Bourget v. M.N.R., docket 97-996-UI

Date: 19980814

Docket: 97-996-UI

BETWEEN:

CLERMONT BOURGET,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

SIGMA INC.,

Intervener.

Reasons for Judgment

Prévost, D.J.T.C.C.

[1] This appeal was heard at Québec, Quebec, on July 14, 1998.

[2] It is an appeal from determinations by the Minister of National Revenue (“the Minister”) dated May 9, 1997, that the appellant’s employment with the payer, Société d’Intervention et de Gestion des Milieux Anciens (SIGMA) Inc., from August 2 to December 31, 1993, March 14 to April 29, 1994, August 1 to December 31, 1994, January 4, 1995, to February 23, 1996, and March 3 to December 6, 1996, was not insurable because it did not meet the requirements for a contract of service.

[3] Paragraphs 5 and 6 of the Reply to the Notice of Appeal read as follows:

[TRANSLATION]

5. In making his determination, the respondent Minister of National Revenue relied, inter alia, on the following facts:

(a) the payer, which was incorporated in 1992, provides urban planning and heritage protection consulting services; (A)

(b) in 1990 and 1991, the appellant operated a similar business in his own name; (A)

(c) the appellant holds 40 percent of the payer’s shares and his brother Benoît holds the other 60 percent; (A)

(d) the two brothers invested only $40 and $60, respectively, in the payer, and they did so to purchase their shares; (A)

(e) Benoît Bourget is a full-time employee of a third party; (A)

(f) he does the payer’s bookkeeping and is paid a fee for doing so; (A)

(g) the appellant recruits clients for the payer, negotiates fees for the services to be provided and does the work; (DAD)

(h) he decides his hiring date, working hours and layoff date; (D)

(i) rather than working in accordance with a set schedule, the appellant worked as required to meet his clients’ needs; (D)

(j) he sometimes worked evenings and weekends; (A)

(k) he decided whether he needed help or the services of specialists; (D)

(l) he worked on his clients’ premises and in an office set up in his home; (A)

(m) the payer paid him $200 a month for the use of his office; (A)

(n) when the payer began operating, the appellant worked without pay for several months; (D)

(o) on June 5, 1995, the appellant received a cheque for $2,889 from the payer for work done in October 1993 and January, February, March, May, June and July 1994; (A)

(p) the work periods for which the cheque was issued included weeks during which the appellant worked less than 16 hours; (A)

(q) the payer treated the $2,889 as fees; (D)

(r) the appellant used his own equipment (computer, bookcase, filing cabinet and table) and equipment belonging to the payer (fax machine, filing cabinet and table); (A)

(s) the appellant waited several months to be reimbursed for expenses (for travel, accommodation, etc.) for which he was entitled to reimbursement:

- $5,256.02 on March 24, 1993 (for expenses incurred from April to October 1992),

- $3,975.88 on February 17, 1994,

- $4,212.13 on January 11, 1995, and

- $5,909.85 on June 5, 1995 (for expenses incurred from September 1994 to May 1995); (A)

(t) the appellant was free to offer his services to other payers; (A)

(u) the appellant was the reason the payer existed, and without him, the payer could not, in all likelihood, have operated its business; (D)

(v) the appellant did not work under the payer’s control; (D) and

(w) during the periods at issue, there was no employer-employee relationship between the payer and the appellant. (D)

6. The appellant's influence over the payer was so great that there could not be any contract of service between him and the payer.

[4] The Reply to the Notice of Intervention is to the same effect.

[5] Following each subparagraph in the above passage from the Reply to the Notice of Appeal, the Court has indicated as follows, in parentheses, the comments made by counsel for the appellant and the intervener at the start of the hearing:

(A) = admitted

(D) = denied

(DAD) = denied as drafted

Evidence of the appellant and the intervener

According to the appellant:

[6] He is an urban planner by profession. He got the idea of starting up the payer while working on a contract in Rivière-du-Loup, and he put his plan into effect in co-operation with his brother.

[7] The payer works in the restoration of older neighbourhoods.

[8] Its main clients are cities and regional county municipalities.

[9] The reason he has only 40 percent of the payer’s shares is that he initially thought of starting the company with three people. He wanted to have an architect as a shareholder in addition to himself and his brother, and the architect would have held 20 percent of the shares. However, this could not be arranged and his brother now holds the extra 20 percent of the shares.

[10] Administration is not his line of work, but he is responsible for finding clients and providing them with good service.

[11] For the purposes of the contract in Rivière-du-Loup, he went there once a week or once every two weeks.

[12] The minutes of the shareholders’ organization meeting (Exhibit A-1) show, in addition to what is stated and admitted in subparagraphs 5(a) to (f), supra, that it was resolved, inter alia, that $100 be paid to Benoît Bourget every month for bookkeeping and accounting services on the submission of invoices for his fees.

[13] The minutes also show that the appellant was to be paid $18 an hour and that the company was to pay him $200 a month for the use of space for professional purposes, and $0.40 a kilometre for his travel expenses. It was also to pay for a Spanish course he was taking.

[14] They further show that the company was to reimburse him for 80 percent of the cost of chiropractic and physiotherapy services, up to a maximum of $450 a year.

[15] The payroll records (Exhibit A-2) show the salaries and fees he received from the payer; they also show that he was given his vacation pay every week he worked.

[16] He prepared his own time sheets (Exhibit A-3) and did not find having to do so at all tedious.

[17] As regards subparagraph 5(h), supra, it is the board of directors and not the appellant that decides his hiring date, working hours and layoff date, following a discussion with his brother.

[18] There are slow periods at the payer, especially at the start of the year and in the summer.

[19] Meetings with municipal councils are, of course, held in the evenings.

[20] The appellant works 40 hours a week and rarely works weekends, except when there are emergencies or an excess of work.

As regards subparagraph 5(k)

[21] For instance, if the appellant needed a cartographer, he discussed this with his brother Benoît, and the board of directors then made a decision.

As regards subparagraph 5(l)

[22] He did indeed work on his clients’ premises and in an office set up in his home for that purpose, which he shared with the surveyors Parent and Ouellette.

As regards subparagraph 5(n)

[23] He had a contract in Rivière-du-Loup before the payer was set up, and he was paid about $4,500 or $5,000 in fees under that contract.

[24] The fees do not appear in the payer’s books because the amount owed under that contract was paid directly to the appellant.

[25] His records of employment (Exhibit A-4) for the first four periods at issue match up in terms of dates with the first notice of determination, and they all state that he was laid off because of a shortage of work. What happened was quite straightforward: when the payer no longer had any contracts, the appellant had to apply for unemployment insurance.

As regards subparagraph 5(o)

[26] This was an administrative matter, and the payer was not going to write him a cheque for each hour he worked.

[27] The company charged about $50 an hour for his services as an urban planner.

As regards subparagraph 5(p)

[28] The office equipment the appellant owned was leased to the payer and was included in the rent of $200 a month.

[29] It was of course the payer that provided paper and other small work supplies.

As regards subparagraph 5(s)

[30] The appellant was paid when he submitted his invoices.

As regards subparagraph 5(u)

[31] He was the one who performed the contracts, but if he had not been there and available, the payer would have had to hire someone else instead.

[32] The company has not yet paid any dividends, since the accountant’s opinion is that it is too soon.

As regards subparagraph 5(w)

[33] It is true that there was no supervisor at the office, but the appellant's brother regularly read the studies he prepared. However, his brother was not involved in negotiating contracts.

[34] The accountant told the appellant at the outset that he would not be eligible for unemployment insurance benefits if he held more than 40 percent of the shares.

As regards subparagraph 5(o)

[35] The reason why the appellant was not paid his fees for such a long time was that he did not invoice the payer for them earlier.

[36] When asked on cross-examination about the minutes of the organization meeting of the payer’s shareholders (Exhibit A-1), which were reproduced as Exhibit I-1 with a number of tabs directing the Court’s attention to specific passages, the appellant had to admit the following:

(a) at Tab 1, that it was resolved that the expenses he incurred to incorporate and set up the company be reimbursed to him on the submission of vouchers;

(b) at Tab 2, that it was resolved to authorize him to take the necessary action for the company to become a member of the Price Club in order to make purchases there;

(c) at Tab 8, that it was resolved that the company reimburse him, on the submission of vouchers, for the expenses he incurred to participate in two symposiums (ICOMOS, AQU);

(d) at Tab 14, that it was resolved that the company reimburse him, on the submission of vouchers, for his registration fee and the travel expenses he incurred to participate in the AQU symposium on commercial signs; and

(e) at Tab 15, that it was resolved that the company pay him his salary if he was chosen for the team that would go to Vietnam to provide heritage training to government officials in that country.

[37] It is true that the appellant's brother receives only $100 a month from the payer while he himself is paid more, but he is the one who brings in the money.

[38] The appellant signed a statutory declaration (Exhibit I-2) on April 23, 1996, in which the following appears (page 3):

[TRANSLATION]

I received $4,800 on January 11, 1994 . . . .

[39] That reference is to the contract he had in Rivière-du-Loup when he was self-employed, as discussed earlier in his testimony.

According to Benoît Bourget

[40] In addition to still being a shareholder in the payer, Benoît Bourget is a buyer at Prévost Car.

[41] The appellant initially worked for himself.

[42] It was because Benoît too wanted to go into business later when he was drawing a pension from Prévost Car that the two brothers decided to incorporate the payer.

[43] Benoît does the payer’s bookkeeping before handing the books over to the accountant to prepare the financial statements and he also performs general administrative duties.

[44] It was Benoît who completed the ledger (Exhibit A-5), while the chartered accountant, Jean Pelletier, prepared the payer’s opening balance sheet and financial statements (Exhibit A-6).

[45] Benoît does not know whether his brother stops working at 4:00 or 5:00 p.m. every business day, but he does believe that his brother works 40 hours a week.

[46] Benoît too signed a statutory declaration (Exhibit I-3) on April 29, 1996, in which the following appears (page 1):

[TRANSLATION]

The shares were divided up after we met with a lawyer and an accountant, who advised us to divide them up so I would have 60 percent and he would have 40 percent. I invested $60 to purchase 60 shares. . . . I am not responsible for seeking clients, except by reading the newspapers. If I see something, I tell Clermont about it . . . .

The following also appears in the statutory declaration (page 2):

[TRANSLATION]

Two signatures are required for cheques. There is no line of credit, and no money has been borrowed. . . . If he needs someone, he talks to me about it and hires the person in question. He is the one who controls the business because he is the one with the necessary expertise. SIGMA could go on without me, but not without him.

[47] The two brothers talk on the telephone once or twice a week and see each other when necessary.

[48] At such times, the appellant tells his brother about the contracts he is working on.

[49] He is hired when there are contracts to be performed and let go when none remain.

[50] The reason the payer’s resolutions granted certain benefits to the appellant is that Benoît too has benefits, at Prévost Car.

[51] Benoît's administrative work for the payer does not require him to go out much.

[52] The respondent did not call any witnesses.

Arguments

According to counsel for the appellant:

[53] The statutory declarations make it clear that there has been no scheming.

[54] In Roland Navennec v. M.N.R. et al. (A-1037-90), Desjardins J.A. wrote the following for the Federal Court of Appeal (page 6):

Reference must be made to the criteria laid down by the Supreme Court of Canada in Stubart Investments Ltd. v. The Queen.

It is true that in Stubart the question was whether a company could, for the avowed purpose of reducing its tax, conclude an agreement by which its future profits were transferred to a subsidiary in order to take advantage of the latter’s loss carry-forward; but the rules are still applicable to the case at bar when it must be determined whether the applicant has, in short, arranged his affairs so as to be able to collect unemployment insurance benefits . . . .

She added the following (page 9):

From this I conclude that there were real legal relations between the applicant and Pourvoirie Clauparo Inc. and between the applicant, his wife and his sons.

[55] There is nothing wrong with the appellant holding 40 percent of the payer’s shares, and a relationship of subordination does exist.

[56] There are time sheets, and they clearly show all the hours worked.

[57] The appellant does nothing without his brother’s knowledge.

[58] He is the directing mind of the payer because he is the only urban planning expert working for it.

[59] There has been no subcontracting in this case.

[60] Cities want to do business with the payer because the appellant works for it.

[61] His brother wanted to go into business after retiring, which is why he became interested in the payer.

[62] Benoît is not in the company just for show; he really does manage it.

[63] There is a genuine division of labour, and there is no trickery.

[64] The appellant’s benefits are standard. His brother does not work there and does not have to travel to perform his duties.

[65] It is true that the appellant is both shareholder and payer, but that is not prohibited.

[66] The company pays him rent for the office, and he is reimbursed for his travel expenses.

[67] The contract he performed in his own name is not relevant to the judgment to be rendered in this case, since it was awarded to him before the payer was set up.

[68] The $2,889 referred to in subparagraph 5(q) does not constitute true fees, since the hourly rate for an urban planner is $50.

[69] The amount was paid for time accumulated at $18 an hour, and the appellant did not have to declare it in his records of employment because it related to periods when he worked less than 16 hours a week.

According to counsel for the respondent:

[70] The appellant controlled the payer because of his technical knowledge, and he was also the one who hired staff.

[71] The two brothers spoke on the telephone just once or twice a week and did not see each other very often.

[72] Benoît Bourget could not have had much control over the appellant, since his statutory declaration states that his brother is the one who controls the business.

[73] Their desire to find a partner who would hold 20 percent of the shares was never realized.

[74] Is it normal that the payer paid for a Spanish course for the appellant?

[75] The appellant was self-employed and therefore not entitled to unemployment insurance.

[76] Is it normal that the appellant waited so long to be paid, as he admitted doing in subparagraph 5(o)?

[77] It is clear that he took risks by waiting so long to be paid.

[78] The payer has income but, oddly, pays no dividends.

[79] It is true that the appellant was integrated into the payer, but that is not the only thing that must be considered.

According to counsel for the appellant in reply:

[80] The board of directors did play its part, and all the tests that must be met for a genuine contract of service to exist have been met.

[81] In Paul Bernard and M.N.R. (88-158(UI)), the Honourable Deputy Judge Potvin of this Court wrote the following (page 12):

With regard to control exercised by the employer over the employee's work, it must not be forgotten that the degree of such control remains the essential test for identifying the relationship of subordination that characterizes a contract of employment; the degree of control varies according to the circumstances and often depends on the nature of the work to be done. Controlling means having the power to require someone to do something, to act a certain way, to take a certain course of action. However, that power may remain general or, conversely, be exercised in specific terms.

He added the following (page 13):

In the case at bar, the appellant was hired by the company, as is shown by the copies of [the] resolutions . . . and it was at the meetings in question that he was formally hired by the company for the various periods during which he worked. His salary was $400 a week and he had to work 35 hours a week. However, it has been clearly established that the appellant was not bound by a fixed, inflexible work schedule but that he had to work his 35 hours during the week in the manner he considered appropriate in light of the fact that he worked as a geographer on projects.

He subsequently allowed the appeal.

[82] The same must apply in the case at bar.

Analysis

[83] Before the payer was set up, the appellant was a self-employed urban planner and it was as such that he obtained a contract in Rivière-du-Loup. It was natural for him to keep the contract for himself, and his brother has no complaints about that.

[84] It is in evidence that the appellant held only 40 percent of the payer’s shares. As in Navennec, supra, he may have arranged his affairs so as to be able to collect unemployment insurance benefits, but that is not prohibited, and the Court believes that there were real legal relations between the appellant, the payer and the appellant's brother. The minute book is kept very well, and it shows that all important matters were decided by the board of directors.

[85] The two brothers did not have to invest any more in the payer, which had no line of credit and did not have to borrow any money.

[86] Benoît Bourget plays his part in the payer by keeping the books, which he does very efficiently, and looking after administrative matters.

[87] It is clear that the appellant is the one who recruits clients, negotiates fees and does the urban planning work, although his brother does check the newspapers to see whether there are any openings. It could not be otherwise.

[88] It is true that the appellant works only when there are contracts, and this is confirmed by his brother. Again, it could not be otherwise.

[89] The appellant works 40 hours a week. Those hours may sometimes be broken up, but it is normal that he meets with municipal councils in the evenings. He may also work weekends if there are emergencies or an excess of work, but this occurs only rarely. The business's existence depends on it.

[90] He consulted his brother before deciding whether to hire staff.

[91] It was natural for him to work on his clients’ premises and in an office set up in his home, for which he collected rent.

[92] It has been denied that he worked without pay for several months after the payer began operating, and there is no evidence that he did so.

[93] The work periods for which the cheque for $2,889 was issued on June 5, 1995, included weeks during which he worked less than 16 hours. For those weeks, he billed the payer at a rate of $18 an hour based on his contract of employment and not at $50 an hour based on the fees of a self-employed urban planner. He was paid when he submitted the invoice.

[94] The appellant’s personal equipment was leased to the payer along with the office.

[95] The appellant’s wait to be paid for his travel expenses resulted simply from the fact that he did not submit his invoice earlier.

[96] While he was free to offer his services to other payers, there is no evidence that he did so.

[97] It is true that the appellant was the reason the payer existed during the periods at issue, but another urban planner could also have been hired in his place.

[98] The Court does not think that the appellant's influence over the payer was so great that there could not be a genuine contract of service.

[99] The presence of the appellant’s brother in the payer seems necessary, since administration is not the appellant's line of work and it is natural for him to trust his brother to handle it rather than someone else.

[100] The Spanish course was not explained very well, but there is no reference to it in the Reply to the Notice of Appeal.

[101] Benoît Bourget explained clearly the reason for the allowance for chiropractic and physiotherapy expenses.

[102] The appellant’s time sheets were filled out quite properly, and his brother paid him based on those sheets.

[103] A company is not obliged to pay dividends, and it was no doubt a good idea for the payer to follow its accountant’s advice in this regard.

[104] There was no need for supervision at the office, but the power to control really did exist.

[105] It is normal for a shareholder to pay the costs of incorporating a company at the outset and to be reimbursed for them later.

[106] It could have been in the payer’s interest to make purchases at the Price Club.

[107] It was reasonable for the payer to reimburse the appellant for expenses he incurred when participating in symposiums.

[108] The evidence does not show whether the appellant was chosen to go to Vietnam, and there is therefore no legal conclusion to be drawn in that regard.

[109] It is highly significant that the brothers must both sign the payer’s cheques. This clearly shows that there is actual control by the board of directors, which is made up of the two brothers.

[110] There is no scheming, but there is a genuine relationship of subordination, since Benoît Bourget holds 60 percent of the shares and the appellant does nothing without his knowledge.

[111] There is no subcontracting, and it is natural that cities want to do business with the payer because it has an urban planner working for it.

[112] There is a genuine division of labour, and there is no trickery, since Benoît Bourget is not in the company just for show — far from it.

[113] A distinction must be drawn between control over operations and control of the company.

[114] The evidence as a whole shows that the appellant was not self-employed.

[115] As stated in Bernard, supra, the degree of control varies according to the circumstances and often depends on the nature of the work to be done, and the power to control may remain general, as in the case at bar, or be exercised in specific terms.

[116] In the case at bar, as in Bernard, it was through resolutions of the payer that the appellant was hired for the various periods during which he worked. He was not bound by a fixed, inflexible work schedule but had to work his hours during the week in the manner he considered appropriate in light of the fact that he worked as an urban planner on projects for the payer.

[117] The appellant therefore worked under the control of the board of directors, on which he was a minority shareholder, and there was indeed an employer-employee relationship between the payer and him.

[118] The appeal must therefore be allowed and the determination under appeal reversed.

Signed at Laval, Quebec, this 14th day of August 1998.

“A. Prévost”

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 8th day of February 1999.

Stephen Balogh, Revisor