Citation: 2011TCC494
Date: 20111020
Docket: 2011-1008(EI)
BETWEEN:
5119235 MANITOBA INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
This is an appeal under
the Employment Insurance Act (the “EI Act”). The Appellant
operated a “Chicken Chef” franchise restaurant in Winnipeg. The shares of the Appellant were owned equally by Robert McMullin and
Donna Sawler. The issue in this case is whether the Appellant was dealing at
arm’s length with Christine Sawler who is the daughter of Donna Sawler and
one of the employees of the Appellant. The period in question is the period
from September 24, 2005 to February 14, 2010. Robert McMullin had asked if the
period could be extended to June 2010. However, since an appeal to this Court
is an appeal from a decision of the Minister and since the decision of the
Minister was only in relation to the period ending on February 14, 2010, that
is the period that is applicable in this appeal. The period under review cannot
be extended for this hearing.
[2]
Section 5 of the EI Act provides
in part as follows:
5.
(1) Subject to subsection (2), insurable employment is
(a)
employment in Canada by one or more employers, under any express or
implied contract of service or apprenticeship, written or oral, whether the
earnings of the employed person are received from the employer or some other
person and whether the earnings are calculated by time or by the piece, or
partly by time and partly by the piece, or otherwise;
. . .
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),
(a) the question of whether persons are not dealing with each
other at arm's length shall be determined in accordance with the Income Tax
Act; and
(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]
Since Donna Sawler and
Robert McMullin were not related to each other, the Appellant was not related
to Christine Sawler. As a result the provisions of paragraph 5(3)(b)
of the EI Act are not applicable in this case.
[4]
For the purposes of the EI Act,
insurable employment does not include employment if the employer and employee
are not dealing with each other at arm’s length. It is the position of the
Appellant that Christine Sawler was not engaged by the Appellant in insurable
employment as the Appellant and Christine Sawler were not dealing with each
other at arm’s length.
[5]
In The Queen v. Remai
Estate, 2009 FCA 340, 2009 DTC 5188 (Eng.), [2010] 2 C.T.C. 120, Justice
Evans, writing on behalf of the Federal Court of Appeal, made the following
comments:
31 The
Judge applied the analytical framework adopted in Peter Cundill &
Associates Ltd. v. R., [1991] 1 C.T.C. 197 (Fed. T.D.), aff'd.
[1991] 2 C.T.C. 221 (Fed. C.A.) (“Peter Cundill”), and applied in
McLarty at para. 64 and following, in order to determine if Sweet and Frank
were dealing at arm's length when the Foundation sold the notes to Sweet in
exchange for Sweet's note of the same value and bearing the same rate of
interest.
32 Peter
Cundill requires a court to consider if: (i) there was a common mind
directing the bargaining for both parties; (ii) they were acting in concert
without separate interests; and (iii) one party exercised de facto
control over the other. As with any multi-factor legal test, not all need be
satisfied in every case. Some may assume particular importance in some
circumstances, and others less. Nor are the listed factors necessarily
exhaustive.
33 The
Crown concedes that Peter Cundill is the proper legal test, but argues
that the Judge erred in law by failing to ask whether “the terms of the
transactions ... reflect ordinary commercial dealings between ... [parties]
acting in their own interests” (per Sharlow J.A. in Petro-Canada v. R.,
2004 FCA 158, 2004 D.T.C. 6329 (F.C.A.) at para. 55).
34 In
my opinion, this is not an error of law, because whether the terms of a
transaction reflect “ordinary commercial dealings between parties acting in
their own interests” is not a separate requirement of the legal tests for
determining if a transaction is at arm's length. Rather, the phrase is a
helpful definition of an arm's length transaction which it is the purpose of
the components of the Peter Cundill analytical framework to identify. It
may also enable a judge to reflect on the soundness of the conclusion to which
an application of the individual Peter Cundill factors has led.
[6]
One of the factors that
is to be considered in determining whether two persons are dealing with each
other at arm’s length is whether they were acting in concert without separate
interests.
[7]
In this case Donna
Sawler was responsible for the day to day operations of the Appellant including
staffing decisions. During the direct examination of Donna Sawler by
counsel for the Respondent, the following exchange took place:
Q And I understand your daughter, Christine,
worked at the Chicken Chef involved in this appeal. Whose decision was it to
hire her?
A I don't think it was really a decision. It
was at the time -- like it wasn't like we discussed it. It was more like a
given. Like it would be that she would come to work for us. And so did we
also take Mike Morrissette, who was an employee at the Chicken Chef on Portage, and we also brought on board I
think four former KFC employees.
[8]
It seems to me that the
reference to it being “a given” only applies to Christine Sawler being
employed. This suggests that the Appellant and Christine Sawler were acting in
concert without separate interests. The arrangement in relation to overtime
also suggests (and in my opinion strongly suggests) that the Appellant and
Christine Sawler were acting in concert without separate interests.
[9]
In this case, it
appears that Christine Sawler started working for $10 an hour and later it was
increased to $13 per hour. These amounts did not appear to be significantly
different than the amounts paid by the Appellant to other employees who were
unquestionably dealing at arm’s length with the Appellant. However, the
arrangement with Christine Sawler in relation to overtime was different from
the arrangement with the other employees. The following is part of the exchange
that took place between Donna Sawler and counsel for the Respondent during her
direct examination by counsel for the Respondent:
Q Did Christine work overtime?
A Did she work overtime? Yes, she did.
Q How often?
A In the whole five years?
Q If it's of assistance, again we can break it down per year,
so --
A I don't -- honestly I'd be guessing. I'd say, I don't know,
60, 70 percent of the time.
Q So you would say often?
A Often, yes.
Q What rate was she paid for the extra hours she worked, so
for overtime?
A She wasn't.
Q So are you saying that she didn't receive overtime pay for
the overtime that she worked?
A She did not.
Q Did she get paid?
A Yes, she got paid. She got paid straight time.
…
Q Did you discuss with Christine that she was not being paid
the overtime rate?
A No, she never asked me.
Q Did any of the other employees work overtime?
A Yes, they did.
Q How often?
A In the last year I believe Chantelle and Missy were actually
scheduled for overtime. Like for example, Chantelle worked an opening shift on
Saturday. That was a 9:30 to 7:00 shift. That was actually scheduled. She
was paid overtime for it.
Q So does that mean she would work at least once a week
overtime?
A At least, yes. And there was a period of time between when
Anita left and Leaette was hired where they probably worked a fair amount of
overtime.
Q What rate did the other employees receive for overtime?
A Time and a half.
[10]
That other employees,
who were unquestionably dealing at arm’s length with the Appellant, were paid
time and a half for overtime while Christine Sawler worked overtime as much as
60 to 70 percent of the time for her standard hourly rate, seems to me to lead
to a conclusion that it is more likely than not that Christine Sawler and the
Appellant were acting in concert without separate interests. The fact that
Christine Sawler worked such a significant amount of overtime and never
raised the issue of her pay for such overtime work when other employees were
being paid time and a half for overtime also indicates that Christine Sawler
and the Appellant were acting in concert without separate interests. It seems
to me that if Christine Sawler and the Appellant would have had separate
interests then Christine Sawler would have raised this issue since as much as
60 to 70 percent of the time that she was working she was working overtime.
[11]
Robert McMullin also
raised an issue in relation to complaints that had been made against Christine
Sawler. Although the exact number of complaints is not clear, it appears that a
significant number of complaints had been made against Christine Sawler.
Robert McMullin and Donna Sawler had different experiences in relation to the
operation of a restaurant and the number of complaints that would be made by
customers. Robert McMullin testified during his cross examination as follows:
Q Okay, we will get to that in a moment.
She wasn't the only person to get complaints, was she?
A I believe there was one or two regarding Missy. The rest
were all Christy.
I mean in all fairness, in my restaurant over 18 years, I
believe I've had two complaints head office complaints.
[12]
Robert McMullin was
referring to another “Chicken Chef” restaurant that he operated through another
company. Robert McMullin was referring to head office complaints. He also
stated during his testimony that “in my years of experience, for every one complaint you would get at a
head office, the store would probably deal with no less than ten to twenty”. Therefore it would appear that in his
eighteen years his restaurant would have had approximately 22 to 44 complaints, which would be an average of
less than three per year.
[13]
Donna Sawler, during
her direct examination, testified as follows:
Q Did complaints have any effect on an
employee's performance review or wage increases?
A It may have had an effect on my opinion, but,
no, did I ever penalize an employee because of customer complaints? Like for
example, and Rob could probably better speak, I don't know what this number
is. It's covering a five-year span. If I was guessing, I don't know, ten, and
some of them are not Christy's.
An average restaurant where I used to work would average 500
complaints a year, to the high end of 900. I would not have considered this
huge. Not to mention like the complaints that came through the store. Like I
would say on average we maybe got in the store, I don't know, 10 a month.
[14]
An average of 500 to
900 complaints per year is significantly more than the less than 3 per year for
Robert McMullin’s other restaurant. Assuming that a restaurant is open 365 days
per year, the average number of complaints referred to by Donna Sawler (in
referring to another restaurant where she worked) per day would be
approximately equal to the average number of complaints experienced by Robert McMullin
at his other restaurant on an annual basis. It seems to me that if a restaurant
is receiving 900 complaints a year (which based on the restaurant operating 365
days a year) would mean an average of approximately 2.5 complaints per day,
every day, then something is wrong with the restaurant. It seems to me that
Donna Sawler was trying to rationalize why no action was taken against her
daughter and was trying to minimize the complaints made against Christine
Sawler. Although in this case it is not necessary to determine whether the
number of complaints filed against Christine Sawler would indicate that
Christine Sawler and the Appellant were acting in concert without separate
interests, it seems to me that the lack of any disciplinary action taken by
Donna Sawler (who was responsible for staffing) as a result of the complaints
filed against Christine Sawler and her attempt to deflect any criticism of Christine
Sawler by suggesting that a restaurant could expect 500 to 900 complaints a
year, indicates that the Appellant and Christine Sawler were acting in concert
without separate interests.
[15]
In my opinion,
Christine Sawler and the Appellant were acting in concert without separate
interests and therefore were not dealing with each other at arm’s length
throughout the period under appeal (September 24, 2005 to February 14, 2010).
[16]
As a result, the appeal under the EI Act with respect to the decision of the Minister of
National Revenue dated January 28, 2011, is allowed, without costs, and the
decision of the Minister is varied to provide that Christine Sawler was not engaged by the Appellant in insurable
employment as determined for the purposes of the EI Act at any time during
the period from September 24, 2005 to February 14, 2010.
Signed at Ottawa, Canada, this 20th day of October 2011.
“Wyman W. Webb”
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