Citation: 2007TCC558
Date: 20070928
Docket: 2004-2589(EI)
BETWEEN:
TONY MCINTYRE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
AND
Docket:
2004-2684(EI)
PAUL COLLETTE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Savoie, D.J.
[1] These appeals were
heard jointly at Miramichi, New Brunswick, on July 24, 2007.
[2] The Tony McIntyre
appeal will hereinafter be referred to as the “McIntyre” appeal and the Paul
Collette appeal will hereinafter be referred to as the “Collette” appeal. At
the hearing a motion was granted to amend paragraph 6 of the Reply to the
Notice of Appeal in both the McIntyre and Collette appeals which in both cases
will hereinafter read as follows:
6.
He relies on
paragraphs 5(1)(a) and 5(2)(i) of the Act.
[3] Another motion to
amend was granted at the hearing whereby the first period of employment
referred to under paragraph 5(b) of the Reply to the Notice of Appeal in the
McIntyre appeal, i.e., between April 29 to July 7, as well as the applicable
insurable hours and earnings was deleted.
[4] The McIntyre appeal
deals with a decision of the Minister of National Revenue (the “Minister”)
wherein he informed the Appellant that while he was working for Wilmon Turbide
o/a Turbide Engine Rebuilders (the “Payor”) from January 5, 2001 to August 31,
2003 (the “period under appeal”), he was not engaged in insurable employment
pursuant to a contract of service within the meaning of paragraph 5(1)(a)
of the Employment Insurance Act (the “Act”).
[5] The Collette appeal
deals with a similar decision of the Minister with respect to the employment of
Paul Collette between November 16, 2001 and November 2, 2002.
[6] In reaching his
decision in the McIntyre appeal, the Minister relied on the following
assumptions of fact:
(a)
the Payor operated a
boat building and repair business from a garage large enough to hold two boats;
(denied)
(b)
the Payor issued
Records of Employment to the Appellant which stated the following:
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PERIOD OF EMPLOYMENT
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INSURABLE HOURS
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INSURABE EARNINGS
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Apr 29 – Jul 7, 2001
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700
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$8,000
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Jul 23 – Aug 18, 2001
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280
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$3,240
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Sep 10 – 14, 2001
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70
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$800
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Aug 19 – 30, 2002
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140
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$1,620
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Sept 9/02 – Mar 29/03
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401
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$5,583
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(ignored)
(c)
the Appellant’s
duties included fiberglassing and painting; (admitted)
(d)
the Appellant did not
have previous experience in this work and was not trained by the Payor;
(denied)
(e)
the Appellant
determined his own hours of work; (denied)
(f)
the Appellant kept
track of his hours worked and provided this information to the Payor at the end
of the week; (admitted)
(g)
the Appellant
purchased supplies at Baie Ste-Anne Building Supplies two or three times per
week on behalf of the Payor while he was not on the Payor’s payroll; (admitted)
(h)
the Appellant
repaired boats on behalf of the Payor while he was not on the Payor’s payroll;
(denied)
(i)
the Appellant did the
fiberglass work on a boat owned by Brian Ingalls; this work began in late
July or early August, 2001 and was finished on or about October 18, 2001; (admitted)
(j)
the Appellant was on
the Payor’s payroll for 5 weeks during the approximately 11 weeks that he
worked on Brian Ingalls’ [sic] boat. (denied)
[7] In reaching his
decision in the Collette appeal, the Minister relied on the following
assumptions of fact:
(a)
the Payor operated a
boat building and repair business from a garage that was large enough to hold
two boats; (denied)
(b)
prior to the period
under appeal the Appellant operated a diesel mechanic business as a
proprietorship under the name Collette Diesel; (admitted)
(c)
the Payor did not do
business with the Appellant as a proprietor; (denied)
(d)
the Appellant was
included on the Payor’s payroll for 20 consecutive weeks from December 17, 2001
to May 3, 2002; (admitted)
(e)
the Appellant’s
duties included rebuilding boat engines which included taking the engine apart,
cleaning and replacing parts as required; (admitted)
(f)
on May 13, 2002, the
Payor issued a Record of Employment to the Appellant which reported insurable
earnings of $12,000 and insurable hours of 1000; (admitted)
(g)
the Appellant
required 910 insurable hours to establish a claim for Employment Insurance
benefits; (admitted)
(h)
on November 15, 2001,
the Payor issued a cheque for $500 to the Appellant; (admitted)
(i)
on May 6, 2002 the
Appellant purchased supplies on behalf of the Payor; (admitted)
(j)
in May and June, 2002
the Payor did not have a mechanic on the payroll; (denied)
(k)
in May and June, 2002
the Appellant issued invoices on behalf of the Payor for mechanical work
completed during that period; (denied)
(l)
on July 10, 2002 the
Payor invoiced a client for 3 hours of labour which was performed by the
Appellant; (denied)
(m)
the Appellant fixed a
boat on behalf of the Payor at the Cap Pelé wharf on July 30, 2002; (denied)
(n)
the Appellant was
working at the Payor’s premises on July 16, 2002 and August 14, 2002; and
(denied)
(o)
the Appellant
returned to the Payor’s payroll on a part-time basis on August 14, 2002.
(admitted)
[8] During the summer
of 2002, a complaint was received by Crime Stoppers relative to irregularities
in the conduct of the Payor with respect to the Employment Insurance Act
and its Regulations. These were referred to CRA who appointed the Investigator
and Control Officer, Laurie O’Kane, to investigate. Initially, 18 cases
were referred for investigation, including the matters under review in these
appeals. This investigation, sought to find evidence in order to validate the
records of employment issued by the Payor. During the course of this
investigation, documents were delivered to the investigators; these were then
returned to the Payor upon request and subsequently, on demand by CRA, these
documents were delivered again to the investigators who discovered that in many
instances, these documents had been altered and falsified. The discrepancies
applied to most employees, including the two Appellants.
[9] The evidence that
the second set of documents delivered by the Payor to the investigators were
altered and falsified was not contradicted by the Appellants.
[10] Copies of invoices
were received in evidence, both the originals and the altered versions. The
evidence clearly established the alterations supported by proof of different
paper weight, some signatures being whited out, different paper sizes, absence
of perforations on the altered document and confirmation of photocopying
through the page.
[11] The investigators
were unable to determine the earnings of the employees. Some employees were
paid by cheque and cash. The actual payroll would not be ascertained. According
to the Payor, the employees were paid on Friday of each week. No records of
payment were found. The Payor reported that if he paid by cheque, he kept no
stub. He stated that he cashed cheques at the Caisse Populaire and paid his
employees in cash. He said that whatever record he had in that regard, such as
stubs, he threw it out. The Appellants could not produce any records either.
[12] After examining all
the records produced, the investigators were unable to even confirm a likely
payroll.
[13] Charts were prepared
by investigators to illustrate that the Appellants were working for the Payor
while they were collecting Employment Insurance benefits. Information was
gathered from the Payor’s bookkeeper who was resistant to provide data, stating
that she was unaware of the two sets of payroll books. She added simply that
she did what the Payor told her to do.
[14] At the hearing,
documents were produced which substantiated most of the Minister’s assumptions
of fact that were denied by the Appellants. The Appellants did prove that the
Payor’s operations were carried out in two buildings instead of one.
[15] Integrity
investigator Laurie Marlene Heckbert testified that she was unable to interview
Wilmond Turbide, the Payor. She was always told to make inquiries to the
accountant. According to the evidence, the investigators were very
accommodating to the Payor when they gave him a final notice dated January 30,
2003. Most witnesses, including the Appellants, confirmed the fact that Turbide
was drunk most of the time.
[16] At the hearing the
Appellants were confronted with a number of invoices which established that
they were performing services for the Payor while drawing Employment Insurance
benefits. Appellant McIntyre stated:
“I had a one ton truck and the
Payor would ask me to pick up stuff, when I was on Employment Insurance. I
would pick up supplies. He gave me cash while not on payroll to pick up
supplies… while speaking with the Investigator, I denied working for the Payor
outside the period… I was nervous to the point of forgetting everything.”
[17] The evidence
established that during the interview, after denying that he performed services
outside the period, McIntyre was shown an invoice which bore his signature,
whereupon he ended the interview to speak to a lawyer.
[18] Appellant Collette
stated at the hearing that he did some work outside the period which he
reported to the Commission. He was also confronted with invoices bearing his
signature or establishing that mechanical work had been done which showed that
either no mechanics were on duty at the time or that he did the work while not
on the payroll. He said: “I did it as a favour, he’s a good guy”.
[19] The evidence heard
and the documents produced established that the services rendered by both
Appellants for the Payor while drawing Employment Insurance benefits were not
isolated instances. They were frequent. The investigation discovered and the
evidence established that 99 such occurrences are attributed to Appellant
McIntyre. It was made clear in the evidence that, although the number of
instances was not established, such instances occurred with respect to
Appellant Collette while he was drawing Employment Insurance benefits, equally
with great frequency.
[20] The testimony of
Louise Boudreau, appeals agent and complex case officer and advisor for Revenue
Canada, Atlantic region,
established that the investigation was exhaustive, in light of the lack of
cooperation of the Payor. In addition to the Payor, his bookkeeper, his
accountant and the Appellants, she interviewed members of the Miramichi Police
Force, the staff of Fisheries and Oceans Canada and suppliers in the Baie Ste-Anne
area.
[21] The Appellants are
asking this Court to overturn the Minister’s decision. It must be noted that
the Appellants bear the burden of proof to establish, on a balance of
probabilities, that the decision of the Minister is wrong and unfounded in law.
[22] In both cases under
review, the Minister has determined that the Appellants’ engagement with the
Payor during the periods under review were not insurable employment since the
Appellants were not employed pursuant to a contract of service within the
meaning of paragraph 5(1)(a) of the Act.
[23] Furthermore, the
Minister’s submission states that the Appellants’ employment was excepted
employment within the meaning of paragraph 5(2)(i) of the Act because
the Appellants and the Payor were not in fact dealing with each other at arm’s
length during the periods at issue.
[24] At issue is the
determination whether the Appellants hold insurable employment under the Employment
Insurance Act, specifically its paragraph 5(1)(a) which reads
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;
[25] The above paragraph
provides a definition of insurable employment. It is employment held under a
contract of service. But the law does not define such a contract.
[26] A contract of
service is a concept under the civil law found in the Civil Code of Québec.
Therefore, the nature of the contract under study must be determined in
accordance with the provisions of the Civil Code, as in 9041-6868
Québec Inc. v. Canada (M.N.R.), [2005] F.C.J. No. 1720:
3 When the Civil Code
of Québec came into force in 1994, followed by the enactment of the Federal
Law – Civil Law Harmonization Act, No. 1, SC 2001, c. 4 by the
Parliament of Canada and the addition of section 8.1 to the Interpretation
Act, R.S.C., c. I-21 by that Act, it restored the civil law of Quebec to
its rightful place in federal law, a place that the courts had sometimes had a
tendency to ignore. On this point, we need only read the decision of this Court
in St-Hilaire v. Canada, [2004] 4 FC 289 (FCA) and the article by
Mr. Justice Pierre Archambault of the Tax Court of Canada entitled “Why Wiebe
Door Services Ltd. Does Not Apply in Quebec and What Should Replace
It", recently published in the Second Collection of Studies in Tax Law
(2005) in the collection entitled The Harmonization of Federal Legislation
with Quebec Civil Law and Canadian Bijuralism, to see that the concept of
"contract of service" in paragraph 5(1)(a) of the Employment
Insurance Act must be analyzed from the perspective of the civil law of Quebec
when the applicable provincial law is the law of Quebec.
4 To begin, it will be
useful to reproduce several passages from the preamble to the Harmonization
Act, No. 1 and the text of section 8.1 of the Interpretation Act:
Preamble to the Federal Law — Civil
Harmonization
Act, No. 1
. . .
WHEREAS the harmonious interaction of
federal legislation and provincial legislation is essential and lies in an
interpretation of federal legislation that is compatible with the common law or
civil law traditions, as the case may be;
. . .
WHEREAS the provincial law, in relation
to property and civil rights, is the law that completes federal legislation
when applied in a province, unless otherwise provided by law;
. . .
Property and Civil Rights
8.1 Both the common law and
the civil law are equally authoritative and recognized sources of the law of
property and civil rights in Canada and, unless otherwise provided by law, if
in interpreting an enactment it is necessary to refer to a province's rules, principles
or concepts forming part of the law of property and civil rights, reference
must be made to the rules, principles and concepts in force in the province at
the time the enactment is being applied.
5 Section 8.1 of the Interpretation Act came into force
on June 1, 2001. It codified the principle that the private law of a province
and a federal statute are complementary, which had been recognized (see St-Hilaire,
supra) but had not always been put into practice. When that section came
into force, the immediate effect was to restore the role of the civil law in
matters under the jurisdiction of this Court, to bring to light how the common
law might have been borrowed from, over the years, in cases where Quebec civil
law applied or should have applied, and to caution us against any such
borrowing in future.
…
7 … it is the Civil Code of Québec that determines
what rules apply to a contract entered into in Quebec. Those rules are found
in, inter alia, the provisions of the Code dealing with contracts in
general (arts. 1377 C.C.Q. et seq.) and the provisions dealing with the
“contract of employment” (arts. 2085 to 2097 C.C.Q.) and the “contract of
enterprise or for services” (arts. 2098 to 2129 C.C.Q.). Articles 1378, 1425,
1426, 2085, 2098 and 2099 C.C.Q. are of most relevance for the purposes of this
case:
1378. A contract is an agreement of
wills by which one or several persons obligate themselves to one or several
other persons to perform a prestation.
. . .
1425. The common intention of the parties
rather than adherence to the literal meaning of the words shall be sought in
interpreting a contract.
1426. In interpreting a contract, the
nature of the contract, the circumstances in which it was formed, the
interpretation which has already been given to it by the parties or which it
may have received, and usage, are all taken into account.
. . .
1440. A contract has effect only between
the contracting parties; it does not affect third persons, except where
provided by law.
. . .
2085. A contract of employment is a
contract by which a person, the employee, undertakes for a limited period to do
work for remuneration, according to the instructions and under the direction or
control of another person, the employer.
[27] In the cases under
review, the Minister concluded that the employment contract between the
Appellants and the Payor is not a genuine contract of employment as
contemplated by the Act. This issue has surfaced before. It was dealt
with in this Court by Mr. Justice Tardif in Thibeault v. Canada, [1998]
T.C.J. No. 690 (Q.L.). His decision was affirmed by the Federal Court of Appeal,
[2000] F.C.J. No. 2152. Justice Tardif said:
22 Genuine employment is employment
remunerated according to market conditions, which contributes in a real and positive
way to the advancement and development of the business paying the salary in
consideration of work performed. These are basically economic factors that
leave little, if any, room for generosity or compassion.
…
29 Of course, it is neither illegal nor
reprehensible to organize one’s affairs so as to profit from the social program
that is the unemployment insurance scheme, subject to the express condition
that nothing be misrepresented, disguised or contrived and that the payment of
benefits occur as a result of events over which the beneficiary has no control.
Where the size of the salary bears no relation to the economic value of the
services rendered, where the beginning and end of word periods coincide with
the end and the beginning of the payment period and where the length of the
work period also coincides with the number of weeks required to requalify, very
serious doubts arise as to the legitimacy of the employment contract. Where the
coincidences are numerous and improbable, there is a risk of giving rise to an
inference that the parties agreed to an artificial arrangement to enable them
to profit from the benefits.
[28] In Laverdière v. Canada, [1999]
T.C.J. No. 124 (Q.L.), Justice Tardif stated:
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48 Of course, a contract of
employment may be lawful and legitimate even if it sets out all kinds of
other conditions, including remuneration much higher or lower than the value
of the work performed; some contracts may even involve work performed
gratuitously. Work may be performed on a volunteer basis. All kinds of
assumptions and scenarios can be imagined
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49 Any contract of employment
that includes special terms can generally be set up only against the
contracting parties and is not binding on third parties, including the
respondent.
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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.
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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.
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[29] In Duplin v. Canada, [2001]
T.C.J. No. 136 (Q.L.), he noted:
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18 When services are provided or errands are run for an
employer, I do not think that this automatically means there is no contract
of service, where this is done from time to time or in special circumstances.
However, if the services or errands are recurring, frequent and performed or
run by a majority of an employer's employees, this raises questions; even
where those providing such services or running such errands characterize what
they are doing as free and voluntary, as mutual aid volunteer work, as
support or as an expression of solidarity with their co-workers, the fact
remains that such conditions, circumstances and facts are hard to reconcile
with a genuine contract of service, under which all work must be paid work.
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...
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31 The fundamental components of a contract of service
are essentially economic in nature. The records kept, such as payroll
journals and records concerning the mode of remuneration, must be genuine and
must also correspond to reality. For example, the payroll journal must record
hours worked corresponding with the wages paid. Where a payroll journal
records hours that were not worked or fails to record hours that were worked
during the period shown, that is a serious indication of falsification. Such
is the case where pay does not correspond with the hours worked. Both
situations create a very strong presumption that the parties have agreed on a
false scenario in order to derive various benefits therefrom, including
benefits with respect to taxes and employment insurance.
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[30] Lack of work was invoked
by the Payor as a reason for the termination of employment in these appeals.
The evidence, however, supports a different conclusion, since neither Appellant
ceased performing needed services for the Payor following their termination. In
spite of the Appellants’ efforts to characterize these services as “volunteer
work done for a friend”, the fact remains that it was work that needed to be
done and in the normal course of business should have been remunerated.
[31] It is significant to
note that all these attendances at the Payor’s place of business to perform all
these required services at no cost to the Payor constituted a definite
advantage to him, representing no loss to the Appellants since they were
compensated by unemployment benefits. This scheme had the result of subsidizing
the Payor’s business and this runs contrary to the whole purpose of the Employment
Insurance legislation.
[32] The Appellants may
be of the view that they should not be held accountable for assisting a friend
in need and while, in itself, this may not be so reprehensible, it should not
be at the expense of the public purse, such as here.
[33] This Court has on
occasion overlooked certain types of volunteer work, such as occasional winter
time volunteer work in family farming enterprises, but never has it condoned
this so called volunteerism on a scale such as was found in these appeals.
[34] In conclusion, I
find that during all the periods in issue, the work done by the Appellants was
not performed under a genuine contract of employment, as provided under
paragraph 5(1)(a) of the Act.
[35] By reason of this
finding, there is no need to deal with the submission of the Minister relative
to the provision of the Act under paragraph 5(2)(i).
[36] Consequently, these
appeals are dismissed and the Minister’s decision is confirmed.
Signed at Grand-Barachois, New Brunswick, this 28th day of September 2007.
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