Citation: 2008 TCC 611
Date: 20081218
Docket: 2008-691(EI)
BETWEEN:
LES INDUSTRIES ET ÉQUIPEMENTS LALIBERTÉ LTÉE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif
J.
[1]
This is an appeal from
a determination by the Respondent that the work done by Jean‑Charles,
Lionel, Raynald and Marcienne Laliberté for the Appellant, Les Industries
et équipements Laliberté Ltée, from January 12, 2006, to June 13, 2007, was
insurable employment.
[2]
The legal basis for the
determination is paragraph 5(2)(i) of the Employment Insurance Act ("the
Act"), which provides that work performed by a person related to the
employer within the meaning of the Income
Tax Act is excluded from insurable
employment. However, Parliament has provided for an exception under which such
work is insurable if it was performed in a manner similar and under terms and conditions
comparable to those that would have existed if the parties had been dealing
with each other at arm's length. The
exception reads as follows:
5(3)(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]
Thus, if there is a
non-arm's length relationship, the person responsible for analyzing the file
must conduct an analysis that is much broader than merely checking for the
presence of the classic conditions, which are remuneration, the performance of
work and a relationship of subordination. The person must determine whether the
non-arm's length relationship affected the performance of the work.
[4]
Another particular aspect
of the matter is that the case law has established that the Tax Court of Canada
does not have jurisdiction to set aside a decision where the discretionary
authority has been exercised correctly and lawfully.
[5]
In other words, if the
discretionary authority was exercised in a responsible and sound manner and all
the relevant facts were taken into account and the conclusion is a reasonable
outcome, the Tax Court of Canada cannot amend the decision, even if the Court
does not agree with the conclusion drawn.
[6]
To explain his
determination, the Respondent relied on a number of assumptions of fact, many
of which were admitted to by the Appellant. Among the facts admitted to are the
following:
[TRANSLATION]
5. (a) The Appellant was incorporated on
December 31, 1981.
(b) The Appellant operates a manufacturing business;
it manufactures and distributes agricultural equipment, especially for pig
farming.
(c) The Appellant is also developing a line of products for the
dairy sector and operates another, entirely different, division that cuts metal
for Prévost Car.
(d) The Appellant has sales of between $19 and $20 million and
between 110 and 120 employees.
(e) Each of the workers holds, through his or her own company, 25% of
the Appellant's voting shares.
(f) According to the CIDREQ business registry, Jean-Charles was
president, Marcienne and Raynald were vice-presidents and Lionel was
secretary-treasurer of the Appellant.
(h) The workers/shareholders, and the director of finance, all have
authority to sign cheques in the Appellant's name; two signatures are required.
(i) All major decisions concerning the operation of the Appellant's
business were made by the four shareholders.
(j) Since 2000, the workers claim that they have left their
positions as directors and consider themselves managers (executives) of the
Appellant's business.
(k) Since 2000, the Appellant has hired three directors – two
division directors and a director of finance – reporting to the workers.
(l) According to the workers, their jobs consist mainly in attending
management meetings every Tuesday and Thursday as well as meetings of the board
of directors and of several committees.
(m) About four years ago (in 2004), at the request of the four
workers/shareholders, the Appellant hired a consultant to advise the workers in
their approach to managing the business and help them to resolve differences of
opinion.
(p) According to the workers, none of them had to follow a specific
work schedule; they attended meetings of shareholders and management twice a
week, on Tuesdays and Thursdays, and generally went to the office on the other
two days [TRANSLATION] "with no particular assignment".
(q) The meetings on Tuesdays and Thursdays usually lasted from 10:00
a.m. to 4:00 p.m.
(r) The Appellant did not keep track of the workers' hours.
(t) In subsequent telephone conversations with an authorized officer
of the Respondent, the workers said that they worked the following hours per week:
- Jean-Charles
Laliberté: roughly 25 hours;
- Lionel Laliberté: 20 to 25 hours;
- Marcienne Laliberté: 25 to 30 hours;
- Raynald Laliberté: 25 to 30 hours.
(u) The workers received gross remuneration of $60,199 per year ($1,157.67
per week).
(v) The workers were paid by direct deposit each week.
6. (a) During the
period in issue, the voting shares of the Appellant were held by the following:
- 2966-5742 Québec Inc. with 25% of the shares;
- J.R.L.M. Laliberté Inc. with 25% of the shares;
- Gestion R. Laliberté Inc. with 25% of the shares;
- 9155-2547 Québec Inc. with 25% of the shares.
(b) Lionel Laliberté was the sole shareholder of
2966-5742 Québec Inc.
(c) Jean-Charles Laliberté was the sole shareholder of J.R.L.M.
Laliberté Inc.
(d) Raynald Laliberté was the sole shareholder of Gestion R.
Laliberté Inc.
(e) Marcienne Laliberté was the sole shareholder of 9155-2547
Québec Inc.
(f) Lionel, Jean-Charles, Lionel and Marcienne Laliberté are
brothers and sister.
(g) The workers were part of a group that controlled the
Appellant.
7. (a) The workers received fixed annual remuneration
of $60,199, spread over 52 weeks, for, according to the first version given, 30
to 40 hours of work per week, and, according to the second version, 25 to 30
hours per week.
(b) The
workers/shareholders determined their annual remuneration themselves.
[7]
On the other hand, the Appellant
denied the facts alleged in subparagraphs 5(g), (n), (o), (s), (w) and (x), and
in subparagraphs 7(c), (d) (e), (f), (g) and (h), which read as follows:
[TRANSLATION]
5. (g) Before 2000, the workers held the
following positions with the Appellant:
- Jean-Charles was responsible for sales and marketing;
- Lionel was responsible for production and information
technology;
- Marcienne handled purchasing;
- Raynald was
responsible for the truck fleet, transportation and buildings;
(n) During the
period in issue, the workers generally worked Monday to Thursday and took
Friday off.
(o) The
workers rendered their services at the Appellant's place of business and used
all the materials and equipment placed at their disposal by the Appellant.
(s) During
their initial telephone conversations with an authorized officer of the
Respondent, the workers said that they worked the following number of hours per
week:
- Jean-Charles Laliberté: 25 to 30 hours over three or
four days;
- Lionel Laliberté: 30 to 40 hours over three or four
days;
- Marcienne Laliberté: 30 to 40 hours over three or four days;
- Raynald Laliberté: 30 to 40 hours over three or four
days.
(w) If their work required them to travel, the workers were
reimbursed for their travel expenses.
(x) The workers were entitled to five or six weeks of annual
vacation (compared with four for most other employees) and received life and
drug insurance coverage, as did the Appellant's other employees.
7. (c) The workers did not count their hours of work but were
subject to the Appellant's authority as exercised by its board of directors, of
which they were members.
(d) The
workers received reasonable remuneration having regard to the duties they were
assigned by the Appellant.
(e) All of the
workers remained responsible for their respective areas of activity and
rendered services to the Appellant as salaried employees in addition to their
status as executives and shareholders; also, they had to train those who would succeed
them.
(f) The work
of each of the workers was essential to the smooth operation of the Appellant's
business.
(g) If the
workers had special terms and conditions of employment, it was due not to their
non-arm's length relationship with the Appellant but to their status as
shareholders of the Appellant.
(h) The
workers have been employed by the Appellant for over 20 years, they perform
their duties year-round and their work meets the Appellant's operational needs.
[8]
Only Lionel Laliberté testified in
support of the appeal. He went
over the history of the Appellant business. He explained that at the very
beginning, his father had initially been a salesperson in the poultry farming
sector. At the time, he also sold cages
to customers who bought his poultry. At one point, he was offered the cage
manufacturing business. This happened in the 1950s. After acquiring the
business, he moved the facilities to the location where the Appellant has
operated ever since.
[9]
At a certain point, the way of
doing this type of production was turned upside down, and the business shifted
its focus to equipment needed for pig farming. The entire Laliberté family was
then involved in the business, that is, ten brothers and sisters along with the
father.
[10]
At that time, all ten children and
their father were partners in the business.
[11]
After the major shift to
manufacturing pig farming equipment, the business added a John Deere dealership
in 1978.
[12]
In 1981, the farm was sold and the
father and one of the sisters retired, leaving six of the children – four
brothers and two sisters – to run the business, until the eldest died. At that
time, the shares of the deceased and of one of the two sisters were acquired by
the four family members concerned by the instant appeal.
[13]
At the end of the 1990s, pig
farming suffered setbacks as a result of stricter regulation and a moratorium
that initially targeted over 150 municipalities and was then broadened to cover
all of Quebec.
[14]
With its growth and development in
jeopardy, the business started an industrial division. It acquired digitally-controlled laser
cutters and a punching machine – highly sophisticated and technologically
advanced equipment. The three brothers and their sister saw the business grow
rapidly, to the point where they found themselves in a rather awkward
organizational situation.
[15]
They called in a management support
team. The business took
advantage of a program identified as "CAMO", which Mr. Laliberté described
as a personalized program and plan to improve the efficiency and profitability
of the business. A specific consultant then joined the business in order to
make the changes necessary to turn it into a well-structured, highly efficient
company, with, especially, a very modern approach to management.
[16]
A true human resources department was
set up and the consultant remained involved in managing the business.
[17]
A number of changes were
implemented, to the point where the workers concerned by the instant appeal saw
their situation altered completely, in that they no longer worked in
manufacturing.
[18]
The period in issue is from
January 12, 2006, to June 13, 2007. During that period, the Laliberté brothers
and their sister defined themselves as managers with a considerably reduced
workload of approximately 30 hours per week.
[19]
Lionel Laliberté explained
that their duties were now, and had been for several years including the period
in issue, related more to management than to manufacturing at the plant, as had
been the case at the beginning.
[20]
Skilled people had taken over and
were in charge of production, their job being to manage the development and
overall smooth operation of the business with modern and highly efficient tools
and methods.
[21]
Mr. Laliberté said that in 2004 he
retained the consulting firm Saucier to evaluate the appropriate salary for the
positions held by the brothers Lionel, Raynald and Jean‑Charles and their
sister Marcienne.
[22]
The consultants concluded at the
time that the salaries should be between $60,000 and $125,000. Lionel deserved the highest salary because
of his responsibilities. This
period is neither relevant nor helpful because it precedes the period in issue
and because the work is no longer the same, and work is a fundamental element
in a case concerning insurability.
[23]
Without going into details, Mr. Laliberté
said that the shareholders whose work is in issue had more generous insurance
coverage than the other employees. In addition, the shareholders had signed a
purchase and sale agreement covering all possible situations in the event of the
death, disagreement or departure of one of them. He said that his brothers and
their sister had no children able to take over or interested in doing so.
[24]
He also explained that the
business had made use of a very effective support and follow-up program. Under
that program, a Mr. Bherer acted as consultant and mentor. He first set up a true
human resources structure. Then, he continued to act at all management levels.
Recently, he recommended abandoning the formula of paying salaries to the
shareholders concerned by the instant appeal and replacing it with a system of director’s
fees.
[25]
Mr. Laliberté was very clear about
the major changes that occurred regarding their performance of work for the
Appellant business. He explained in several ways that since the beginning of
the period in issue, the business has been structured to be autonomous, so that
the shareholders have become managers who oversee, control and plan activities
according to the various reports prepared by the people put in place.
[26]
Mr. Laliberté said
that their work was management work. He stressed the nature of a manager's
work, clearly believing that such responsibility could not constitute work
subject to the Act.
[27]
For a start, the
significant differences among the salaries established by the consultant are
not relevant because, first of all, this was a situation that preceded the
period in issue, and, second, the people concerned no longer did the same work.
And work is unquestionably the key element in a case concerning insurability.
[28]
The
cross-examination of the Appeals Officer,
Hélène Venne, dealt mainly with the facts stated in the report that she
prepared. I will reproduce the facts in question:
[TRANSLATION]
10. The four
shareholders withdrew from operations in 2000 and now hold management positions.
28. The worker
tells us that if he had to be absent for a long period, that would not disrupt
operations.
57. Ninety
percent of their work is attending meetings.
59. He himself
decides what to do on Mondays and Wednesdays. If he feels like delivering
goods, he does so.
60. However,
he is not obliged to do so, since there are drivers to do that work.
[29]
The evidence adduced by the
Appellant is itself a clear indication of the considerable effect of the
non-arm's length relationship at the outset, when it was a small family-run
business, even something of a cottage industry, that later became, and was
during the period in issue, a large and prosperous enterprise, very well
structured and in competent hands.
[30]
Everything was done to
make the business entirely independent of family influence.
[31]
During the period in
issue, the Appellant became an autonomous business, to the point where Lionel Laliberté
stated clearly that the business now operates very well without their presence
or during their prolonged absence. The decisions made regarding the salary and
the number of hours devoted to the business are essentially business decisions
and the non-arm's length relationship in no way influenced how things are done.
[32]
This approach is in
fact entirely consistent with a situation where an arm's length relationship
would exist. Lionel Laliberté said that the business offered them life
insurance, disability insurance, and so on. There again, the evidence adduced
in that regard did not show that the situation would have been different if the
workers had been dealing with the business at arm's length.
[33]
Ms. Venne said, in
fact, that she learned nothing new from the testimony of Lionel Laliberté.
[34]
The report does indeed set out the
principal relevant elements. According to the testimony of Lionel Laliberté
himself, the facts denied proved to be accurate with the exception of the
allegations that were based on interpretation, for example, with regard to whether
the remuneration was reasonable or whether there was or was not a power of
control.
[35]
The evidence therefore
does not discredit the analysis performed, and in both quality and quantity, the
facts gathered were those that were relevant and helpful in drawing a conclusion.
[36]
That conclusion, which
corresponds to the determination under appeal, is also reasonable. It is
certainly not an unreasonable outcome. Consequently, the Court does not have to
intervene. The appeal is therefore dismissed.
[37]
If the analysis was sound
and above reproach, the conclusion reached cannot be revised by the Tax Court
of Canada. In the case at bar, the evidence has not shown, on a balance of
probabilities, that there were any serious lapses or significant oversights in
the discretionary exercise that was performed. The conclusion drawn is
validated by the evidence, and even if the evidence had shown that there were
serious lapses, which is not the case, I would still have come to the same
conclusion regarding insurability.
[38]
Indeed, the evidence
showed, on a balance of probabilities, that during the period in issue the
Appellant structured its activities so that the family dimension or the fact
that the shareholders were related under the provisions of the Act would have
no effect on the employment contracts in issue.
[39]
Over the years, the
business structured and organized itself in such a way as to obscure entirely
the influence or consequences of the family dimension.
[40]
The terms and
conditions of employment, workload and remuneration were totally consistent
with those in a situation where the shareholders are at arm's length.
[41]
Lionel Laliberté clearly
stated, in fact, that the Appellant business had become autonomous in its
operations, to the point where consideration was being given to replacing the
remuneration paid as salary with a system of director’s fees given for
attendance at meetings, which could obviously affect the nature of the
employment contract having regard to the circumstances and context.
[42]
During the periods in
issue, the members of the Laliberté family performed work as managers, each
with a different but very useful area of expertise, to which they devoted a
similar number of hours and for which they received identical remuneration. All
of the elements for the existence of a contract of service were present, and
those contracts were not influenced or shaped by the non-arm's length
relationship.
[43]
For all these reasons, the appeal
is dismissed.
Signed at Ottawa,
Canada, this 18th day of December 2008.
"Alain Tardif"
Translation certified true
on this 17th day of February 2009.
Brian McCordick, Translator
Email this Content