[OFFICIAL ENGLISH
TRANSLATION]
Date:
20020904
Docket:
2001-3252(IT)I
BETWEEN:
JACQUES
PÉPIN,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre
Proulx, J.T.C.C.
[1] This is an appeal under the informal procedure for the 1998
taxation year.
[2] At issue is whether an indemnity of $20,000 received by
the appellant in settlement of a dispute between the Commission scolaire
Saint‑Hyacinthe ("the Commission scolaire") and the Syndicat de
l'enseignement Richelieu‑Yamaska ("the Syndicat") must be
included in computing the appellant's income under sections 3, 5 and 56 of
the Income Tax Act ("the Act").
[3] In making the reassessment, the Minister of National Revenue
("the Minister") relied on the following assumptions of fact set out
in paragraph 5 of the Reply to the Notice of Appeal ("the
Reply"):
[TRANSLATION]
(a) from 1990 to
June 30, 1996, the appellant taught English as a second language to adults
as an employee of the Commission scolaire Saint-Hyacinthe;
(b) on June 10,
1996, citing disciplinary reasons, the Commission scolaire Saint-Hyacinthe
notified the appellant in writing that at the time of the July 1, 1996,
update his name would be removed from the recall list of general adult training
teachers;
(c) on June 20,
1996, the Syndicat de l'enseignement Richelieu‑Yamaska responded for the
appellant by filing a notice of grievances and arbitration for non-rehiring;
(d) according to a
copy of an April 3, 1998, court decision, the Honourable Jean Marquis,
J.S.C., determined, first, that the June 10, 1996, letter from the
Commission scolaire Saint-Hyacinthe to the appellant constituted a notice of
non-rehiring for the 1996‑1997 school year and, second, that the said
Commission scolaire had not respected the prescribed time limits for serving
notice of non-renewal of contract by letter on the appellant;
(e) in settlement of
the dispute between the Commission scolaire Saint‑Hyacinthe and the
Syndicat de l'enseignement Richelieu‑Yamaska, an April 14, 1998,
out-of-court agreement stipulated that:
(i) the appellant
was to be reinstated in his teaching duties with no indemnity or compensation;
(ii) the removal of
the appellant's name from the recall list was to be changed to a disciplinary
measure;
(iii) the appellant's
name was to be put back on the recall list and the parties were to agree that
his name had never been removed from the said list; and
(iv) in consideration
of the foregoing, the Syndicat de l'enseignement Richelieu‑Yamaska was to
abandon a series of procedures in exchange for an indemnity of $20,000;
(f) the Minister
obtained no information on how the indemnity of $20,000 was calculated;
(g) during the 1998
taxation year, the Syndicat de l'enseignement Richelieu-Yamaska paid the said
amount of $20,000 to the appellant, even though the appellant was not employed
by the said Syndicat.
[4] The appellant's Notice of Appeal states, [TRANSLATION] "...
the amount of damages paid to me by my Commission scolaire was not severance
pay in any way since I am still employed by my Commission scolaire, where I
have since been made a permanent employee and where I am pursuing my career.
This amount was paid to me following the decision by the Tribunal du travail
recognizing that my fundamental rights as an employee had been infringed upon
and that the Commission scolaire and its representative (the director of
personnel) were obliged to pay me damages. This amount was paid to me out of court
in compensation for damages and harm."
[5] The witnesses were the appellant and Robert Saint‑Germain.
Mr. Saint-Germain testified at the request of counsel for the respondent.
[6] The appellant is a teacher. He admitted the truth of
subparagraphs 5(a) to 5(e) and 5(g) of the Reply. The court decision
referred to in subparagraph 5(d) was adduced as Exhibit I‑1.
The April 3, 1998, Superior Court decision overturned a May 26, 1997,
arbitration award, adduced as Exhibit I-2. That arbitration award was in
favour of the employer for not following the non-rehiring procedure set out in
the collective agreement because apparently the procedure applied only to
full-time teachers. The court decision overturned the arbitration award and
determined that the employer was required to follow the non-renewal procedure
for part-time teachers as well because the relevant clause of the collective
agreement did not distinguish between the two categories.
[7] Under cross-examination, counsel for the respondent asked the appellant
to explain what he meant in stating in the Notice of Appeal that his
fundamental rights had been infringed upon. According to the appellant's
response, he meant that, by removing his name from the recall list, the
Commission scolaire was severing his only link to the employer since he was a
part-time teacher. He lost all his employment-related rights.
[8] The appellant also stated that in April 1996 he informed the
Commission scolaire, as he occasionally did, that he did not wish to be
recalled during the 1996-1997 school year because he wanted to take that year
off. However, in a June 10, 1996, letter the Commission scolaire notified
him that his name would be removed from the recall list and that he would not
be rehired.
[9] Robert Saint‑Germain is a union advisor. It was he who,
on June 20, 1996, submitted to arbitration a grievance concerning the
non-rehiring of the appellant by the Commission scolaire. This notice of
arbitration submitted to the chief arbitrator of the Greffe des tribunaux d'arbitrage
du secteur de l'éducation was adduced as Exhibit I-4. The first request of the
grievance was acknowledgement that the non-rehiring procedure had not been
followed.
[10] As we already know, the May 26, 1997, arbitration award was
not in favour of the Syndicat. The subsequent April 3, 1998, Superior
Court decision was in favour of the Syndicat.
[11] The April 14, 1998,
out-of-court agreement between the Syndicat and the Commission scolaire was
adduced as Exhibit I‑5. The main points of this agreement are as
follows:
[TRANSLATION]
...
1. Mr. Jacques
Pépin shall be reinstated in his teaching duties at the Commission scolaire de
Saint-Hyacinthe with a full teaching load (part-time contract) on or around
April 1, 1998, with no indemnity or compensation.
2. The
removal of Mr. Jacques Pépin's name from the recall list shall be changed to a disciplinary measure
within the meaning of clause 5-6.00 and ...
3. Mr. Jacques Pépin's name shall be put back on the recall
list for all legal purposes, and the parties shall agree that his name was
never removed from the said list.
4. In consideration
of the foregoing, the Syndicat de
l'enseignement Richelieu‑Yamaska shall abandon all the above-captioned
procedures and all the above-mentioned grievances in exchange for an indemnity
of $20,000 to be paid by the Commission scolaire to the Syndicat as liquidated and
compensated damages.
...
7. The
Commission scolaire de Saint-Hyacinthe and the Syndicat de l'enseignement
Richelieu-Yamaska hereby give each other final and irrevocable discharge with
respect to any action relating to the facts surrounding the grievances and
remedies referred to in this agreement.
...
[12] Counsel for the respondent asked Mr. Saint‑Germain to
explain the nature of the indemnity received. Mr. Saint-Germain answered
that usually, in a non-rehiring case before the arbitration tribunals,
[TRANSLATION] "what is provided for is that the person is entitled to
the salary lost during that period plus the interest provided for in the Labour
Code. At that point, what we were claiming was reimbursement for the salary
lost during the two years the dispute lasted. Did $20,000 represent what the
appellant would have lost during those two years? At the time the case was
settled out-of-court, the non-rehiring had been put on hold for a year and
three-quarters. Back then, Mr. Pépin was earning approximately
$40,000 annually, so we arrived at an amount of approximately
$70,000, plus the interest provided for, which was probably around 10 per
cent at the time."
[13] Mr. Saint-Germain explained that it is ultimately up to the
complainant to decide whether the proposed amount is acceptable.
Arguments
[14] The appellant has argued that he was not compensated for a loss of
employment because his name was put back on the recall list and he is now a
full-time teacher. The indemnity is therefore not a retiring allowance. He
reiterated that he had decided to be on sabbatical during the 1996-1997 school
year and had submitted the relevant document in April 1996. The indemnity
received could therefore not be compensation for the remuneration lost during
that year. He was reinstated in his duties on or around April 1, 1998.
[15] Counsel for the respondent has referred to the decision by
Dussault J. of this court in Leest v. Canada (Minister of National Revenue –
M.N.R.), [1991] T.C.J. No. 744 (Q.L.), in which the facts are very
similar to those in the present case. Leest involved loss of employment
at the time a trucking business was acquired by another firm. The Canada Labour
Relations Board determined that the acquiring firm had become a successor
employer. The appellant was reinstated and was paid compensation for the
amounts lost by reason of his lay-off.
[16] Counsel for the respondent has quoted certain passages at
page 7:
As there is no doubt in my mind that the
appellant lost, for all practical purposes and effect his employment for a
lengthy period, although not permanently as he was later reinstated by the
Arbitration Board, I also conclude that the award of damages by the Arbitration
Board was directly related to that loss and directed at compensating it.
In that sense, the amount was "with respect
of" the loss of employment. This being so, such damages can rightly be
considered a "retiring allowance" as that term is now defined by
subsection 248(1) of the Act. They are thus taxable by virtue of subparagraph
56(1)(a)(ii) of the Act.
...
Secondly, I think that the language used in the
definition of "retiring allowance" in subsection 248(1) of the Act is
unequivocal. I fail to see the reference to a loss of employment as importing
the meaning of a permanent loss of employment. Such words are not in the
statute and in my opinion should not be inferred when Parliament has not seen
fit to use them.
Conclusion
[17] Subsection 5(1), subparagraph 56(1)(a)(ii), and the
definition of "retiring allowance" set out in subsection 248(1)
of the Act read as follows:
5(1) Income from office or employment — Subject to this Part, a taxpayer's income
for a taxation year from an office or employment is the salary, wages and other
remuneration, including gratuities, received by the taxpayer in the year.
56(1) Amounts to
be included in income for year — Without restricting the generality of
section 3, there shall be included in computing the income of a taxpayer for a
taxation year,
(a) Pension
benefits, unemployment insurance benefits, etc. — any amount received by
the taxpayer in the year as, on account or in lieu of payment of, or in
satisfaction of,
(i) ...
(ii) a retiring
allowance, other than an amount received out of or under an employee benefit
plan, a retirement compensation arrangement or a salary deferral arrangement,
...
248(1) "retiring
allowance" means an amount (other than a superannuation or pension
benefit, an amount received as a consequence of the death of an employee or a
benefit described in subparagraph 6(1)(a)(iv)) received
(a) on or
after retirement of a taxpayer from an office or employment in recognition of
the taxpayer's long service, or
(b) in
respect of a loss of an office or employment of a taxpayer, whether or not
received as, on account or in lieu of payment of, damages or pursuant to an
order or judgment of a competent tribunal,
by the taxpayer or, after the
taxpayer’s death, by a dependant or a relation of the taxpayer or by the legal
representative of the taxpayer,
...
[18] The decision of Dussault J. in Leest (supra) is
particularly relevant since it was reached in circumstances very similar to
those in the present case. Even though the employee was reinstated in his
duties, the amount received was a retiring allowance since it was paid in
respect of the loss of the taxpayer's employment, even if that loss of
employment had been temporary.
[19] I would also refer to a decision of St-Onge J. of this court in Abramovici
v. M.N.R., 80 DTC 1151. Mr. Abramovici was a teacher employed by
the Eastern Townships Regional School Board. As a result of a grievance filed
by the Eastern Townships Association of Teachers on the ground that the School
Board had not hired the required number of teachers during the school year, an
out-of-court settlement was reached for a lump sum of which Mr. Abramovici
received his share. The judge determined that the amount received was income
from employment within the meaning of subsection 5(1) of the Act.
[20] Therefore, even if the amount received was not a retiring
allowance, it would still be an amount to be included in computing income from
employment within the meaning of subsection 5(1) of the Act.
[21] Damages are determined on the basis of the harm caused to the
person entitled to the compensation. For teachers, as Mr. Saint‑Germain
noted, these damages are calculated on the basis of unjustified salary loss.
The appellant claimed the indemnity because the employer had severed the only
link between him and the employer; what was involved was loss of employment.
The decision by the Superior Court re-established the appellant's rights as a
part-time employee with his employer, the Commission scolaire.
[22] The appellant accepted $20,000. This amount appears to be the
income lost corresponding to the part of the 1997-1998 school year during which
he did not work. Before receiving his notice of non-rehiring, the appellant had
informed his employer that he would take the 1996-1997 school year off. He
would therefore have lost employment income for the first part of the 1997-1998
school year.
[23] That said, it is necessary, not to explain how the damages were
calculated, but simply to note that the damages were paid in compensation for
the loss of income resulting from the loss of employment.
[24] The wording of the definition of retiring allowance set out in
subsection 248(1) of the Act is clear. An amount received by a
taxpayer in respect of a loss of employment, whether or not received as payment
of damages or pursuant to an order of a competent tribunal, is a retiring
allowance. The amount received by the appellant in this case is a retiring
allowance.
[25] Even if that amount were not a retiring allowance (which it is),
it is an amount received in payment of damages for salary loss and interest or
an amount received under an employment contract, which must be included in
computing income within the meaning of subsection 5(1) of the Act.
[26] Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada, this 4th day of
September 2002.
J.T.C.C.
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