Citation: 2009 TCC 495
Date: 20091002
Dockets: 2008-631(EI),
2008-632(EI), 2008-633(EI),
2008-634(EI), 2008-635(EI)
BETWEEN:
MARIE-PAULE SINCLAIR,
GINO MANELLO, YVON SAVARD,
GERMAIN SAVOIE and MARJOLAINE SAVOIE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1]
The appellants are
appealing a decision of the Minister of National Revenue (the Minister)
concerning the insurability of their employment with the same company, namely,
Foresterie DMR Coulombe Inc. (the payor) during the following periods:
Marie-Paule Sinclair: from June 21 to October 1, 2004;
Gino Manello: from July 26 to October 29, 2004;
Yvon Savard: from June 21 to October 1, 2004;
Germain Savoie: from October 4 to October 22, 2004;
Marjolaine Savoie: from June 7 to October 29, 2004.
[2]
The five appeals were
heard on common evidence. According to the Minister’s decision, none of the
appellants held insurable employment with the payor during the periods in
question on the ground that they were not employed under a contract of service.
Alternatively, their employment was not insurable because they shared a
non-arm’s-length relationship within the meaning of paragraph 5(2)(i)
of the Employment Insurance Act (the Act), and more specifically, a
factual non‑arm’s‑length relationship within the meaning of
paragraph 25(1)(c) of the Income Tax Act (ITA).
[3]
The payor was
incorporated in January 2004 and dissolved in June 2006. Its sole
shareholder was Danny Coulombe, and the person in charge of supervising its
activities was Claude St-Onge. During 2004, the payor had just over 20
employees mainly working as loggers and seedling planters. The appellants
Germain Savoie, Gino Manello and Yvon Simard worked as loggers, and the
appellants Marjolaine Savoie and Marie-Paule Sinclair worked as seedling
planters.
[4]
This whole affair
started when representatives from Human Resources Canada noticed that several
forestry businesses in New Brunswick were incorporated but remained in
operation for only one year and that some of the same employees of those
companies were then hired by another company. This scenario repeated itself
from 2002 to 2007. According to the investigator, the main problem was due to
the limited information that those companies provided to government agencies,
particularly with regard to the documentation relating to their activities.
Only three or four of the companies that were investigated provided their
payroll records and a few endorsed cheques. The department’s representatives
asked the companies for a copy of their contract concerning cutting rights but
received nothing. Representatives of the companies in question were called in
to the investigators’ offices, but only three out of 18 came. Thus, it was
impossible to verify the validity of records of employment or to determine
whether a logger had actually cut any trees. The investigators noted some money
transfers in the case of two companies that had provided them with cancelled
cheques.
[5]
There is no doubt that
the representatives of Human Resources Canada went to great lengths to meet
with the principal shareholder of the payor, Danny Coulombe. Several
information requests were mailed to him or served on him at his home, but none
of those requests was answered, except that there was a letter from
Mr. Coulombe requesting that correspondence be sent to him in English.
This was done but did not produce any better results. In short, the
department’s representatives never interviewed Danny Coulombe or obtained any
documentation from him. He was not called as witness by either party.
[6]
Lucie St-Amour is
employed by Human Resources Canada and is responsible for validating employment
insurance applications. She processed the payor’s file and, for that purpose,
prepared a table of employment periods for all the payor’s employees based on
each one’s record of employment. Doing so enabled her to note some anomalies:
for example, two employees were apparently hired by the supervisor Claude
St-Onge before he himself was employed by the payor. She also learned from her
interviews with the employees that some of them had allegedly worked together,
although the dates found on their records of employment did not support those
statements. She stated that the appellant Germain Savoie had told her that he
had worked with the appellant Yvon Savard. For his part, the appellant Germain
Savoie told the Court that he had said to Ms. St-Amour that he had seen
Yvon Savard working with Claude St-Onge, but that was before he himself had
started working for the payor. According to Exhibit I-17, Yvon Savard’s employment
with the payor terminated the week of October 2, and Germain Savoie
started working for the payor the week after.
[7]
In addition to
interviewing the employees, Ms. St-Amour met with truck drivers who
transported the wood. She obtained from them the names of two purchasers of the
payor’s wood and the purchase invoices of those purchasers. She then compiled a
list of all the purchases, containing the dates and quantities of wood
purchased from the payor by those two purchasers. According to that
information, the first sale took place in May 2004. However, at that time
the payor had not yet hired any loggers. Altogether, the payor allegedly sold
23,561 cords of wood to those two purchasers in 2004. Yet, the loggers,
who used chainsaws, could cut no more than 25 to 30 cords of
wood per week. According to the witness, the 14 loggers would have to have
been working for around 67 weeks each to cut the amount of wood that was
sold to the two purchasers. The truck drivers who transported the wood stated,
however, that the wood that they transported had not been cut with a chainsaw,
but rather with a feller.
[8]
During her
investigation, Ms. St-Amour was unable to determine where the payor’s wood
had come from or to obtain its wood-cutting contracts. The payor did not file income
tax returns, pay the harmonized sales tax or remit source deductions from its
employees’ pay. Ms. St-Amour admitted that she had not verified whether
the payor had sold wood to other mills in the area. At the same time, she
acknowledged that the payor might have sold more than the 23,561 cords of wood
inventoried.
[9]
At the appeals level,
every employee of the payor received a questionnaire, and the five appellants
in this case responded to theirs. The appeals officer assigned to the case was
not any more successful in getting in touch with the principal shareholder of
the payor. However, the appeals officer was able to trace the origins of the
wood sold by the payor using the transport packaging certificates of
transporters of wood that were on the record, namely, the certificates of the
transporters who transported the wood to the payor’s two known purchasers. The
certificates indicated the numbers of the lots that the wood came from. Thus,
she found the names of the owners of the lots where the wood had come from by
checking the Service New Brunswick Web site. In addition to identifying the
owner, the site indicates the lot’s location; gives a short description of it,
namely, whether it is a residential or wooded lot; gives its dimensions; and
indicates whether a logging contract was registered with the New Brunswick
registry of ownership titles. This enabled her to conclude that the lot number
information on the certificates was incorrect and that it was therefore
impossible for her to identify where the wood had come from.
[10]
As for the validity of
the appellants’ records of employment or pay stubs, she could not authenticate
them because she had no evidence of any money transfers, deposits or
withdrawals related to the payment of a salary.
[11]
Jacques Francoeur owns
a logging company and operates a multi-function logging machine. The machine
can cut 200 to 350 cords of wood per week. His employees operate
his machine and a wood transport vehicle. He cut some
wood for the payor in the spring and fall of 2004. In the spring, he logged during approximately 4 weeks
for the payor on a small lot, the name of the owner of which he does not know.
Only his company worked on the lot. He
confirmed that a multi‑function logging machine and a wood transporter
cost around $800,000.
[12]
Arthur Roy
also logged for the payor in 2004. Claude St-Onge had allegedly asked him to
log on the land of a certain Aurèle St-Pierre. Representatives from the New
Brunswick Department of Natural Resources apparently prohibited him from continuing
to log because he was logging on Crown land. The
line drawn by Mr. St-Pierre cut 100 feet into Crown land. Thus, he did not log any more for the payor in 2004.
He used a machine called a "feller buncher"
to log, and his employee operated it.
[13]
Luc
Castonguay is employed by the Northshore Forest Products Marketing Board (the
Board). That organization sells wood on behalf of private woodlot
owners. It also runs a reforestation program. It
sells seedlings and offers the services of a contractor to plant them. An owner could also simply buy some seedlings and plant
them on his or her own. The Board does not
have a monopoly on the sale of seedlings, and they can be purchased at other
nurseries without having to go through the Board. The payor purchased seedlings from the Board in 2004.
[14]
The
respondent also called an expert who knew the customs and practices of the
forest industry. He had gained his experience in the course of conducting
numerous investigations as a major investigation officer for Service Canada,
particularly serious fraud investigations. In his report and his testimony, he
provided an overview of the evolution of the New Brunswick forest industry
covering logging practices, transportation and reforestation. That evolution has resulted in improved productivity of
forestry workers. Thus, a logger using a chainsaw could cut
25 to 30 cords of wood per week, while using a skidder, he could
cut 50 to 70 cords of wood per week. A multi‑function machine allows a forestry worker to
cut 300 to 400 cords of wood per week, while with a feller he
can cut 500 to 600 cords per week.
[15]
According
to the expert, in New Brunswick, 15% to 20% of logging is done in the
conventional way, namely, with a chainsaw and skidder. The skidder transports the
full-length tree to a cutter to then be loaded onto the truck. According to the expert, a logger will not use heavy
machinery if the lot is too rugged or too close to a watercourse. The expert also acknowledged that a logger could work
without heavy machinery when the logging is done on a small piece of land where
each logger has his or her own trail.
[16]
According
to the expert, loggers are paid on a piece work basis, that is, by quantity of
wood cut. They can obtain an advance, and their pay would be adjusted at
the end of their contract. In regard to
reforestation, private lot owners go through the Board, and with the help of
grants, they usually reforest the following year the lots that were logged.
[17]
In
cross-examination, the expert acknowledged that, in theory, a logger could be
paid per hour, but added that, in his opinion, a producer that did this could
not survive financially. He also acknowledged that it was possible for a producer or
lot owner to buy the seedlings him or herself or to buy them elsewhere without going
through the Board. Planters may be paid by piece, but he was not certain.
He added that they could be paid a salary. At the end, he stated that not all woodlot owners are
members of the Marketing Board.
[18]
The five appellants testified. All of them said that they had been called in by Service
Canada representatives to the Royal Canadian Mounted Police headquarters in
Campbellton and given a questionnaire with about 43 questions pertaining to
their working relationship with the payor during the period in question and
that they had answered it. The questionnaires
were not filed in evidence, and no questions suggesting that there were
contradictions between their answers and their testimony were asked in
cross-examination.
[19]
All of the
appellants stated that they had been hired and supervised by
Claude St-Onge on behalf of the payor. All of the appellants
testified that they had worked during their employment periods as loggers or
seedling planters. In the case of the three
loggers, the payor's representative assigned them a territory where they had to
cut the trees down, cut them into eight‑foot logs and put them together
into a cone shape, as shown on the photo filed as an example as Exhibit A-3.
The expression used by the appellant Germain Savoie
to describe the work was [Translation]
"logging by bunch". Each logger
supplied his own chainsaw as well as the gasoline and oil to operate it.
They were paid on an hourly basis at the rate of $15
per hour based on a 50-hour week. The
appellant Germain Savoie stated that he was paid in the same way in 2008 by a
Mr. Lurette as well as for four weeks of work this year. The photo filed as Exhibit A-3 was actually taken when he
was doing that type of work for Mr Lurette in 2008.
[20]
The
conditions of employment of the other two logger appellants were similar. They provided a
description of the locations where they had logged "by bunch" for the
payor. The appellant Gino Manello testified
that he had worked for other employers under similar conditions.
[21]
The two
female appellants testified that they had been hired to plant seedlings. They were paid
$11 per hour and worked 45 hours per week. Claude St‑Onge,
the payor's representative, told them where to plant. They worked in pairs, and often there were two pairs.
The seedlings were supplied to them as well as the
planting gun used and the belt to hold the seedlings. Claude St‑Onge supervised them often accompanied
by his friend Sylvette Poitras.
[22]
The five
appellants all produced pay statements given to them by the payor when they
received their pay every Thursday or Friday. They received their
paycheques at the lumber camp from Claude St-Onge and endorsed them right
there. Claude St-Onge then gave them money.
That procedure was agreed on to accommodate the
appellants, who could not go to the bank or to the Caisse during the week as
they worked at the lumber camp. Each of the
appellants received a T‑4 from the payor indicating his or her income and
source deductions. None of them is related to
the sole shareholder of the payor or has any shares in the payor.
[23]
The
respondent's position is that the appellants did not perform work for the payor
under a true contract of service and, thus, did not hold insurable employment
within the meaning of paragraph 5(1)(a) of the Act during their employment
periods. Alternatively, the respondent maintains that, if there were
contracts of service within the meaning of paragraph 5(1)(a) of the Act,
they were not legally insurable because the appellants and the payor acted in
concert without separate interests, thus creating between them a factual
non-arm's-length relationship within the meaning of paragraph 251(1)(c)
of the ITA, and under paragraph 5(2)(i) of the Act, such employment is
not insurable. It was thus reasonable for the
respondent to conclude that the appellants and the payor would not have entered
into a substantially similar contract of employment if they had been dealing
with each other at arm’s length within the meaning of paragraph 5(3)(b)
of the Act.
[24]
Therefore,
it must be determined whether the appellants in this case held insurable
employment within the meaning of the Act with the payor during the periods
attributable to each appellant.
It is clear from the assumptions of fact that the
Minister relied on to make his decision that his initial position is based on
the assumption that, in this case, the payor and 18 other companies that were
investigated participated in a scheme together with such people as the
appellants, which consisted in giving them false records of employment in order
to make them eligible for employment insurance benefits that they were not
entitled to. The Minister also added that 14
loggers were hired by the payor; that from March to June 2004, the payor sold
wood while no employees worked for it; that, during the period starting in
March 2004 and ending in March 2005, 23,521 cords of wood were sold to
various mills on behalf of the payor; that the quantity of wood sold by the
payor would have to have been cut by those 14 loggers during a period of
56 to 84 weeks, assuming that a logger cuts about 30 cords
per week; but that none of those 14 loggers worked for that long.
[25]
According
to the evidence, there was an investigation a summary of which reveals that,
among the 18 companies that were investigated, there were 14 that were
incorporated and whose existence and activities lasted only a year before being
replaced. The employees in this case were hired by a different company every
year. Thirteen
employees of the payor were on the list of employees of those companies in 2002
and 2003, including the appellants Gino Manello and Germaine Savoie.
According to the investigator, the problem was that
it was almost impossible to obtain information from the directors of those
companies. Although he occasionally received
logical answers, they were inconsistent. He
obtained documents from three or four companies such as payroll records and
some endorsed cheques. The investigation
revealed that wood had been cut, but the investigator did not obtain any copies
of logging agreements. Thus, it became
impossible to validate anything, including records of employments.
[26]
It is
possible to deduce, based on the evidence filed, that the payor contracted the
services of loggers to cut on a larger scale. The 23,521 cords sold to
two mills were cut in some other way than by chainsaw, according to the
transporters. Therefore, the wood was not cut
by the appellants. In addition, the
investigation does not indicate whether the payor sold its wood to those two
mills exclusively. There are more than two mills that buy wood in that area.
It is therefore erroneous for the respondent to claim
that the 23,521 cords of wood must have been cut by the 14 loggers
and that they needed 56 to 84 weeks to cut that quantity of
wood, especially since it was known that the wood was not cut with a chainsaw.
[27]
As far as
the two female appellants are concerned, the respondent assumed in the Replies
to the Notices of Appeal that the only supplier of seedlings in
New Brunswick was the Northshore Forest Products Marketing Board, that it
provided seedlings to forestry producers and logging companies and that the
price included labour. Based on these assumptions of fact, the respondent alleged
that the female appellants had never worked on the trails. The evidence showed, however, that it is possible to buy
seedlings from somewhere other than the Marketing Board and that the buyers of
seedlings could use the Board's workers or hire their own. The respondent's expert also confirmed that it is possible
for a producer to plant the seedlings himself or herself without going through
the Board. Additionally, he stated that, although he was not absolutely
certain, it was conceivable that a seedling planter could be paid by piece or
receive a salary.
[28]
I am
satisfied, on the balance of probabilities, that the appellants in this case
did work for the payor during the periods in question. Despite the fact that
logging in New Brunswick is mostly done on a large scale and that most
seedlings are planted with the help of the Board, it is possible to do some
logging with a chainsaw and to hire planters to plant seedlings bought from the
Board or from elsewhere. This conclusion is
also supported by the fact that, in my opinion, the five appellants testified
very credibly that they had effectively worked for and rendered services to the
payor during their employment periods. There
were no contradictions or implausibilities in the appellants' testimony that
could lead the Court to find that they were part of a scheme to help them
become eligible for employment insurance benefits. There is nothing in the evidence put forward that would let
me conclude that the pay stubs and T-4s are genuine, but there is also nothing
that would lead me to believe that they might be false. Contrary to what occurs in most of these types of cases, no
one in this case is claiming to have worked the minimum number of hours
required to become eligible for benefits. The
fact that it was impossible for the respondent's representatives to obtain
information and documents from the payor is not a good reason to penalize the
appellants.
[29]
The
appellants answered a questionnaire and were interviewed individually by
Service Canada representatives, and it seems that their version of the facts at
that time did not change when they testified, based on the cross-examinations.
[30]
There is no
doubt that the payor's activities and those of the other companies that have
been referred to raise doubts and questions. It is not normal that such
entrepreneurs can operate their businesses without being liable in some way.
How is it that the information obtained by the
transporters was false and that the lot identification numbers were wrong?
All of those anomalies are, however, absolutely
unrelated to whether the appellants had performed services for the payor,
unless a link can be established between those facts.
[31]
The
evidence did not support in any way the likelihood of the existence of a scheme
between the payor and the appellants for the purpose of procuring them
employment insurance benefits or of the existence of a factual non‑arm's‑length
relationship as maintained by the respondent.
[32]
Now it must
be analyzed whether there was in this case a contract of service between the
appellants and the payor. To do so, the criteria found in Wiebe Doors Services
Ltd. v. M.N.R., [1986] 3 F.C. 553,
which were confirmed by the Supreme Court of Canada in Sagaz Industries
Canada Inc. et al v. 671122 Ontario Limited, [2001] 2 S.C.R. 983, should be
used. It must be kept in mind that,
although the criteria are useful in determining the issue, they are only a
point of reference. The Federal Court of Appeal also reminded us in Charbonneau
v. Canada, [1996] F.C.J. No. 1337, that the ultimate objective of the
exercise is to determine the overall relationship between the parties.
[33]
The
relevant case law establishes very clearly that a contract for services exists
in the forest industry when a worker owns a skidder, valued at several thousand
dollars; chooses his own partner or team; and is paid based on the quantity of
wood cut. Things are different, however, when a logger supplies his
own chainsaw, when he does not have to transport his own wood, and when all he
does is follow the payor's instructions. The
evidence heard in this case does not rule out the possibility that it may have
been necessary to log selectively or to log in the mountains or in areas where
heavy machines could not be used. Logging
"by bunch" is still practised today without heavy machinery. The respondent's expert supported that statement himself
specifying, however, that a producer who depends on work done with chainsaw is
headed straight for bankruptcy. The same can
be said about his statement that most of the wood in New Brunswick is cut by
means of heavy machinery. That statement does
not rule out the possibility that there may still be wood that is cut with a
chainsaw. Regarding the fact that a logger is
paid by quantity of wood cut, the expert did not deny the possibility that a
logger using a chainsaw could be paid an hourly wage.
[34]
That said,
the five appellants in this case received their instructions from Claude
St-Onge. He told the three loggers that they had to "log by
bunch" and the two female appellants where to plant the seedlings.
[35]
Concerning
the work of the two female appellants, the expert was unable to say whether
seedling planters were paid by quantity or per hour. It is certain that nothing
precludes them from being paid per hour. As far as the two female appellants
are concerned, all of the evidence further favours, in my opinion, a contract
of service over a contract for services. They were supervised by
Claude St-Onge on a regular basis. He told them where and when to work. In
my opinion, that constitutes a degree of control over the workers that
corresponds to a contract of service. They did not supply any tools or run the
risk of profit or loss. They were not free to not come to work or to postpone
their work until later. In fact, they had no decision-making power over their
hours of work and could only submit to the conditions of employment imposed by
the payor. All of this favours a contract of service.
[36]
As for the
three loggers, they knew how to do their work, but that work was performed on
the premises and based on the instructions of the payor’s representative
telling them when and how they should do it. This leads me to conclude
that there was control over the appellants' work. Even though the fact that they supplied their own chainsaws
could favour a contract for services, it is quite normal in the exercise of
this trade for loggers to have their own chainsaws just as many mechanics
employed by garage keepers must own and supply their own tools. Overall, I am satisfied that the three logger appellants in
this case were not independent contractors. They
were not free to come and go as they pleased. They
had to come to work every day and carry out the tasks that were assigned to
them.
[37]
Having
already concluded that there was no factual non-arm's-length relationship
between the payor and the appellants or reliable evidence that the documentation
provided by the payor is falsified, I find that the appellants in this case
held insurable employment within the meaning of the Act.
[38]
The appeals
are allowed, and the Minister's decision is vacated.
Signed at Ottawa, Canada, this 2nd day of October
2009.
"François Angers"
on this 12th day
of November 2009
Margarita
Gorbounova, Translator
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