Devries v. M.N.R., docket 2001-3051-EI

Date: 20020409

Docket: 2001-3051-EI

BETWEEN:

DEWEY JOHN DEVRIES,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Rowe, D.J.T.C.C.

[1]            The appellant appeals from a decision - dated June 11, 2001 - wherein the Minister of National Revenue (the "Minister") decided the appellant's employment - from January 1, 1999 to July 31, 2000 - with 322842 BC Ltd. (BCL) and 7788 Holdings Ltd. (Holdings) carrying on business as Newton Omniplex (Omniplex or the payor) was insurable employment even though he was related to the employer because the Minister concluded the employer would have hired an unrelated person to perform the same services under a substantially similar contract of employment.

[2]            The appellant, Dewey DeVries testified he is employed as Property Manager for Omniplex which is the business name utilized for the joint venture between BCL and Holdings and pay cheques in that name were issued to him during the relevant period. All the voting shares in Holdings are held by a corporation called R-12 Holdings Ltd. (R-12) and 100% of the voting shares in R-12 are held by the appellant's parents. The voting shares of BCL are held by persons unrelated to the appellant. DeVries explained the Omniplex consists of an 8-building group of commercial premises located on two parcels of land - in Surrey, British Columbia - occupying 10 acres and 5 acres, respectively. Most of Omniplex was constructed between 1988 and 1991 but additional buildings were purchased in 1996. The appellant stated he began working as Property Manager for the joint venture - operating as Omniplex - in 1995 and was responsible for all matters arising out of leasing space to approximately 40 tenants. At that time, he was 42 years old but - at age 15 - had begun working for his father and was involved in construction of the buildings situate on the 10-acre parcel. The appellant had no experience managing properties but was hired to oversee the Omniplex and received a salary of $4,000 per month. During the years 1988-1991 - when he worked as a construction worker for his father's business - unemployment insurance premiums and Canada Pension Plan contributions had been deducted from his pay. The same procedure was followed even after he began working as Property Manager in September, 1995. However, on April 6, 2000, he applied to Canada Customs and Revenue Agency (CCRA) for a ruling regarding the insurability of his employment with BCL and Holdings, operating as Omniplex. In his opinion, he was within the category of excluded employment and he requested a ruling for the period commencing September, 1995. Due to limitations set forth in the Employment Insurance Act (the "Act"), review of the period prior to January 1, 1997 was statute barred and the ruling issued to the appellant - on July 31, 2000 - only dealt with the period from January 1, 1999 to July 31, 2000. The appellant was advised that his employment with Omniplex constituted insurable employment, a ruling later confirmed by the Minister. The appellant stated his duties remained virtually the same since September, 1995 but his salary was increased to $4,500 per month and he was provided with a company vehicle. The Omniplex employs six people full time and a number of part time employees are hired, as needed, during the summer or other busy periods. The appellant stated that four of the other full-time workers are paid a monthly salary and the fifth person is paid on a hourly basis. As Property Manager, the appellant stated he had to deal with tenants, including negotiating terms and conditions of leases, and was also required to supervise maintenance personnel. From time to time - as a result of having a background in construction - he became involved in renovations to certain premises within the overall complex. The rates to be charged to tenants were set at meetings of a five-person Management Committee consisting of himself and members from both joint venturers, BCL and Holdings. The appellant's parents, Dewey and Dina DeVries - sat on the committee in their capacity as shareholders owning all voting shares in R-12. BCL was represented on the Committee by Phillip Unger and his daughter, Janice Chapman. The appellant's annual salary of $54,000 was established by the Management Committee but the appellant stated the decision in that respect was actually made by his father and Phillip Unger. The appellant and Janice Chapman were paid semi-monthly and Phillip Unger and Mr. and Mrs. DeVries were paid monthly. The full-time maintenance supervisor was not related to either the Unger or DeVries families. The appellant was provided with medical and dental benefits and was entitled to an annual paid 3-week vacation. He was not required to bear the cost of his cell phone or pager and was reimbursed by Omniplex for any expenses incurred by him in the performance of his duties. He had signing authority - without limit - on the Omniplex account and was authorized to bind the joint venture to terms of any lease - usually for a 5-year term - with any tenant. The appellant's parents and Phillip Unger spent a great deal of their time away from Surrey, British Columbia and day-to-day management was left to the appellant and Janice Chapman. Dewey DeVries stated that in the event he was unable to fulfill his duties as Property Manager for Omniplex, one of his five siblings would assume that role regardless of his or her skill or abilities within that discipline. Since the participation of the senior DeVries - in Omniplex - comprised their total business investment, the appellant anticipated his father and/or Janice Chapman would be required to supervise a new Property Manager until that person was able to learn the job. However, the appellant emphasized that a member of either the DeVries or Unger/Chapman family would be hired to fill that position - as opposed to an outsider - and some of the current duties carried out by him could be contracted out to a supplier of management services. As for the amount of compensation paid to him, the appellant stated he had not undertaken any comparison between his salary and those earned by others within the industry but was satisfied that his father - albeit a frugal person - was a reasonable businessman and had paid the appellant at an appropriate level for working in the Omniplex operation and other family-operated businesses during the past 30 years. The appellant stated he is a Director of R-12 and he and his siblings own class C-H, inclusive, non-voting shares; also, there is an established mechanism to ensure orderly devolution - to the appellant and his siblings - of various property interests of the senior DeVries, including their shares in R-12. The appellant concluded his testimony by stating he believed the position of Property Manager at Omniplex had been created specially for him.

[3]            In cross-examination, the appellant stated he had become more skilled at his job over the years and did not "have it easy" merely because he was related to the controlling shareholders of Holdings, one of the corporate partners in the Omniplex operation. His monthly pay cheque - in the sum of $4,500 - was signed by himself and Janice Chapman and she also received a salary of $4,500 per month. The appellant worked regular hours between 7:30 a.m. and 4:00 p.m. - Monday to Friday - while Chapman worked less hours but had a varied and less regular workload. The appellant agreed that his remuneration was not linked to profitability of the Omniplex. He received a Christmas bonus of $2,500 - as did Janice Chapman - and the non-related person who worked as manager of maintenance - paid at the hourly rate of $20.32 for a 40-hour week - received the sum of $1,500. During those periods when Phillip Unger and Mr. and Mrs. DeVries were in Surrey, the Management Committee met each week. The appellant stated he would provide reports and various matters would be discussed including tenant relations, vacancies, target rental rates and other issues pertaining to the commercial premises under administration of the joint venture. Counsel pointed out that the appellant's mother - in completing a Questionnaire - had responded by stating that construction skills were required for the position of Property Manager. The appellant stated he did not consider those skills to be a requirement for the position but agreed they were advantageous in carrying out his overall duties. Since Omniplex was not a legal entity but merely a convenient trade name, the appellant - in his capacity as Director - would sign leases on behalf of Holdings and Janice Chapman would sign on behalf of BCL. All necessary tools and equipment required for the performance of his duties were supplied to him. The appellant acknowledged his position was necessary and stated that, although the Omniplex is now totally rented, there is usually some empty space. In carrying out his duties as Property Manager, he was contacted several times each day - by tenants - regarding some matter arising from their occupancy within Omniplex.

[4]            The appellant submitted that he should be regarded as an individual who was not employed in insurable employment with the payor because he was working within a family business, as he had done for the past 30 years. In his view, his own economic interest - as well as the entire DeVries family - is inextricably linked to the business operation known as Omniplex. As such, the appellant referred to the extent of his authority and control and the fact he is a Director of Holdings which owns 50% of Omniplex. In that capacity, he is exposed to liability for various matters and receives no overtime pay for his additional hours of work. Overall, the appellant submitted an unrelated person would not have been hired to perform the service of Property Manager pursuant to a substantially similar contract of employment.

[5]            Counsel for the respondent submitted the evidence had established the appellant to be a hard-working, well-experienced individual carrying out important work. Even if the title of Property Manager had not been used prior to September, 1995, it was apparent this sort of work had to be done and - in fact - the appellant's father had once performed those same duties. In carrying out his employment, counsel submitted the appellant's salary was reasonable, the duration of the employment was normal and the non-related employee had received a Christmas bonus proportionate to the one received by the appellant and Janice Chapman. As a whole, counsel submitted the decision of the Minister was justified and should be confirmed.

[6]            In the case of Crawford and Company Ltd. and M.N.R., reported, [1999] - T.C.J. (QL) No. 850 a decision of Porter, D.J.T.C.C. issued December 8, 1999, Judge Porter considered the appeals of three employees of the corporation, of whom two were brothers, falling into the category of related persons within the meaning of the Income Tax Act. With respect to the brothers, the Minister had exercised discretion pursuant to paragraph 5(3)(b) of the Act. Judge Porter discussed the nature of the hurdle faced by related parties within an employment relationship and at page 22 of his decision - paragraph 59 and following - Judge Porter stated:

[59]          The harshness of this situation has however been tempered by paragraph 5(3)(b) of the EI Act, which provides for such employment between related persons to be deemed to be at arm's length and thus in turn to be treated as insurable employment, if it meets all the other provisions, where the Minister is satisfied having regard to all the circumstances of the employment, including the remuneration paid, theterms and conditions, the duration and the nature and importance of the work performed, that it is reasonable to conclude that they would have entered into a substantially similar contract if they had (in fact) been dealing with each other at arm's length.

[60]          It may be helpful to reframe my understanding of this section. For people related to each other the gate is closed by the statute to any claim for insurance benefits unless the Minister can be satisfied that in effect the employment arrangement is the same as that which unrelated persons, that is persons who are clearly at arm's length, would have made. If it is a substantially similar contract of employment, Parliament has deemed it to be only fair that it should be included in the scheme. However, the Minister is the gatekeeper. Unless he is so satisfied the gate remains closed, the employment remains excepted and the employee is not eligible for benefits.

[61]          Subsection 93(3) of the EI Act deals with appeals to and the determination of questions by the Minister. It requires that "the Minister shall decide the appeal within a reasonable time after receiving it and shall notify the affected persons of the decision.

[62]          Thus, the Minister has no discretion whether or not to decide the question. He is required by law to do so. If he is not satisfied, the gate remains closed and the employee is not eligible. If however he is satisfied, without more ado or any action on the part of the Minister (other than notification of the decision) the employee becomes eligible for benefits, provided he is otherwise qualified. It is not a discretionary power in the sense that if the Minister is satisfied he may then deem the employment to be insurable. He must "determine the question" and depending on that determination the law deems the employment to be either at arm's length or not at arm's length. In this sense the Minister has no discretion to exercise in the true sense of the word, for in making his decision he must act quasi-judicially and is not free to choose as he pleases. The various decisions of the Federal Court of Appeal on this issue reveal that the same test applies as to a myriad of other officials making quasi-judicial decisions in many different fields. See Tignish Auto Parts Inc. v. M.N.R., 185 N.R. 73, Ferme Émile Richard et Fils Inc. v. M.N.R., 178 N.R. 361, Attorney General of Canada and Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the Queen and Bayside Drive-in Ltd., (1997) 218 N.R. 150.

[7]            In Légaré v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878 - a decision of the Federal Court of Appeal - Marceau, J.A. speaking for the Court stated at page 2 of the judgment:

In this matter, the Court has before it two applications for judicial review against two judgments by a judge of the Tax Court of Canada in related cases heard on the basis of common evidence which raise yet again the problems of interpretation and application of the saving provision, subparagraph 3(2)(c)(ii). I say yet again because since its passage in 1990, several decisions of the Tax Court of Canada and several judgments of this Court have already considered what workable meaning could be given to subparagraph 3(2)(c)(ii). In reading the text, the problems it poses beyond its deficient wording are immediately obvious, problems which essentially involve the nature of the role conferred on the Minister, the scope of the Minister's determination and, by extension, the extent of the Tax Court of Canada's general power of review in the context of an appeal under section 70 et seq. of the Act.

While the applicable principles for resolving these problems have frequently been discussed, judging by the number of disputes raised and opinions expressed, the statement of these principles has apparently not always been completely understood. For the purposes of the applications before us, we wish to restate the guidelines which can be drawn from this long line of authority, in terms which may perhaps make our findings more meaningful.

The Act requires the Minister to make a determination based on his own conviction drawn from a review of the file. The wording used introduces a form of subjective element, and while this has been called a discretionary power of the Minister, this characterization should not obscure the fact that the exercise of this power must clearly be completely and exclusively based on an objective appreciation of known or inferred facts. And the Minister's determination is subject to review. In fact, the Act confers the power of review on the Tax Court of Canada on the basis of what is discovered in an inquiry carried out in the presence of all interested parties. The Court is not mandated to make the same kind of determination as the Minister and thus cannot purely and simply substitute its assessment for that of the Minister: that falls under the Minister's so-called discretionary power. However, the Court must verify whether the facts inferred or relied on by the Minister are real and were correctly assessed having regard to the context in which they occurred, and after doing so, it must decide whether the conclusion with which the Minister was "satisfied" still seems reasonable.

[8]            The relevant provision of the Act is paragraph 5(3)(b) which reads:

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.

[9]            In Craig Brothers Limited et al v. M.N.R. - [1996] T.C.J. No. 226, 95-991(UI) - I heard the appeal of a corporation and family members who, although not related to the corporation in accordance with the Income Tax Act, were considered to be in insurable employment by the Minister because they were dealing at arm's length with the corporation, as a matter of fact. The evidence in that case disclosed the two Craig brothers and the other family members treated the corporation like a family bank and each appellant who was the manager of one of the corporation's stores could take out money at will from the corporation account. I found the managers - as members of the extended Craig family - and the corporation to have been inextricably intertwined so that the business was carried out in accordance with family values rather than adhering to procedures demanded even by a flexible corporate structure. Business policy was set by virtue of being members of the family rather than on the basis of being directors of the corporation. I concluded the individual appellants to have been in excluded employment by virtue of not dealing at arm's length with the corporation.

[10]          It strikes me it is difficult - on an objective basis - to assess whether it is reasonable to conclude that the parties would have entered into a substantially similar contract of employment unless there is some evidence before the Minister as to comparable salaries or working conditions within the same - or related - industry. There is obviously room for using a yardstick against which a particular employment is to be measured because the alternative would be to permit the parties themselves to put forward the proposition that, notwithstanding the deviation from normal business practices in a similar marketplace, they still would have entered into the contract of employment on a purely subjective basis. Certainly, that is how the process works when the shoe is on the other foot and benefits have been denied to claimants because their conditions of work for a related employer do not - when all the facts have been considered - measure up to the usual or normal conditions that applied - or could be expected to apply - to non-related workers under a substantially similar contract of employment.

[11]          In the case of Miller v. M.N.R. [2001] T.C.J. No. 30, I considered the case of three brothers, each of whom owned 16% of the voting shares in the payor. The remaining 52% was held by their parents through a corporation in which they held 100% of the shares. The three brothers were directors of the payor corporation. In arriving at a conclusion in that case, and after referring to Craig supra and David Putter v. M.N.R. - 1999-457(EI) - heard together with the appeals of Daniel Putter v. M.N.R. - 1999-456(EI) - and Equinox Industries Ltd. v. M.N.R. - 1999-458(EI) at paragraph 26, I commented:

In the within appeals, there remained independence of thought and purpose between the appellants and the corporation and each of them owned only 16% of the shares in MHL. As a matter of law, each one was subject to discharge and all three could have been ousted by virtue of their parents - through Golden Key - exercising their rights flowing from ownership of 52% of the shares in MHL. Protection against involuntary withdrawal from the workplace - and the ability to provide benefits to laid-off workers - has always been the raison d'être of the national unemployment/employment insurance scheme. I cannot find on the evidence that the Minister ignored any facts which could lead to the conclusion that there was no adverse economic interest between each appellant and the payor. Certainly, Jonathan Miller - being the youngest and least experienced worker - received a lesser salary than his brothers. He was also in the process of completely taking over the administrative duties associated with the business that had been performed by Doreen Miller for 25 years and performed some duties on the job site.

[12]          In the within appeal, the Minister found the appellant to have been under the control of the Management Committee and that his salary and authority to negotiate leases - and set rental rates - had been established by that group. He worked regular hours and was paid a fair and reasonable compensation package - including vacation pay, company vehicle, medical and dental benefits, that appears to have been normal within that industry. The appellant was required to perform the service personally and did so within the context of a normal working week, barring exceptional circumstances when extra work was required. The appellant was paid regularly and was not required to incur any expenses related to the discharge of his duties. His remuneration was not linked to the profitability of Holdings as a result of its participation in Omniplex. His mother and father controlled 100% of the voting shares in Holdings, a corporation that was a 50-50 partner in the business being operated as Omniplex. The Unger family held the other equal interest through their corporation, BCL and in the event there had been issues arising concerning the performance of the appellant, the shareholding structure would not have protected him from discharge since he held none of the voting shares of Holdings, although he was a Director. When he signed leases on behalf of Holdings, he did so as a Director and any liabilities arising from that role were created by statute - or derived from common law - and did not flow from his employment as Property Manager. When one looks at the overall circumstances of the appellant's employment, the picture that emerges is of a hard-working, responsible, reliable individual who was paid a reasonable salary to carry out an important function. He may have been underpaid - somewhat - but he also had an interest in the welfare of Holdings both as a family member and as a holder of non-voting shares. During the course of a 30-year working life, he had chosen to work for businesses owned and operated by his family. His parents had established a method - following their death - for devolution of their property interest - in Omniplex - unto the appellant and his siblings. Those factors - while relevant - do not detract from the overall analysis of various indicia of employment considered by the Minister in the course of discharging the duty required by paragraph 5(3)(b) of the Act. When one regards the manner in which the appellant carried out his duties - as directed by the Management Committee - it is difficult to identify any advantages or benefits accruing to him that would not have been available to another - non-related - person fulfilling the executive position of Property Manager. Certainly, there is no evidence to suggest that the appellant's right to any inheritance from his parents is dependent on his continuing employment with Holdings and its participation in the Omniplex joint venture. The appellant's prediction that no non-family member would ever be hired for that position may prove to be accurate but that is not the point. The question is whether or not it is reasonable to conclude that the parties would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length. In the within appeal, there was evidence of sufficient separation between the appellant's function as Property Manager and his personal circumstances - as one of the elder DeVries children - for the Minister to have answered that inquiry in the affirmative.

[13]          It is trite that I cannot merely substitute my opinion for that of the Minister; whether or not I would have arrived at the same conclusion is irrelevant. The jurisprudence demands that a pre-condition for any intervention by the Court is a finding that the Minister acted in bad faith, capriciously or unlawfully, or based the decision on irrelevant facts or ignored relevant facts. Having considered all the evidence, I cannot conclude the Minister erred in deciding the employment of the appellant during the relevant period was insurable.

[14]          The decision of the Minister is confirmed and the appeal is hereby dismissed.

Signed at Vancouver, British Columbia, this 9th day of April 2002.

"D.W. Rowe"

D.J.T.C.C.

COURT FILE NO.:                                                 2001-3051(EI)

STYLE OF CAUSE:                                               Dewey John DeVries and M.N.R.

PLACE OF HEARING:                                         Vancouver, British Columbia

DATE OF HEARING:                                           January 23, 2002

REASONS FOR JUDGMENT BY:      the Honourable Deputy Judge D.W. Rowe

DATE OF JUDGMENT:                                       April 9, 2002

APPEARANCES:

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Nadine Taylor

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-3051(EI)

BETWEEN:

DEWEY JOHN DEVRIES,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Appeal heard on January 23, 2002 at Vancouver, British Columbia, by

the Honourable Deputy Judge D.W. Rowe

Appearances

For the Appellant:                                                                 The Appellant himself

Counsel for the Respondent:                              Nadine Taylor

JUDGMENT

                The appeal is dismissed and the decision rendered by the Minister is confirmed in accordance with the attached Reasons for Judgment.

Signed at Vancouver, British Columbia, this 9th day of April 2002.

"D.W. Rowe"

D.J.T.C.C.