Citation: 2007TCC265
Date: 20070503
Docket: 2006-3844(EI)
BETWEEN:
HELEN WILLIAMS,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1]
The
issue in this appeal is whether the decision of the Respondent that the
employment of Helen Williams by B & M Burner Services Ltd. during the
period from November 27, 2005
to February 17, 2006 was not insurable employment for purposes of the Employment
Insurance Act ("Act") was reasonable.
[2]
Subsection
5(2) of the Act provides in part that:
Insurable employment does not include
...
(i) employment if the employer and employee
are not dealing with each other at arm's length.
[3]
Subsection
5(3) of the Act provides that:
(3) For the purposes of
paragraph (2)(i),
(a) the
question of whether persons are not dealing with each other at arm's length
shall be determined in accordance with the Income Tax Act; and
(b) if the employer
is, within the meaning of that Act, related to the employee, they are deemed to
deal with each other at arm's length if the Minister of National Revenue is
satisfied that, having regard to all the circumstances of the employment,
including the remuneration paid, the terms and conditions, the duration and the
nature and importance of the work performed, it is reasonable to conclude that
they would have entered into a substantially similar contract of employment if
they had been dealing with each other at arm's length.
[4]
In
this case the shares of B & M Burner Services Ltd. were held by Helen Williams
(17%), her husband, Frank Williams (17%), her son, Glenn Williams (33%)
and her son, Gary Williams (33%). Therefore, Helen Williams and B & M
Burner Services Ltd. were related for the purposes of the Income Tax Act
as a result of the provisions of paragraph 251(2)(b) of that Act
and are therefore deemed to not be dealing with each other at arm's length
under paragraph 251(1)(a) of the Income Tax Act. As a result, the
issue in this case is whether the decision of the Minister of National Revenue
that Helen Williams and B & M Burner Services Ltd. would not have
entered into a substantially similar contract of employment during the period
in question if they would have been dealing with each other at arm's length, is
reasonable.
[5]
In
the case of Porter v. M.N.R. 2005 TCC 364, Justice Campbell of this
Court reviewed the decisions of this Court and the Federal Court of Appeal in
relation to the role of the Tax Court in appeals of this nature. In paragraph
13 of this decision Justice Campbell stated as follows:
In summary, the function of this Court is
to verify the existence and accuracy of the facts relied upon by the Minister,
consider all of the facts in evidence before the Court, including any new
facts, and to then assess whether the Minister's decision still seems
"reasonable" in light of findings of fact by this Court. This
assessment should accord a certain measure of deference to the Minister.
[6]
B
& M Burner Services Ltd. carries on a small oil furnace service business
from its premises located near Sydney Nova Scotia. The business was a seasonal
business operating from the late fall to the late spring, depending on the
weather. Helen Williams was employed as a secretary and her duties for the
company included answering the phone, booking appointments, dispatching the
workers for service calls, typing and filing. Her usual hours of work were from
8:00 a.m. to 5:00 p.m. each day but she would also deal with
calls after the normal working hours from customers who were having problems
with their furnaces. These calls could be at 2:00 or 3:00 a.m.
[7]
The
Respondent admitted in the Reply that Helen Williams had been "employed
seasonally by B & M Burner Services Ltd. ("Payor") as a secretary
for approximately 23 years". The Appeals Officer for the Canada Revenue Agency
testified that in making the determination that the terms and conditions of the
employment of Helen Williams by the Payor were not substantially the same as
would have been reached in an arm's length relationship, the Appeals Officer
compared the duties of Helen Williams with those of Alura Williams and the
amount that each was paid. Alura Williams was the daughter-in-law of Helen
Williams.
[8]
Alura
Williams was also employed as a secretary. Helen Williams testified that her duties
and Alura Williams duties were substantially the same. They would both answer
the phone and deal with customers who would come to the office. They would both
take payments. Helen Williams would do more scheduling of appointments but
Alura Williams was starting to schedule appointments. Alura Williams would do
invoices on the computer and Helen Williams would type invoices that were
done manually. Helen Williams would deal with customer problems after the regular
working hours but Alura Williams did not deal with these.
[9]
Helen
Williams was paid $12 per hour and Alura Williams was paid $11 per hour.
The Appeals Officer testified that she based her decision on the fact that,
based on the responses that she had received, Alura Williams appeared to have
more responsibilities but was paid less than Helen Williams was paid and,
therefore, that Helen Williams was paid more than an arm's length employee
would be paid in Helen Williams' position. The Appeals Officer testified that
she did not take into account the relative seniority or experience of these two
workers. Helen Williams had been working with the Payor on a seasonal basis
since 1983 and Alura Williams started work in 2003. In 2006, this would have
meant that the difference in the years of experience would have been 23 years
of experience for Helen Williams and 3 years of experience for Alura Williams.
In my opinion this is a significant factor that should have been taken into
account in analyzing the different amounts paid to these two workers. In an arm's
length situation it would reasonable to expect that an employee with 23 years
of experience would be paid more than an employee with three years of
experience.
[10]
It
is also not clear that Alura Williams had more responsibilities than
Helen Williams. As noted above, although Alura Williams would enter the
invoices in the computer (which Helen Williams did not do), Helen Williams
would type some manually. As well Helen Williams stated that Glenn Williams
would enter some invoices in the computer. Therefore Alura Williams was not the
only person who was entering invoices in the computer. As well, Helen Williams
did more of the scheduling of appointments than Alura Williams did and Helen
Williams also dealt with customer problems after normal business hours. Alura
Williams did not deal with customer problems after normal business hours.
[11]
Helen
Williams testified that the Payor had other arm's length office staff over the
years who performed substantially similar duties to those performed by Helen
Williams and these individuals were paid more than she was being paid.
[12]
Based
on the duties of Helen Williams and Alura Williams as described by Helen
Williams and based on the number of years of experience of each employee, in my
opinion, it is not reasonable to conclude that Helen Williams was overpaid.
[13]
Counsel
for the Respondent had also argued that there were delays by Helen Williams in
cashing her pay cheques. Helen Williams was issued a total of 12 pay cheques
for the period in question. In each case the cheque was issued less than one
week following the week for which the payment was being made. Eight of the 12
cheques were cashed within 4 days of the date that the cheques were issued. The
cheques dated February 3, 9, and 15, 2006 were not cashed until March 20, 30
and May 2, 2006. It appears that the cheque dated February 21, 2006 was
not cashed.
[14]
Helen
Williams testified that this was an exceptionally mild winter which had a
negative impact on the business of the Payor. If the weather is mild, there is
less demand for servicing furnaces. The bank statements for the Payor showed
that the Payor was struggling financially. When Helen Williams was hired in the
fall of 2005, the Payor would not know that the winter would be mild and that
the business would suffer. Counsel for the Respondent argued that the delays in
cashing the cheques (and not cashing the last one) support a reasonable
conclusion that an arm's length employee would not have entered this
arrangement.
[15]
Counsel
for the Respondent referred to the case of Kadziolka v. R.,
[1999] 2 C.T.C. 194 (FCA). However in that case the delay in
cashing the cheques was several months and was only one of several factors
considered by the Court including the fact that the employee in that case was
paid twice the amount of the best paid of the other employees. That was not the
case here.
[16]
In
the case of Camilleri v. Minister of National Revenue, 2005
TCC 602, the delays were described as follows:
6 In
my view, the substantial delays in the payment of the remuneration is a
sufficient reason to justify a determination that Ms. Camilleri 's terms of employment were not substantially
similar to arm's length terms. The Reply of the Minister summarizes the date
that cheques were issued for the pay periods. It shows a consistent pattern of
delay in issuing the cheques. Some of the delays were a short period of time
but in many cases the delay was for a period of months. For example, the pay
cheques for the periods from February to July, 2003 were not issued until
August and the pay cheques for the periods August to December, 2003 were not
issued until December. The delays continued on throughout the relevant period
although the delays were shorter as time went on.
7 Ms.
Camilleri explained the delays by saying that there were
cash flow issues with the business and that she had difficulties with the
accounting system which her father did not have time to attend to with his busy
schedule. In my view, these are not circumstances under which arm's length
employees would generally work. Ms. Camilleri introduced
evidence to show that other employees suffered delays in pay due to cash
shortages. However these delays were not regular and did not last for lengthy
periods. In my view, the delays in Ms. Camilleri 's case go
beyond what I believe most employees would tolerate.
[17]
In
the Camilleri case there was evidence that other employees had suffered
delays in receiving their pay because of cash shortages. However the rather
lengthy delays of several months for Ms. Camilleri were longer than would be
expected in an arm’s length relationship.
[18]
If
the employer is experiencing financial difficulties and is unable to meet its
payroll, then it does not matter whether the employee is arm's length or non‑arm's
length – if the employer cannot pay the employee, the employee will have to
wait to be paid. In areas of high unemployment there are limited options for
arm's length employees to seek alternate employment and therefore in my
opinion, it would be reasonable to expect that an arm's length employee who had
worked on a seasonal basis for an employer for 23 years would be willing to
wait a few weeks before cashing his or her paycheque when that employer is
experiencing financial problems due to circumstances beyond their control and
the employee is in an area of high unemployment. Cape Breton has unfortunately been
an area of high unemployment for several years.
[19]
The
Payor could not control the weather and would not know when Helen Williams
was hired in the fall of 2005 that the winter would be a mild winter. In this
case it is only four cheques for which there was a delay of more than four days
and three of these were cashed within three months. The Respondent stated that
the last cheque dated February 21, 2006 was not cashed and Helen Williams could
not explain why it was not cashed. It should be noted that Helen Williams
suffered a nervous breakdown in the summer of 2006 and cashing this cheque for
$336.77 was probably not of significant concern to her at that time.
[20]
As a
result I am unable to conclude that the delays in cashing cheques were
sufficient to justify a finding that Helen Williams and the Payor would not
have entered into a substantially similar contract of employment if they would
have been dealing with each other at arm's length.
[21]
The Appeals
Officer had also indicated that a factor that had been taken into account was
the number of weeks that Helen Williams worked versus the number of weeks that
she had to work in order to claim employment insurance benefits. The evidence
indicated that this operation was only a seasonal operation and that she was
laid off when it became evident that because of the mild winter, business was
slower than usual. There was nothing to indicate that an arm's length
person would have worked for any fewer weeks in this situation.
[22]
As a
result, I am unable to conclude that the Minister's decision still seems
"reasonable" in light of the evidence that was presented and
therefore the appeal of Helen Williams under the Act is allowed.
Signed at Halifax, Nova Scotia, this 3rd day of May 2007.
"Wyman W. Webb"
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