Docket: 2009-3833(EI)
BETWEEN:
JUDIS HOLDINGS LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
____________________________________________________________________
Appeal heard on November 18, 2010 at Calgary, Alberta
By: The Honourable Justice Judith Woods
Appearances:
|
Counsel for the Appellant:
|
Deryk
W. Coward
|
|
Counsel for the Respondent:
|
Scott England
|
____________________________________________________________________
JUDGMENT
The
appeal with respect to a decision of the Minister of National Revenue made under
the Employment Insurance Act that Dion Hildebrandt was engaged in
insurable employment for the period from January 1, 2005 to December 31, 2007 is
allowed, and the decision is vacated. Each party shall bear their own costs.
Signed at Toronto, Ontario this 20th day of January 2011.
“J. M. Woods”
Citation: 2011 TCC 31
Date: 20110120
Docket: 2009-3833(EI)
BETWEEN:
JUDIS HOLDINGS LTD.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
Judis Holdings Ltd. appeals in
respect of a decision of the Minister of National Revenue that Dion Hildebrandt
(the “Worker”) was engaged in insurable employment for purposes of the Employment
Insurance Act. The period at issue is from January 1, 2005 to December 31,
2007.
[2]
The shareholders of the appellant
are the Worker’s parents. In these circumstances, the employment of the Worker
is deemed not to be insurable unless the Minister is satisfied that the terms
of employment are substantially similar to arm’s length arrangements. The
relevant provisions of the Act read:
5(2)
Insurable employment does not include
[…]
(i) employment if the employer and
employee are not dealing with each other at arm’s length.
5(3) For the purposes of paragraph (2)(i),
[…]
(b) 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.
[3]
In this case, the Worker’s
employment was determined by the Minister to be insurable based on his
determination that the terms of employment were substantially similar to arm’s
length terms.
[4]
The wording of paragraph 5(3)(b)
has led to some difficulty in interpretation. In Birkland v. MNR, 2005
TCC 291, Bowie J. commented that the provision is unusual in that some
deference must be given to the Minister’s decision. He described the principles
to be applied as follows:
[4] At
this point it is sufficient simply to state my understanding of the present
state of the law, which I derive principally from paragraph 4 of Légaré
(reproduced above) and from the following passage from the judgment of Richard
C.J., concurred in by Létourneau and Noël JJ.A., in Denis v. Canada.
5 The
function of the Tax Court of Canada judge in an appeal from a determination by
the Minister on the exclusion provisions contained in subsections 5(2) and (3)
of the Act is to inquire into all the facts with the parties and the witnesses
called for the first time to testify under oath, and to consider whether the
Minister's conclusion still seems reasonable. However, the judge should not
substitute his or her own opinion for that of the Minister when there are no
new facts and there is no basis for thinking that the facts were misunderstood
(see Pérusse v. Canada (Minister of National Revenue - M.N.R.),
[2000] F.C.J. No. 310, March 10, 2000).
This Court’s
role, as I understand it now, following these decisions, is to conduct a trial
at which both parties may adduce evidence as to the terms upon which the
Appellant was employed, evidence as to the terms upon which persons at arm’s
length doing similar work were employed by the same employer, and evidence
relevant to the conditions of employment prevailing in the industry for the
same kind of work at the same time and place. Of course, there may also be
evidence as to the relationship between the Appellant and the employer. In the
light of all that evidence, and the judge’s view of the credibility of the
witnesses, this Court must then assess whether the Minister, if he had had the
benefit of all that evidence, could reasonably have failed to conclude that the
employer and a person acting at arm's length would have entered into a
substantially similar contract of employment. That, as I understand it, is the
degree of judicial deference that Parliament's use of the expression "… if
the Minister of National Revenue is satisfied …" in paragraph 5(3)(b)
accords to the Minister's opinion.
[5]
Further, I have expressed concern
in the past about the application of paragraph 5(3)(b) by the Minister
in circumstances where the employer and employee do not intend to have an
insurable relationship: C&B Woodcraft Ltd. v. MNR, 2004 TCC 477. To
give such a wide scope to the Minister’s discretionary authority seems to be a
“heads you lose, tails you lose” proposition for the parties. I have a
difficult time believing that this was Parliament’s intent. Counsel did not
raise this as an issue and it is not necessary for me to consider it given the
conclusion that I have reached.
[6]
Turning to the facts at hand, the
Worker is a licensed autobody mechanic who was presented with an opportunity to
purchase an existing business. Not having sufficient funds for the purchase,
the Worker convinced his parents to go into business with him. The corporate
appellant acquired the business and the Worker’s parents, Mr. and Mrs.
Hildebrandt, became the sole shareholders as they had put up all the money for
the purchase.
[7]
The Worker was the only member of
the family with autobody experience and he managed the “shop” side of the
business as foreman. His father ran the front office and his mother did the
bookkeeping.
[8]
Although nothing was set in stone,
it was understood that in a few years the Worker would acquire the business
from his parents when they wished to retire.
[9]
The Minister saw this relationship
as being a typical employment relationship in which the Worker reported to the
shareholders, was paid an hourly wage, and the shareholders determined the work
hours.
[10]
The evidence revealed quite a
different arrangement. Notwithstanding that the Worker did not own any shares,
the business was run more as a partnership. The Worker had much more freedom
with his work hours than an arm’s length shop foreman would have had, the
Worker was paid for time that he took off work, and he provided considerable assistance
relating to the overall operation of the business.
[11]
It was apparent from the evidence
that the working relationship was different in very material ways from what the
Minister had assumed.
[12]
In my view, it would not be
reasonable to conclude that the terms of employment were substantially similar
to arm’s length terms.
[13]
Counsel for the respondent
expressed some frustration during argument that the evidence was different from
what the Minister had understood the facts to be. That is an unfortunate aspect
of appeals heard under the informal procedure, but the procedure is salutory in
that it allows appeals to be decided in a timely and cost-effective way.
[14]
The appeal is allowed, and the
decision that Dion Hildebrandt was engaged in insurable employment with the
appellant during the period from January 1, 2005 to December 31, 2007 is
vacated. Each party shall bear their own costs.
Signed at Toronto,
Ontario this 20th day of January 2011.
“J. M. Woods”
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