Citation: 2012
TCC 415
Date: 20121203
Docket: 2011-1019(EI)
BETWEEN:
MARIE-CLAUD E POULIN,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
KONDITION PLURIEL,
Intervener.
Docket: 2011-1020(EI)
BETWEEN:
KONDITION PLURIEL,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
MARIE-CLAUDE POULIN,
Intervener.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1]
The
appellants are appealing from a decision by the Minister of National Revenue (Minister)
finding that Marie-Claude Poulin did not hold insurable employment with Kondition
Pluriel during the period of March 7, 2004, to February 28, 2005. The Minister
found that the employment was excluded from insurable employment pursuant to
sections 5(2)(i) and 5(3) of the Employment Insurance Act (EIA).
In particular, the Minister feels that the employer and employee had a
non-arm's length relationship and under the circumstances, it was not
reasonable to find that they would have entered into a substantially similar
contract of employment if they had been dealing with each other at arm's length.
[2]
The
applicable legislative provisions state:
Employment Insurance Act
INSURABLE EMPLOYMENT
5.(2) Excluded employment — Insurable employment does not include
...
(i) employment if
the employer and employee are not dealing with each other at arm's length.
5.(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.
[3]
The
arm's length relationship is defined at section 251 of the Income Tax Act
(ITA). The relevant provisions state:
INCOME TAX ACT
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 purposes of this Act,
"related persons", or persons related to each other are
(a) individuals connected by blood relationship, marriage or common-law
partnership or adoption;
(b) a corporation
and
...
(ii) a person who is a member of a related group
that controls the corporation,
...
(4) Definitions concerning groups — In this Act,
"related group" means a group of persons each member of which is
related to every other member of the group;
...
(6) Blood relationship, etc. — For the purposes of this Act, persons are connected by
(a) blood relationship if one is the child or other descendant of the other
or one is the brother or sister of the other;
(b) marriage if one is married to the other or to a person who is so
connected by blood relationship to the other;
...
[4]
It
is important to note from the start that the decision resulting from the exercise
of the Minister's discretionary power can be amended only if the Minister acted
in bad faith, failed to take into account all the relevant circumstances, or took
into account an irrelevant factor. This court must decide whether the
Minister's decision results from an appropriate and lawful exercise of his
discretionary power, and if so, it cannot substitute the own decision for that
of the Minister. In other words, it is only when the Court concludes that the
Minister made an improper use of his discretion that it can decide, taking all
the circumstances into account, whether such a contract of employment would
have been entered into if the employer and employee had been dealing with each
other at arm's length (Ferme Émile Richard et Fils Inc. v. Canada (Department
of National Revenue), [1994] F.C.J. No. 1859 (QL); see also Légaré v.
Canada (Minister of National Revenue), [1999] F.C.J. No. 878 (QL)).
[5]
The
Minister based his decision on the facts at paragraphs 5 and 6 of the Reply to
the Notice of Appeal (for Marie‑Claude Poulin), which state:
[translation]
(5) The appellant and the payer are related persons
within the meaning of the Income Tax Act because:
(a) the payer is a non-profit organization; [admitted]
(b) during the period in question, the payer's Board
of Directors was composed of three individuals, Martin Kusch, Michel Poulin and
Marie‑Claude Poulin; [admitted]
(c) Marie-Claude Poulin is Michel Poulin's daughter
and Martin Kusch's spouse; [admitted]
(d) the appellant, Marie-Claude Poulin, is connected
by blood relationship and marriage to each of the other members of the payer's Board
of Directors; [admitted for the period in question]
(6) The Minister found that the appellant and the payer
were not dealing with each other at arm's length in the context of this
employment. The Minister was convinced that it was unreasonable to find that
the appellant and the payer would have entered into a substantially similar
contract of employment if they had been dealing with each other at arm's
length, considering the following circumstances:
(a) the payer was incorporated in 2003 as a
non-profit organization, following a change of name;
(b) the payer is funded by grants and donations;
(c) the payer operates a specialized artistic
performance business in three disciplines: dance, media shows and
multidisciplinary shows. It also stages its creations in Europe;
(d) the payer's initial founders are the appellant
and Martin Kusch who created Compagnie de Fortune Inc. in 2000;
(e) the payer's Board of Directors meets twice a
year for regular meetings and once for a general meeting. All major decisions
requiring the Board's approval are made by phone or during meetings; [admitted]
(f) all decisions regarding daily activities are
made by Martin Kusch and the appellant;
(g) from the time Compagnie de Fortune was created
until 2003, the appellant worked as a self-employed worker;
(h) when the non-profit organization was created in
2003, the appellant's status changed to employed person following the
recommendation of an external firm that helps young entrepreneurs manage their
businesses. The appellant could then potentially collect maternity benefits;
(i) this firm, Diagramme gestion culturelle, provides
its clients, including the payer, with resource services and administrative and
communications management consulting, and facilitates access to various
professional, material and financial resources;
(j) the appellant held the position of artistic
co-director;
(k) the appellant's duties included administration for
the payer, getting grants, managing money, organizing tours, preparing and developing
projects, giving conferences, hiring employees such as dancers, producers and
choreographers;
(l) the appellant's duties were determined by the payer
and Diagramme gestion culturelle, under a task-sharing agreement defined at
Schedule A of the contract between the payer and Diagramme gestion culturelle;
(m)the appellant had to report to the payer's Board
of Directors and seek their approval for all issues other than those related to
daily operations; [admitted]
(n) the appellant's pay was set by the Board of
Directors and Diagramme gestion culturelle at $600 every two weeks,
without consideration for the hours actually worked;
(o) the appellant's pay was based on the payer's
ability to pay considering the fee the appellant previously received;
(p) on October 22, 2004, the appellant's salary
went from $600 every two weeks to $1,160 every two weeks, an increase of $560;
(q) in a first version, the appellant explained
that the salary increase was the result of a budget presentation to the Council
for the Arts based on the project to be completed and the approval of the payer's
Board of Directors, and in a second version, the appellant and the payer
explained that the salary increase was subsequent to the departure of her assistant,
Marilou Aubin;
(r) a review of the payer's books shows that Marilou
Aubin has not worked for the payer since November 21, 2003;
(s) during the appellant's maternity
leave absences, the payer did not replace the appellant, but distributed her
workload between Martin Kusch and Catherine Tardif for dances and
choreographies.
[6]
In
her reply, the appellant admitted only the paragraphs with "admitted"
indicated above. She denied or commented on the other paragraphs.
[7]
The
appellant claims that, despite her non-arm's length relationship with the employer,
she was treated the same way any other person acting as choreographer, dancer
and artistic co-director would be treated. She explained that Kondition Pluriel
is a very small company that operates in a low profitability field that must
work with the grants from the councils for the arts of Montreal, Quebec and the federal government to pay any employee it may have, and with whatever other
small income it receives. She notes that the fact it receives grants from the
three levels of government shows how serious their business is. And to ensure
the credibility of the organization, the company's goal is to include external
members on its Board of Directors (BoD), which it did for the first time in
April 2005. It appears that in 2011 the BoD had six directors, half of whom
were not related persons. During the period in question, there were three
people on the BoD: the appellant herself, her father Michel Poulin, and her
husband Martin Kusch.
[8]
The
appellant and her husband are the artistic co-directors and they make everyday
decisions. They meet with the BoD two or three times a year to discuss the more
important issues. During the period in question, the only addition at the BoD
meetings was her father. They hired an organization, Diagramme gestion culturelle
(Diagramme), that specializes in financial and administrative management
and offers its services at a low cost to organizations working in the field of
dance. It was Diagramme that recommended that the appellant become an employee
starting August 22, 2003. Prior to this, she was paid a performance fee and no
source deductions were made. The appellant explained that it was too much work
for their little company to keep a record of wages. Apparently, in 2003 they
were expecting ongoing grant funding as opposed to funding per project, which
would have provided some security to allow the company to pay a salary instead
of fees.
[9]
The
appellant received a salary from August 22, 2003, until February 28, 2005, when
she stopped working for her first maternity leave. She explained that the
company's fiscal year was from July 1 to June 30, and during the 2003-2004
fiscal year, she received $14,280 in salary. During this same fiscal year, they
paid a salary of $3,278.65 to Marie‑Lou Aubin, who was hired to do promotions
and market development . The company also allegedly received a grant for $3,000
to hire Marie-Lou, who received the entire amount. She therefore received a
total of $6,278.65 during that year.
[10]
During
the 2004-2005 fiscal year, the appellant received $16,515.99. Before October
22, 2004, she earned $600 every two weeks and after, she started earning
$1,160 every two weeks. As she combined her own work with that of Marie‑Lou
after she left on November 21, 2003, she thought it was entirely justified for
her salary to increase by so much in October 2004, since she had been
significantly underpaid from November 2003 to October 2004. She was on
maternity leave from May 2005 to May 2006. On her return, they agreed that she
would no longer be paid by salary. She returned to receiving performance fees,
with no source deductions. The Québec Parental Insurance Plan was modified to
allow non‑employees to benefit from this insurance so the appellant did
not become an employee again for her second pregnancy.
[11]
The
appellant said she always worked at least 55 hours per week. When she was an
employee, she worked for a set salary for 40 hours per week. The declaration
provided to the Employment Insurance office (Exhibit I-3) shows work weeks of
35 hours and five days for an employer with which the appellant had a non-arm's
length relationship. The appellant said she was not the one who completed this
declaration, but acknowledged that she signed it without verifying its content.
It was Diagramme's representative, Nathalie Prémont, who allegedly completed
the declaration. She testified that she and the appellant agreed to write 35
hours of work per week. She justified this saying the figure could be explained
because of weeks the appellant worked less. She recommended that the appellant
become an employee so she would have stability, considering the financial
viability of the company. But the final decision to pay the appellant a salary
instead of fees was made by the BoD of Kondition Pluriel.
[12]
Moreover,
the respondent submitted to evidence the contractual agreement between Diagramme
and Kondition Pluriel under which Kondition Pluriel recognizes that it is
completely responsible for all administrative decisions made, regardless of the
services rendered by Diagramme (Exhibit I-5, paragraph 3).
[13]
The
appellant also had Danielle Demers testify; she was Diagramme's Director
General from 2007 to 2011. In a letter submitted as Exhibit A-1, she stated
that Diagramme offers professional services in financial and administrative
management to the dance community for a low fee because of the support of the
councils for the arts. She noted that the companies that work in the field of
dance depend for the most part on government grants, as is the case for
Kondition Pluriel. She notes that they are all subject to income fluctuations
and that employee remuneration depends on it. She also noted that the workload
of the artistic directors includes a large portion of the administrative
duties, such that the directors accumulate a significant number of hours of
work and, therefore, they accept pay that is close to minimum wage. She added that
a non-arm's length relationship between the artists and members of the BoD of a
company generally do not influence the decisions made. She noted that all the
companies are subject to the standards and rules of the councils of the arts
that award the grants and to whom the companies must report annually. She feels
that Kondition Pluriel is no different.
[14]
After
investigation and analysis, Sonnie McGrath, the appeals officer for the Canada
Revenue Agency (CRA) in this case, came to the conclusion that it was
unreasonable to find that the employer would have hired a person with whom it
was dealing at arm's length under a substantially similar contract of employment
to the one it had with the appellant. In court she explained the factors she
relied on to come to this conclusion (the analysis can be found in her report, filed
as Exhibit I-6).
[15]
As
for the remuneration paid, she noted that the appellant received a fixed salary
every two weeks, including two weeks' vacation; at the beginning of the period,
this was the equivalent to less than minimum wage, if the actual hours of work
were considered. Then, her salary nearly doubled. The appellant claimed this
was justified because Marie-Lou Aubin left and she carried out extra
administrative duties. Ms. McGrath felt this was unreasonable since Diagramme had
already been hired to take care of the administrative duties and the
communication work previously carried out by Marie‑Lou did not justify
such an increase. During Ms. McGrath's investigation, the chair of the BoD
sent a letter allegedly explaining that the appellant's salary was due to the
employer's improved cash flow. Ms. McGrath felt that an employee's salary
does not usually fluctuate based on the company's revenue. She concluded that a
person with an arm's length relationship would not have carried out similar
work for similar compensation.
[16]
As
for the terms and conditions of employment, Ms. McGrath noted that the
appellant did not keep track of her hours of work, and had considerable
professional freedom because of her experience and training. Ms. McGrath also
considered it highly unlikely that an employer would make a non-related worker
an employee solely so she could collect maternity benefits, considering all the
resulting expenses for the employer. She therefore found it unreasonable to
find that a person with an arm's length relationship would have been hired
under similar terms and conditions of employment.
[17]
As
for the duration, Ms. McGrath felt the appellant did exactly the same work
before, when paid a fee as a self-employed worker and regained this status
after her maternity leave. She therefore concluded that the appellant only
became an employee to be eligible for maternity benefits under the employment
insurance system.
[18]
The
appellant explained that in 2005-2006, they had hoped to obtain ongoing
funding, but this did not happen until 2008. Kondition Pluriel had to adapt to
the employment-related costs of the employee status. The appellant explained
that her administrative work was complementary to that of Diagramme. They
worked together. As for the duties carried out by Marie‑Lou, the
appellant had to take these on after her departure. Marie‑Lou was hired
through a 4 to 6 month employment program with Emploi Québec.
[19]
Lastly,
the appellant acknowledged that during the period in question, she was paid by
cheques she herself could have signed on behalf of Kondition Pluriel, and she
sometimes waited many days before cashing her paycheques.
Respondent's arguments
[20]
The
respondent claims that Ms. McGrath's decision is not unreasonable. He feels the
non-arm's length relationship affected the employer-employee relationship since
even a devoted employee would not have agreed to work long hours, up to 60
hours a week, for compensation for 40 hours a week. As for the argument that
the dance world is a unique environment where workers are ready to make
concessions and often agree to be underpaid, the respondent states that there
is no exception in the EIA for dancers. Moreover, the respondent feels that the
evidence indicating that dancers generally agree to be underpaid should have
been presented by experts. The appellant called two people who had worked for Diagramme
to testify, but these two people were not specifically called to testify as
experts on the subject. They could only testify to their factual involvement
with Kondition Pluriel.
[21]
The
respondent also notes that the appellant had a variety of duties. She did more
administrative work than dancing. Therefore, she could not be considered part
of a group of dancers with mediocre pay.
[22]
The
respondent notes that the appellant's salary doubled 11 months after
Marie-Lou's departure. The salary increase therefore did not correspond to the
increased work load, but rather was dependent on the company's revenue. It more
like the compensation a business owner gives himself when income allows.
Additionally, a review of the cheques issued to the appellant, copies of which
were submitted as Exhibit I-7, indicate that some cheques were only cashed
after a 10 to 20 day delay. She also had five weeks of fully paid vacation. The
respondent feels that this would not have been granted to an employee with an
arm's length relationship.
[23]
As
for the employment conditions, the respondent feels that becoming an employee
solely to qualify for maternity benefits again shows special treatment for a non-arm's
length employee. It is not unreasonable to think that such treatment would not
have been granted to a person with an arm's length relationship. He also notes
that the appellant herself deliberately created confusion by not mentioning in
her declaration that there was a relationship with the employer, and by falsely
claiming she was paid for 35 hours a week when in fact she worked much more,
without keeping track of her hours. The respondent relies on the decision of
this court, Serres de la Pointe Inc. v. Canada (Minister of National Revenue),
[2005] T.C.J. No. 656 (QL), at paragraphs 51 to 53, to claim that such a
presentation shapes the working relationship in a way that skews reality to
benefit the employee and then be able to control the benefits. The same
situation existed in Ferme Émile Richard et Fils Inc., supra, and
the Federal Court of Appeal accepted the trial judge's finding that such an
arrangement was influenced by the non-arm's length relationship.
Appellant's arguments
[24]
The
appellant notes that, in many companies, hours of work are not recorded. When a
person enjoys their job, formalities are set aside. She admits that becoming an
employee was advantageous for her, but she claims that she had always
considered herself an employee, even when she was paid by fees. The company
started to grow and the same would have happened with an arm's length employee
to provide some stability to the employees. The dance world must be considered
in a special context. Employees know they must work a lot to have some
recognition and that remuneration is not always adjusted for the hours worked.
[25]
In
regard to the confusion raised by the respondent in the declaration the
appellant made, the appellant notes the company's true intention of expanding
its BoD with arm's length members. She claims that, with this in mind, the BoD
always supervised her work even if it was composed only of three members of the
same family. The appellant is first and foremost a graphic artist and not an
administrator, even if, in the context of a small business, she had no other
choice but to handle the administration.
Analysis
[26]
As I
mentioned at the beginning of these reasons, this court must first limit its
analysis to a review of the lawfulness of the Minister's decision. It is only
if I find that one of the grounds to intervene has been established—namely,
that the Minister neglected to consider all the circumstances, considered
irrelevant factors or violated a principle of law—that I can review the
validity of the Minister's decision. If there is sufficient material to support
the Minister's conclusion, the Court is not at liberty to overrule it merely
because it would have come to a different conclusion (Canada (Attorney
General) v. Jencan, [1998] 1 F.C. 187, at para. 31).
[27]
In
my opinion, the appellant did not prove that the Minister inappropriately used
his discretionary power. The remuneration factor alone would sufficiently
justify the Minister's decision. The appellant admits she worked considerably
more hours that the number of hours indicated in her declaration at the
Employment Insurance office. She admitted she was underpaid for a certain
period and that the decision was made to double her salary when the company
could afford to do so. This behaviour alone reflects decisions made by a person
who controls her own company. Moreover, from comments made by Tardif J. in Serres
de la Pointe Inc., supra, at paragraph 51, fluctuations in pay for
similar work during a single period distorts the data regarding the contract of
employment and is an important element to demonstrate the extent to which the
non-arm's length relationship shaped the contract of employment. In the present
case, indicating a weekly salary for 35 hours of work when the actual number of
hours was much higher, leads to an artificial increase in the hourly rate.
[28]
Moreover,
the decision was made to grant the appellant employee status so she could
collect maternity leave benefits. I agree with the appellant that this, in
itself, is not illegal, if the working conditions truly reflect a contract of
employment. But here, it is important to remember that the appellant decides
whether she will have an employment relationship or not, at her convenience,
which would not necessarily be the case with an arm's length employee. Once she
returned from her maternity leave, she went back to being paid by fees, with no
source deductions. Although not a determining factor in itself, these actions
could very well be considered by the Minister as one element among others that
indicate a decision was made by a person with control of his or her company,
one that would not necessarily have been made by another person with an arm's
length relationship.
[29]
Additionally,
although representatives of Diagramme stated that dance artists could be
underpaid and must constantly adapt to financial instability, there was no
concrete evidence that such an artist with an arm's length relationship would
have been treated the same way as the appellant at Kondition Pluriel. On the
contrary, it was established that the appellant not only saw her salary double
during the period in question, but also had five weeks' vacation, fully paid;
in my opinion, this is completely contrary to the statements made by Ms. Demers.
[30]
I
feel there is sufficient evidence to support the Minister's finding. It is
therefore difficult for me to find that the Minister improperly exercised his
discretion and that his decision was unreasonable. The appellant did not pass
this first step, therefore it is impossible for me to intervene in her favour.
[31]
The
appeal is dismissed and the Minister's decision confirmed.
Signed at Ottawa, Canada, this 3rd day of December 2012.
"Lucie Lamarre"
Translation certified true
on this 16th day of January 2013.
Elizabeth Tan, Translator
Email this Content