Citation: 2005TCC760
Date: 20051202
Docket: 2004-4668(EI)
BETWEEN:
AUTO ROY DÉBOSSELAGE INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
GRACIA ROY,
Intervener.
Docket: 2004-4669(EI)
BETWEEN:
GRACIA ROY,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
AUTO ROY DÉBOSSELAGE INC.,
Intervener.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1] These two appeals
were heard on common evidence. The Minister of National Revenue ("the
Minister") submits that the employment of Gracia Roy ("the Worker")
with Auto Roy Débosselage inc.
("the Payor") during the periods of June 28 to
September 24, 1999, April 6 to September 22, 2000,
January 15 to October 26, 2001, December 17, 2001, to
September 20, 2002, and June 16 to October 3, 2003, is not
insurable employment within the meaning of paragraph 5(2)(i) and
subsection 5(3) of the Employment Insurance Act ("the Act")
because the Minister was satisfied that, having regard to all the circumstances
of the employment, it was not reasonable to conclude that the Worker and the Payor
would have entered into a substantially similar contract of employment if they
had been dealing with each other at arm's length.
[2] The Payor was
incorporated on March 21, 1986, the year when a new garage was built.
During the periods in issue, the Payor's voting shareholders were the Worker's
spouse, Réjean Roy, and their two sons, Gino and Ricko Roy. The
non‑arm's length relationship is not in dispute. The Payor operated a
garage where mechanical work, painting and autobody repair work were done. The
garage also had a towing service and a gas station. However, the Payor stopped
selling gas in June of this year. The Payor's business was open seven days
a week all year round. Its operating hours were 8:00 a.m. to
6:00 p.m. except during the summer, when it closed at 9:00 p.m. The Payor
had sales of about $800,000 a year.
[3] The Worker had
worked for the Payor since it began operating. Her work involved pumping gas,
answering the telephone, ordering automotive parts, keeping the books up to
date, preparing the employees' pay and cleaning the office and the washroom. It
should be noted that the Worker's residence was adjacent to the business's
garage.
[4] The Worker was
listed in the payroll journal with five‑hour weeks and full weeks of
work. She received $40 a week for the five‑hour weeks and $348.75 or
$362.70 for the full‑time weeks. She gave up her job about
two months before the hearing because of her health. She had been working
full time for two years because the business had become certified by the
Société de l'assurance automobile du Québec to do mechanical inspections. That
additional work, especially the necessary documentation, justified her full‑time
presence. Since her departure, her son has been doing this work until someone
else is hired.
[5] According to
Réjean Roy, the Worker's spouse, the work at the gas pump took up a little
more than half of the Worker's time; he added that it was much quieter during
the winter months. The Worker worked 45 hours a week over five days.
If she worked on Saturday or Sunday, she took a day off during the week to make
up for it. The Worker and her son Gino were both responsible for ordering
parts. The Worker handled the payroll and bookkeeping, but the business hired
an accountant to remit the Quebec sales tax (QST) and the goods and services
tax (GST) and prepare the year‑end statements. According to Mr. Roy,
he and the Worker were authorized to sign the Payor's cheques.
[6] Mr. Roy stated
that the Worker's hourly wage was about $8. Her gross weekly pay was $375, but
she was paid by the week and not on the basis of 45 hours of work. Her
periods of employment depended on demand and the tourist season. According to
Mr. Roy, the Worker did not work while she was receiving employment
insurance benefits. He acknowledged that she came to the garage at break time
and on the walks that she had to take for her health, if the weather was good.
She sometimes pumped gas for customers when she was present. Mr. Roy also
said that the only service the Worker may have provided without remuneration
was the payroll, which required about an hour of work a week.
[7] In 1997, the Payor
owed money to both levels of government for the GST and the QST and was able to
negotiate a settlement for $40,000. The two sons then borrowed $10,000
each. The Worker also borrowed $20,000, which she then loaned to her
two sons. According to the testimony of Mr. Roy and the Worker, that
amount was repaid to the Worker by their sons and not by the Payor. No
documentation was filed in evidence to corroborate this. Mr. Roy also
admitted that the Worker made cash advances to the Payor of about $4,000 to
$5,000 in 2001, 2002 and 2003. This occurred two or three times, and he
explained that it was necessary because cash withdrawals could be made on the
credit cards of the Worker, his spouse, but not on his credit cards. The Payor
repaid the advances, which were needed to make purchases and operate the
business.
[8] On cross‑examination,
Mr. Roy acknowledged that the Worker signed invoices while she was
unemployed. This occurred when she was at the garage. Indeed, hundreds of
invoices signed or initialled by the Worker outside her periods of employment
were filed in evidence for 2001, 2002 and 2003.
[9] The Worker
testified about her history in the Payor's business since 1980. She learned how
to do the bookkeeping and said that her employment was insurable in 1992 as
determined by the Minister at the time. In 2001, she worked five hours a
week from mid‑January to the end of June. She did the bookkeeping for the
week. Her son or her spouse decided when she would return to full‑time
work. She worked full time until the end of August, then five hours a week
until the end of October, then two weeks full time in December. In 2002,
she worked two weeks full time in January and then worked full time from
mid‑June until mid‑September. There were no five‑hours work
weeks in 2002. The payroll journals from 2003, 1999 and 2000 were not filed in
evidence.
[10] The Worker admitted
that she provided services to the Payor while receiving employment insurance
benefits. At the time, she thought that she was the only one who could sign the
Payor's cheques. She also prepared the cheques. This did not require more than
an hour of her time per week. She did that work, just like signing the
invoices, on the pretext that her spouse and her son always had dirty hands and
that she was there visiting them during breaks or on her walks. She also
sometimes pumped gas for customers when she was on the Payor's premises. In her
testimony, she said that she was mistaken in her declaration to the Minister's
officer and that therefore she did not go to the Payor's garage five times
a day. She now said that she went there in the morning at break time and,
weather permitting, on her walks. She no longer handled the remittances of QST
and GST, since that work had been delegated to the Payor's accountant.
[11] The Worker confirmed
that she lent her two sons $20,000 in 1997 and that they and not the Payor
repaid her that amount. She also admitted that she made cash advances to the Payor
using her personal credit cards. She did this because her spouse's credit cards
did not allow him to make cash withdrawals. The advances were recorded in the Payor's
financial statements as a debt to a director. The Worker was not a director of
the Payor and could not say whether the money under that item was owed to her.
She admitted that she was repaid by the Payor nonetheless. The advances were
necessary for the business to pay its bills.
[12] On cross‑examination,
the Worker was confronted with a large number of invoices that she signed or
initialled while not working full time for the Payor. There were
132 invoices filed from 2001, 250 from 2002 and 300 from 2003. The Worker
explained the situation by saying that in some cases she was present or that a
supplier made a delivery early in the morning and came to her home to have the
invoice signed or that she ran errands for the Payor while shopping. She also
admitted entering information in the payroll journal, writing cheques and
remitting source deductions the entire year. She explained that she did this
work because her spouse and her son had dirty hands as a result of their work.
In her declaration of November 26, 2003, the Worker stated that this work
took her about five hours a week. In her testimony, she now said that five hours
was an exaggeration and that the work did not take that much time. The same was
true of her second declaration, in which she stated that she went to the Payor's
garage five or six times a day, whereas it was less often than that. She
also corrected the statement that for six years she was the only person who
could sign cheques, since she now realized that her spouse also had that power.
According to the Worker, he did not sign cheques because his hands were always
dirty.
[13] Daniel Michaud
is an investigating officer. He prepared a table for 2001, 2002 and 2003
showing the number of days on which the Worker signed invoices outside her
periods of full‑time employment. She did so nearly every week, including
several weeks when she did not report five hours of work, at least in 2001
and 2002. The number of invoices examined outside her periods of full‑time
work was 132 in 2001, 250 in 2002 and 300 in 2003. He did not ask for the
invoices from 1999 and 2000 and therefore did not conduct a similar review for
those two years. On cross‑examination, he acknowledged that he made
no distinctions based on the nature of the invoices or the fact that several of
them might have been signed at the same time. However, nothing in the evidence
seems to indicate that this was the case.
[14] Roger Dufresne,
an appeals officer, filed his report. He examined all the invoices from 2001,
2002 and 2003. He compared the number of invoices signed by the Worker with the
Payor's sales. During the busiest periods, when the Worker worked full time,
she did not sign invoices for six months out of eight. During the months
when she was not remunerated by the Payor, she signed invoices every month, and
in at least eight of those months, there were more than 30 invoices,
and there were 55 invoices in May 2002. He did not verify the nature
of the invoices or whether several of them might have been signed at the same
time. He accepted the fact that the work was done without pay, relying largely
on the Worker's declarations acknowledging that she regularly worked
five hours a week without pay.
[15] The salient facts,
all of which were denied by the Appellants and which led the appeals officer to
conclude that the contract of employment between the Payor and the Worker could
not be substantially similar to one between two parties dealing with each
other at arm's length, are as follows: the Worker was the only person
authorized to sign the Payor's cheques, she provided services to the Payor
during the weeks when she was not on the payroll, she admitted working without
pay while receiving employment insurance benefits, and she admitted that the
work weeks when she was on the payroll were not the Payor's busiest weeks. As
well, the Worker was at the Payor's garage five or six times a day while
she was laid off, and her alleged hours of work do not correspond to the hours
she actually worked, which means that the records of employment do not reflect
reality in terms of the periods or amount of work. Finally, the credit card
cash advances and the $20,000 loan are not consistent with terms and conditions
of employment between persons dealing with each other at arm's length.
[16] In Légaré v.
Canada, No. A‑392‑98, May 28, 1999, [1999] F.C.J.
No. 878 (QL), the Federal Court of Appeal defined the Minister's role and
the role that must be played by this Court in cases where the Minister must
determine whether employment is excluded from insurable employment because of
non‑arm's length dealing. Marceau J.A. summarized the approach as
follows at paragraph 4:
The Act requires the Minister to
make a determination based on his own conviction drawn from a review of the
file. The wording used introduces a form of subjective element, and while this
has been called a discretionary power of the Minister, this characterization
should not obscure the fact that the exercise of this power must clearly be
completely and exclusively based on an objective appreciation of known or
inferred facts. And the Minister's determination is subject to review. In fact,
the Act confers the power of review on the Tax Court of Canada on the basis of
what is discovered in an inquiry carried out in the presence of all interested
parties. The Court is not mandated to make the same kind of determination as
the Minister and thus cannot purely and simply substitute its assessment for
that of the Minister: that falls under the Minister's so‑called
discretionary power. However, the Court must verify whether the facts inferred
or relied on by the Minister are real and were correctly assessed having regard
to the context in which they occurred, and after doing so, it must decide
whether the conclusion with which the Minister was "satisfied" still
seems reasonable.
[17] The Federal Court of Appeal reiterated its position in Pérusse v.
Canada, No. A‑722‑97, March 10, 2000, [2000] F.C.J.
No. 310 (QL). Marceau J.A., referring to the above passage from Légaré,
added the following at paragraph 15:
The function of an appellate judge
is thus not simply to consider whether the Minister was right in concluding as
he did based on the factual information which Commission inspectors were able
to obtain and the interpretation he or his officers may have given to it. The
judge's function is to investigate all the facts with the parties and witnesses
called to testify under oath for the first time and to consider whether the
Minister's conclusion, in this new light, still seems "reasonable"
(the word used by Parliament). The Act requires the judge to show some
deference towards the Minister's initial assessment and, as I was saying,
directs him not simply to substitute his own opinion for that of the Minister
when there are no new facts and there is nothing to indicate that the known
facts were misunderstood. However, simply referring to the Minister's discretion
is misleading.
[18] The Act's
provisions stating that employment is excluded from insurable employment if the
employer and employee are not dealing with each other at arm's length and the
provisions regarding situations in which they are deemed to deal with each
other at arm's length are worded as follows:
5. . . .
Excluded employment
(2) Insurable employment does not include
. . .
(i) employment if the employer and employee are not dealing with each other
at arm’s length.
Arm’s length dealing
(3) For the purposes of
paragraph (2)(i),
. . .
(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.
[19] In Louis‑Paul
Bélanger v. M.N.R., 2005 TCC 36, Archambault J. of this Court analysed
a number of decisions rendered by both the Federal Court of Appeal and this
Court on the question of non‑arm's length dealing and the exercise in
which the Court must engage on an appeal from the Minister's decision, based on
the above‑mentioned legislative provisions. I will use all of these
guidelines to analyse the facts of these appeals.
[20] First, it seems
obvious to me that the circumstances of the employment, namely the terms and
conditions, the duration and the remuneration paid to the Worker, were analysed
only for the periods of employment in 2001, 2002 and 2003. All the information
gathered and analysed by both the appeals officer and the investigating officer
is for those three years. The payroll journal, invoices and financial
statements all refer to 2001, 2002 and 2003 and were not examined for the
previous two years. The information the officers obtained from the Worker
through her declarations is too general to encompass all the periods and
examine the situation as a whole. As for more specific questions, the
information disclosed deals with such questions for the same three years,
which, in my view, are what they actually investigated.
[21] For 2001, 2002 and
2003, the investigation enabled the officers to gather enough information, in
my opinion, to objectively analyse the facts surrounding the Worker's terms and
conditions of employment with the Payor. Although some of the facts on which
the Minister relied may have been inaccurate, he obtained that information from
either the Worker or the Payor. I am thinking in particular of the fact that
only the Worker had the power to sign the Payor's cheques, whereas, according
to the Worker's spouse, he too was authorized to do so. The officers obtained
that information from the Worker, who admitted in her declaration that she was
the only person authorized to signed cheques for six years. The fact
remains that the Worker signed the cheques at all times and took care of the payroll
journal, prepared the pay and remitted source deductions throughout the year.
She was paid for five hours a week only in 2001, namely from January to
June and in September and October. Except during the weeks she worked full
time, she was not paid for the work she did for the Payor.
[22] It is also obvious
that the Worker did more than do the payroll and remit source deductions. When
the invoices she signed or initialled outside her periods of full‑time
work and their frequency are compiled, what emerges is that the Worker never
really stopped providing services. I can believe that such services may be
provided occasionally in the context of a family business, but the frequency
and number of her actions clearly show that she provided services regularly. It
is therefore obvious that the Worker provided services to the Appellant when
she was not on the payroll and was not being paid for those services. At paragraph 74
of Louis‑Paul Bélanger, supra, Archambault J. provided
a good summary of the possible consequences of such a situation:
[74] In my view, failing to consider the
fact that an employee works without remuneration for the same employer clearly
opens the door to abuse. A good example can be found in the decision I rendered
in Massignani ([2004] T.C.J. No. 127 (QL), 2004 TCC 75). In that
case, the family members were not the only ones to abuse the Act. Employees
dealing at arm's length with the employer were encouraged to participate in the
scheme that had been devised. Failing to take into account the number of hours
worked without remuneration would essentially enable employees to be
remunerated through employment insurance while they continued to work for their
employer. This is certainly not the intention of Parliament with respect to the
employment insurance system.
[23] The fact that the Worker's
hours of work were not recorded during the periods when she was working full
time also raises the question of whether she actually worked the 45 hours
a week corresponding to her weekly pay. Since the number of hours of work must
correspond to the number of insurable hours, this is once again a situation
that invites abuse. Indeed, the payroll journal does not show the number of
hours she worked during the periods of full‑time work.
[24] The Minister also
considered the fact that the Worker lent the Payor $20,000 and made cash
advances in 2001, 2002 and 2003. The $20,000 loan was made prior to the periods
in issue, and there is the question of whether the loan was made to the Payor
or to the Worker's two sons. Moreover, with the exception of the Worker's
testimony, no evidence was provided to shed light on the loan. One thing is
clear: the loan enabled the Payor to pay its debt to the governments concerned,
which means that the money ended up in the Payor's hands either through an
investment by the Worker and her two sons or through the two sons
only. In either case, the Payor benefited from it, just as it benefited from
the cash advances made using the Worker's credit card. There is no prohibition
against a family member making loans or cash advances to the family business,
but when the same business provides the family member with employment for which
the terms and conditions, duration, importance and remuneration must be
compared with those that would exist for an employee dealing at arm's length,
the loans or advances become a factor to consider, since the Payor's lack of
funds to meet its obligations may have an impact on the remuneration paid to
the Worker as an employee.
[25] The table of total
sales per month prepared by the appeals officer shows that the Worker sometimes
worked fewer hours than during the following years, when she worked more hours
with a similar monthly income.
[26] For these reasons,
the Minister's conclusion regarding the periods of January 15 to
October 26, 2001, December 17, 2001, to September 20, 2002, and
June 16 to October 3, 2003, seems reasonable to me, and the Worker's
employment is therefore not insurable employment within the meaning of the Act.
As for the periods of June 28 to September 24, 1999, and April 6
to September 22, 2000, the Minister's conclusion does not seem reasonable
to me in the circumstances, since there was not enough evidence to support it.
The appeals are therefore dismissed for the periods in 2001, 2002 and 2003 and
allowed for the periods in 1999 and 2000.
Signed at Ottawa, Canada, this 2nd day of December
2005.
"François
Angers"
Translation
certified true
on this 18th day
of March 2009.
Brian McCordick,
Translator
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