Jones v. M.N.R., docket 97-254-UI

Date: 19980505

Dockets: 97-254-UI; 97-255-UI; 97-256-UI

BETWEEN:

PETER JONES, JACKIE BAYLEY, SHERRI BAYLEY JONES,

Appellants,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Porter, D.J.T.C.C.

[1] These appeals were heard at Toronto, Ontario on February 27, 1998 on common evidence, by consent of the parties.

[2] In each case, the Appellant appeals the decision of the Minister of National Revenue (the "Minister") that their respective employment with the Wee Wonder Day Care Inc. (the "Daycare") was not insurable under the terms of the Unemployment Insurance Act (the "Act") for the reason that each was not engaged under a contract of service and therefore was not an employee during the periods in question. The determination, which was said to be pursuant to paragraph 3(1)(a) of the Act, was communicated to the Appellants on November 19, 1996. The periods of time in question were as follows:

Peter Jones August 5, 1991 to July 31, 1992

July 12, 1993 to October 28, 1994

Jackie Bayley September 7, 1992 to July 2, 1993

September 7, 1993 to June 30, 1994

Sherri Bayley Jones September 7, 1992 to September 24, 1993

[3] The issue in each case is whether genuine contracts of employment existed between the Daycare, a non-profit corporation, and each of the Appellants respectively. The Minister in argument submitted that the Appellants exerted such control over the affairs of the Daycare that in effect they were dealing with themselves and the board of directors was simply a fiction. The Appellants each maintain that they dealt at arm’s length with the board of directors and that their respective contracts of employment, albeit verbal ones, were genuine and legitimate.

The Law

[4] Counsel, on behalf of the Minister, argues that in reality these Appellants exerted such control over the affairs of the Daycare, that there were no contracts of employment, that in effect they were contracting with themselves and that the comings and goings into and from the Daycare were simply orchestrated by them so that they could receive unemployment insurance benefits. In short the argument is that they were the directing mind behind the corporation and that in reality it was their business. In support of these submissions the Minister was said to rely upon the following cases:

Calogero Gulizia v. M.N.R. [1996] T.C.J. No. 1001

Carmelo Scalia v. M.N.R. [1994] F.C.J. No. 798

Yves P. Therrien v. M.N.R., 95 DTC 5672

Bruno Bouillon v. M.N.R. et al., F.C.A., (1996) 203 N.R. 227

[5] Of particular note are the comments of the Federal Court of Appeal in the Carmelo Scalia and M.N.R. case where at paragraph 4, Marceau, J. says this:

"On analysing the evidence, however, we find that the applicant had such ascendancy over the company, its activities and the decisions of its board of directors, which was composed of himself, his nephew and his sister-in-law, that there could not have been the independent relationship between himself and the company that is necessary to the creation of a true subordinate relationship."

[6] I note also the words of Desjardins, J.A. of the Federal Court of Appeal in the Bruno Bouillon v. M.N.R. case at paragraphs 10 and 11:

"I believe that the trial judge incorrectly defined the issue. It is not a question in this case of determining whether there was a contract of service as opposed to a contract for services, but rather of deciding if there was in reality a contract of any nature whatsoever between the applicant and the payer. According to the evidence, Jean-Pierre Bouillon, Yves Levasseur and Raynald Gaudreau did not pay any money for the purchase of 20% of the payer’s shares...

The perplexing situation thus described casts serious doubt on the payer’s existence as an entity distinct from its main shareholders, Bruno Bouillon and Ghislain Bélanger. These two have acted as if the third "shareholder" did not exist, even to the point of excluding him from the dividend. They had complete control (Carmelo Scalia v M.N.R. ...) over the payer, which played only a role of convenience and served as a screen for their activities. I find that no agreement whatsoever existed between the applicant and the payer, let alone a contract of service. I conclude that the applicant worked for himself during the relevant periods."

[7] Hamlyn, T.C.J. dealt with a similar issue in the Calogero Gulizia and M.N.R. case and was sustained on appeal. He asked himself and answered the following question:

"In answer to the pivotal question whose business is it, I find the business is that of the Appellant and his brother."

[8] These then, are the guides which I must use to decide whether there was a sufficiently independent relationship between the Appellants, or any of them and the Daycare, that a proper conclusion can be drawn that there was a contract of employment.

The Facts

[9] It is common ground that Peter Jones and his wife, Sherri Bayley Jones, started the Daycare originally as a home-childcare situation in their home in 1987. It was done to accommodate a daycare situation for their own young child. They engaged somebody else to come into their home, take care of their own child and they opened it up to the children of people in the neighbourhood, who were experiencing similar childcare difficulties. Both Mr. and Mrs. Jones worked outside their home in regular jobs unrelated to daycare. In 1988, it was decided to set up the non-profit corporation. The original directors were the three Appellants and two other parents from the neighbourhood. Jackie Bayley is Sherri’s mother. By incorporating in this manner the Daycare became eligible for Provincial assistance and could provide better care at a lower price. Thus it was in everyone’s interest, that is to say all the parents involved, to incorporate in this manner. The incorporation was undertaken by a lawyer. Up to this point it was clearly their own affair.

[10] Jackie Bayley had been attending childcare courses, received her diploma and in the summer of 1988 was engaged by the Daycare as the E.C.E. Supervisor. The daycare changed in the process from a home-care situation to a regular provincially licensed daycare. Prior to the Board engaging Jackie, Sherri resigned from the Board in order to avoid any suggestion of conflict of interest. Peter Jones said in evidence that he abstained from involvement in the decision. No minutes of that meeting were presented to the Court.

[11] Enrolment generally increased over the next two years. Sometime during 1989/90, the Daycare, which up to that time had operated out of the Jones’ home, purchased that home from Peter and Sherri. They continued to live there for a while, leaving finally at the beginning of 1991. Up to this point Peter Jones had played a significant role on the Board of Directors. However, again no minutes of meetings were available for this period of time.

[12] In 1991, Sherri was hired by the Board to do nutrition management which was her professional expertise, and provide hands on childcare as an assistant to her mother. The evidence was that enrolment was up sufficiently to justify this position. At that time, in accordance with the Provincial guidelines, on conflict of interest in non-profit organisations, Peter resigned from the Board of Directors. Undoubtedly, he continued to be involved and help out at the Daycare, something the Court might find to be not unusual for parents involved in a non-profit organisation. The Minutes of Board meetings reveal a loan of money from Sherri to the Daycare and discussion by the Board of a proposal to buy Peter’s truck, which, in the end, they decided not to do. It was apparently used for Daycare purposes in the meantime.

[13] In July 1991 (exactly when is not clear from the evidence), Sherri was laid off by the Board. The minutes indicated a greater need for maintenance services than a second child daycare worker. In August 1991, the Board engaged Peter to do administration and accounting, including payroll, at the Daycare on a full-time basis. There are no minutes of the Board meeting to this effect. His evidence, however, was that he was approached by the Chairperson of the Board. He left his regular employment to take up this position. He had a degree of flexibility and did not have set hours. He attended for all meetings and inspections by Social Services and generally looked after all the accounting and maintenance of building and equipment. He reported directly to the Board and liaised with the chairperson of the Board.

[14] His evidence was that he was subsequently laid off in July 1992 as there was insufficient work for him. He said he was given two-weeks notice. Thereafter he did some work on a volunteer basis and it appears that he may have been paid for some part-time work. Sherri was hired back at the same time. There are minutes to this effect relating to the May 27, 1992 Board meeting.

[15] I have to note that it is curious that Sherri was hired back at the same time as Peter was let go. Naturally this would arouse suspicions, particularly when unemployment insurance benefits were being claimed by each of them. Nevertheless reasons were given and, as I say, there is reference to this in the minutes of the Board meetings.

[16] The next movement was in July 1993. Reference is made in the May 17, 1993 Board minutes to the proposal to lay off Sherri in July and that Peter should be rehired in areas of maintenance and support, part time to begin with to be increased when available. In the November 20, 1993 minutes there is a reference to Peter’s hours being increased and for him to return full time in December if possible. He was subsequently laid off again in November 1994. This is mentioned in the minutes of the October 25, 1994 meeting of the Board and is said to be on account of low enrolment. Peter Jones said in evidence that an allegation of abuse of a child had been made during the year against a male staff worker and this had badly affected enrolment.

[17] In the Summer of 1992, Jackie had taken holidays. In the Summer of 1993, she said that she was laid off for the summer on account of low numbers and that she was rehired again in September. The same situation prevailed in 1994. The evidence was that enrolment diminished considerably over the summer months.

[18] Those then, in summary, are the facts that I have been able to glean from the evidence. I have set them out in detail as they relate to the three Appellants because I think a global picture of what went on is needed here.

Conclusion

[19] There is no doubt in my mind that these Appellants actually worked for the Daycare doing the jobs they have described during the periods of time that have been specified. I am perfectly satisfied as to that. They all struck me as basically honest people when they gave their evidence under oath. There is also in my mind no doubt that they were paid for their work in the manner described. Indeed cheques were produced in evidence showing the payments. I am concerned that Peter and his wife Sherri appear to have signed all their own pay cheques. I am concerned that they remained as signatories on the bank account apparently at times when they were neither employees nor directors of the Daycare. That factor perhaps more than anything else lends support to the Minister’s position. Further support to that position is given by the addition of Sherri to the staff of the Daycare at more or less the same time that Peter left his employment there and claimed unemployment insurance benefits.

[20] Taken at face value these two factors may have been conclusive. However, when put in context, the picture is somewhat different. There is no doubt that this Daycare organisation was not run in a particularly business-like manner. It is equally clear that from 1989 onwards, although Peter, Sherri and Jackie, her mother, had much to do with the Daycare they were not alone. There were many other Board members, who came and went, no doubt in accordance with the needs of their own children. There is also no doubt that there were a considerable number of other staff who worked from time to time at the Daycare. They came and went also.

[21] It is quite evident that the Daycare was a legitimately incorporated organisation, running a legitimate daycare operation. I gleaned from the evidence that, as in the case of many community organisations when much reliance is placed on volunteer help to get the job done, many different people played many different roles over the years. Some were paid and some donated their time. The Appellants probably had the longest running involvement. Indeed they started it and probably wanted to see it not only survive, but to flourish. There is little doubt in my mind that it was most convenient for them to have it happen that one was hired and one was let go at the same time in the summers of 1991, 1992 and again in 1993. The question is whether they were in control of that. If they were then really the Minister’s position is borne out. On the other hand, if by chance it simply turned out to be convenient for them and nothing more then they should not be penalised for that. If the decision was made by an independent Board of Directors in the interest of the Daycare, then the Appellants are entitled to the same benefits and consideration as anyone else. I cannot help but think that at the least they would have let the Board know how convenient that would be for them.

[22] I must consider though whether the Board was independently considering the interests of the Daycare rather than the interests of Peter and Sherri and whether it was acting free and clear of effective control by them. The Appellants of course maintain that it was. The only independent evidence are the minutes. These have not been well kept. They are not comprehensive. I do not know who produced them or who approved them. They do show a considerable and continuing involvement by the Appellants in the day-to-day operation of the Daycare. They do show the independence of the Board at one point in time when they declined to purchase Peter’s truck. It is perhaps unfortunate that no enquiry was made of any of the other Board Members.

[23] After reviewing all the evidence and in particular listening to Peter Jones and his wife Sherri Bayley Jones, I am of the view that they are to be believed when they say the Board functioned independently of them. I am sure they carried considerable influence with the Board but it acted independently of them, was capable of and in fact did make its own decisions in the best interests of the Daycare. It may have been far more prudent to have had written contracts, to have kept better minutes and to have had Board Members sign pay cheques. However, despite those concerns and the other laxities in the general business affairs of the Daycare, I am satisfied on the balance of probabilities that there was sufficient institutional independence to say that there existed contracts of employment. I am satisfied that the Daycare was a business operation in its own right and that although the Jones had a considerable involvement in it, it existed for the benefit of the community who had sufficient say in its affairs that it could not be termed an extension of the Appellants. They had a close and often convenient working relationship with the Daycare but I am not of the view that it was their business or that in effect they were working for themselves. In conclusion, I am of the opinion that each of the three Appellants was employed by the Daycare for the periods in question and that their respective contracts of employment were real and genuine.

[24] I would add, however, that in the case of Jackie I considered it to be a complete fiction that she was laid off and rehired over the summers of 1992 and 1993. This in my view was contrived and the arrangement was nothing more than a well-deserved vacation, but not one that other taxpayers should be funding. That does not affect my decision that she was duly employed. It may well affect her entitlement to any benefits over those periods of time but that is a matter for a different forum. I simply make that observation for what it is worth.

[25] In each case the appeal is allowed and the decision of the Minister is vacated.

Signed at Calgary, Alberta, this 5th day of May 1998.

"Michael H. Porter"

D.J.T.C.C.