Date: 19990528
CORAM: MARCEAU J.A.
DESJARDINS J.A.
NOËL J.A.
Docket: A-392-98
BETWEEN:
FRANCINE LÉGARÉ
- and -
MINISTER OF NATIONAL REVENUE
Respondent
Docket: A-393-98
BETWEEN:
JOHANNE MORIN
Applicant
- and -
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the bench at Québec, Quebec,
on Friday, May 28, 1999)
MARCEAU J.A.
[1] It is well known that since 1990, employment between parties who are not dealing with each other at arm"s length, within the meaning of the Income Tax Act , is no longer necessarily excepted from employment covered and protected by the Unemployment Insurance Act.1 That year, Parliament amended section 3 of the Act with respect to excepted employment2 and adopted the following new rule for employment between related persons:
| 3. (2) Excepted employment is
. . .
(c) . . . employment where the employer and employee are not dealing with each other at arm"s length and, for the purposes of this paragraph,
| (ii) where the employer is, within the meaning of that Act, related to the employee, they shall be 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 . . . . |
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| 3. (2) Les emplois exclus sont les suivants:
. . .
c) . . . tout emploi lorsque l"employeur et l"employé ont entre eux un lien de dépendance, pour l"application du présent alinéa:
. . .
| (ii) l"employeur et l"employé, lorsqu"ils sont des personnes liées entre elles, au sens de cette loi, étant réputés ne pas avoir de lien de dépendance si le ministre du Revenu national est convaincu qu"il est raisonnable de conclure, compte tenu de toutes les circonstances, notamment la rétribution versée, les modalités d"emploi ainsi que la durée, la nature et l"importance du travail accompli, qu"ils auraient conclu entre eux un contrat de travail à peu près semblable s"ils n"avaient pas eu un lien de dépendance . . . . |
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[2] In this matter, the Court has before it two applications for judicial review against two judgments by a judge of the Tax Court of Canada in related cases heard on the basis of common evidence which raise yet again the problems of interpretation and application of the saving provision, subparagraph 3(2)(c)(ii). I say yet again because since its passage in 1990, several decisions of the Tax Court of Canada and several judgments of this Court have already considered what workable meaning could be given to subparagraph 3(2)(c)(ii). In reading the text, the problems it poses beyond its deficient wording are immediately obvious, problems which essentially involve the nature of the role conferred on the Minister, the scope of the Minister"s determination and, by extension, the extent of the Tax Court of Canada"s general power of review in the context of an appeal under sections 70 et seq. of the Act.
[3] While the applicable principles for resolving these problems have frequently been discussed, judging by the number of disputes raised and opinions expressed, the statement of these principles has apparently not always been completely understood. For the purposes of the applications before us, we wish to restate the guidelines which can be drawn from this long line of authority, in terms which may perhaps make our findings more meaningful.
[4] The Act requires the Minister to make a determination based on his own conviction drawn from a review of the file. The wording used introduces a form of subjective element, and while this has been called a discretionary power of the Minister, this characterization should not obscure the fact that the exercise of this power must clearly be completely and exclusively based on an objective appreciation of known or inferred facts. And the Minister"s determination is subject to review. In fact, the Act confers the power of review on the Tax Court of Canada on the basis of what is discovered in an inquiry carried out in the presence of all interested parties. The Court is not mandated to make the same kind of determination as the Minister and thus cannot purely and simply substitute its assessment for that of the Minister: that falls under the Minister"s so-called discretionary power. However, the Court must 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.
[5] Accordingly, it was guided by these principles that we considered the two cases before us for which the facts are relatively simple.
[6] Both applicants worked periodically for a number of years for the corporation Les Serres Roger Cloutier et Frères Inc. Specifically, they were employed by the corporation during the periods identified in the files before us, namely from May 2 to September 16, 1994; May 1 to September 15, 1995; and April 1 to September 6, 1996.
[7] The corporation Les Serres Roger Cloutier et Frères Inc. (which will henceforth be called "Serres Cloutier") grows and sells annual flowers and hothouse tomatoes. Its operations are located at Bernières, St-Nicolas and it sells its products both there and at Quebec City markets. While it is a family business, with two brothers as its only shareholders, and obviously a seasonal one, it is a sizeable business nonetheless as it operates more than thirty buildings for growing plants and has annual sales of two hundred thousand dollars.
[8] When it is in full operation, from approximately the end of April to mid-September, the corporation requires the services of approximately ten employees in addition to the longer-term work of the two owner-shareholders. As stated above, the two applicants are included among these employees, but they are also the spouses of the two owners, and hence the problem of whether their employment is excepted from insurable employment because the parties are related and therefore not covered by the Unemployment Insurance Act. For reasons unknown, the Commission apparently only saw fit to question this situation in 1996 and raised the matter with the Minister, who determined that the exception under subparagraph 3(2)c)(ii) did not apply in the instant case for the years 1994, 1995 and 1996, and the employment was accordingly excepted. The Tax Court of Canada, immediately seized, carried out its inquiry but refused to intervene.
[9] We are all of the view that the two review applications before us must succeed. We doubt that it was truly possible for the Minister to establish that his determination was reasonable based merely on the facts he alleged before the Tax Court of Canada in response to the notice of appeal. But, in any event, we are convinced that the judge of the Tax Court of Canada, to whom the evidence was presented in great detail, who evaluated these facts, put them in context and explained them, could not consider that the Minister"s initial reaction was still objectively reasonable.
[10] First, we note that no one ever questioned the fact that the applicants were employed full-time by the corporation (44 hours/week) during the three periods at issue; they were employed to perform specific duties for a specific salary, which was paid to them; these duties were crucial to the proper operation of the business and they included significant levels of responsibility and trust; had the applicants not been available, the corporation would have been forced to hire other candidates with the same qualifications and at the same salary.
[11] But what then were the facts that made such a negative impression on the Minister? He listed five of them: 1- the applicants" salary was $10.00 per hour while the other employees only made the minimum wage of $6.00; 2- the applicants" salary was even higher than that of the shareholders themselves; 3- in 1994 and 1995, the applicants" salary was not paid to them regularly each week as had previously been and was subsequently the case, but was paid in two instalments at the end of the year; 4- in 1996, when the employees" salary was increased to $7.00, the minimum wage, the plaintiffs" salary remained at $10.00; and 5- the three young children of one of the applicants, who lived next to the greenhouses, would sometimes be in the greenhouses or the land around them.
[12] I have just said that in our view, these facts by themselves do little to explain and support the response of the Minister or his representative. Under the Unemployment Insurance Act, excepted employment between related persons is clearly based on the idea that it is difficult to rely on the statements of interested parties and that the possibility that jobs may be invented or established with unreal conditions of employment is too great between people who can so easily act together. And the purpose of the 1990 exception was simply to reduce the impact of the presumption of fact by permitting an exception from the penalty (which is only just) in cases in which the fear of abuse is no longer justified. From this perspective, after identifying the true nature of the employment, the importance of the duties and the reasonableness of the compensation, it is difficult in our view to attach the importance the Minister did to the facts he relied on to exclude the application of the exception. It is the essential elements of the employment contract that must be examined to confirm that the fact the contracting parties were not dealing with each other at arm"s length did not have undue influence on the determination of the terms and conditions of employment. From this standpoint, the relevance of the facts relied on, even without further detail, seems very questionable. And there is no need to go any further. While the facts relied on might legitimately leave sufficient doubt with respect to an objective basis for the conditions of the applicants" employment contract, placing these facts in the context of the evidence adduced before the Tax Court of Canada " evidence which was almost completely accepted by the Tax Court judge " only serves to highlight the unreasonableness of the Minister"s initial conclusion. It was in fact clearly explained and established that the applicants" salary was higher than the minimum wage the other employees received because of the responsibility involved in the duties they performed and that that was the prevailing salary in the industry for similar jobs; it was clearly explained and established that the shareholders had decided to reduce the salary normally due to them to provide for the financial support and development of the business; it was clearly explained and proven that a tornado had destroyed a large number of the buildings of the business in 1994, which led to a period of confusion, and then reconstruction and financial difficulties; last, it was explained and proven that the presence of the children of one of the applicants on the land around the greenhouses was very unlikely to affect the performance of her duties and the provision of the services she agreed to provide.
[13] We are of the view that at the end of his inquiry, the judge of the Tax Court of Canada had no choice but to find that ultimately the Minister had erred in his finding; that "having regard to all the circumstances . . . it [was only] reasonable to conclude that [Les Serres Roger Cloutier et Frères Inc . and the applicants] would have entered into a substantially similar contract of employment if they had been dealing with each other at arm"s length".
[14] The applications for judicial review will accordingly be allowed; the decisions of the Tax Court of Canada in Court files 97-63 (UI), 97-373 (UI) and 97-710 (UI) will be set aside; and the files will be referred back to the Tax Court of Canada so that the determination of the Minister be quashed and the file referred back to him for a new determination on the basis that the applicants were in insurable employment during the periods at issue.
Louis Marceau
J.A.
Certified true translation
M. Iveson
Date: 19990528
CORAM: MARCEAU J.A.
DESJARDINS J.A.
NOËL J.A.
Docket: A-392-98
BETWEEN:
FRANCINE LÉGARÉ
- and -
MINISTER OF NATIONAL REVENUE
Respondent
Docket: A-393-98
BETWEEN:
JOHANNE MORIN
Applicant
- and -
MINISTER OF NATIONAL REVENUE
Respondent
Hearing held at Québec, Quebec, on Tuesday, May 25 and Friday, May 28, 1999.
Judgment delivered from the bench on Friday, May 28, 1999.
REASONS FOR JUDGMENT OF THE COURT BY: MARCEAU J.A.
FEDERAL COURT OF APPEAL
Date: 19990528
Docket: A-392-98
BETWEEN:
FRANCINE LÉGARÉ
- and -
MINISTER OF NATIONAL REVENUE
Respondent
Docket: A-393-98
BETWEEN:
JOHANNE MORIN
Applicant
- and -
MINISTER OF NATIONAL REVENUE
Respondent
REASONS FOR JUDGMENT
OF THE COURT
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT NO.: A-392-98
STYLE OF CAUSE: FRANCINE LÉGARÉ
v. MINISTER OF NATIONAL REVENUE
COURT NO.: A-393-98
STYLE OF CAUSE: JOHANNE MORIN
v. MINISTER OF NATIONAL REVENUE
PLACE OF HEARING: QUÉBEC, QUEBEC
DATE OF HEARING: MAY 28, 1999
REASONS FOR JUDGMENT OF THE COURT
(MARCEAU, DESJARDINS AND NOËL JJ.A.)
DELIVERED FROM THE BENCH OF MAY 28, 1999
APPEARANCES:
Frédéric St-Jean FOR THE APPLICANTS
Sophie-Lyne Lefebvre FOR THE RESPONDENT
SOLICITORS OF RECORD:
Frédéric St-Jean
3107 avenue des Hôtels
Sainte-Foy, Quebec
G1W 4W5 FOR THE APPLICANTS
Morris Rosenberg
Deputy Attorney General of Canada FOR THE RESPONDENT
__________________
1 In 1996, that is after the decisions at issue here, the Unemployment Insurance Act was replaced by the Employment Insurance Act, but the provisions relevant to the instant case have remained essentially the same.
2 S.C. 1990, c. 40.
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