Citation: 2007TCC563
Date: 20071114
Docket: 2006-2496(EI)
BETWEEN:
MARIO GAUTHIER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
LIETTE CÔTÉ,
Intervener.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] The Appellant is
appealing the decisions of the Minister of
National Revenue (the Minister) rendered under the Employment Insurance
Act (the Act). The Minister determined that the Intervener (the
worker) was not employed under a contract of service and that, therefore, she
was not in insurable employment within the meaning of paragraph 5(1)(a)
of the Act when she was employed with the Appellant, who operated an excavation
and snow removal business under the names Excavation et Déneigement MG Enr. and
Rénovation et Entretien SC, during the periods from August 26, 2002,
to June 6, 2003, from June 30, 2003, to March 12, 2004, from
April 5, 2004, to January 7, 2005, and from February 7, 2005, to January
20, 2006 (the relevant periods). The Minister also determined that the
worker and the Appellant would
not have entered into a similar contract of employment if they had been dealing
with each other at arm’s length.
[2] The Minister based
his decision that the worker was not employed under a contract of service and
that, therefore, she was not in insurable employment when she was employed with
the Appellant during the relevant periods on the following assumptions of fact
set out at paragraph 5 of the Reply to the Notice of Appeal which were
admitted or denied as the case may be:
[TRANSLATION]
(a) since March 20, 1995,
the Appellant has been operating an excavation and snow removal business under
the names Excavation et Déneigement MG Enr. and Rénovation et Entretien SC.,
since October 5, 1998; [admitted]
(b) the Appellant provides
excavation, earthwork, snow removal and parking lot cleaning services;
[admitted]
(c) he operates his
business year-round; [admitted]
(d) the Appellant started
his business by purchasing his first machine in which the worker invested
$3,000.00 and for which she was not reimbursed; [admitted]
(e) the Appellant had the
following equipment: a shovel, a backhoe, a ten-wheel truck, a 10-tonne
trailer, a sanding wagon and a truck with a closed trailer; [admitted]
(f) the Appellant is a
heavy machinery operator and leaves all the office work to his spouse, the
worker; [admitted]
(g) the worker’s main duties involved
preparing the payroll; preparing GST and QST reports and making remittances;
preparing tenders and contracts; purchasing and selling machinery; being in
charge of financing; answering the telephone, etc. [admitted]
(h) the worker prepared tenders on her
own or with the help of the Appellant; [admitted]
(i) the worker could sign
cheques on behalf of the Appellant; [admitted]
(j) the company’s bank account was
opened jointly in the names of the Appellant and the worker; [denied]
(k) the worker was jointly responsible
with the Appellant for the line of credit of the Appellant’s business; [denied]
(l) the worker was in charge of all of
the administrative aspects of the business whereas the Appellant only worked
with heavy machinery; [admitted]
(m) the worker was neither controlled or
supervised by the Appellant in her work; [denied]
(n) when the Appellant wanted to make a
major expenditure, he consulted the worker; [admitted]
(o) the worker worked from
her home (sole owner) without obtaining compensation from the Appellant for the
use of a room as her office; [admitted]
(p) as part of her job, the worker used
her own computer and her home telephone and telephone number; [admitted]
(q) the worker had no work
schedule to comply with; [denied]
(r) the hours worked by the worker were
not accounted for by the Appellant; [denied]
(s) during the periods in issue, the
worker’s remuneration rose from $10 to $12 per hour; [admitted]
(t) when the worker was listed in the
Appellant’s payroll journal, the number of hours entered was always 40 per week
regardless of the hours she actually worked; [denied]
(u) when she was not listed in the
payroll journal, the worker claims that she did not work and that she received
Employment Insurance benefits; [admitted]
(v) on April 19, 2006, the Appellant
indicated to a representative of the Respondent that the worker worked
year-round and sometimes without pay as telephone calls, the invoicing, faxes
and tenders could not wait, whereas the worker stated that the weeks where she
was not paid were weeks that she did not work; [admitted]
(w) the worker managed her work to have
forty-hour weeks so that she could receive Employment Insurance benefits during
the other weeks; [denied]
(x) every year, the worker received the maximum weeks of benefit entitlement; [admitted]
(y) the worker was listed in the
Appellant’s payroll journal based on her benefits needs and not based on the
Appellant’s needs; [denied]
[3] In rendering his
decision that, during the relevant period, the worker and the Appellant were
related persons within the meaning of the Income Tax Act, the Minister
relied on the following assumptions of fact set out at paragraph 6 of the Reply
to the Notice of Appeal which were admitted:
[TRANSLATION]
(a) the Appellant was the
sole proprietor of the business;
(b) the worker was the
Appellant’s common-law spouse;
(c) the worker was related to a person
who controlled the Appellant’s business.
[4] Finally, to be
satisfied that it was not
reasonable to conclude that the Appellant and the worker would have entered
into a substantially similar contract of employment if they had been dealing
with each other at arm’s length, the Minister relied on the following assumptions of fact
set out at paragraph 7 of the Reply to the Notice of Appeal which
were admitted or denied as the case may be:
[TRANSLATION]
(a) the worker’s work was essential and
required year-round for the proper functioning of the Appellant’s business;
[admitted]
(b) the worker rendered services
year-round but was paid in a manner that allowed her to qualify for Employment
Insurance benefits; [denied]
(c) the worker received Employment
Insurance benefits during the weeks where she was not listed in the payroll
journal; [admitted]
(d) the Appellant did not supervise the
worker’s work, did not know her hours of work and did not know anything about
the daily administration of his business; [denied]
[5] It should be noted
from the outset that the Appellant and the Intervener testified, whereas Sandra
Boyer, investigator at the lowest level, and Colette
Laberge, an appeals officer with the Canada Customs Revenue Agency (the
Agency), testified in support of the Respondent’s position.
[6] During her
testimony, Colette Laberge, the appeals officer who rendered a decision on the
application of paragraph 5(2)(i) and subsection 5(3) and on
paragraph 5(1)(a) of the Act, essentially summarized what was
contained in her report, which was filed as Exhibit I‑6. The report
includes statements made to Ms. Laberge by the Appellant and the worker
during telephone conversations. The report also includes the assessment of Ms.
Laberge that led to the Minister’s decision in the instant case. In my opinion,
the relevant statements made to Ms. Laberge by the Appellant and the
worker are worthy of note, as they allowed me to determine the probative force
of the Appellant’s and the worker’s testimonies. The relevant statements
recorded in the document entitled “Report on an appeal” read as follows:
[TRANSLATION]
The following facts are taken from a
telephone conversation with the payer, Mario Gauthier:
. . .
2. The payer
operates an excavation business during the summer and a snow removal business
during the winter. In the spring, the business entails the sweeping of parking
lots and in the fall, it entails preparing for the winter. The business never
comes to a standstill. It operates year-round.
. . .
4. The payer is a
heavy machinery operator and has complete trust in his spouse, Liette Côté,
where the office is concerned; she is good with numbers.
5.
She is the one who
decides whether or not to accept a contract as she knows how to count. They
prepare tenders together most of the time.
6.
When it is urgent,
she decides on a contract, prepares the tender and speaks to him about it
after. He has complete trust in her. As for him, he does field work.
7.
The payer is paid by
withdrawals and it is the worker who decides on the withdrawals.
8.
The worker is paid
per 40-hour blocks. She accumulates office work and does it during the day and
in the evening and then she says that she pays herself for 40 hours.
9.
Her work consists in
doing the payroll, SDs, GST and QST reports, the filing, tenders, contracts,
purchasing and selling machinery, and doing the financing. He concludes by
saying that if she is not there, nothing works.
10.
The hours of Liette
Côté are not accounted for; he trusts her.
11.
She is paid by the
hour but does not know how much she earns. Lastly, she told him that she was
giving herself a pay raise and he does not know what the pay raise was but he
is certain that it is not excessive.
12.
He does not know who
decided on the worker’s salary or how the salary was determined; nor does he
know how much she earns but he thinks that it is not excessive
13.
He does not know
whether she received vacation pay but he knows that she does not really take
vacation. In July 2006, they are taking a week of vacation as they are getting
married but it will be the first time they take vacation.
14.
Liette Côté performs
duties without being paid when she answers the telephone for jobs or complaints
or when she does the invoicing. Invoicing is not something that can wait. The
same goes for faxes and tenders: they cannot wait.
15.
She tries to
accumulate work for one week but the invoicing has to be done for money to come
in. He cannot say what the minimum number of hours she works per week is; it
depends on the demand.
16.
The payer does not
know the company’s sales figures for the past four years.
17.
She signs the
transactions as she is authorized to do so. Sometimes it is he who pre-signs;
it does not matter to him; at any rate, she is the one who prepares the
documents; it is six of one, half a dozen of the other.
. . .
19. She works from
home because that is where the office is; she is also in charge of the house,
the telephone, commissions, the bank, deposits, and the invoicing.
. . .
21. The situation is
the same for the four periods in issue and beyond as it’s been 12 or 15 years.
22. She works
year-round and her hours are not recorded. He does not know whether she
receives fringe benefits; he is not aware of such things.
. . .
24. She is
accountable to the payer as needed; she is not supervised and her work does not
require approval.
25. He says that he
could terminate her services but that he cannot imagine that anyone else would
come to work at the house; the payer points out that the office is located in
her house.
26. The fact is that
if she were not there, he would no longer have any work and he would shut the
business down because he cannot do without her; she is indispensable and has
been there since the beginning.
27. The work tools
used belong to Liette Côté. The house in which the office is located belongs to
her. She also owns a computer, a MAC, which she uses for work. They just bought
a second computer, an IBM, which was paid for by the company and which she is
going to use, but it is more for her daughter, for school as a MAC was not
suitable for her.
. . .
29. The worker uses
her personal car for work but he does not know whether she reimburses herself
for those expenses.
. . .
31.
No other worker has
the same duties as Liette Côté; if she were not there, he would not be able to
carry on his business alone; he points out that he does not have any education,
that he does not know how to count.
. . .
The following facts are taken from a
telephone conversation with Liette Côté, the worker:
32. The worker
corroborates facts 1 to 6, and 17 to 28, mentioned above. Moreover, she
provides the following details.
33. Liette Côté
indicates that the payer makes any withdrawals he wishes to make from the
company’s bank account, and that he does not have to ask her permission to write
cheques or make personal withdrawals from that account.
34. The worker
states that she works forty hours a week when she has a great deal of paperwork
and invoices piled up. She can change the date of the invoices and cheques to
put in her 40 hours during the same week, during the day, between 7:30
a.m. or 8:00 a.m. until 5:00 p.m.
35.
Her duties include
bookkeeping, payroll, CCQ, CSST, QST, GST remittances, all office work, SDs,
tenders, reception, telephones.
36.
During our telephone
conversation, at 10:15 a.m., the worker receives a call on the other line and
puts me on hold. When she comes back she states that she should not have
answered the telephone because it is not a working day for her.
37.
At 10:28 a.m., she
receives another telephone call and, after hesitating, she lets it ring and
says the answering machine will pick it up.
38. She also
explains to me that she has call display and notes that it allows her not to
answer when it is customers who are calling but when it is the government she
always answers.
39. She then tells
me that when she does not work, she gives out her spouse’s cellular phone
number so that the customers can call him. She offers to send me the cellular
telephone account to prove to me that he uses it a lot. I say [TRANSLATION] “OK,
I accept, I will review it.”
40.
She is paid weekly
but based on an hourly rate of $12.50. At first she earned $11.50 per hour and
then $12.00 per hour. She points out that she could give herself a substantial
increase in salary and that her spouse would agree but that she wants to be
reasonable.
41.
She says that
$12 is based on comparability with the market and that the payer agreed with it.
42.
She has never taken
vacation or maternity leave since they have had the business nor does she
receive 4%.
43.
Unlike her spouse,
she says that she also accumulates the tenders to be made and that the
invoicing can also wait until the week she works.
44.
She says that the
business is open seven days a week but only for her spouse. She only works from
Monday to Friday.
. . .
46.
The worker performs
work at her private residence and the title is vested in her alone. However,
she does not consider that she provides the place of work.
47.
She is not supervised
and her spouse does not have to approve her work either.
48.
She works at her residence
because she also takes care of the children and her mother is close. She could
work at the garage but it is farther, it does not have an equipped office and
the idea of working with mice does not appeal to her.
49.
All the tools belong
to the worker and the payer has purchased a new computer which she will begin
to use soon (outside of the four periods in issue).
50.
She does not use her
personal car very much as they have three pick-up trucks to go and submit their
tenders; she can take one to travel to the work premises.
51.
When the payer wants
to make a major expenditure, he must discuss it with her beforehand as he has no knowledge of the figures nor
is he interested in knowing.
52.
He could not
terminate her employment because if she were not there, he would not have a
business and he would not be where he is today.
53.
If she makes a
mistake with respect to the tender, everybody is responsible because they set
the prices together.
54.
With regard to the
risk of loss, she points out that unemployment is like a salary; they are not
rolling in money and need their income; it is part of her pay.
55.
As for the
reimbursement of her business expenses, she says that now and again she takes
$20 in fuel from the company’s account.
[7] The tables prepared
by Ms. Laberge, filed as Exhibit I‑7, and the tables prepared by Ms.
Boyer, filed as Exhibit I‑5, also indicate that
(i) the worker received
Employment Insurance benefits for as long as possible for each of the years in
issue, that is for 24 weeks in 2003, for 26 weeks in 2004 and for 20
weeks in 2005;
(ii) the worker claimed
benefits as soon as she accumulated the number of hours necessary to qualify
for Employment Insurance benefits;
(iii) she always worked
40 hours during her work weeks;
(iv) the Appellant’s
business was not seasonal.
[8] The Appellant
testified that
(i) he
was the sole owner of the business’s bank account, while admitting also that
the worker could draw cheques on that account;
(ii) the worker was not
in any way responsible for the reimbursement of the business’s line of credit;
(iii) the worker was
responsible for every administrative aspect of the business, whereas he was
only responsible for the machinery. He also explained the allocation of work
between him and the worker as follows [TRANSLATION]: “I am good at making
holes, but when it comes to paperwork, I am useless;”
(iv) he neither
supervised nor controlled the worker’s work, while insisting on the fact that
he sometimes gave her orders as to the work to be done, orders which she had to
follow;
(v) the worker did not
work when she received Employment Insurance benefits.
[9] In her testimony,
the worker essentially restated what the Appellant said during his testimony.
However, the worker pointed out that her work schedule was flexible and that
she worked eight hours per day, from Monday to Friday, during the relevant
periods. Finally, she added that she did not work outside the relevant periods,
unless she occasionally took calls from customers who she then asked to call
the Appellant’s mobile phone. She also explained that outside the relevant
periods, the customers’ calls were automatically forwarded to the Appellant’s
mobile phone.
Analysis and conclusion
[10] First we will
examine the issue as to whether the worker was employed under a contract of
service. There are, in my opinion, three elements essential to a contract of
service: the performance of genuine work, the payment of genuine remuneration
and the power of control of the payor over the person performing the work.
[11] Before determining
whether the three elements essential to a contract of service can be found in
the case at bar, I wish to emphasize that I attached little probative force to
the Appellant’s and worker’s testimony. In that regard, I would like to note
that the worker testified that she did not work during the periods she received
Employment Insurance benefits, unless she occasionally took calls from the
company’s customers which she automatically forwarded to the Appellant. The
worker explained that she worked a forty-hour work week when she accumulated
enough work to work 40 hours. The Appellant simply testified that the
worker did not work during the weeks she received Employment Insurance
benefits. Those testimonies clearly contradict the Appellant’s previous statements.
At any rate, the Appellant’s and worker’s testimony on that point simply does
not strike me as being plausible (see paragraphs 14 and 15 of Exhibit I‑6).
In fact, the evidence revealed very clearly that the Appellant’s business was
not a seasonal business and that the Appellant did not do any administrative
work and that he was incapable of doing it. He was also incapable of submitting
tenders without the worker’s help. The worker tried to make me believe that all
the administrative work could be accumulated and done during the weeks she
worked and that her services were therefore not required during the weeks she
received Employment Insurance benefits. Yet, the Appellant stated to Ms.
Laberge that the invoicing could not wait. Nor can I accept that, during the
many weeks she received Employment Insurance benefits, the Appellant did not
submit any tenders. Again I would like to point out in that regard that the
Appellant’s business was not a seasonal business and that the Appellant could
not submit a tender without the worker’s help. I can understand how part of the
administrative work could be accumulated and completed during the weeks she
worked. I am thinking of the reports concerning the remittances of the
Commission de la Construction du Québec, the Commission de la Santé et de la
Sécurité au travail, the sales tax, the goods and services tax and the source
deductions. However, I cannot believe that the Appellant’s business could
totally do without the worker’s services for twenty or so weeks per year and
often during three consecutive weeks.
[12] Was there a
relationship of subordination between the Appellant and the worker and one of
the three elements essential to a contract of service? In light of the evidence
adduced in this case, it is difficult for me to conclude that such a
relationship existed. In fact, how can I conclude that there was a relationship
of subordination when the evidence shows that it was the worker who determined
her own remuneration. Did the Appellant not state to Ms. Laberge that he
did not even know what the remuneration of his spouse was or whether she
received vacation pay? In fact, what we are dealing with here is a de facto
partnership in which the partners are the Appellant and his spouse. In my
opinion, the Appellant and his spouse agreed, in a spirit of cooperation, to operate an enterprise, to contribute thereto by combining property, knowledge
or activities and to share any resulting pecuniary profits. In the case at bar,
the worker’s contributions to the de facto partnership were her work, her
knowledge and her property. It is surely for that reason that the worker
provided the company with premises and a computer without consideration. That
is also surely the reason the worker agreed not to take vacation and not to
receive vacation pay. She considered those elements to be contributions to the
partnership. Moreover, the Appellant contributed to the partnership her work,
money, machinery and her garage. This partnership relationship between the two
partners explains the fact that the Appellant did not give the worker any
orders. As two partners, the Appellant and the worker worked in a spirit of cooperation and consultation and they
exercised their judgment in their respective areas of expertise. Did the
Appellant not state to Ms. Laberge that he did not supervise the worker’s
work and that his spouse’s work did not require his approval either?
[13] If I wrongly
concluded that the worker was a partner in a partnership operating a business
and that the Appellant was her joint partner, I am also of the opinion that the
worker was not employed under a contract of service, not only because there was
no relationship of subordination between her and the Appellant, but also
because we are dealing with an agreement or arrangement where remuneration was
not based on the time or the period during which work was performed, but was
rather aimed at taking advantage of the
Act’s provisions. This arrangement or agreement renders invalid the contract of service.
As noted by Tardif J. in Laverdière v. Canada, No. 97‑1902(UI),
February 25, 1999, [1999] T.C.J. No. 124,
50 This is the case
with any agreement or arrangement whose purpose and object is to spread out or
accumulate the remuneration owed or that will be owed so as to take advantage
of the Act’s provisions. There can be no contract of service where there is any
planning or agreement that disguises or distorts the facts concerning
remuneration in order to derive the greatest possible benefit from the Act.
51 The Act insures only
genuine contracts of service; a contract of employment under which remuneration
is not based on the period during which work is performed cannot be defined as
a genuine contract of service. It is an agreement or arrangement that is
inconsistent with the existence of a genuine contract of service since it
includes elements foreign to the contractual reality required by the Act.
[14] I am convinced that
the worker did not work 40 hours per week during the weeks she was paid.
It is rather my opinion that she devoted more or less the same number of hours
throughout the entire year. The very nature of the duties performed by the
worker within the business required that it be so. In my opinion, the Appellant
and the worker considered employment insurance not as a social program to help
those who lose their job, but as a grant program to help their business.
[15] If I wrongly
concluded that the worker was not in insurable employment within the meaning of
paragraph 5(1)(a) of the Act, then the worker was not employed in
insurable employment either because the employment in the case at bar was
excluded from insurable employment, as the worker and the Appellant would not have entered into a similar
contract of employment if they had been dealing with each other at arm’s length. In fact, which
employee in an arm’s length relationship with the Appellant would have agreed
to work on a volunteer basis for twenty or so weeks per year? Which employee
would have agreed to use his or her residence, his or her computer or even his
or her car for the purposes of the business without compensation?
[16] For these reasons,
the appeal is dismissed.
Signed at Ottawa, Canada, this 14th day of
November 2007.
“Paul Bédard”
Translation certified true
on this 10th day of December 2007.
Daniela Possamai,
Translator
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