Citation: 2011 TCC 222
Date: 20110420
Docket: 2010-3585(EI)
BETWEEN:
KIM JOHNSTON,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
In this appeal under
the Employment Insurance Act, Kim Johnston challenges a decision of the
Minister of National Revenue that he was not engaged in insurable employment
with Jay Dee Aviation Maintenance Inc. (the “Payor”).
[2]
The periods at issue
are from February 10 to October 31, 2008 and from May 1 to November 23, 2009.
[3]
The appellant’s father,
John Johnston, is the sole shareholder of the Payor. Because of this
relationship, the appellant is deemed not to have insurable employment unless
the Minister is satisfied that a substantially similar contract of employment
would have been entered into if the parties had been dealing at arm’s length.
[4]
The Minister was not
satisfied that this requirement was met and concluded that the employment was
not insurable.
[5]
The relevant
legislative provision, paragraph 5(3)(b) of the Act, provides:
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.
[6]
Since the legislation
gives the Minister some discretion to determine whether the contract of
employment satisfies this test, this Court has a limited right to intervene.
[7]
Essentially, the
question is whether the Minister’s conclusion is reasonable, taking into
account the evidence presented at the hearing: Légaré v MNR, [1999] FCJ
No 878 (FCA), para. 4. The relevant passage is reproduced below.
[4] 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.
Application to
present case
[8]
The appellant’s father
is an aircraft mechanic who has operated his own business through the Payor
since 1978. It is a small company and the father has been active in all parts
of its operation.
[9]
The appellant commenced
working for the Payor as an apprentice mechanic while he was finishing high
school. He continued to work for the company for about 10 years.
[10]
This appeal concerns
periods in 2008 and 2009 in which the appellant worked for the Payor.
[11]
The appellant testified
on his own behalf at the hearing and the father was called as a witness by the
respondent.
[12]
It is relevant to this
appeal to note that the working relationship was a difficult one. Inevitably,
the employment relationship terminated, and this occurred twice during the
periods at issue. The employment first terminated on or around October 31,
2008, it was rekindled in 2009 and it terminated again on or around November
23, 2009. Father and son had not spoken since the last termination until the
father was cross-examined by the appellant at the hearing.
[13]
The Minister’s
conclusion that the employment terms were not arm’s length appears to be based
on three main factors, that the rate of pay was excessive, that the appellant was
allowed to continue working for the Payor even though his performance was
substandard, and that the Payor provided special treatment by paying for tools
and training courses.
[14]
The Minister’s
assumption regarding the rate of pay has been satisfactorily rebutted by the
appellant.
[15]
The appellant was paid
$26 per hour during the relevant periods. The Minister’s conclusion that this
pay was excessive was based on the understanding that arm’s length remuneration
for aircraft mechanics would be adjusted for slow periods during the winter.
[16]
The problem with this
assumption is that the Payor did not have slow periods. The company remained
busy year round.
[17]
The father’s testimony
did include a vague suggestion that the rate of pay was high. Based on the
limited evidence, I would conclude that the remuneration was in the ballpark of
reasonable pay given the appellant’s experience.
[18]
The Minister assumed
that the appellant was given special treatment because he routinely came to
work late, left early, spent time on personal matters during working hours, took
long lunches, and refused to follow instructions. It was also assumed that the
appellant was not replaced after the employment terminated.
[19]
The testimony of the
father supported all of these assumptions except for the last one.
[20]
The appellant, not
surprisingly, had a different view of matters. According to his testimony, he
did not take advantage of the relationship by coming in late, he did not take
long lunches except when business-related, he only took time off with prior
approval, he did not spend time on personal matters during work hours, he followed
all reasonable instructions, and any bad conduct on his part was provoked by
abusive behaviour on the part of his father.
[21]
In the context of
testimony given by two individuals who feel very aggrieved by the other, it is
impossible to know the true situation. Common sense would suggest that the
truth lies somewhere in between. It is likely that the father expected the
appellant to work under strict employment terms, and that the appellant had a
slightly different view of what the employment terms should be.
[22]
In this case, I cannot
say that the Minister was wrong to take this factor into account in assessing
whether the terms were arm’s length or not.
[23]
Finally, the Minister
assumed that the appellant received special treatment in that the Payor paid
for training courses and tools. I accept that this would not generally be part
of an arm’s length contract of employment of an aircraft mechanic.
[24]
The appellant submits
that this factor is not relevant because his father had a history of charging
personal items to the Payor.
[25]
I disagree with the
appellant’s submission on this issue. The point is that these are personal
items. With the exception of a course in Texas,
the tools and the courses were provided by the Payor as an employment perk to
the appellant. They do not reflect an arm’s length relationship.
[26]
Where does this leave
us? In my view, the case is close to the line, and the Minister’s decision was
a reasonable one to make. Since deference must be given, I would conclude that
the decision should be confirmed.
[27]
I have commented previously
that it is difficult for individuals who work for family members to have
insurable employment. The reason for this is that the personal relationship
almost inevitably manifests itself in some way in the employment relationship.
My conclusion is that it has done so in this case.
[28]
The appeal will be
dismissed, and the decision of the Minister will be confirmed.
Signed at Ottawa,
Ontario this 20th day of April 2011.
“J. M. Woods”
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