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Citation: 2007TCC189
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Date: 20070427
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Dockets: 2006-350(EI)
2006-353(CPP)
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BETWEEN:
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DATEX SEMICONDUCTOR INCORPORATED,
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Appellant,
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And
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
and
KUK SUNG CHOI,
Intervener.
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REASONS FOR JUDGMENT
Hershfield
J.
[1] The Appellant appeals its 2004 taxation year in respect of a
decision of the Minister of National Revenue (the “Minister”) that Mr. K. S. Choi
was engaged by it during the year in insurable employment and pensionable
employment under the Employment Insurance Act (the “EIA”) and the Canada
Pension Plan (the “CPP”).
The decision is based on the Minister’s finding that Mr. Choi was an employee for
the period May 31, 2004 to December 31, 2004. Mr. Choi appeared at the hearing
as an Intervener. Giving evidence for the Appellant was Mr. P. Chaye and his
wife who were the only shareholders and officers of the company at all relevant
times.
[2] The Appellant raised a number of issues at the hearing. Three issues
merit consideration.
[3] Firstly, the engagement of the Intervener is argued to have been
assumed by a Mr. SH Jung, an individual who resided in Korea and whom the
Appellant sought to engage or work with in Korea in respect of securing a contract to provide data control solutions
and systems to semiconductor installations in Korea. The principal business target was Hynix Semiconductor, Korea. The Appellant asserts that Mr. Jung
should be regarded at law as the person engaging the services of the Intervener.
The Respondent argued that the Appellant engaged the Intervener’s employment
services. In the alternative, the Respondent argued that the Appellant
is a deemed employer under section 10 of the EI Regulations and section 8.1
of the CPP Regulations.
[4] Secondly, the Appellant argues that if the Intervener is found to
have been engaged by it, then the engagement was as an independent contractor
not as an employee.
[5] Thirdly, since it is not in dispute that the Intervener’s work was
performed entirely in Korea, it is argued that various conditions required to
be met under the EI Regulations and CPP Regulations respecting
employment services performed outside Canada have not been met. In particular, the provisions that warrant
review are section 5 of the EI Regulations and paragraph 16(1)(b) of the
CPP Regulations.
First Issue – Who Engaged the Intervener
During the Subject Period
[6] While I have difficulty with the reliability of the testimony of all
three witnesses, there is sufficient documentary and common evidence to make my
fact finding mission straightforward particularly when they are combined with
probable inferences and assumptions in the Reply that have not been
sufficiently rebutted.
[7] I
am satisfied that the Intervener was a resident of and
ordinarily resided in Canada at
all relevant times.
He had sought Canadian residency some time prior to his engagement to work on
the Hynix project. A Confirmation of Permanent Residence issued by Citizenship
and Immigration Canada shows the date of his becoming a permanent resident of Canada as May 10, 2004. His family had
moved to Canada. His
residential ties were in Canada.
Prior to taking up residency in Canada, he was a resident of Korea. His presence in Korea during the subject period was temporary and
solely for the purpose of performing services in respect of the Hynix project –
a fortuitous opportunity that he learned of just prior to the time he achieved
permanent residency status in Canada but after his residential ties to Canada
had been established and his residential ties to Korea had been severed.
[8] The Appellant needed a qualified worker with an engineering
background who spoke Korean to work on securing a contract with Hynix. The
worker was required to stay in Korea until the contract was secured.
The Appellant also needed a business presence in Korea with contacts at Hynix. The Intervener fit the bill as a suitable worker
and Mr. Jung fit the bill as the business presence.
[9] Initial discussions with the Intervener were in April and May of
2004, and a formal engagement was entered into by May 31, 2004. That engagement
was with the Appellant. Of this I have absolutely no doubt. There is a written
contract crafted by Mr. Chaye setting out the parties as the Appellant and the Intervener.
There is absolutely no evidence that the contract was made on behalf of any
other party. The Appellant made payments under the contract and, by Mr. Chaye’s
own testimony, the written version of the contract was entered into expressly
to underline that the Intervener was engaged by the Appellant – not by Mr. Jung
or by any entity or association owned or controlled by Mr. Jung. That it seems
probable that the parties (the Intervener, Mr. Jung and Mr. Chaye) were all
familiar with each other (whether by prior associations or by way of
introductions by yet another interested party who knew all of these
individuals) does not lead to any probable inference that the Intervener was Mr.
Jung’s man from the start. As will be discussed later in these Reasons,
it is not credible that the Intervener was ever meant to be responsible to
report to anyone other than Mr. Chaye. After all, Mr. Chaye was the engineer
most familiar with the systems being marketed. He had to stay in control of the
entire project to protect the Appellant’s interest in its own intellectual
property. He needed the Intervener in his employ to help ensure this result.
[10] Further, I
note that any suggestion that at some point Mr. Jung
assumed the role of the person engaging the Intervener is nothing more than a
fanciful argument raised late in the proceedings reflecting the Appellant’s
willingness to grasp at any straw to assist its cause. I have reached this
conclusion even though I accept the evidence that Mr. Jung set up a sole
proprietorship to ostensibly contract with Hynix to the exclusion of the
Appellant and that he claimed in writing as early as July 2004 that all
employees working on the Hynix project were his. As well, I accept that Mr. Jung
paid one expense claim of the Intervener in the amount of some $5,000.00 and
that the Intervener continued to work in Mr. Jung’s office in Korea after Mr.
Jung appeared to be taking over the project for his own account. However, even
taken together, these facts do little to undermine the documentary evidence
before me and Mr. Chaye’s own testimony as to his reason for entering into a
written employment contract. While Mr. Jung may well have
presented himself as having rights to the Hynix contract, at the end of day, he
paid the Appellant $220,000.00 on his receiving project funds from Hynix in
December 2004. This suggests that Mr. Jung ultimately recognized that each of
them had an interest in the contract with Hynix. The Appellant then paid the Intervener
pointing again to the conclusion that the Intervener was engaged by the
Appellant. Further, I note that regardless of this finding, the Appellant would
be a deemed employer under the regulations cited above.
Second Issue:
Employment vs. Independent Contractor
[11] As I noted in my decision in Maliyar v. The
Queen,
recent jurisprudence on independent contractor versus employee status has
turned to examine more closely the intentions of the parties in certain cases. In this case
resort to an intentions test is likely not necessary given that the traditional
tests applied in Wiebe Door Services Ltd. v. M.N.R. and in 671122
Ontario Ltd. v. Sagaz Industries Canada Inc., lead me to
conclude that the Intervener was an employee of the Appellant. Applying those
tests, the case at bar is not a close case.
Still, I believe it is helpful to consider evidence that demonstrates the
intentions of the parties. It is not a factor that should be ignored.
[12] In this case the written contract speaks clearly
to the intentions of the parties and the performance of it reflects those
intentions in an equally clear manner. The contract is headed “Employment
Agreement” (Exhibit A-4) and includes the following provisions:
This EMPLOYMENT AGREEMENT is effective
between DatEx Semiconductor Inc., a company incorporated under the laws
of British Columbia, Canada and having an office at 978 30th Avenue, Vancouver,
BC, Canada, (the “Company”) and Kuk-Sung Choi at 121 Paperbirch Cres., London,
Ontario, Canada (the “Employee”).
1. For good
consideration, the Company employs the Employee on the following terms and
conditions.
2. Term of
Employment. Subject to the provisions for termination set forth below this
agreement will begin on May 31, 2004, unless sooner terminated.
3. Duties and
Position. The Company hires the Employee in the capacity of Applications
Engineer. The Employee’s duties may be reasonably modified at the
Company’s discretion from time to time.
4. Salary. The
Company shall pay Employee a salary of $40,000 USD per year, for
the services of the Employee, payable at regular payroll periods.
…
7. Foreign
Assignment. The Employee is required to work at the Company’s office in Korea from May 31, 2004 to
December 31, 2004. The Company shall reimburse the Employee for two trips of
two-week duration for the period of foreign assignment.
8. Vacation.
The Employee shall be entitled to a yearly vacation of three weeks
at full pay.
9. Reimbursement
of Expenses. The Employee may incur reasonable expenses for furthering the
Company’s business, including expenses for entertainment, travel, and similar
items. The Company shall reimburse Employee for all business expenses after the
Employee presents an itemized account of expenditures, pursuant to Company
policy.
10. Employee to
Devote Full Time to Company. The Employee will devote full time, attention,
and energies to the business of the Company, and during this employment, will
not engage in any other business activity, regardless of whether such activity
is pursued for profit, gain, or other pecuniary advantage. Employee is not
prohibited from making personal investments in any other businesses provided
those investments do not require active involvement in the operation of said
companies.
…
12. Disability.
In the event that the Employee cannot perform the duties because of illness or
incapacity for a period of more than four weeks, the compensation
otherwise due during said illness or incapacity will be reduced by fifty
percent. The Employee’s full compensation will be reinstated upon
return to work. However, if the Employee is absent from work for any reason for
a continuous period of over three months, the Company may
terminate the Employee’s employment, and the Company’s obligations under this
agreement will cease on that date.
13. Death Benefit.
Should Employee die during the term of employment, the Company shall pay to
Employee’s estate any compensation due through the end of the month in which
death occurred.
14. Termination of
Agreement. Without cause, the Company may terminate this agreement at any
time upon two weeks’ written notice to the Employee. If the
Company requests, the Employee will continue to perform his/her duties and may
be paid his/her regular salary up to the date of termination. In addition, the
Company will pay the Employee on the date of the termination a severance
allowance of equivalent to two weeks’ salary less taxes and
social security required to be withheld. Without cause, the Employee may
terminate employment upon two weeks’ written notice to the Company.
Employee may be required to perform his or her duties and will be paid the
regular salary to date of termination but shall not receive severance
allowance. Notwithstanding anything to the contrary contained in this
agreement, the Company may terminate the Employee’s employment upon two
weeks’ notice to the Employee should any of the following events occur:
(A) The sale of
substantially all of the Company’s assets to a single purchaser or group of
associated purchasers; or
(B) The sale,
exchange, or other disposition, in one transaction of the majority of the
Company’s outstanding corporate shares; or
(C) The Company’s
decision to terminate its business and liquidate its assets;
(D) The merger or
consolidation of the Company with another company.
(E) Bankruptcy or
its related reorganization.
...
[13] Mr. Chaye testified on one hand that he did
not understand the difference between this form of contract and one engaging an
independent contractor but then, on the other hand, he testified he entered
into the contract to demonstrate his control over key personnel. He also
produced an independent contractor contract (that he said he later crafted in
regard to another engagement) to show how they could have many similarities. I
have no doubt that Mr. Chaye crafted these agreements using precedents he found
on‑line with an understanding of their meaning and with every intention at
the time they were created to give effect to that meaning. That he did not
foresee the consequences of the employment contract with the Intervener that
led to this appeal, is not relevant.
[14] Further, I have little doubt that the
provisions in the contract that point to its nature are descriptive of the
relationship intended. The best example of this is seen in the performance
of the payment obligation under the contract. Payments to the Intervener were
all net of deductions applicable to salaries to an employee.
[15] The Intervener produced an accounting record
of his monthly remuneration that was not challenged. For June 2004, based on an
agreed annual salary amount of $52,000.00 Canadian, a monthly salary was
calculated as $4,366.66. Employee deductions for federal and provincial income
tax together with deductions for EI and CPP are shown on the accounting record
leaving net pay of $3,169.51. The Appellant deposited this amount in the Intervener’s
Canadian bank account in July on account of the Intervener’s salary for June. A cheque for
the same amount was given to the Intervener for July although it was not
deposited until September. The next payment was in mid‑December 2004 when
Mr. Chaye gave the Intervener in Korean funds the Canadian dollar equivalent of
$28,345.00. This sum represented five months’ salary of $3,169.50 per month for
August through December 2004 inclusive and $12,498.00 for reimbursement of
expenses. That is, for the entire period, payments were made on the basis that
employment deductions applied yet the Appellant made no remittances. This leads
to an untenable contradiction in the Appellant’s approach. The understanding reflected
by the effective withholding of statutory deduction amounts reflects a mutual
intention that the engagement be one of employment.
The Wiebe Door
and Sagaz Tests.
Control
[16] From May 31, 2004 to December 14, 2004 the Intervener
spent almost all of his time in Korea. He devoted his time exclusively to the Hynix project. While the
testimony of the Intervener was that he reported daily to Mr. Chaye and
followed his directions, Mr. Chaye testified that the Intervener was retained
as an applications engineer who was able to test and work out application
problems on the Hynix project and, as such, was not subject to the Appellant’s
control over work done. Mr. Chaye was not credible on this aspect of his
testimony. Indeed, so much of his testimony appeared rehearsed and spun to
match factual findings in cases that found independent contractor relationships
to exist, that his entire credibility was impaired. It is simply
not credible that he was not supervising the work that the Intervener
performed. He suggested that the Intervener’s expertise took him outside his
control but Mr. Chaye was an engineer with the most knowledge of the systems
being employed in the Hynix project. It is not credible that he did not direct
the Intervener’s work on a regular basis. This is not a case of an expert
working for management lacking in the necessary expertise. This is a case of an
expert manager working with a lesser expert under his direction.
[17] The Appellant argued that there was time off
of some seven weeks over seven months which showed more freedom as to work
schedules than afforded employees as well as showing that the written terms of
the contract were a fiction not reflective of the substantive realities of the
relationship. Two of the seven weeks counted were after the December 14 payout
when work ceased. These two weeks coincide with the termination allowance in
the contract. Two additional weeks were related to deaths in the Intervener’s
family and may not have been full weeks off work. As well, some latitude was
likely agreed to in respect of two trips to Canada where the Intervener’s family resided and even during these stays
it appears likely on the evidence that the Intervener was meeting with Mr. Chaye.
This is just another example, in my view, of the Appellant attempting to put a
spin on the facts to achieve a desired appearance. I am satisfied that the work
was full time and subservient in nature. As well, if another project had
emerged, the Intervener could have been directed to work on such other project.
Indeed this had been the Appellant’s hope but additional projects did not
materialize.
Tools
[18] Tools, as a factor in determining the
engagement status of the Intervener, are of minimal importance in this case.
There were some small testing tools used by the Intervener and there was, more
importantly, the computer he used in almost every aspect of his work. These
were all expensed to and paid for by the Appellant. That the Intervener was
allowed to keep the computer after the engagement was terminated, for lack of
work, is not relevant.
Risk of Loss/Chance of Profit
[19] The Intervener has not
made a capital investment in a business of his own. He has no entrepreneurial
risk of loss. The Intervener working for a fixed annual salary amount had no
chance of profit and the failure of the Appellant to make timely payments due
to its financial situation is a risk any employee takes when continuing to work
for a financially distressed employer who asks workers to stay on pending the
completion of a project and an influx of funds. Further, while there was a risk
on the timing of payments that was accepted by the Intervener, I see no basis
for believing that aside from solvency issues that the Appellant would not be
responsible for the payment of the Intervener’s wages. In any event, such risks
taken by employees are not the entrepreneurial risks envisioned by an analysis
that considers the risk of loss as a factor in the determination of the status
of a worker.
Integration/Whose
Business Is It?
[20] The Intervener does not have a business that
stands independently from the business of the Appellant. He displays none of
the trappings of a business. There is nothing to even suggest that he ever
considered the possibility of having a business source and treating his salary
from the Appellant as income from that source. It is hard to imagine a case
where a worker can be found to be in business when that worker has not given
even the slightest indication, not even passive acceptance of an imposed
independent contractor status, that he or she has a business source. To the
contrary, the Intervener computed his own wage entitlement as net of employee
deductions and accepted a contract that was waved in Hynix’s face as proof that
the data collection project and the Intervener were both part of the Appellant’s
business.
[21] Based on the application of these traditional
tests, it is clear that the Minister’s decision that the Intervener was an
employee during the subject period is unassailable.
The Third
Issue: Are Regulatory Requirements Met Where Work is Performed Outside Canada
[22] Unlike many provisions of the EIA and
the CPP and their Regulations, the provisions in each of these
regimes dealing with employees working outside Canada are not parallel provisions.
[23] Section 5 of the EI
Regulations provides that employment outside of Canada is included in insurable employment if:
(a) the person so employed
ordinarily resides in Canada;
(b) that employment is outside
Canada or partly outside Canada by an employer who is resident or has a
place of business in Canada;
(c) the employment would be
insurable employment if it were in Canada; and
(d) the employment is not
insurable employment under the laws of the country in which it takes place.
[24] The requirements set out in paragraphs (a), (b)
and (c) are met. Whether the Intervener’s employment is insurable under the EIA
turns then on whether his employment was insurable under the laws of Korea.
[25] Subsection 16(1) of the CPP
Regulations provides that pensionable employment includes employment
outside of Canada that would be pensionable employment if it were in Canada and
if any one of a number of factual situations apply. Having already determined
effectively that the Intervener’s employment by the Appellant was pensionable
employment if it were in Canada,
the issue is whether any of the enumerated factual situations in subsection 16(1)
apply in this case. The Respondent relies on the factual situation set out in
paragraph 16(1)(b), which will include the subject employment as pensionable if
the employee:
(b) is resident in
Canada and is paid at or from an establishment in Canada
of his employer;
EIA – Paragraph 5(1)(d)
[26] As to paragraph 5(1)(d)
of the EIA Regulations, I have little evidence suggesting that the
subject employment is or is not insurable in Korea. Clearly, whether the Intervener was insurable under the laws of
Korean law is a question of law, not fact. That statements or conclusions of
law have no place in the recitation of the Respondent’s factual assumptions does not mean
that foreign law should not be cited. For the Minister to have determined that
the subject employment was insurable, Korean law should have been considered in
the light of facts assumed in the making such determination. That does not
appear to have occurred.
[27] Having not been presented with Korean law (and a
quick internet search reveals that Korea does have an insurance scheme for
unemployed workers) and not knowing what facts would have to have been assumed,
or now be proven, to make a determination as to whether the subject employment
was insurable under Korean law, leaves me to consider that the appeal might thereby
be allowed. Without such assumptions actually having been made by the
Respondent and expressed at least in the Reply, how does the Appellant know the
case it has to meet?
[28] Allowing the appeal on such basis does not sit
well considering that a third party’s right is at stake here as well as that of
the Appellant. Should the Minister’s failures result in the Intervener being
found not have been engaged in insurable employment? Indeed, can the Appellant
sit back in the circumstances of this case, having effectively withheld EI
premiums from payments made to the Intervener, and leave it entirely to the
Respondent to establish that the Intervener was not covered under Korean law?
Can the Appellant say it does not know the case it has to meet when it relies
on the subject regulation or can it plead ignorance of the laws of the country
to which it sends its workers and then plead ignorance of the worker’s
circumstances in respect to the application of such laws?
[29] The best way for me to approach such questions in
this case at least is to consider the evidence I do have - as meagre as it is.
The Intervener was asked by Respondent’s counsel if he
paid any amount into an insurance scheme or pension plan in Korea and the answer was “no”. This answer,
suggesting that Korea might
not have the necessary employment insurance laws or, if it did, that it was not
complied with, is not very compelling evidence that there was or was not an
employment insurance scheme in Korea that afforded the Intervener coverage. The test is whether there is
an applicable regime in Korea not whether it existed or was complied with. Nonetheless, I am
satisfied that in the circumstances of this case, the Respondent has by virtue
of this evidence established a prime facie case that requires an answer from
the Appellant. No such answer was forthcoming and on that basis considering all
the factors mentioned above, I find that there is a burden on the Appellant in
this case that has not been satisfied. Accordingly, I find that the determination
of the Minister respecting the requirements of section 5 of the EI
Regulations should not be overturned and that the appeal under the EIA
is thereby dismissed.
CPP – Subsection 16(1)
[30] I turn now to the requirements of subsection
16(1) of the CPP Regulations. For the subject employment to be
pensionable, paragraph (b) requires that the Intervener, a resident of
Canada, be paid at or from an establishment in Canada of his employer.
[31] The Appellant argues the payments were not
made at or from an establishment in Canada. The Respondent made no assumption in the Reply as to this
assertion. As well, and importantly, although the decision of the Minister
refers to paragraph 16(1)(b), the only reason given for the decision was that the
Intervener was engaged under a contract of service. The questionnaire relied on
to help make this determination did not ask a single question as to how the payment
was made. There is no indication anywhere that the officer making the
determination on behalf of the Minister even contemplated the relevance of such
questions. The reference to paragraph 16(1)(b) suggests nothing more than a
determination of residence in Canada was made. On this basis I should find that the Respondent has the burden
to prove that the payment was made at or from an establishment in Canada of the Appellant.
[32] The Respondent argued that this issue was not
specifically pleaded. Indeed the issue took me by surprise as much as it did Respondent’s
counsel. However, in the Notice of Appeal the reasons for the appeal are the denial
that the work performed was under a contract of service and “Additionally, this
work was not performed in any part inside Canada, nor does such work exist in any way within Canada”. This is not a clear pleading of
the issue but sufficient in my view, in an informal procedure case where the
Appellant is without legal counsel, to warrant a finding that any ambiguity or
shortfall in the Notice of Appeal should not alter my position that the issue
is properly before me and that the onus of proof should be on the Respondent. The
factual basis for the issue to be examined was pleaded and the issue arose in
the normal course of reviewing the applicable provisions relating to those
facts. The Minister was aware of these facts and the officer who made the
determination on behalf of the Minister had ample opportunity to make enquiries
to obtain information on which to base an assumption that the payments to the Intervener
were at or from an establishment in Canada. Accordingly, I find no prejudicial fault in the pleadings per se that
bears on the burden issue. Such finding however is ultimately of academic
interest only. The evidence at trial is sufficient to make a judgment on the
subject provision on the facts of this case.
[33] As a starting point for determining whether the subject payments were made at or from an establishment in Canada of the
Appellant, it is necessary to consider the definition of “establishment in Canada”.
[34] Subsection 15(1) of the CPP Regulations
defines an “establishment in Canada” as follows:
… with respect to an employer, means any office,
warehouse, factory, oil well, gas well, mine, workshop, farm, timber, land,
pier, wharf, school, college, club, residence, hotel, motel, restaurant,
tavern, bar or any other place or premises in Canada that is owned, leased or
licensed by the employer and where the employer or one or more of his employees
works or reports for work or from or at which one or more of his employees are
paid.
[35] The Employment Agreement refers to the
employer’s office at 978 – 30th Avenue, Vancouver, British Columbia. This is the personal residence of Mr. Chaye and his wife. As well
it is the registered head office of the Appellant. The evidence leads me to
believe that this is the principal place where the Appellant conducts its
business in Canada and in any
event meets the test of a premises at which employees (Mr. Chaye and his wife)
work.
[36] However, there is an additional test. Such premises must be owned,
leased or licensed by the employer. I have no reason to believe that the
Appellant owned the premises, but I have no hesitation in finding that it
operated there under a lease or license. The Appellant’s presence and the
presence of its officers are not as trespassers. No formal lease or license is
required to constitute a lease or license which can be a simple right of
occupation and which need not be exclusive.
Mr. Chaye and his wife clearly have a right to be at the subject premises in
both their personal capacities and their capacities as employed officers of the
Appellant. To find otherwise would mean home offices could never be an establishment
in the context of the CPP Regulations.
[37] Finally, there is the issue of whether under the paragraph 16(1)(b)
requirement, the subject premises was the place “at or from” which the Intervener
was paid.
[38] The circumstances surrounding the three payments made to the Intervener
are as follows:
1.
On June 29, 2004, Orah Chaye paid
the Intervener $3,169.51 in Canadian dollars in consideration for services
performed by the Intervener for the Appellant during the month of June 2004. She
drew the amount from her personal chequing Canadian bank account. It appears
that it was by direct deposit to the Intervener’s Canadian bank account. The
evidence supports the likelihood that the direction for the transfer must have
been done from her home; i.e. from the Appellant’s establishment in Canada. Applying
the plain meaning of the word “from” it seems apparent that this first payment should
meet the requirement in paragraph 16(1)(b).
2.
In late July 2004, Orah Chaye gave
the Intervener a cheque for $3,169.51 in Canadian dollars. It was drawn from
her Canadian chequing account in consideration for services performed by the Intervener
during the month of July 2004. The Intervener deposited the cheque on September
3, 2004. The cheque would have been delivered in Canada as the Intervener was in Canada
from July 20th to August 2nd, 2004 and there is no evidence to suggest that Mr.
or Mrs. Chaye were out of Canada at that time. In fact, the Intervener testified
that he received the cheque directly from Mr. Chaye at Mr. Chaye’s house. That the Intervener held off depositing the cheque in
his Canadian account does not alter the fact that the payment was made in Canada. Applying
the plain meaning of the word “at”, it seems apparent that this second payment
should meet the requirement in paragraph 16(1)(b) if I accept that the payment
was delivered to the Intervener at the Appellant’s home office. Even not
accepting the Appellant’s office as the delivery point of the payment, applying
the plain meaning of the word “from”, it seems apparent that this payment
should meet the requirement in paragraph 16(1)(b).
3.
On December 14, 2004, Mr. Chaye
gave the Intervener 24,861,044 Korean won in cash in Korea. Mr. Jung
had just paid the Appellant in Korean currency the equivalent of $220,000.00
Canadian. It appears that Mr. Chaye deposited this amount in a Korean account
and then withdrew 24,861,044 Korean won and gave it to the Intervener who in turn deposited the funds in
an account in Korea. At
the time, the amount was worth approximately $28,345.00 Canadian. In this case
it is clearly harder to find that the payment was “at or from” the Appellant’s
Canadian establishment.
[39] The question that
arises in each of these payment scenarios is: what nexus is required to
conclude that the payments were made “at or from” the Appellant’s establishment
in Canada. The meaning of those words should not vary from case to case. The
results should only vary from case to case depending on the meaning of those
words and the application of that meaning to the facts in a given case.
[40] As noted, the nexus to the Appellant’s establishment in Canada is clear in respect of the first two payments. This
is not the case in respect of the third payment. The first two payments, in a
mechanical sense at least, were generated from the home office. The bank
records (cheque books) are presumably and seemingly there. The authorized
signing officers are there. In the normal course, direct bank transfers are
initiated there and cheques are prepared there. I think it is fair to say then that
the first two payments were not only generated from the home office but it is
also the case that the administration of the payment process was there. In that
sense the source of the payments was the home office regardless of how
funds were transferred.
[41] In the context of paragraph 16(1)(b), once
it can be said that a place is the source of the payment then it can be
said that it is the place from where the payment is made regardless of
the method of transfer of funds. The Canadian Oxford Dictionary offers a definition of
“from” as:
expressing separation or origin, followed by: 1 a
a person, place, time, etc. that is the staring point of motion or action… b
the starting point of an extent in time. 2 a place, object, etc. whose
distance or remoteness is reckoned or stated … 3 a a source
… (emphasis
added)
[42] This supports the view that the place of administering or generating payments
can be considered as a relevant nexus in determining where a payment has been
made “from”. Applying this nexus relieves concerns about absurd results should
the provision be read so literally as to require that funds for payment actually
have to be physically located at the employer’s establishment. As the Respondent
argued:
An
establishment may be the source of a payment even when the funds were never
physically located at that establishment. To hold otherwise would lead to the
absurd result that two employees whose salary is administered at the same
establishment are treated differently, simply because one is paid by direct
deposit from a bank account of his employer while the other receives a cheque
in the mail from the establishment itself.
[43] However, the place of
administering or generating payments may not always be as readily apparent as in
the case of the first two payments. Consider the case where an employer uses a
payroll service company to make payments to its employees. I can imagine the
confusion if a Canada Revenue Agency (“CRA”) questionnaire asked a worker in
that case if the wage was paid at or from the employer’s establishment. The
language of the subject regulation does not readily or easily fit the world we
live in. Nonetheless, a construction must be given to it that does not create
absurd results or absurd distinctions.
[44] To avoid an absurd distinction in the case of a
payroll service being engaged, it seems necessary to take a broader view of
what I have already referred to as a relevant nexus, namely, the place of administering
or generating payments. Regardless of the place where mechanical steps are
taken to effect delivery of a payment (such as the office of a payroll service),
there may still be an administrative centre at a different place from which
payments are effectively generated or sourced (such as the employer’s office). To
avoid absurd distinctions, the latter office might properly be considered as
the place from where payments are made. I say “might” at this point because the
relevance of any number of possible connecting factors requires consideration of
a more fundamental issue; namely, whether the subject provision should be given
an inclusive construction or an exclusive construction.
[45] With that question in mind I turn now to consider the third payment.
[46] The Appellant argues that paragraph 16(1)(b) was not meant to
capture a foreign currency transaction conducted entirely on the other side of
the world in a foreign country in a foreign currency where the funds were never
present in or administered in Canada. The transactions giving rise to the
payment of the funds all occurred in the country where the worker performed his
services. The payment was made outside Canada and to say that they were administered
or sourced in any way from or in Canada would be a fiction.
[47] The Respondent argues that since the Canadian home office is the only
establishment to attribute the payment as being “at or from”, then by necessary
inference it must arise from that place. The Respondent finds support for this construction
in that it furthers the social objectives of the provision. On the other hand,
why leave the furtherance of an objective to inference? If the test suggested
by the Respondent were intended, it would have been simple enough to write the
provision on the basis that employment is included in pensionable
employment unless payments to the worker are paid from a foreign
establishment of the employer or it might have been written to include
cases where payments are made by the Canadian employer. These are
not the tests as written. On that basis it strikes me that the intention of the
subject provision as written might well be to exclude workers working
abroad unless a very specific connection to Canada is established.
[48] Such construction seems however to defy common sense. The provision,
as worded, clearly amounts to little more than an elective provision. To
preserve pensionable earnings one need only arrange payment at the employer’s
Canadian establishment. No metaphysical analysis is required. Canadians working
abroad can be assured the full benefit of the CPP by simply having the
employer direct deposit funds from its Canadian bank to the employee’s bank.
That, in my view, suggests that the subject provision should not be read so
strictly as to deny Canadian pensionable earnings in the case of work performed
abroad simply by virtue of some circumstantial variations in the method or
mechanics of delivering payments particularly where there is only an isolated
variation. In this context the subject provision should be given an inclusive
construction.
[49] In the case at bar, I am dealing with nothing more than a circumstantial
variation in the method or mechanics of payment. The first two payments are in
respect of pensionable earnings because the mechanics of those payments are
clearly within the scope of the subject provision. The mechanics of the third
payment are not; however, the difference in mechanics arises only from
circumstantial events.
[50] The relevance of this can be seen in the analysis of another aspect of
this issue. Both parties agree that if I find that the first and second
payments are from the Canadian office and that the third payment is not, then I
should find that the first two months of employment (June and July) are pensionable
and that the months of August to December are not pensionable.
[51] As a general principle, I do not agree that an engagement of this type
should be bifurcated in this way if it puts too much emphasis on the mechanical
and circumstantial aspects of a payment. Such emphasis could lead to untenable results particularly where
people today are so mobile and money can be “paid” or transferred in so many
ways. The scheme of the CPP in the context of paragraph 16(1)(b) does not suggest that each and every payment must be
examined in isolation in terms of its mechanical procedures. As noted in
paragraph 44 of these Reasons, mechanical steps in effecting payments may not
themselves be determinative. Even more compelling than that proposition is the
proposition that the Plan cannot be read as requiring that the status of
an engagement over a particular period change every time the mechanics of
payment change simply by virtue of an isolated and extraordinary circumstance without
a substantive change in the payment arrangement contemplated or normally and
regularly followed.
[52] In the case at bar one might ask then whether the payment method in
respect of the first two payments was dictated solely by an isolated
circumstance such as the Intervener being in Canada. Alternatively, one might ask whether the payment method in respect of
the third payment was dictated solely by an isolated circumstance such as Mr.
Chaye and the Intervener both being present in Korea when money was available so
that, as an isolated event, payment could be made there.
[53] I am satisfied that it was the last payment that was an isolated
event. In June and July the Appellant was funding the Intervener’s engagement
and payments were made from the home office. The home office was the place from
where payments were administratively generated. This demonstrates what the
normal and regular payment arrangement was to be. That substantial funds were
turned over to the Intervener in Korea in December as opposed to being
repatriated to Canada and delivered to the Intervener in the
normal and regular fashion contemplated by the first two payments should not
bar the Intervener from having pensionable earnings. The December payment was
an isolated circumstantial event. An inclusive construction of the subject
provision would not permit such an event as requiring a finding, in respect of
the subject period as a whole, that any part of it was not pensionable.
[54] In coming to this conclusion and relying on the essentially elective
nature of the subject provision, it does not escape me that the manner of
payment in these cases is a cooperative effort. An employer who refuses to let
an employee enjoy the benefits of the CPP might be able to frustrate the
inclusive approach by adopting an offside payment regime. That however has not
happened in the case at bar. By continuing to accept that the Intervener’s wage
was net of CPP amounts, the Appellant has implicitly confirmed that the
payment arrangement contemplated, and to be normally and regularly followed,
was that evidenced by the first two payments. To find otherwise in this case
would, short of further claims by the Intervener, put the Appellant in an
unjustly enriched position.
[55] In coming to this conclusion I wish to emphasize that although I have
accepted that “from” includes a source and have identified factors to
consider in determining that a particular place was the source of a payment –
such as the place where payments are administered or the place where funds are normally
administratively generated – it is clear that such factors are not exhaustive
and would not in all cases be determinative. The subject provision is not easy
to apply and its application will depend on the facts and circumstances of each
case.
[56] One last comment before concluding these Reasons is that I have
considered the French version of the subject provision which reads as follows:
16. (1) L’emploi
ouvrant droit à pension comprend l’emploi hors du Canada (sauf l’emploi dans le
transport international) qui ouvrirait droit à pension s’il était exercé au
Canada, si l’employé qui l’occupe
b) est un
résident du Canada et reçoit son salaire à un établissement de son
employeur situé au Canada ou dudit établissement;
This version of paragraph 16(1)(b) is consistent with the English version
and offers no assistance or further insight as to its proper construction. As
in the English version it requires that the worker receive his salary at his
employer’s establishment situated in Canada, or from the
aforementioned (dudit) establishment.
[57] Accordingly for the reasons set out above, the Appellant’s
appeals under both the EIA and the CPP are dismissed.
Signed at Ottawa, Canada, this 27th day of April 2007.
Hershfield
J.
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