Citation: 2012TCC221
Date: 20120621
Docket: 2010-3846(EI)
BETWEEN:
SURJIT MINHAS,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The issue in this case is whether the
Appellant was employed by 1303886 Alberta Ltd. (the “Company”) in insurable
employment for the purposes of the Employment Insurance Act (the “EI
Act”) during the period from August 15, 2009 to January 15, 2010. The
Respondent had determined that the Appellant was not employed by the Company in
insurable employment for the purposes of the EI Act during the period
referred to above on the basis that the Appellant was not dealing at arm’s
length with the Company.
[2]
The
Company operated a “Tag’s” convenience store in Slave Lake, Alberta and the Appellant was
employed as the assistant manager from August 15,
2009 to January 15, 2010. The Company was owned equally by two holding companies.
The Appellant’s husband and his brother owned one of the holding companies and
the other holding company was owned by two cousins of the Appellant’s husband.
[3]
Insurable employment is generally
employment in Canada. However, paragraph 5(2)(i) of the EI Act
provides that insurable employment does not include “employment if the employer
and employee are not dealing with each other at arm’s length”. If the employer
and the employee are related to each other (as determined for the purposes of
the Income Tax Act), then the employment will be insurable employment if the
conditions as set out in paragraph 5(3)(b) of the EI Act are
satisfied.
[4]
At
the commencement of the hearing, counsel for the Respondent stated that it was
the position of the Respondent that the Appellant was related to the Company
for the purposes of the Income Tax Act and therefore, as a result of the
provisions of paragraph 251(1)(a) of the Income Tax Act, the
Appellant would be deemed to not be dealing with the Company at arm’s length.
[5]
Section 251 of the Income Tax
Act provides, in part, as follows:
251 (2) For the purpose 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
(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
…
251 (4) In this Act,
“related group” means a group of persons each member of which is related
to every other member of the group;
…
251 (6) 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;
(b.1) common-law partnership if one is in a common-law partnership with
the other or with a person who is connected by blood relationship to the other;
and
(c) adoption if one has been adopted, either legally or in fact, as
the child of the other or as the child of a person who is so connected by blood
relationship (otherwise than as a brother or sister) to the other.
[6]
The Appellant’s
husband is not related to his cousins (and nor is his brother) for the purposes
of the Income Tax Act. Therefore the Company is not controlled by a
related group for the purposes of the Income Tax Act and the Appellant
is not related to the Company for the purposes of the Income Tax Act.
[7]
Since
the Appellant is not related to the Company it is a question of fact whether
the Appellant was dealing at arm’s length with the Company.
[8]
In Parrill v. The
Minister of National Revenue, [1996] T.C.J. No. 1680 (which was
affirmed by the Federal Court of Appeal, [1998] F.C.J. No. 836), Cuddihy, J.
stated that:
20 From these cases parties are not dealing at arm's length when
the predominant consideration or the overall interest or the method used amount
to a process that is not typical of what might be expected of parties that are
dealing with each other at arm’s length.
21 Parties will not be dealing with each other at arm’s length if
there is the existence of a common mind which directs the bargaining for both
parties to a transaction or that the parties to a transaction are acting in
concert without separate interests or that either party to a transaction did or
had the power to influence or exert control over the other and that the
dealings of the parties are not consistent with the object and spirit of the
provisions of the law and they do not demonstrate a fair participation in the
ordinary operation of the economic forces of the market place*.
22 Therefore the existence of a combination of one or several of
these initiatives that would be inconsistent or interfere, in due process
negotiating between employer and employee and with the object and intent of the
legislation, will not survive the arm’s length test.
(* denotes a footnote reference that was in the original text but which
has not been included)
[9]
The
Appellant and her husband testified during the hearing. Sometime prior to the
Appellant being hired as an assistant manager, Joan Bolton had been the
assistant manager. There was no dispute that Joan Bolton was dealing at arm’s
length with the Company. When Joan Bolton was hired as the assistant manager
the Appellant was also available for work but the Company chose Joan Bolton
for the position. This indicates that when the Appellant was hired later, she
was not hired because her husband was one of the shareholders. If she would
have been hired solely because her husband was one of the shareholders, she
would have been hired earlier when Joan Bolton was hired.
[10]
When
the Appellant was hired as the assistant manager she was paid more that Joan
Bolton was paid. Joan Bolton was paid $2,300 per month and the Appellant was
paid $3,000 per month. However, the Appellant had different duties and
different hours. The Appellant looked after the National Car Rental franchise
which the Company did not have when Joan Bolton was working for the Company.
The Appellant worked longer hours than Joan Bolton worked. The Appellant was
not paid overtime and she worked about 8 to 10 hours per day. She would
generally work for 6 days and then have 2 days off. Joan Bolton worked for 8
hours per day and she did not work on the weekends. If she worked more than the
8 hours per day she was paid time and a half for overtime.
[11]
The
record of employment indicates that the Appellant worked 1260 hours during the
5 months that she was employed by the Company (which would be 252 hours per
month). The number of hours was determined by the accountant for the Company
who did not testify. It is not clear how the number of hours as stated on the
Record of Employment was determined. I accept the testimony of the Appellant
that she worked 8 to 10 hours per day. As the Appellant was (and still is) a
very diligent worker who would stay until the job was completed I find that she
worked, at least, 9 hours per day. The Appellant is currently employed by
Wal-Mart and is paid a fixed salary yet she continues to work extra hours to
ensure that her tasks are completed.
[12]
Since
the Appellant worked 6 days and then had 2 days off, she would work more days
in a month than Joan Bolton would work as Joan Bolton worked 5 days and then
had 2 days off. Over a 56 day cycle, Joan Bolton would work 40 days and
the Appellant would work 42 days. Therefore the Appellant would work
approximately one day more per month than Joan Bolton worked. Assuming that
Joan Bolton worked 22 days in a month, the Appellant would work approximately 23
days in that month. Since Joan Bolton was paid $2,300 for 8 hours per day,
assuming that she worked 22 days during the month, she was paid $13.07 per
hour. Assuming that the Appellant worked 23 days in a month for 9 hours per
day, since she was paid $3,000 per month she was paid $14.49 per hour. It does
not seem to me that this difference of $1.42 per hour would indicate that the
Appellant was not dealing at arm’s length with the Company as the Appellant had
more duties than Joan Bolton had to perform. The additional duties of the Appellant
included doing the payroll and paying suppliers as well as the car rental
franchise work that was referred to above.
[13]
As
well while it is clear that the number of hours that Joan Bolton worked was
certain, it is not as clear that the number of hours that the Appellant worked
was exactly 9 hours per day. The Appellant is required to work 8 hours per day
at her current job as an assistant manager at Wal-Mart but she indicated that
she works 9 to 10 hours per day. Her husband stated that she works 10 hours per
day at Wal-Mart. If she worked 10 hours per day for the Company, for 23 days,
her hourly rate of pay would be $13.04 which is only $0.03 less per hour than
the amount that Joan Bolton was paid per hour.
[14]
There
was nothing to indicate that there was a common mind directing the bargaining
of both sides of the transaction between the Appellant and the Company or that
the Appellant and the Company were acting in concert. There was nothing to
indicate that the Company had any power to influence or exert control over the
Appellant or that the dealings between the Appellant and the Company were not
consistent with the object and spirit of the EI Act. The Appellant’s salary, when the number of hours the Appellant worked
and her duties are taken into account, does not suggest that the Appellant was
not dealing at arm’s length with the Company nor do any of the other terms and
conditions of her employment. That the Appellant was available on short notice
to cover for other employees does not mean that she was not dealing at arm’s
length with the Company. She is a person who works hard and is willing to work
extra hours as she continues to do now for Wal-Mart.
[15]
Her
employment was terminated because of a downturn in the business. She was the
highest paid employee but any business facing a loss of sales and needing to
reduce costs would want to determine if it could replace its highest paid
employee with one of the shareholders (which the Company did as the Appellant’s
husband took over her job). The Appellant did not perform any services for the
Company after her employment was terminated, until she was rehired by the
Company.
[16]
As a
result, I find that the Appellant was dealing at arm’s length with the Company
and therefore the appeal under the EI Act is allowed, without costs, and the decision of the Minister of National Revenue made under
the EI Act is varied on the basis that the Appellant was engaged in
insurable employment for the purposes of the EI Act for the period from August
15, 2009 to January 15, 2010.
Signed at Toronto, Ontario, this 21st day of June 2012.
“Wyman W. Webb”
Email this Content