Date:
20081008
Dockets: A-410-07
A-411-07
Citation: 2008 FCA 301
CORAM: LÉTOURNEAU
J.A.
NADON
J.A.
PELLETIER
J.A.
BETWEEN:
A-410-07
JEAN-FRANÇOIS
DUMAIS
Appellant
and
MINISTER OF
NATIONAL REVENUE
Respondent
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- - - - - - - - - - - - - - - - - - - - - - - - - -
A-411-07
CHRISTIANE
DUMAIS
Appellant
and
MINISTER OF
NATIONAL REVENUE
Respondent
REASONS FOR
JUDGMENT
LÉTOURNEAU J.A.
Issue and procedural history
[1]
These
are two appeals (A-410-07 and A-411-07). They have been
combined for a joint hearing. These reasons
will serve for both dockets, the original being filed in docket A‑410‑07
and a copy being filed in the second docket.
[2]
The
issue is the insurability of the employment of the two appellants. Justice Bédard of the Tax Court of Canada (judge) dismissed the
appeals of Jean-François Dumais and Christiane Dumais.
[3]
That
dismissal confirmed the decision of the Minister of National Revenue (Minister)
under which he determined that the appellants did not hold insurable employment
within the meaning of paragraph 5(1)(a) of the Employment Insurance
Act, S.C. 1996, c. 23 (the Act).
[4]
The
Minister was of the opinion that the appellants did not have an arm's length
relationship with the payer, Mario Dumais, who operates the Auberge sur la
Côte, Reg'd. (inn), in the county of Charlevoix. In fact, Ms. Dumais is the payer’s spouse, and
Jean-François Dumais his son. Later, the inn
was incorporated and became the payer. Mario
Dumais was its sole shareholder and director.
[5]
The
Minister was also of the opinion that, if they had been dealing with the payer
at arm's length, the appellants would not have entered into the contract of
service that they did in fact enter into. Hence the
exclusion of their employment from the category of insurable employment in
accordance with paragraphs 5(2)(i) and 5(3)(a) and (b) of
the Act:
|
5. (2) Insurable employment does not include
…
i) employment if the employer and employee are
not dealing with each other at arm’s length.
(3)
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.
|
5. (2) N’est pas un emploi assurable :
[…]
i) l’emploi dans le cadre duquel l’employeur et
l’employé ont entre eux un lien de dépendance.
(3)
Pour l’application de l’alinéa (2)i) :
a) la question de savoir si des personnes ont
entre elles un lien de dépendance est déterminée conformément à la Loi de
l’impôt sur le revenu;
b) l’employeur et l’employé, lorsqu’ils sont
des personnes liées au sens de cette loi, sont 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 de lien de
dépendance.
|
[Emphasis
added.]
The nature of the work
performed and the years in question
[6]
Jean-François
Dumais worked as the inn's chef, while his mother held the position of
assistant manager, which involved various tasks including taking care of the
reception, reservations and check-outs, helping accommodations employees,
keeping time sheets and doing the business's bookkeeping.
[7]
For
both Ms. Dumais and her son, the years in question are 1999, 2000, 2001, 2002
and 2003.
Tax Court of Canada decision
[8]
The
judge reviewed and analysed the evidence in great detail. He
noted the appellants' refusal to cooperate with the Commission investigator and
to provide the investigator with the relevant records concerning the operation
of the business, which would have allowed both the Minister and the Court
tasked with reviewing his decision to make a more informed decision.
[9]
He
dismissed the appellants' claims that the investigator acted in bad faith and
only wanted to trap them.
He emphasized and deplored the fact that the
appellants, who had the burden of rebutting the presumptions established by the
Minister, had not introduced into evidence certain records, particularly the
accounting records and the restaurant's reservations records, although they
were in a position to do so. From this deliberate failure, he concluded that
this documentary evidence would have been to the appellants' disadvantage.
[10]
The
judge did not accept the appellants' arguments that the unpaid work they did
during the period of unemployment was minimal, marginal and infrequent. The
appellants stated that, in addition, the work was unrelated to their jobs and
was performed for only very short periods. In
contrast, the judge concluded that the unpaid work was both substantial and
part of the duties normally assigned to the appellant by the payer under the
employment contract that bound them. He therefore distinguished the facts of
this case from those set out in Théberge v. Canada (Minister of National
Revenue – M.N.R.), [2002] F.C.J. No. 464 (QL).
[11]
Here
is what the judge had to say about the unpaid work carried out by Jean-François
Dumais at paragraph 35 of his reasons for decision:
[35] As regards the
Male Worker, the evidence showed that the unpaid work performed by him outside
of the relevant periods for each of the years in question was substantial and
that this work was part of the tasks assigned to him by the Payers under the
contract of employment entered into by them. I note on this point that before
the beginning of the high season, therefore outside of the relevant periods for
each of the years in question, the Male Worker did major housekeeping chores in
the kitchen, hired the kitchen employees, developed new menus at home,
negotiated the cost of food with suppliers, determined the cost of meals which
were on the menu and trained the kitchen employees. I also note that the
evidence showed that the Male Worker performed unpaid work for a minimum of 150
hours in performing these tasks, which he was bound to perform under the terms
of his contract of employment, as appears from his job description, which was
filed in the court record by the appellants. In addition, I note that the
evidence showed that the Male Worker had prepared dinners on a voluntary basis
outside of the relevant periods. On this point, the appellants claimed that the
guestbook of the inn for the year 2001, as well as the GST returns prepared by
the payers, which were pivotal in the Minister's decisions, did not in any way
show that the volume of business of the Payers outside of the relevant periods
was related to the operation of the restaurant. On this point, the appellants
added that if the Minister had taken pains to study the restaurant reservations
book and to analyze the volume of business of the Payers, which was mentioned
in their accounting books, he would have noted that few dinners were served at
the restaurant outside of the relevant periods, and he would have concluded
that the employee spent only a little time on this task. I note that the
appellants, who had the burden of proof, had an unhoped-for opportunity
to submit these documents, which they were in a position to submit, and thereby
satisfy me that the Minister reached mistaken conclusions on the basis of the
documents he studied and of his investigation. Unfortunately, the appellants
did not consider it worthwhile to submit these documents, even though they were
in a position to do so. I infer from this that this evidence would have been
unfavourable to the appellants, because it would have shown that many more
dinners were served in the restaurant outside of the relevant periods than what
they tried to have me believe, and that an important part of the volume of
business of the Payers was related to catering activities, wedding and funeral
receptions and dinners served to clients who were not staying at the inn. In my
opinion, these activities required a head cook. I conclude that it would be
completely unreasonable to think that a person who was dealing at arm's length
with the Payers would have agreed under his or her contract of employment to
work on an unpaid basis for so many hours outside of the relevant periods.
[Emphasis
added.]
[12]
Regarding
the payer’s spouse, he wrote at paragraph 36:
[36] As regards the
unpaid work performed by the Female Worker outside of the relevant periods, the
appellants submitted that it was infrequent, minimal and marginal. They claimed
that the Female Worker's services were not really required during the low
season, because the inn was not very busy during this period. They added that
the majority of the tasks performed by the Female Worker during the high season
were performed by Mario Dumais during the low season. The appellants' evidence
on this point was based solely on the testimonies of Mario Dumais the Female
Worker, who testified to the same effect as her spouse. I note that Mario
Dumais testified to the effect that his spouse regularly came to the inn during
the low season to spend time and not to work, if only for three or fours hours
per week. I immediately note that these testimonies did not satisfy me,
especially considering that they were contradicted by the very credible
testimonies of several of the Payer's employees. In addition, even if the
evidence showed that the inn was not as busy during the low season, it
nevertheless showed that a significant number of clients stayed there during
this period and, accordingly, that the operation of the inn required, if only
to a lesser extent, that someone be available to answer the telephone, take
reservations, supervise the accommodations and restaurant employees (waiters
and waitresses), wash the tablecloths and place mats, fold and put them away,
act as a maître d' for the restaurant and bar, do the accounting (entries
in the general ledger and pay sheets) and see to guests' check-ins and
check-outs, although there were fewer of them during this period. Considering
the very credible testimonies of several of the Payers' employees, I am of the
view that it is more likely than not that this person was the Female Worker and
not Mario Dumais. In my opinion, during the low season, the Female Worker had
essentially the same responsibilities as in the high season and performed her
tasks on an unpaid basis. I am also of the opinion that the Female Worker
devoted a significant amount of time, although less than in the high season, to
the performance of such tasks on an unpaid basis. For these reasons, I conclude
that no person unrelated to the Payers would have accepted such working
conditions.
[Emphasis
added.]
[13]
Finally,
the judge considered the remuneration paid to the appellants, pointing out that
the appellants also bore the burden of proof in that respect. Even though he
referred to the fact that the appellant had to establish that their
remuneration was reasonable in the circumstances, which, according to counsel
for the appellant is an error in terms of the test to be applied, it is clear
that, when this reference is put in the context of the dispute between the
parties and the statutory provision that he had to interpret, he wondered
whether “having regard to all the circumstances of the employment, including the
remuneration paid, . . . it is reasonable to conclude” that the
payer and the appellants “would have entered into a substantially similar
contract of employment if they had been dealing with each other at arm’s
length”: see the wording of paragraph 5(3)(b). In
any case, the appellants tried to establish through expert evidence that their
remuneration was reasonable: see paragraph 59 of the appellant Jean-François
Dumais's memorandum of fact and law. The judge
also considered this particular argument of the appellants.
[14]
On
the basis of the evidence before him, the judge estimated the number of hours
worked by each of the appellants. Taking into account the weekly
wages paid by the payer, he calculated each appellant's hourly rate and
compared these rates with those normally paid for equivalent positions and
duties. He concluded that the rate paid to the
appellants was much lower than the market rate and that, consequently, no one
with the same skills, dealing at arm's length with the payer, would have
accepted such low wages.
[15]
I
reproduce paragraphs 40 and 41 of the reasons for the decision, which set
out the approach followed and the rate differential:
[40] However, only
because the evidence showed that the Male Worker had generally worked for a
minimum of 975 hours during the high season and for a minimum of 150 hours in
the low season during each of the years in question, I may conclude that the
Male Worker had been paid at an hourly rate of $7.84 in 1999, $8.87 in 2000,
$9.23 in 2001, $9.32 in 2002 and $14.92 in 2003. It is obvious that these
hourly rates, especially on the basis of the study published in May 2001 for
the CQHRT (cited by the expert for the appellants), which established the
hourly rate for a head cook as being between $17 and $26, that the overall
earnings of the employee were not reasonable, having regard to all the
circumstances. Having regard to all the circumstance, I am of the opinion that
no one would have agreed to be paid such an hourly rate unless they were
related to the Payers.
[41] Furthermore,
only because the evidence showed that the Female Worker had generally worked
for a minimum of 1,391 hours in the high season, I may conclude that she was
paid at an hourly rate of $5.77 in 1999, $5.51 in 2000, $5.71 in 2001, $5.71 in
2002 and $5.09 in 2003. I may therefore conclude that no person unrelated to
the Payers who is so competent and who has as many responsibilities as the
Female Worker did would have agreed to be paid at such a low hourly rate. This
conclusion is obvious, especially if I take into consideration the numerous
hours of unpaid work performed by the employee during the low season.
Analysis of the decision
[16]
The
inn where the appellants worked appeared on the Commission's radar screen
because it engaged in what counsel for the respondent calls “banking” or
accumulating hours.
This operation consists in crediting employees with
hours of work performed for the payer, often outside the period of paid
employment when the employee is receiving unemployment insurance benefits.
These hours appear on the record of employment as
hours paid by the employer although they were not. Employees consequently increase the number of their
insurable hours entitling them to benefits, the amount of their eligible
earnings and, consequently, the amount of the benefits they will earn when
their seasonal employment comes to an end: Geoffroy v. Canada (Minister of
National Revenue - M.N.R.), [2003] T.C.J. No. 102, by Justice
Tardif, and Proulx v. Canada (Minister of National Revenue - M.N.R.),
[2003] T.C.J. No. 100. The employer also benefits
because it receives services free of charge during the period in question.
When determining an employee's wages and working
conditions, payers can also take into account that the employee will be receiving
employment insurance benefits for several months.
[17]
Once
the inn was under the Commission’s scrutiny, the initial investigation of the
banking of hours was expanded to the company's entire organization and
operations. This resulted in the review of the insurability of the
appellants' employment.
[18]
Counsel
for the appellant argues that, first, the judge committed an error in law by
taking the appellants' unpaid work into account when determining the
insurability of their employment.
[19]
Secondly,
he submits, quite convincingly, that the judge improperly applied the legal
rules governing the arm's length relationship in his analysis of the
appellants' working conditions.
More specifically, with respect to the remuneration
paid to the appellants, he complains that the judge erred when he converted the
appellants' weekly wages into hourly rates and then compared them with industry
rates.
[20]
According
to counsel for the appellants, the appellants had managerial positions at the
inn. Like other managers in other companies, they were paid by
the week and were not entitled to overtime for hours exceeding the regular work
week. It was therefore unfair to divide the
weekly earnings by the number of hours worked and to compare them with other
employees of the same category for regular work weeks, the average length of
which was at forty (40) hours.
[21]
Lastly,
the appellants complained that the judge had, first, rejected in part the
report of the expert hired by the appellants to review the wage packages of
comparable positions and, second, disregarded the expert’s conclusion that the
appellants’ salaries were reasonable in the circumstances.
[22]
Given
the conclusion I have reached on the issue of the unpaid work, it is not
necessary for me to address the last two grounds of appeal.
The unpaid work and
insurability of the employment
[23]
I
think it appropriate to recall the purpose of paragraph 5(2)(i) of the
Act, the severity of which is somewhat mitigated by paragraph 5(3)(b),
as difficult as that paragraph is to apply.
[24]
It
will be recalled that paragraph 5(2)(i), cited above, excludes from the
category of insurable employment, employment between related persons, that is,
employment where the employee is not dealing with the employer at arm's length. The
Act assumes that “persons . . . related by blood, marriage or
adoption are more likely to be able, and to want, to abuse the . . .
Act”: see Pérusse v. Canada (Minister of National Revenue - M.N.R.),
[2000] F.C.J. No. 878 (QL), by Justice Desjardins.
Moreover, in the same judgment, at paragraph
29, Justice Décary held:
[29] I do not think
that persons connected by family ties, and so subject to natural and legal
obligations to each other, could reasonably be surprised or upset that
Parliament felt the need to determine, where a contract of service is
concerned, whether such ties, perhaps even without their knowledge, could have
influenced the working conditions laid down.
[25]
One
of the undeniable and undoubtedly laudable objectives of the provision is thus
to provide the employment insurance system with protection against claims for
benefits based on artifice, fictitious employment contracts or real employment
contracts containing fictitious or farfetched conditions: see Légaré v.
Canada (Minister of National Revenue - M.N.R.), (1999),
246 N.R. 176, at paragraph 12; Pérusse v. Canada, cited above;
Paul v. M.N.R., [1986] F.C.J. No. 961 (F.C.A.); Crawford and Co. v.
Canada (Minister of National Revenue – M.N.R.), [1999] T.C.J. No. 850 (QL); Maldrik v.
Canada (Minister of National Revenue – M.N.R.), [2006] T.C.J. No. 359 (QL);
Kabatoff v. Canada (Minister of National Revenue – M.N.R.), [2000]
T.C.J. No. 822 (QL). It is in that context that the issue of work that is
allegedly unpaid and that is performed while the person performing it is
receiving employment insurance benefits arises.
[26]
As
such, performing unpaid work does not necessarily mean exclusion under
paragraph 5(2)(i) of the Act. Everything is
a question of circumstance and degree. Each case must be examined
individually. Care must be taken not to generalize
the application of the conclusion drawn in Théberge, cited above.
[27]
As
the majority pointed out in that case, the business in question was a family
farm business. At paragraph 19 of the reasons for his decision, Justice
Décary wrote:
Excepting seasonal
employment, in a family farm business, on the ground that cows are
milked year-round amounts, for all practical purposes, to depriving family
members who qualify by working during the active season of unemployment
insurance and to overlooking the two main characteristics of such a business:
that it is a family business and a seasonal business.
[Emphasis added.]
While I am far from being disposed to
characterizing this as a supporting principle, there was a vital requirement in
that case: the dairy cows had to be milked; their survival depended on it.
Although it was not specifically mentioned, I believe that this was a
circumstance that, as it should, was considered by our Court.
[28]
Moreover,
as emphasized by Justice Décary, the farming community is treated differently
in that, for example, subsection 43(3) of the Unemployment Insurance
Regulations (now subsection 30(4) of the Employment Insurance
Regulations, SOR/96-332, as amended) means that claimants employed in farming
are not considered to have worked a full working week during the October 1
to March 31 period if they prove that they were employed to such a minor extent
that it would not have prevented them from accepting full-time employment. To
quote my colleague, this particular treatment of availability is nonetheless
part of the backdrop.
[29]
I
agree with Justice Archambault of the Tax Court of Canada in Bélanger v.
Canada (Minister of National Revenue - M.N.R.), [2005] T.C.J. No.
16, at paragraphs 73 to 75, where he recalls that workers in family businesses
can earn up to 25% of their employment insurance benefits without being
deprived of the protection offered by employment insurance. Related individuals may work in the family business in the
low season when there are fewer working hours and be remunerated by the payer.
It is not necessary, to use his expression, to
"cheat" by colluding to have the employment insurance program bear
the cost of the services delivered to the payer at no cost.
[30]
As
we can see, the penalty for such abuse by related persons is severe. An
employment that was insurable stops being so and, retroactively, requires the
claimant to reimburse the money paid as benefits, which may be substantial if
several benefit periods are involved: see Malenfant v. Canada (Attorney
General), 2006 FCA 226. But this is the
deterrent that Parliament chose to ensure the integrity of the employment
insurance system, which relies on the good faith and honesty of both employers
and claimants.
[31]
As
Justice Marceau stated at paragraph 12 in Légaré, cited above,
"[i]t 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".
[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.
[33]
In fact,
the day following the alleged termination of employment, the appellants were
performing exactly the same duties during the alleged period of unemployment as
those for which, virtually the day before, they had been paid under their
employment contract.
[34]
As
mentioned earlier, the judge concluded that the work performed by the
appellants while they were receiving unemployment insurance benefits was
substantial and that the duties they carried out and the responsibilities they
had in the low season were substantially the same as during the busy season. Further,
he found that, in fact, Jean-François Dumais's work as a chef and Christiane
Dumais's work as an assistant manager were required for the inn's operations
during the low season. In my view, although the hours of work had been
reduced in comparison with the busy season, there was a full pursuit of the
very object of the contract for paid work. There had been no true work stoppage
while the remuneration was being borne by the employment insurance program.
[35]
The
judge's findings and inferences of fact and those based on the credibility of
the witnesses are, it must be said, supported by the evidence in the record. In
fact, counsel for the appellants acknowledged that Ms. Dumais's situation was
much more difficult to defend than her son's. Absent
a palpable and overriding error, I am not allowed to set aside these findings
and substitute my own.
[36]
For
these reasons, I would dismiss the appeals with costs, but would limit the
costs for the hearing of the appeals, which was a joint one, to a single set.
“Gilles
Létourneau”
"I
concur.
Marc
Nadon J.A.”
"I
concur.
J.D. Denis Pelletier J.A."
Johanna
Kratz
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