Lemieux v. M.N.R., docket 96-2305-UI

Date: 19981027

Docket: 96-2305-UI

BETWEEN:

HORTENSE LEMIEUX,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

LES INDUSTRIES D.M.S. INC.,

Intervener.

Reasons for Judgment

Prévost, D.J.T.C.C.

[1] This appeal was heard at Chicoutimi, Quebec, on October 8, 1998.

[2] It is an appeal from a decision by the Minister of National Revenue (“the Minister”) dated October 8, 1996, determining that the appellant’s employment with the intervener, the payer, from May 17 to December 18, 1993, and July 1 to December 23, 1995, was not insurable because the employee and employer were not dealing with each other at arm’s length.

[3] Paragraph 5 of the Reply to the Notice of Appeal reads as follows:

[TRANSLATION]

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

(a) the payer specializes in industrial welding; it also does machining and repairs; (A)

(b) since December 15, 1990, the payer’s capital stock has been distributed as follows:

Mario Gilbert, the appellant’s spouse 65%

the appellant 35%; (A)

(c) Mario Gilbert was the president of the payer; (A)

(d) the appellant was the payer’s secretary from November 12, 1992, to December 2, 1993, and its vice-president after December 2, 1993; (DAW)

(e) both spouses signed the payer’s cheques; (A)

(f) the appellant did the bookkeeping and carried out various administrative activities of the payer; (ASA)

(g) bookkeeping took 50 to 60 percent of her time in 1993, and that proportion increased to about 90 percent in 1995; (DAW)

(h) the appellant was the only office worker and could set her own hours of work based on her needs; (D)

(i) she received fixed wages of $410 gross a week; (ASA)

(j) she could use the payer’s car for her work and her personal needs; (DAW)

(k) she claims that she was laid off on December 18, 1993, because of a shortage of work; (A)

(l) the payer’s sales are constantly increasing from year to year; (DAW)

(m) between the two periods at issue, the appellant presumably worked without pay; (D)

(n) from January 1 to June 30, 1995, the payer paid her $325 a week, which it recorded as the repayment of an investment; (A)

(o) the appellant did not pay anything for her shares and never loaned the payer money; (DAW)

(p) in these circumstances, it is not reasonable to conclude that the appellant’s contract of employment would have been substantially similar if she had been dealing with the payer at arm’s length. (D)

[4] The Reply to the Notice of Intervention is similarly worded.

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

(A) = admitted

(ASA) = admitted subject to amplification

(D) = denied

(DAW) = denied as written

[6] In her Notice of Appeal, the appellant argued that the decision under appeal violated the Canadian Human Rights Act.

[7] At the start of the hearing, the Court accordingly asked counsel for the appellant whether she had complied with section 57 of the Federal Court Act, subsection (1) of which reads as follows:

57.(1) Where the constitutional validity, applicability or operability of an Act of Parliament or of the legislature of any province, or of regulations thereunder, is in question before the Court or a federal board, commission or other tribunal, other than a service tribunal within the meaning of the National Defence Act, the Act or regulation shall not be adjudged to be invalid, inapplicable or inoperable unless notice has been served on the Attorney General of Canada and the attorney general of each province in accordance with subsection (2).

[8] She said that she had not but added that the appellant and the intervener would no longer be making that argument.

Appellant’s evidence

According to Johanne Gravel, accounting clerk:

[9] She (Johanne Gravel) runs an automated accounting office for small- and medium-sized businesses; she works in collaboration with a chartered accountant, who referred the payer to her.

[10] Initially, she went to the payer’s office on Tuesday or Wednesday and picked up the papers she needed for her bookkeeping work. She brought them back the following Friday.

[11] In this manner, she “trained” the appellant, making any necessary changes to the accounting records the appellant had prepared.

[12] The intervener subsequently purchased software, and Johanne Gravel showed the appellant how to use it. As a result, the appellant did more, and the only thing Johanne Gravel still had to do was go to the payer’s office to prepare the trial balance.

[13] Initially, she did the intervener’s payroll herself, but in time the appellant was able to handle it on her own.

[14] She checked with the unemployment insurance office to see whether the appellant’s employment could be insurable, and she was told that it could.

[15] However, because of her lack of experience, she did not take the name of the person who had given her that information.

According to the appellant:

[16] She used to be a teacher, and she subsequently studied bookkeeping and introductory accounting at the CEGEP de Chicoutimi, where she obtained a course certificate (Exhibit A-1) on June 26, 1986.

[17] She has also done volunteer work for a premarital counselling service.

[18] She got married in 1963 and started working for the intervener in September 1988, when it was incorporated.

[19] At that time, it was Johanne Gravel who continued her introduction to accounting as an executive secretary.

[20] Initially, the appellant answered the telephone and prepared cheques, invoices and statements of account; she made the entries by hand and Johanne Gravel then entered them in a computer.

[21] At the office, which was not in her home, she worked from 8:30 a.m. to noon and from 1:00 p.m. to 4:30 p.m.

[22] She received customers, purchased necessary supplies, looked after the photocopier and handled collection, even going to pick up customers’ cheques when necessary; she did the banking and ran errands.

[23] She had statutory holidays off and took her vacation in the summer when there was not much work.

[24] In the shop, there were welders and machinists who worked with her husband, who looked after making the purchases needed for production.

[25] She explained the employees’ paycheques to them as required.

[26] When necessary, she and her husband put money into the payer through their joint account; the business subsequently repaid them; these advances to the company were shown in the cumulative trial balances and the general journals (Exhibit A-2) under the heading [TRANSLATION] “Owed to shareholder”.

[27] Other accounting records (Exhibit A-3) show that $5,000 was deposited in the payer’s bank account on September 24, 1992; that amount was also entered under the heading “Owed to shareholder”, and it also came from the joint account.

[28] Other such records (Exhibit A-4) show the following entry for December 19, 1996: [TRANSLATION] “Investment Hortense $5,000”; that amount came from her regular savings account.

[29] The financial statements (Exhibit A-5) for the fiscal year ending on August 31, 1993, show a loss of $13,347; they also show that there was a loss of $30,546 in 1992.

[30] Those years were very difficult, and her husband had to borrow $40,000 by putting a mortgage (Exhibit A-6) on his house in order to revitalize the business; the appellant had to be a party to the deed of loan as a joint and several surety.

[31] She still worked at the office when she was receiving unemployment insurance benefits, but only for five hours a week, and she reported those hours to the unemployment insurance authorities; she also explained this to the investigator who came to see her about it.

[32] At that time, there was less work at the shop; her husband could answer the telephone and prepare the invoices, of which she then had only to make a fair copy; a number of documents had to be gathered together in order to prepare an invoice, and she did not have to do this as she had had to before.

[33] Her records of employment (Exhibit A-7) correspond to the periods at issue and state that they were issued because of a shortage of work.

[34] She went back to work full time on January 1, 1995, but was not on the payroll until June 30 but instead received $325 a week as repayment of advances; there were more contracts at that time and therefore more work.

[35] When she was on unemployment, she looked for part-time work but was unable to find any.

[36] The car in the payer company’s name is used by her husband to go to meet customers; they do not have any other car.

[37] From 1988 to 1993, she was always on the payroll, and her wages of $410 a week were always paid to her.

[38] She first received unemployment insurance benefits after she was laid off the first time.

[39] A young woman, Sandra Coulombe, also worked at the reception desk, and the payroll history (Exhibit A-8) shows that her gross wages were $1,484; Ms. Coulombe replaced the appellant as necessary when she had to be away during her five hours of work a week; her husband looked after the office the other 30 hours a week.

[40] In 1997, there was also another employee who replaced the appellant when she had to be away.

[41] Before there was a computer on site, the appellant spent fully half of her time on bookkeeping.

[42] Johanne Gravel now comes to the office just once a year to check that there are no mistakes; if she needs to, however, the appellant consults Ms. Gravel by telephone.

[43] Even with the computer, accounting now takes up almost all of her time.

[44] In 1994, she received unemployment insurance benefits for almost the entire year.

[45] The financial statements to August 31, 1994, and August 31, 1995 (Exhibit I-1) show that the payer’s sales increased from $262,461 to $268,267 between 1994 and 1995 while the shareholders’ equity increased from $2,187 to $24,586 during the same period of time.

[46] They also show $15,000 in capital stock.

[47] The appellant's shares were transferred to her by her husband.

[48] The statements (Exhibit I-1) also show that the payer’s income increased from $221,394 to $262,461 from August 31, 1993, to August 31, 1994.

[49] Efforts were made to get the business back on its feet, and that is why she ended up on unemployment, since she was not working in production.

[50] When she was on unemployment, she had little need for Sandra Coulombe, but business subsequently increased, as did the amount of office work.

According to Mario Gilbert:

[51] The payer did not have a backlog of orders when it was incorporated, but someone was still needed to answer the telephone, receive customers, order office equipment and do the bookkeeping; if his spouse had not been there and available, he would have had to find another employee to do that work.

[52] He handled the seeking of customers, the taking of measurements on site and the making of bids at customers’ premises.

[53] Initially, the payer had a truck and a car; the appellant used the car to go to make bank deposits, and Mario Gilbert used it to go to make bids.

[54] Both of them also used it for personal purposes, of course. The payer now has another truck.

[55] It was up to him when the appellant went on vacation, but they arranged things so that they could go on vacation together, taking into account the contracts to be performed.

[56] The respondent did not call any witnesses.

Argument

According to counsel for the appellant and the intervener:

[57] The witnesses were in good faith, and the appellant’s work was necessary to the efficient operation of the business.

[58] The appellant used to be a teacher and then took accounting courses so that she could be of service to the payer.

[59] Financial problems arose, and she had to be laid off; if she had not been there, another employee would have had to be hired instead and would likely also have had to be laid off at some point.

[60] The appellant had no decision-making authority, and her husband made all the decisions, except with respect to purchasing office stationery; she had a fixed work schedule, and the tools she needed for her job were provided to her by the payer.

[61] In Johanne Caron et al. v. M.N.R. (92-1056(UI) and 92-1248(UI)), the Honourable Judge Tremblay of this Court wrote the following (p. 2):

. . . The appellant worked as a secretary. She claimed that the work was genuine, that it was necessary for the payer and that it therefore constituted insurable employment.

The respondent submitted that the appellant’s principal task was to answer the telephone at home and that she was not dealing with the payer at arm’s length. . . .

(p. 4):

The appellant, who had helped her husband in this work since 1981, was quite familiar with the trade and was able to give customers satisfactory answers.

She also kept the books and had even obtained a certificate stating that she had taken a bookkeeping course and had passed the five tests with an 86 percent average (Exhibit A-1). In addition to keeping the books (Exhibit A-3), the payroll (Exhibit A-5) and the 14-column ledger she looked after the bank account. She made deposits (Exhibit A-2), prepared cheques to pay suppliers (Exhibit A-4), opened files, received customers’ payments, recorded advances and handled accounts payable. The payer provided her with a typewriter, calculator and filing cabinet.

(p. 5):

Mr. Caron said that he had no head for figures. If his wife was ill he absolutely had to have another secretary, at least to answer the telephone, receive customers and keep the books.

(pp. 6-7):

It must first be determined whether the appellant was an employee or a self-employed person, or whether this employment was a sham. The tests laid down by commentators and the courts to distinguish a contract of service from a contract for services are well known:

1– whether and to what extent control is exercised over the work done;

2– ownership of the tools needed for the work;

3– the chance of profit or risk of loss;

4– ownership of the business;

5– the extent to which the work done is integrated into the payer’s business (the organization test);

6– the salary.

It appeared from the evidence as a whole that the appellant’s employment was not a sham, but was genuine. The detailed description that she gave left no doubt as to the work done. Nor were the good faith and credibility of the witnesses questioned by anyone, not even counsel for the respondent.

Moreover, the duties performed were absolutely necessary for the payer, as it had four competitors . . . and its president worked from 8:00 a.m. to 8:00 p.m.

(p. 7):

In this case as in many cases in the working world, in the absence of direct control, subordination suffices to establish a contract of service. . . .

[62] The appellant’s work would have been the same even if she had been at arm’s length with the payer.

According to counsel for the respondent:

[63] The decision in Attorney General of Canada v. Jencan Ltd. (A-599-96) cannot be ignored, and the Court cannot substitute itself for the Minister when he has exercised his discretion, as he has in this case.

[64] At p. 15, the Chief Justice of the Federal Court of Canada wrote the following for the Federal Court of Appeal:

The decision of this Court in Tignish, supra, requires that the Tax Court undertake a two-stage inquiry when hearing an appeal from a determination by the Minister under subparagraph 3(2)(c)(ii). At the first stage, the Tax Court must confine the analysis to a determination of the legality of the Minister’s decision. If, and only if, the Tax Court finds that one of the grounds for interference are established can it then consider the merits of the Minister’s decision. As will be more fully developed below, it is by restricting the threshold inquiry that the Minister is granted judicial deference by the Tax Court when his discretionary determinations under subparagraph 3(2)(c)(ii) are reviewed on appeal.

He also wrote the following (p. 16):

Section 70 provides a statutory right of appeal to the Tax Court from any determination made by the Minister under section 61, including a determination made under subparagraph 3(2)(c)(ii). The jurisdiction of the Tax Court to review a determination by the Minister under subparagraph 3(2)(c)(ii) is circumscribed because Parliament, by the language of this provision, clearly intended to confer upon the Minister a discretionary power to make these determinations. The words “if the Minister of National Revenue is satisfied” contained in subparagraph 3(2)(c)(ii) confer upon the Minister the authority to exercise an administrative discretion to make the type of decision contemplated by the subparagraph. Because it is a decision made pursuant to a discretionary power, as opposed to a quasi-judicial decision, it follows that the Tax Court must show judicial deference to the Minister’s determination when he exercises that power.

He added (p. 18):

. . . The Tax Court is justified in interfering with the Minister’s determination under subparagraph 3(2)(c)(ii) – by proceeding to review the merits of the Minister’s determination – where it is established that the Minister: (i) acted in bad faith or for an improper purpose or motive; (ii) failed to take into account all of the relevant circumstances, as expressly required by paragraph 3(2)(c)(ii); or (iii) took into account an irrelevant factor.

[65] In this context, the Court absolutely cannot interfere.

[66] The appellant guaranteed the mortgage on her husband’s home to bail out the payer, which an unrelated person certainly would not have done.

[67] The appellant owned 35 percent of the payer’s shares, for which she provided no consideration.

[68] Johanne Gravel initially went to the payer’s office twice a week, and the appellant certainly did not have much work to do there at that time.

[69] The appellant received unemployment insurance benefits for almost all of 1994.

[70] Sandra Coulombe was hired as a receptionist by the payer to replace the appellant, who allegedly worked there just five hours a week.

[71] At one point, the appellant was working for the payer full-time while receiving only repayment of what she had invested in it.

[72] It is not normal that the appellant should have spent all her time on accounting after they got a computer, when before it had taken only half her time to do the accounting manually.

[73] The appellant invested in the payer, and an unrelated person certainly would not have done so.

[74] It is clear that the appellant continued her regular work for the payer while receiving unemployment insurance benefits.

According to counsel for the appellant and the intervener in reply:

[75] The appellant was a shareholder in the payer and thus not an ordinary employee.

[76] She invested in the payer to protect her job; she was accountable to her husband; she did more than just the accounting; she had many other duties to perform.

Analysis

[77] The appellant received her shares in the intervener for nothing, and an unrelated employee certainly would not have received such a gift.

[78] Subparagraph (d) cited above was denied as written, but there is no evidence that the appellant did not become the vice-president of the company on December 2, 1993.

[79] The burden of proof, need it be pointed out, was on the appellant and the intervener.

[80] The appellant could sign the payer’s cheques, and another secretarial employee certainly would not have been able to do so.

[81] The appellant obviously worked for the payer, but the Minister, in the exercise of his discretion, found that her employment was not insurable.

[82] She denied subparagraph (g) as written, but the evidence adduced in this case shows that allegation to be true.

[83] She also denied subparagraph (h), and it is true that Sandra Coulombe also worked at little at the payer’s office; it is also true that the appellant had to abide by a work schedule, but that is not all that must be considered to dispose of this case.

[84] Mario Gilbert did say that the appellant used the payer’s car, inter alia for personal purposes.

[85] It is clear that the appellant continued to work for the payer even after she was laid off the first time; her explanation that she worked five hours a week yet even had to be replaced occasionally does not stand up to serious scrutiny, especially since her husband handled the secretarial work at the payer’s office by himself during the other 30 hours.

[86] An unrelated person would certainly not have worked there without being paid; the same is true for the period from January 1 to June 30, 1995, when she worked full time in return only for the repayment of what she had invested.

[87] The appellant did not pay for her shares, and an unrelated person would normally have had to do so.

[88] In these circumstances, it is not reasonable to conclude that the appellant’s contract of employment would have been substantially similar if she had been dealing with the payer at arm’s length.

[89] There is no doubt that Johanne Gravel helped the intervener when it was starting out and that she “trained” the appellant, but that is not what the Court has to decide to dispose of this case.

[90] The appellant’s previous activities are interesting, but they do not really provide grounds for interference by the Court.

[91] She invested in the payer, which an unrelated employee certainly would not have done.

[92] There are ups and downs in every industry.

[93] The appellant could use the payer’s car for personal purposes, and an unrelated employee certainly would not have been able to do this.

[94] It is true that layoffs can help get a business back on its feet, but an employee so dismissed cannot receive unemployment insurance benefits and at the same time still work without pay, especially when the business’s income is increasing.

[95] The situation in the case at bar can be explained only by the non-arm’s-length relationship.

[96] The good faith of the witnesses has not been challenged in any way, but the Court must rule within the framework of the Act.

[97] In unemployment insurance matters, each case is sui generis.

[98] In Caron, supra, the spouse did not transfer shares, advance funds to the business or guarantee a mortgage on her husband’s home in order to bail out the business; nor did she work full-time simply to recover the advances she had made to the payer.

[99] Jencan, supra, clearly shows that the Court should not interfere and should show judicial deference, since the Minister’s decision was perfectly legal.

[100] There is no evidence that the respondent acted in bad faith or for an improper purpose or motive. He took into account all of the relevant circumstances and he did not take irrelevant factors into account.

[101] The appellant certainly was not an ordinary employee of the intervener: she was its vice-president, had advanced funds to it, had worked for it without pay while collecting unemployment insurance benefits, had guaranteed a loan so that her husband could bail out the business, and used the payer’s car for personal purposes.

[102] Johanne Gravel most likely did not explain the entire situation to the unemployment insurance office when she checked whether the employment in question was insurable; moreover, the Minister is not bound by such information provided by employees of that office.

[103] The appeal must therefore be dismissed and the decision under appeal confirmed.

Signed at Laval, Quebec, this 27th day of October 1998.

“A. Prévost”

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 29th day of June 1999.

Erich Klein, Revisor