[OFFICIAL ENGLISH TRANSLATION]
Date: 20020815
Docket: 2001-640(EI)
BETWEEN:
LOUIS-PAUL BÉLANGER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Somers, D.J.T.C.C.
[1] This appeal was heard at Québec, Quebec, on June 5, 2002.
[2] The Appellant is appealing the decision of the Minister of National Revenue (hereinafter the "Minister") that the employment held during the periods at issue, that is, from April 20 to October 9, 1998, and from April 26 to October 9, 1999, with Plancher Idéal L.P.B. Inc., the Payor, is excluded from insurable employment within the meaning of the Employment Insurance Act (hereinafter the "Act"), on the grounds that the Appellant and the Payor were not dealing with each other at arm's length.
[3] Subsection 5(1) of the Employment Insurance Act reads in part as follows:
5.(1) Subject to subsection (2), insurable employment is
(a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise;
…
[4] Subsection 5(2) and subsection 5(3) of the Act read in part as follows:
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] Section 251 of the Income Tax Act reads in part as follows:
Section 251. Arm's length.
(1) For the purposes of this Act,
(a) related persons shall be deemed not to deal with each other at arm's length;
...
(2) Definition of "related persons". For the purpose of this Act, "related persons", or persons related to each other, are
(a) individuals connected by blood relationship,
marriage or adoption;
(b) a corporation and
(i) a person who controls the corporation, if it is controlled by one person,
(ii) a person who is a member of a related group that controls the corporation, or
(iii) any person related to a person described in subparagraph (i) or (ii); and
...
[6] The burden of proof is on the Appellant. He must show on the balance of evidence that the Minister erred in fact and in law in his decision. Each case stands on its own merits.
[7] In reaching his decision, the Minister relied on the following assumptions of fact that were either admitted or denied:
[translation]
(a) The Payor was incorporated on July 26, 1983. (admitted)
(b) The Appellant held shares in the Payor until December 20, 1994. (admitted)
(c) Since December 1994, those holding voting shares in the Payor have been: (admitted)
Carl Bélanger 50% of shares
Lucille Labbé 50% of shares
(d) The Appellant was the father of Carl Bélanger and the spouse of Lucille Labbé. (admitted)
(e) The Payor operated a business that installed and sanded floors. (admitted)
(f) The Appellant was hired to sand floors. (admitted)
(g) The Payor hired three employees — the Appellant and the two shareholders. (admitted)
(h) On October 10, 2000, the Payor had a balance owing to the Appellant of $7,287 on a loan of $25,000 dating back to 1994. (admitted)
(i) The Appellant received wages of $500 in 1998 and $520 in 1999 for a 40-hour week, that is, an hourly rate of $12.50 for the first year and $13.00 for the second year. (denied)
(j) According to the Construction Decree, the hourly wage for a floor sander is approximately $23.00. (denied)
(k) The Appellant had agreed to wages lower than those in the Decree so as to not compromise the Payor's financial situation. (denied)
(l) The Appellant received fixed wages, irrespective of the number of hours actually worked. (admitted)
(m) The Appellant may have worked 65 hours per week, but he agreed to wages for only 40 hours. (admitted)
(n) On October 23, 1998, the Payor issued a record of employment to the Appellant for the period from April 20, 1998, to October 9, 1998, indicating 1,000 insurable hours and total insurable earnings of $13,000.00. (admitted)
(o) On October 12, 1999, the Payor issued a record of employment to the Appellant for the period from April 26, 1999, to October 9, 1999, indicating 960 insurable hours and insurable earnings of $520 per week. (admitted)
(p) The Appellant rendered services to the Payor, without declared wages, outside the periods indicated on the records of employment. (denied)
(q) According to the Payor's statement dated September 26, 2000, the Appellant rendered services to the Payor, without wages, before and after the periods indicated on his records of employment. (denied)
(r) The alleged periods worked by the Appellant do not correspond to the periods actually worked. (denied)
(s) The Payor and the Appellant entered into an agreement for the purpose of enabling the Appellant to qualify for Employment Insurance benefits while continuing to provide services to the Payor. (denied)
[8] The Payor was incorporated on July 26, 1983. In December 1994, the Appellant sold his shares to his son and spouse — each had 50% of the voting shares.
[9] The Payor operated a business that installed and sanded floors. The Appellant was hired to sand floors. The Payor hired three employees: the Appellant and the two shareholders.
[10] On October 10, 2000, the Payor had a balance owing to the Appellant of $7,283 at 7% interest on a $25,000 loan dating back to 1994. Payments were made at various times during the period from April to October.
[11] According to the payroll record, the Appellant received $520 per week during 1998 and 1999. He worked Monday to Friday each week and occasionally on Saturdays. According to the Appellant, he worked approximately 30, 50 and 65 hours per week for the same wages. He was not paid for overtime.
[12] The Appellant was paid an hourly rate of $12.50 in 1998 and $13.00 in 1999. According to the Construction Decree, the hourly rate was $23.00, but according to the Appellant's son, because the Payor worked on residential buildings, it was not subject to the Construction Decree.
[13] However, the Appellant admitted that an outsider would not have worked under those conditions. He also admitted that an outsider would not have worked overtime without being paid.
[14] When they met with the investigator, the Appellant and the son stated that the Appellant did not work outside the periods at issue without being paid.
[15] Faced with invoices signed by the Appellant outside the periods at issue, the Appellant and the son finally admitted that the Appellant worked outside the periods at issue without being paid.
[16] The Appellant's son told the Court that the Appellant had worked outside the periods at issue doing 75% sanding work and 20% finishing work.
[17] In Ferme Émile Richard et Fils Inc. v. Canada (Department of National Revenue), [1994] F.C.J. No. 1859 (178 N.R. 361), a case dealing with subparagraph 3(2)(c)(ii) of the Unemployment Insurance Act (now paragraph 5(3)(b) of the Employment Insurance Act), Décary J.A. of the Federal Court of Appeal clearly indicated that the Court must ask itself if the Minister's decision "results from the proper exercise of his discretionary authority". The Appellant must "present evidence of wilful or arbitrary conduct by the Minister, evidence which is generally not easy to obtain".
[18] The Appellant admitted that an outsider would not have worked for the Payor under the same conditions, working outside the periods at issue without being paid and also not being paid for overtime.
[19] The Appellant was paid the same wages whether he worked 40, 50 or 65 hours per week. The Appellant's wages seem to be considerably less than regular wages for the same work.
[20] The Court has the right to review the facts that, according to the evidence, the Minister had when he reached his conclusion so as to decide if these facts are proven to be correct. But if there is enough evidence to support the Minister's conclusion, the Court does not have the flexibility to set it aside simply because it would have reached a different conclusion.
[21] The Appellant submitted case law in support of his appeal. These are specific cases that cannot apply to this case.
[22] Having regard to all of the circumstances, I am satisfied that the Appellant did not succeed in establishing, on the balance of evidence, that the Minister acted in a wilful or arbitrary manner.
[23] The working conditions would not have been the same had the Appellant and the Payor been dealing with each other at arm's length.
[24] As a result, the Appellant's employment is excluded from insurable employment under paragraph 5(2)(i) and subsection 5(3) of the Act.
[25] The appeal is dismissed.
Signed at
Ottawa
,
Canada
, this 15th day of August 2002.
D.J.T.C.C.
Case Law Consulted
Canada
(Attorney General) v. Jencan Ltd. (
C.A.
), [1998] 1 F.C. 187
Bérard v. Canada (Minister of National Revenue – M.N.R.), [1997] F.C.J. No. 88
Translation certified true
on this 16th day of March 2005.
Sophie Debbané, Revisor
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