimum wage provided for by law during the periods in issue. The hourly rate of that remuneration was approximately $6.50 in 1995 and almost $6.00 in 1993 and 1994. These two employees also had a number of years of experience in the field. According to Mr. Murray, they worked fewer hours. They were not managers and thus had less significant responsibilities.

[13] The appellant generally began working in June and terminated her employment on or a few days before Labour Day in September. The business is seasonal, and the peak period in any given season begins at the time of the "shrimp festival", around June 20. The date the canteen opens is dictated in part by the weather.

[14] Mr. Murray stated that his business incurred losses during the first three years and made profits in the fourth year and the current year, that is to say the fifth year. The business apparently made a net profit of $18,000.00 in 1996. Incidentally, the business's fiscal year ends at the end of August. The business had three employees in the past, but this year it has four.

[15] The appellant did some preparatory work for the canteen at home, where she had to spend 10 to 15 minutes every other day on those tasks. She also shopped for the payer during her hours of work.

[16] The appellant was paid by cheque for the weeks in issue and she cashed all her cheques.

[17] The Revenue Canada "Report on a Determination or Appeal" which is discussed below, mentions a grocery store at the end of the wharf where the appellant allegedly went while shopping for the business. When examined on this matter, Mr. Murray stated that there quite simply was no grocery store at that location.

[18] The accounting work of the payer's business was done by Francis Simard, manager of the Caisse populaire de Ste-Félicité. All the payer's documents were forwarded to Revenue Canada, including the payroll records and records of employment.

[19] Mr. Murray stated that an error had occurred respecting the appellant's period of employment in 1993, and he could not explain how it had arisen. The period of employment in question was still 11 weeks long. However, he stated that in 1993 the appellant was paid starting on June 13, not May 14, as one record of employment states. She was paid in accordance with the entries in the payroll record. He explained that the appellant did not work in May 1993 since he himself was available because the restaurant where he was employed had burned down. He was quite categorical: in 1993, the appellant did not begin working until June.

[20] With respect to subparagraph 5(b) of the Reply to the Notice of Appeal, Mr. Murray admitted it as regards the opening of the canteen, but denied the part concerning the date when it closes, which generally occurs on or a few days before Labour Day, as in 1994, for example.

[21] As to subparagraph 5(j) of the Reply to the Notice of Appeal, Mr. Murray specifically denied the allegation that "the appellant's alleged periods of employment do not coincide with the business's periods of activity or with the periods actually worked by the appellant". The busy months of the season at the canteen were June, July and August, and the appellant worked those three months in each of the three years in question. He also indicated that the appellant's periods of work were indeed those stated in the books.

[22] Mr. Murray also denied subparagraph 5(k) of the Reply to the Notice of Appeal, which states that "the appellant's alleged period of employment for each year coincides with the number of weeks required to qualify for unemployment insurance benefits". Mr. Murray indicated that the appellant worked 11 weeks in 1993, when the minimum period was 10 weeks. In 1994, she was employed for 13 weeks, when the required number of weeks was 12. In 1995, the period of employment was 12 weeks, whereas 11 weeks were necessary to be eligible for unemployment insurance benefits. As regards the volume of work, Mr. Murray explained that business was slow at the canteen in May of each of the years in question.

[23] Subparagraph 5(h) of the Reply to the Notice of Appeal was flatly denied. The Court learned that one of the employees, Ms. Picard, worked 40 hours a week for 20 weeks in 1993. In 1994 and 1995, she worked the same hours as the other employees, except in May 1994, when she worked 12 hours a week. The other two employees worked full-time, that is, 44 hours a week, in 1994 and in 1995. In 1993, one of the employees worked 40 hours a week and the other slightly less. Contrary to the allegation in subparagraph 5(h), no employees worked only 10 hours a week.

[24] The payer denied the allegation in subparagraph 5(m) of the Reply to the Notice of Appeal and stated that he would have hired another person on the same conditions to do the work performed by the appellant.

[25] I now come to Ms. Drouin's testimony.

[26] She prepared the "Report on a Determination or Appeal" dated June 4, 1996, which was filed in evidence. In it, she indicated the steps she took to prepare the document and provided some explanations on the points mentioned in the "Summary" portion of the report.

[27] Ms. Drouin admitted that the statement in the first paragraph on page 8, that the appellant had worked only the minimum number of weeks required to be eligible for unemployment insurance benefits, was incorrect. The appellant worked an additional week in each of the periods.

[28] Ms. Drouin's report states that the insurance officer mentioned in his report that the appellant worked on a volunteer basis when the canteen opened in May. The extent of that volunteer work, that is, whether it involved a few hours only or a few days or several days, is not specified. Ms. Drouin was not able to add anything specific on the subject.

[29] Under the heading [TRANSLATION] "Duration of work" on page 8 of her Report, Ms. Drouin noted certain contradictions concerning the periods of work in particular and raised certain questions on the subject. Ms. Drouin conceded that the remuneration paid to the appellant during the periods in question was not unreasonable.

Analysis

[30] The Court's task is to determine first whether, in light of the facts of the instant case, the Minister of National Revenue exercised the discretion conferred on him by paragraph 3(2)(c) of the Unemployment Insurance Act in accordance with the Act.

[31] Certain facts on which the Minister of National Revenue relied in exercising his discretion were successfully contested on behalf of the appellant.

[32] The allegation in subparagraph 5(b) of the Reply to the Notice of Appeal that the business did not close until late September was rebutted. The business did not close any later than Labour Day, in early September.

[33] The allegation in subparagraph 5(h) of the Reply to the Notice of Appeal concerning the employees' weekly hours of work was in large part contradicted by the evidence. The other two employees worked full-time in 1994 and 1995. In 1993, it appears that one of those employees worked part time for only part of the season and full time for the rest of the season.

[34] If the allegation in subparagraph 5(i) of the Reply to the Notice of Appeal, namely that the terms and conditions of employment differed substantially from those of the other two employees, is read together with the allegations in subparagraphs 5(m) and (n), the gist of which is that the payer would not have hired the appellant if they had been dealing with each other at arm's length, it must be inferred that the Minister of National Revenue implicitly understood that the difference in the terms and conditions referred to in subparagraph (i) clearly favoured the appellant and that she thus enjoyed preferential treatment. On this point, the evidence discloses three differences between the appellant's terms and conditions and those of the other two employees: the number of hours of work, which was substantially higher in the appellant's case, their respective responsibilities, as the appellant had greater responsibilities than the other employees, and, lastly, the rate of pay, which, according to Ms. Drouin's report, varied from $5.70 to $6.25 an hour for the other employees, whereas the appellant was paid a weekly salary equivalent to an hourly rate of $8.00. The Minister of National Revenue mistakenly cited these differences in support of his conclusion that the appellant's employment was excepted employment. The larger number of hours of work and the higher level of responsibility were matters of internal management, which were the payer's prerogative. There was nothing unusual in them. As to the rate of remuneration paid to the appellant, the appeals officer conceded that it was not unreasonable. According to the evidence, information obtained by the payer, in particular from the manager of the local Caisse populaire, indicated that the rate was reasonable. The appellant's greater responsibilities had to be taken into account in determining the rate.

[35] The evidence established that both the allegations in subparagraph 5(j) of the Reply to the Notice of Appeal were inaccurate. With respect to the first allegation, it was shown that the three months when the business's activity was most intense were June, July and August. The appellant worked during those months in each of the three years in question. The second allegation was rebutted: the appellant's periods of employment did indeed coincide with her periods of work. As to the period of employment in 1993, I was persuaded that the appellant began working on June 13 and that the clerical error made on this point must be disregarded.

[36] It was also established that the Minister of National Revenue was inaccurate when he alleged in subparagraph 5(k) of the Reply to the Notice of Appeal that the "appellant's . . . period of employment . . . coincides with the number weeks required to qualify for unemployment insurance benefits". In fact, in each year the appellant worked one more week than the minimum number of weeks required to be eligible for unemployment insurance benefits. This difference, which appears quite insignificant at first glance, is in fact of some importance since the business is a seasonal one whose operations are limited to a period of slightly less than four months. The difference would of course be quite negligible if the business had operated year round.

[37] All things considered, the Minister of National Revenue incorrectly analysed certain aspects of the situation and was mistaken as to the weight of the evidence. The other allegations of fact in paragraph 5 of the Reply to the Notice of Appeal which the appellant admitted or did not rebut — I am referring to subparagraphs (a), (c), (d), (e), (f) and (g) — are not sufficient grounds for the Minister of National Revenue's conclusion that a payer dealing at arm's length would not have hired the appellant under the terms and conditions that were established.

[38] The Minister of National Revenue therefore exercised his discretion unlawfully.

[39] I further conclude on the whole of the evidence that a substantially similar contract to the one before the Court could have been entered into by two persons dealing with each other at arm's length. I found none of the terms of the contract unusual or exceptional.

[40] It should therefore be concluded that the appellant's employment was insurable during the periods in issue, subject to the modification to be made to the first period, in 1993.

[41] For these reasons, the appeal is allowed and the determination is varied. The appellant's employment was insurable during the following three periods:

from June 13 to August 29, 1993,

from May 29 to August 27, 1994, and

from June 11 to September 2, 1995.

Signed at Vancouver, Canada, this 27th day of November 1997.

"Alban Garon"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 5th day of October 1998.

Stephen Balogh, Revisor