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Citation: 2004TCC660
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Date: 20041014
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Dockets: 2003-3434(EI),
2003-3435(EI),
2003-3437(EI) and 2003-3438(EI),
2003-3717(EI),
2003-3718(EI) and 2003-4124(EI)
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BETWEEN:
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ROLANDE MARTIN O/A NEW MOON RESTAURANT,
NEW MOON MOTEL & RESTAURANT INC.,
CAROLE MUCKLER,
ROMAIN PARENT,
MADELEEN PARENT,
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Appellants,
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And
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THE MINISTER OF NATIONAL REVENUE,
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Respondent,
and
CAROLE MUCKLER,
ROLANDE MARTIN O/A NEW MOON RESTAURANT,
NEW MOON MOTEL & RESTAURANT INC.,
Interveners.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1] These appeals were heard on common
evidence. Appeals 2003-3434 (EI) and 2003-3437
(EI) involve the same period of employment, when Appellant
Carole Muckler was the employee and Appellant
Rolande Martin was the employer, and appeals 2003-3435
(EI) and 2003-3438 (EI) involve the same period of
employment, when Appellant Carole Muckler was the employee
and Appellant New Moon Motel & Restaurant Inc. (hereinafter
the "New Moon") was the employer. The periods at issue in these
appeals are from January 12, 1997 to January 12, 1998, from
January 18, 1998 to January 23, 1999, from January 24 to December
31, 1999, from January 1 to January 22, 2000, from January 23 to
December 16, 2000, from December 17, 2000 to November 17, 2001,
and from November 18, 2001 to November 16, 2002. Based on the
payroll, Appellant Carole Muckler earned $400.40 a week from
March 3, 1997 to January 16, 1998, $416.42 a week from June
15, 1998 to January 22, 1999, $416.42 a week from June 7,
1999 to October 15, 1999, $416.42 a week from July 10 to October
20, 2000, $416.42 a week from July 2 to November 16, 2001,
worked five hours a week and earned $47 a week from December 3,
2001 to June 29, 2002, and earned $416.42 a week from June 30 to
September 16, 2002.
[2] In these four cases, the
Appellants are appealing the decision of the Minister of National
Revenue (hereinafter, the "Minister") to the effect that the
employment of Appellant Carole Muckler with
Rolande Martin and New Moon during the periods at issue was
not insurable employment because they were not dealing at arm's
length within the meaning of paragraph 5(2)(i) of the
Employment Insurance Act (hereinafter the "Act"). However,
the Minister found that the employment was insurable from
December 3, 2001 to November 16, 2002.
[3] In the dockets of Appellant
Madeleen Parent, the periods at issue are from December 22,
1996 to October 18, 1997, from October 19, 1997 to November 7,
1998, from November 8, 1998 to November 6, 1999, from November 7,
1999 to January 31, 2000, and from February 1 to October 28,
2000. She was appealing the Minister's decision to the effect
that her employment during the periods at issue was not insurable
employment because she and the Payer (Rolande Martin or
New Moon) had a non-arm's length relationship within the
meaning of paragraph 5(2)(i) of the Act.
[4] Appellant Romain Parent was
appealing the Minister's decision to the effect that his
employment with Rolande Martin during the periods from July
14 to November 29, 1997, from November 30, 1997 to November
28, 1998, and from November 29, 1998 to November 27, 1999 was not
insurable employment because they had a non-arm's length
relationship within the meaning of paragraph 5(2)(i) of
the Act.
[5] Appellant Rolande Martin was
the sole proprietor of a business that consisted in a 68-seat
restaurant, a 21-room motel, a convenience store, and until
October 2000, a gasoline pump. On November 23, 1999, she
incorporated New Moon; she was its sole shareholder.
New Moon therefore became the new employer of the Appellants in
the dispute at hand. Until 1999, the business was open
24 hours a day, seven days a week. After, the business
hours were from 6 a.m. to 11 p.m. or midnight in the summer,
and from 6 a.m. to 8 p.m. the rest of the year, except on
Wednesdays, Saturdays and Sundays, when the business closed at 10
or 11 p.m. The business was located on the TransCanada
highway near the village of Ste-Anne, New Brunswick. The business
hours changed after a new four-lane section of the TransCanada
highway opened on October 5, 1999. This resulted in all the
highway traffic being diverted. There is no doubt that this
new highway was the beginning of the end for this business.
[6] Carole Muckler is
Rolande Martin's daughter. She was hired, as required, as a
cashier in the restaurant or convenience store, secretary to do
the bookkeeping, dishwasher, waitress or housekeeper. Based
on the payroll, she worked 44 hours a week. The
above-mentioned periods were entered in the payroll. At the
beginning of the periods at issue, she was paid $8.75 an
hour. She was given a $0.35 an hour raise in 1998. She was
the only employee who was given this raise. Despite the
fact that there were 44 hours of work indicated in the payroll,
her work schedule totalled only 40 hours a week. Ms.
Muckler explained this by saying that she was paid by the week,
not the hour.
[7] The dispute involves the
allegation that Appellant Carole Muckler worked while she
was not on the payroll during all the periods at issue. She
allegedly continued to provide her services on a regular basis
without being paid while she was receiving employment insurance
benefits and this continued until December 2001. After this date,
she reported her hours of work during her periods of
unemployment.
[8] In her testimony, Ms. Muckler
admitted that she had worked for her mother while she was
receiving employment insurance benefits. She spent between
15 minutes and two hours at her mother's place of business.
She replaced her mother when she was absent, did her shopping and
deposits, and replaced the cashier as required. Because she
was not paid, she did not record her hours. In response to
the question as to whether she had looked for a job while she was
unemployed, she said that yes, she had. In her statement to
the investigation officer on October 31, 2002, she said she did
not report her hours of work while she was receiving benefits
because she was not paid and she was working for her
mother. She added that she could have looked for another
job elsewhere, but her mother had allegedly said
[translation] "You're abandoning me". She could not do that
to her mother.
[9] The following passage is found in
this same statement:
[TRANSLATION] Ms. Muckler told us that she worked during
periods other than those indicated in the payroll and she was not
paid for that work. She did this work to help out her
mother and her business because she was unable to pay her.
She was not paid and did the work as a favour to her mother, who
did things for her and many other people.
[10] In a questionnaire filled out during an
interview on February 24, 2003, Ms. Muckler said she worked
or helped out about 10 hours a week during the winter and was not
paid. She did not indicate these hours of work on her
report cards because she was neither paid nor indicated on the
work schedule. In her testimony, she admitted sending her
son to the after-school program even when she was unemployed,
which leads us to believe that she was working at that
point. She did not start indicating her hours of work on
her report cards until 2002, after the Royal Canadian Mounted
Police made a seizure during its investigation.
[11] For her part, Rolande Martin
testified and provided us with a history of her business and
discussed the financial problems she has had since the new
section of the TransCanada highway opened. During the
investigation and after the search warrant was obtained, all her
business documents were seized. The investigation showed
that the Appellant's firm and New Moon had two logs for
recording staff work hours. Ms. Martin admitted banking her
staff's hours for a number of years. The payroll was
allegedly accurate, but a record book with "Notebook" (Exhibit
I-4) indicated on it was kept for banking staff
hours. All staff banked hours when they received employment
insurance benefits and were not paid until they came back to
work. Staff therefore provided services while they were
unemployed. Ms. Martin also admitted that her daughter
was the only one to get a raise and it was at her discretion.
[12] In Appellant Madeleen Parent's
case, Ms. Martin explained that Ms. Parent kept the
"Notebook". Based on the payroll, the Appellant's hours of
work were 50 hours a week, while the actual hours of work were
indicated in the "Notebook". Appellant Madeleen Parent
did not work 50 hours a week. She worked 25 hours a
week and as she said, when she was "in the red", she transferred
some of her husband Romain's hours, which meant that she was paid
for hours worked by her husband. Like Appellant
Carole Muckler, Madeleen Parent worked while she was
receiving employment insurance benefits.
[13] Appellant Madeleen Parent did the
bookkeeping, and kept the payroll and records of the staff's pay.
Her work hours were not fixed and she followed the instructions
of her employer, Rolande Martin and New Moon. She entered
the hours worked by staff and the banked time in the
"Notebook". She explained that it is a seasonal business
and there is not enough income in the winter to pay staff.
The banked hours and the "Notebook" were used to pay staff
when the business could afford to. She also admitted transferring
hours worked by her spouse, Appellant Romain Parent.
[14] Like Carole Muckler, she continued
working after being laid off and while she was receiving
employment insurance benefits. She made the following
statement to the investigation officer on October 31, 2002, and
agreed with the content of the proceedings:
Mrs. Parent [Madeleen] was accumulating her hours part of
the year because the business could not pay her. She was not
declaring hours of work while collecting Employment Insurance.
She was in a negative situation most of the time due to the
number of hours of work and the Employment Insurance stamps that
were paid to her. She was paid 50 and 55 hours a week when
on payroll but was making less hours than that. There was hours
transferred [sic] from her husband [sic] account to her account
because she needed the hours and because her husband had all kind
of hours. At the end of 1999 there was a transfer of over
470 hours transferred from Romain Parent [sic]
account.
[15] A questionnaire was entered as evidence
as Exhibit I-7. It consists of a series of questions
Appellant Madeleen Parent was asked and the answers confirm
the scenarios implemented, that is, hours were banked using the
"Notebook" and staff continued working while receiving employment
insurance benefits.
[16] Appellant Romain Parent is the
brother of Appellant Rolande Martin. He testified
quite candidly that he had always worked year-round for the
business. He started when his father owned it and continued after
he died. His sister, Rolande, ran the motel and he ran the
restaurant. His sister purchased the restaurant in 1993 and
he worked for her and New Moon until he retired in October
1993. He was there all the time and his wife Madeleen kept
track of his hours of work. He is aware that his hours were
transferred to his wife when she needed them. If she needed
hours, he gave her some. He also allegedly gave his son
some. He concluded his testimony by saying that his hours
of work did not change when he was unemployed.
[17] Although the Appellants' representative
stated that Mr. Parent could have been suffering from Alzheimer's
disease, no evidence was provided in this regard. Further,
Mr. Parent seemed to understand the questions very well, was
properly situated in time and responded coherently to all the
questions he was asked.
[18] This case was investigated fairly
thoroughly by the investigation and appeals officers from the
departments involved. As a result, all the information came
to light: the banking of hours and the hours of work
transferred between Appellants Romain Parent and
Madeleen Parent. Tables were prepared to show the
periods of employment and unemployment for each appellant
employee. In Appellant Carole Muckler's case, the
"Notebook" did not show that she did not work the 44 hours
reported because she was scheduled to work less than 40 hours a
week. Further, although she reported to work almost every
day during these periods, she did not report income during her
periods of unemployment.
[19] In the case at hand, the Appellants
must show, on a balance of probabilities, that the Minister
inappropriately exercised his discretion having regard to all the
circumstances in deciding that Rolande Martin, New Moon
and the Appellants would not have entered into a substantially
similar contract of employment if they had been dealing with each
other at arm's length.
[20] The Federal Court of Appeal established
the role the Minister plays and the Court must play in
Légaré v. Canada(Minister of
National Revenue - M.N.R.), [1999] F.C.J. No 878. Mr.
Justice Marceau summarized 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.
[21] The Federal Court of Appeal reiterated
its position in Pérusse v. Canada, [2000] F.C.J.
No 310. Mr. Justice Marceau elaborated on this statement 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 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.
[22] The applicable legislative passages are
paragraph 5(2)(i) and subsection 5(3), which read as
follows:
5(2) Excluded employment.
- Insurable employment does not include
...
i)
employment if the employer and employee are not dealing with each
other at arm's length.
5(3) Arm's length dealing.
- For the purposes of paragraph (2)(i):
a)
...
(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.
[23] The Appellants in all the dockets are
dealing with each other at non-arm's length within the meaning of
the Income Tax Act. Therefore, there is a non-arm's length
relationship between Employer Rolande Martin and New Moon
and the Appellant employees and their employment is not included
in insurable employment. After analyzing all the facts, the
Minister concluded that there was a non-arm's length
relationship. All of the assumptions of fact upon which the
Minister's decisions were based in all the appeal dockets at hand
and which were denied by the Appellants were proven by the
evidence provided at the hearing. In fact, there is nothing
in the evidence provided by the Appellants to allow me to
conclude that there were errors in the facts considered by the
Minister in exercising his discretion. In fact, the
Appellants' testimony in certain cases confirmed the assumptions
of fact upon which the Minister based his decision. The
following are excerpts from the assumptions of fact denied by the
Appellants:
Docket 2003-3434(EI)
h) the worker
continued to provide the Appellant with her services on a
regular, unpaid, basis outside the weeks entered in the payroll
while she was receiving employment insurance benefits.
Docket 2003-3718(EI)
j) the
Appellant worked for the Payer year-round without interruption
for the number of hours required to carry out her duties;
k) the hours
of work entered in the special record book rarely exceeded 20
hours a week;
m) the hours of work
entered in the special record book for the Appellant were
deficient until the week ending March 18, 2000; and
n) the hours
of work entered in the special record book for the Appellant
during the period at issue include the transfer on September 9,
2000 of 420 hours worked by Romain Parent, her husband.
Docket 2003-3717(EI)
i) the
Appellant worked for the Payer year-round without
interruption;
k) some hours
worked by the Appellant were transferred to Madeleen Parent, his
wife, as follows:
July 11, 1998: 100 hours
December 30, 1999: 480.5 hours
September 9, 2000: 420 hours
[24] There is no doubt that
Rolande Martin and New Moon used a system to bank hours for
employees and that Appellants Romain and Madeleen Parent
were involved in it. There is also no doubt that the three
appellant employees continued to provide services and work for
Rolande Martin and New Moon during all the periods at issue
while they were receiving employment insurance benefits.
The records showed that Madeleen Parent worked 50 hours
a week, when she worked only 25 hours. Romain Parent
worked more hours, but was not paid for all of them. He
transferred some to his son or his wife. Appellant
Carole Muckler was paid for 44 hours of work, but she
was scheduled for less. These types of conditions of work
are normally found when the parties have non-arm's length
relationships.
[25] In Bérard v.
Canada(Minister of National Revenue- M.N.R.),
[1997] F.C.J. No 88, Mr. Justice Hugessen of the Federal
Court of Appeal reminded us that:
[...] The clear purpose of the legislation is to except
contracts of employment between related persons that are not
similar in nature to a normal contract between persons dealing
with each other at arm's length.It is in our view clear
that this abnormality can just as well take the form of
conditions unfavourable to the employee as of favourable
conditions. In either case, the employer-employee relationship is
abnormal and can be suspected of having been influenced by
factors other than economic forces in the labour market.
[26] In the case of Appellant
Carole Muckler, the evidence shows that not only did she
work for her mother during her periods of unemployment, but she
was also paid for this work. Further, she was paid based on
an hourly rate for 44-hour weeks when she worked only 40 hours
including a lunch break. When we look at the criteria set
out in paragraph 5(3)(b) of the Act, it is clear that the
remuneration paid and the terms of employment would not have been
the same unless there was a non-arm's length relationship.
She was the only one to be given a raise, albeit a minimal
one. Given her responsibilities and the significance of her
contribution, the duration of her employment was not in keeping
with the employer's requirements.
[27] The relationships between Appellants
Romain and Madeleen Parent also involve terms and conditions
that would only occur because of their non-arm's length
relationship with Rolande Martin and New Moon. Their
responsibilities required them to be present year-round and it is
clear that they abused the system. The employer knew and
allowed them to transfer hours between them. Appellant
Madeleen Parent was paid for hours of work she did not work
and Appellant Romain Parent worked more hours than he was
paid for.
[28] After hearing the evidence, I can only
reach the conclusion that given the circumstances of the case at
hand, the Minister's determination for all the years at issue for
all the Appellants was reasonable because the conditions of work
would not have been similar if the Appellant employees and the
Appellant employers had been dealing at arm's length.
[29] The appeals are dismissed.
Signed at Ottawa, Canada, this 14th day of October
2004.
Angers J.
Translation certified true
on this 1st day of February 2005.
Wendy Blagdon, Translator
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