Docket: 2005-3109(EI)
BETWEEN:
BERNICE MARY KNEE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
M.E.R. SALES & SERVICES LTD.,
Intervener.
____________________________________________________________________
Appeal heard on September 26, 2008,
at Gander, Newfoundland and Labrador
Before: The Honourable
Justice Wyman W. Webb
Appearances:
|
Counsel for the Appellant:
|
Archibald R. Bonnell
|
|
Counsel for the
Respondent:
|
Toks C. Omisade
|
|
Counsel for the Intervener:
|
Archibald R. Bonnell
|
____________________________________________________________________
JUDGMENT
The Appellant’s appeal under the Employment
Insurance Act (“Act”) from the decision of the Respondent that the
employment of the Appellant by the Intervener during the period from December
21, 2003 to December 24, 2004 was not insurable employment within the meaning
of section 5 of the Act, is dismissed, without costs.
Signed at Halifax, Nova Scotia, this 2nd day of October 2008.
“Wyman W. Webb”
Citation: 2008TCC560
Date: 20081002
Docket: 2005-3109(EI)
BETWEEN:
BERNICE MARY KNEE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
M.E.R. SALES & SERVICES LTD.,
Intervener.
REASONS FOR JUDGMENT
Webb J.
[1]
The
issue in this appeal is whether the decision of the Respondent that the
employment of the Appellant by the Intervener during the period from December 21, 2003 to December 24,
2004 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]
It
is difficult to determine the identity of the shareholders of the Intervener.
In the Reply it is stated as an assumption that William Knee (the Appellant’s
spouse) owned 50% of the shares of the Intervener and that the balance of the
shares were owned by Audrey Knee, who was William Knee’s spouse until she
passed away several years ago. William Knee testified and he indicated that
there were three shareholders as this was a requirement of the governing
statute when the Intervener was incorporated. The three shareholders were
William Knee, Audrey Knee and the lawyer who incorporated the company.
Presumably the lawyer was holding his shares in trust for William Knee. Audrey
Knee did not have a will when she passed away and her shares were never
transferred to anyone else. William Knee did not know how many shares were held
by each person but he stated that he had a controlling interest and the
Respondent did not contest this point. I find therefore that William Knee held
a controlling interest in the Intervener and therefore the Appellant and the Intervener
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 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 the Appellant and the Intervener
would not have entered into a substantially similar contract of employment for
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 this 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]
The Intervener carries on an
electrical, mechanical and refrigeration contracting business. The main
customers of the Intervener are Atlantic Wholesalers, fish plants, and berry
plants. The Intervener would also do some wiring of houses and repair
refrigeration trucks.
[7]
The Appellant’s work history was
mainly in a retail store. Prior to marrying William Knee the Appellant worked
for 25 years or more at a grocery and dry goods store. As part of her duties she
was responsible for the payroll deductions for the employees. As well, she
completed a bookkeeping course while she was living in Labrador City.
[8]
When the Appellant married William
Knee in 1998 the bookkeeping work for the Intervener was being done by an
outside bookkeeper. The Appellant took over this task and did the day-to-day
bookkeeping for the business. When she first started doing the bookkeeping work
for the Intervener, she was not paid. This continued for approximately a year
and a half and then she became an employee of the Intervener in January 2000. During
the period of employment that is the subject of this appeal, she was paid $600
bi‑weekly until the week ending April 23, 2004, and then she was paid $700
bi‑weekly thereafter. These amounts included vacation pay. These amounts
were determined on the basis that she worked six hours per day for five days of
each week. She was therefore paid $10 per hour until April 23, 2004 and $11.67
per hour thereafter.
[9]
She described her duties as
general bookkeeping duties which would include preparing invoices for
customers, preparing the cheques for payments to employees and suppliers, and preparing
the HST returns. She changed the reporting period of the Intervener from an annual
reporting period to a quarterly reporting period. She would also do banking for
the Intervener. Both William Knee and the Appellant confirmed that she would also
run errands for the Intervener from time to time, which could include picking
up parts and on one occasion delivering Freon to William Knee when he was working
at a remote location. However there was no indication whether this delivery of
Freon occurred during the employment period in question. The Appellant would
also work with William Knee when he was preparing a bid for a contract.
[10]
The Appellant stated that she believed
that she did work six hours per day five days per week throughout the period in
question. However, she did agree with the assumption that was made by the Respondent
that her duties consisted of issuing an average of 30 cheques per month,
including bi‑weekly payroll cheques for herself and weekly payroll cheques
for the other employees and payments to no more than 20 suppliers, and issuing
invoices to an average of 12 clients per month. She indicated that she would
make a trip to the bank about once or twice per week to make a deposit, which would
result in approximately six trips to the bank per month. The Appellant was
unable to provide any details with respect to the amount of time that she would
spend on any of these particular tasks. Even though the Appellant may have
worked six hours each day for five days each week, the issue is still whether
the Appellant and the Intervener would have entered into a substantially similar
contract of employment if they would have been dealing with each other at arm’s
length.
[11]
The Appellant indicated that her
day would start in the morning before William Knee left for the jobsite. During
the day she would answer phone calls for the Intervener but she would simply
pass on any messages to William Knee. It should also be noted that a cellular
phone number was stated on the invoices issued by the Intervener and therefore customers
could call William Knee directly on his cell phone. She would also meet with
William Knee when he returned home from work. However, the only evidence of the
time that he would return home was in response to a question by counsel for the
Appellant. The question related to the time that he completed work the day
before the hearing. He indicated that he did not get home until late at night.
If the Appellant did not get home until late at night during the period in
question, this would raise the issue of whether there be enough hours in the
day after the time that the Appellant returned home from a jobsite for the Appellant
to complete her six hours per day.
[12]
A copy of the listing of the
employees and the amounts paid to the employees in 2003 and 2004 was
introduced. The schedule shows that there are two employees in December 2003,
the Appellant and John Shearing, but the Appellant was the only employee for
the last week of December. For the first four months of 2004 there was only one
employee -- the Appellant. For the months of May, June and July of 2004 there
were two employees -- the Appellant and Garry Goodyear. For one week in August
there were three employees - the Appellant, Garry Goodyear and John Nichol and
for the balance of August there were only two employees – the Appellant and
Garry Goodyear. For the month of September, for two weeks in October and for
three weeks in November there was only one employee – the Appellant. For the
balance of the year there were, at any one time, only two employees - the
Appellant and either Stirling Knee or Melissa Baker. The Appellant was the only
person who was employed throughout the period from December 21, 2003
to December 24, 2004.
[13]
As a result, for periods totaling approximately
six months during the twelve month period from December 21, 2003 to December
24, 2004 there was only one employee of the Intervener. That one employee was
the Appellant who was a bookkeeper. Why would a business that is carrying on an
electrical, mechanical, and refrigeration contracting business have as its only
employee, a bookkeeper? This seems to raise doubts about whether the Intervener
and the Appellant would have entered into a substantially similar contract of
employment if they would have been dealing with each other at arms length. It does
not seem reasonable that a company involved in electrical, mechanical and
refrigeration contracting work would have had only one employee for periods
totaling approximately six months in a year and that one employee would be a
bookkeeper who could not do any electrical, mechanical or refrigeration work.
[14]
As well the fact that the Appellant
was paid for six hours per day for five days each week throughout the entire
period raises an issue of whether the Intervener would have paid a person with
whom the Intervener was dealing at arm’s length for six hours of work each day
for five days each week throughout this period for the work that the Appellant
was doing. As noted above the average number of cheques that would be written
each month would be 30 cheques. These would include the payroll cheques and cheques
to the suppliers. There were no more than twenty suppliers. Invoices would be
issued to an average of twelve clients per month. The Appellant would also make
bank deposits once or twice each week.
[15]
Assuming that the Appellant would
spend an average of one hour preparing each cheque, which would include locating
the information required to complete the cheque, and two hours to complete each
invoice, the amount of hours spent each month on these two items would then be
54 hours per month. Assuming that the Appellant made bank deposits six times
per month and each time she would spend one hour to complete this task, this would
only add an additional six hours for a total of 60 hours per month. She was
paid for working 120 hours each month which would leave 60 hours per month for
the errands and, every three months, the HST return. For the periods totaling
approximately six months when the Appellant was the only employee presumably
less time would be required to complete the cheques for those periods.
[16]
The Appellant also continued to
work for the Intervener following the termination of her employment for no pay.
This would also raise doubts about whether the Appellant and the Intervener
would have entered into a substantially similar contract of employment if they
would have been dealing with each other at arm’s length.
[17]
As a result it does not seem to me
that the facts as presented in this case, would lead to a conclusion that the
decision of the Minister was unreasonable in concluding that the Appellant and
the Intervener would not have entered into a substantially similar contract of
employment if they would have been dealing with each other at arm’s length.
[18]
One other item that was not noted
by either party was the date of termination of employment. Since the period of
employment in question ended on December 24, 2004 and since the Appellant
stated that she was laid off in December of 2004, the Appellant’s employment
was presumably terminated effective December 24, 2004 – Christmas Eve. The
duration of the employment is a factor that is to be taken into account under
paragraph 5(3)(b) of the Act. This could include the termination date. Would
the Intervener have terminated the employment of the Appellant on Christmas Eve
if they would have been dealing with each other at arm’s length? This is not a
likely termination date for an employee who is dealing at arm’s length with his
or her employer and the termination of the employment is not as a result of any
action of the employee.
[19]
William Knee stated that the
reason that the Appellant was laid off was because the Intervener had lost
$22,000 on one contract. While this would support a decision to reduce staff, the
timing of the termination occurring on Christmas Eve, suggests that the
duration of the contract would have been different if the Intervener would have
been dealing at arm’s length with the Appellant. The date of termination of
employment raises the question of whether the date was irrelevant to William
Knee and the Appellant because they were expecting that employment insurance
benefits would be paid to the same household as the Appellant’s salary and if
the employment insurance benefits would have been paid to a different household
(which would be the case if the employee were a person who was dealing at arm’s
length with the Intervener) whether the date of termination of employment (and
hence the duration of the employment) would have been different.
[20]
As a result the Appellant’s appeal under the Act
from the decision of the Respondent that the employment of the Appellant by the
Intervener during the period from December 21, 2003 to December 24, 2004 was
not insurable employment within the meaning of section 5 of the Act, is
dismissed, without costs.
Signed at Halifax, Nova Scotia this 2nd day of October 2008.
“Wyman W. Webb”
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