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Citation: 2004TCC257
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Date: 20040413
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Docket: 2003-2236(EI)
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BETWEEN:
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CONSTRUCTION ST-ANSELME LTÉE,
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Appellant,
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and
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THE MINISTER OF NATIONAL REVENUE,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Savoie D.J.
[1] This appeal was heard at
Québec, Quebec, on November 24, 2003.
[2] This is to determine whether Ms.
Josée Bourassa, the worker, was employed by the Appellant
in an insurable employment, within the meaning of the
Employment Insurance Act (the "Act"), during the period at
issue, namely, from January 1, 2000, to March 2, 2003.
[3] On June 12, 2003, the Minister of
National Revenue (the "Minister") informed the Appellant of his
decision whereby the worker's employment was insurable, because
it met the requirements of a contract of service, given that an
employer-employee relationship existed between the Appellant and
the worker.
[4] The Minister determined that it
was reasonable to conclude that, considering the remuneration
paid, the duration and terms of employment, and the nature and
importance of the work performed, the Appellant would have
concluded a substantially similar contract of service with the
worker, had an arm's-length relationship existed.
[5] In rendering his decision, the
Minister relied on the following assumptions of fact which were
admitted or denied by the Appellant, or concerning which the
Appellant had no knowledge:
(a) The Appellant,
incorporated on December 5, 1977, operated a construction
business and an equipment, materials, and tool rental business
until June 15, 2002. (admitted)
(b) The Appellant's
shareholders were:
Gestion Joseph-Eugène Bourassa Inc.: 88 %
Joseph Bourassa: 11 %, the worker's father
Mariette Lemelin: 1 %, the worker's mother. (admitted)
(c) The sole
shareholder in Gestion Joseph-Eugène Bourassa Inc. until
May 1, 2002, was Joseph Bourassa. (admitted)
(d) Beginning on May
1, 2002, the shareholders of Gestion Joseph-Eugène
Bourassa Inc. were: Joseph Bourassa (50%), Mariette Lemelin
(17%), and Josée Bourassa (33%). (admitted)
(e) Following the
death of Joseph Bourassa on June 15, 2002, the shareholders of
the Appellant were: Gestion
Joseph-Eugène Bourassa Inc. (99%) and Mariette
Lemelin (1%). (admitted)
(f) As of
December 31, 2002, Gestion Joseph-Eugène Bourassa
Inc. and Construction St-Anselme Ltée merged pursuant to
the provisions of the Canada Business Corporations Act.
(admitted)
(g) The name of the
resulting new legal entity is Construction St-Anselme
Ltée. (admitted)
(h) The shareholders
of this new legal entity are: Mariette Lemelin (67%) and
Josée Bourassa (33%). (admitted)
(i) The worker
has been rendering services for the Appellant at the rental
business since 1999. (admitted)
(j) Joseph
Bourassa handled the construction business, and Mariette Lemelin
handled everything relating to the rental business.
(Appellant had no knowledge)
(k) Following the
death of Joseph Bourassa, the Appellant abandoned its
construction activities to focus solely on the rental business.
(admitted)
(l) During the
period at issue, the worker's duties consisted of managing the
rental business. (denied)
(m) The worker renders
services for the Payor's rental business and usually performs
administrative work from her home. (denied)
(n) The worker can
establish her own work schedule on the basis of the Payor's
needs. (denied)
(o) She usually
works from 7:30 a.m. to 5:30 p.m., from Monday to Friday, and
from 7:30 a.m. to 12:00 noon on Saturdays. (denied)
(p) In addition to
Sundays, the worker generally takes one day off during the week,
as does the other employee of the Appellant. (denied)
(q) In 2000, the
worker was remunerated at a fixed weekly amount of $400, which is
equivalent to $10 to $12 per hour. (Appellant had no
knowledge)
(r) The remuneration
paid to the worker was comparable to the remuneration paid to the
other employees of the Appellant, which ranges from $10.50 to $16
per hour. (denied)
(s) The worker's
remuneration was paid regularly through direct deposit, as was
the other employees' remuneration. (admitted)
(t) The
worker, like the other employees of the Appellant, is entitled to
two or three weeks of vacation annually. (denied)
[6] The Appellant admitted all the
assumptions of fact set out in paragraphs (a) to (i), (k), and
(s). She denied the assumptions set out in paragraphs (l)
to (p), (r), and (t), and was unaware of the information
contained in paragraphs (j) and (q).
[7] With respect to the assumptions of
fact that were denied by the Appellant, the evidence showed that
the worker managed the rental business. She placed the
orders with suppliers, and she managed the employees. She
handled the accounts and invoices, and authorized and signed
cheques. She had the authority to incur liabilities on
behalf of the Appellant, and she was authorized to hire and
dismiss employees. As a member of the Board of Directors,
the worker held the position of Secretary. She learned her
trade from her father, with whom she held a number of
discussions, in a family setting and as a member of the Board of
Directors, about the business's operations. Her mother, the
majority shareholder, still handles some duties in the business,
but she is now less involved; she is preparing to retire, and
leaves the management of the business to her daughter, whom she
replaces in case of sickness.
[8] It was determined that the worker
established her own work schedule. She takes Sundays off,
because the business is closed. She works on Saturdays,
because it is often a more difficult day. She tries to take
one more day off, when it is possible. She can, however,
adjust her schedule according to the needs of the business and
her own personal needs. Usually, she starts working at 7:30 a.m.
and ends at 5:30 p.m.
[9] At the hearing, the worker stated
that she preferred to take her vacation during the winter because
the business is much less busy during that time. She added
that when she took her vacation, she ensured that the business
could still operate. Even during her vacation, she would
communicate with the Appellant's employees to ensure that all was
going well.
[10] The Appellant hired the worker in
1999.
[11] The management position she holds with
the Appellant was previously held by an employee who committed
fraud. Mariette Lemelin, the worker's mother, stated that
they wanted to replace the undesirable worker with someone from
the family. Ms. Lemelin stated that, had the worker not
been her daughter, she would not have hired her. Ms.
Lemelin stated that she was keeping the company for her daughter,
who holds a management position and who does what she wants and
makes her decisions; the company operates smoothly.
[12] Ms. Lemelin is the majority shareholder
of the Appellant, and she has a voice in the business. She
stated that she has the authority to dismiss her daughter, and if
her daughter were to drain the Appellant's account, she would
intervene. However, the worker is authorized to sign the
bank papers and contract loans on behalf of the company.
[13] At the hearing, the worker stated that
she worked 40 hours per week, and sometimes she worked 48 hours
or more, based on her own decisions. She would establish
her own work schedule and her wages were flexible. This
contradicts the balance of the documentary evidence. She
specified that the other employees punched a time clock, but that
she did not.
[14] The Board of Directors does not hold
formal meetings. Because the worker lives with her mother,
they discuss business matters at home, the way things are done in
a family business.
[15] While her father was living, the worker
accompanied him on buying trips for the Appellant at the spring
exhibition in St-Hyacinthe. She now attends the exhibition
alone and concludes transactions and makes the purchases she
deems necessary.
[16] The worker earns $480 per week, and
this amount is paid to her through direct deposit, as is done for
the other employees. She receives the same wages regardless
of the number of hours worked. For a number of years, she
kept track of her hours, but she stopped doing so, because she
worked a substantial number of hours on a regular basis.
She has received bonuses in the past. She recalls having
received three payments of $300 in 2002. From the outset,
she has always been paid the same wages that had been established
on the basis of her needs; the amount was more than she earned
previously, and she had more freedom.
[17] The worker claimed that, with her
signing authority at the bank, she could conclude the
transactions she considered important without consulting with her
mother. However, this situation did not arise. This
statement seems to contradict her mother's statement whereby she
has a voice as the majority shareholder with the authority to
intervene, if necessary, in the decisions made by her
daughter.
[18] At the end of his investigation, the
Minister concluded that the worker's employment was insurable,
because it met the requirements of a contract of service, given
that an employer-employee relationship existed between the worker
and the Appellant. The Minister concluded that this
employment was not excluded, even though the parties had a
non-arm's length relationship in accordance with the Income
Tax Act, further to exercising his discretion under paragraph
5(3)(b) of the Employment Insurance Act.
[19] In Roxboro Excavation Inc. v.
Canada (Minister of National Revenue - M.N.R.), [1999] T.C.J.
No. 32, Tardif J. of this Court analyzed facts that are largely
similar to the ones in this case and concluded that the
employments of the co-shareholders and the workers were
insurable, despite the non-arm's length relationship that existed
between them and the employer. This decision by Tardif J.
was confirmed by the Federal Court of Appeal ([2000] F.C.J. No.
799).
[20] In Roxboro, supra, Tardif J.
stated the following:
The evidence showed that Roxboro had two main lines of business:
industrial and commercial excavation and snow removal during the
winter.
[...]
In exercising their respective responsibilities, the
Théorêt brothers had a fair degree of independence
and managed their own areas of activity quite freely. They did
not have to ask for permission when deciding when to take
vacations; they could be absent without having to give anyone an
explanation. They each received more or less the same salary,
part of which was paid through consecutive weekly cheques for the
same amount; the other part of their remuneration was paid in the
form of a bonus whose amount varied based on the financial
performance of Roxboro and/or the other companies.
[...]
The key issue in this case is basically whether there was in 1996
a relationship of subordination between the company paying the
remuneration and the interveners. In other words, did the company
have the power to control and influence the work done by the
Théorêt brothers?
In this regard, I consider it important to point out that the
courts have often said that it is not mandatory or necessary that
the power to control actually be exercised; in other words, the
fact that an employer does not exercise its right to control does
not mean that it loses that power, which is absolutely essential
to the existence of a contract of service.
The power to control or the right to influence the performance of
work is the main component of the relationship of subordination
that lies behind a genuine contract of service.
Assessing whether or not a relationship of subordination exists
is difficult when the individuals who hold authority by virtue of
their status as shareholders and/or directors are the same
individuals who are subject to a power to control or to the
exercise of authority in respect of specific work. Put
differently, it is difficult to draw a clear line when a person
is an employee and in part an employer all at the same time.
In such cases, it is essential to draw a very clear distinction
between what is done as a shareholder and/or director and what is
done as a worker or non-management employee. In the case at bar,
that distinction is especially important
[...]
I do not think that it is objectively reasonable to require a
total, absolute separation between the responsibilities that
result from shareholder status and those that result from worker
status. The wearing of both hats normally-and this is perfectly
legitimate-creates greater tolerance and flexibility in the
relations arising out of the two roles. However, combining the
two roles produces effects that are often contrary to the
requirements of a genuine contract of service.
[...]
[...] Rather, their status as shareholders explains certain
differences, which are moreover not so significant as to vitiate
those elements that are fundamental and essential to the
existence of a genuine contract of service.
Furthermore, it is fairly common to see co-shareholders who,
because of their status, discipline themselves in the interest of
the company in which they are shareholders.
[21] In rendering his decision, the Minister
relied on subsection 5(3) and paragraph 5(1)(a) of the
Act. In Wiebe Door Services Ltd. v. M.N.R.,
[1986] 3 F.C. 553, the Federal Court of Appeal listed four tests
to be used in determining whether a contract of service exists:
(a) the degree or absence of control exercised by the employer;
(b) ownership of tools; (c) chance of profit and risk of loss;
and (d) degree of integration.
Degree or absence of control exercised by the
employer
[22] In the case at bar, Mariette Lemelin is
the majority shareholder and holds 67% of the shares in the
business. In fact, she has not waived her right or
authority to control. She did not waive the rights
associated with her shares.
[23] The evidence has shown that Mariette
Lemelin remained the majority shareholder, with 67% of the
shares, during the period at issue.
[24] It was determined that the meetings of
the Board of Directors were held informally, at home, at the
residence of Ms. Lemelin, between mother and daughter, where the
important decisions were made by the two shareholders.
[25] Ms. Lemelin reiterated that she had the
authority to dismiss her daughter and that she would intervene if
her daughter, the worker, were to drain the company's bank
accounts. Control was nonetheless exercised through regular
analysis of the financial results.
[26] In Groupe Desmarais Pinsonneault
& Avard Inc. v.Canada (Minister of National Revenue -
M.N.R.), [2002] F.C.J. No. 572, Noël J. of the Federal
Court of Appeal said the following:
In concluding that there was no relationship of subordination
between the workers and the defendant, the trial judge does not
appear to have taken into account the well-settled rule that a
company has a separate legal personality from that of its
shareholders and that consequently the workers were subject to
the defendant's power of supervision.
The question the trial judge should have asked was whether the
company had the power to control the way the workers did their
work, not whether the company actually exercised such control.
The fact that the company did not exercise the control or that
the workers did not feel subject to it in doing their work did
not have the effect of removing, reducing or limiting the power
the company had to intervene through its board of directors.
We would add that the trial judge could not conclude there was no
relationship of subordination between the defendant and the
workers simply because they performed their daily duties
independently and without supervision. The control exercised by a
company over its senior employees is obviously less than that
exercised over its subordinate employees.
If the trial judge had recognized that the defendant had a
separate legal personality, as he should have done, and analyzed
the evidence in light of the applicable rules [...], he
would have had no choice but to conclude that a contract of
service existed between the defendant and the workers.
Ownership of tools
[27] The only evidence provided with respect
to ownership of tools is the Minister's, filed by the Appeals
Officer, who concluded that the all the tools were owned by the
Appellant.
Chance of profit or risk of loss
[28] As a shareholder, the worker's chance
of profit or risk of loss was limited to her interest in the
company, namely, 33% of the shares.
[29] As an employee, the worker assumed no
risk of loss and had no chance of profit. She had not
invested any money in the company or provided any personal
sureties for the Appellant's business. She received fixed
weekly wages, which were paid to her regularly through direct
deposit.
Degree of integration
[30] The work performed by the worker was
extremely important to the Appellant's business and directly
related to its activities. The evidence showed that the
worker was bound to the Appellant through a contract of
service.
[31] Because a non-arm's length relationship
existed between the worker and the Appellant, it must be
determined whether it is reasonable to conclude that a
substantially similar contract would have been concluded between
them, had this relationship not existed.
[32] The worker worked and performed her
duties on a full-time basis, and the success of the company was a
personal concern to her, given that she was potentially the sole
heiress of the company.
[33] The worker could organize her work
schedule according to the needs of the business and her own
personal responsibilities. She worked 40 hours, and
sometimes 48 hours or more, per week. She was not subject
to the same terms and conditions of employment as the other
employees. Her schedule was flexible owing to her
management position and her status in the business.
[34] The worker received fixed wages that
were reasonable in the circumstances. At times, while her
father was living, she received an annual bonus. She took
vacation days at will, but she kept in contact with the business
to ensure that it was operating smoothly. This term and
condition of employment was specific to her status within the
business.
[35] It is the opinion of this Court that
the Minister correctly concluded that the Appellant would have
hired another worker on the same conditions, even if a non-arm's
length relationship did not exist between them.
[36] It is also the opinion of this Court
that the facts inferred or relied on by the Minister are real and
were correctly assessed, having regard to the context in which
they occurred.
[37] Consequently, this Court must determine
that the conclusion with which the Minister was satisfied still
seems reasonable.
[38] Thus, during the period at issue, the
worker was employed in an insurable employment within the meaning
of the Act, because during this period, she and the Appellant
were bound through a contract of service pursuant to paragraph
5(1)(a) of the Act. Although a non-arm's length
relationship existed between the Appellant and the worker, they
would have concluded a substantially similar contract of service
between them had this relationship not existed.
[39] The appeal is dismissed, and the
Minister's decision is confirmed.
Signed at Grand-Barachois, New Brunswick this 13th
day of April 2004.
Savoie D.J.
Certified true translation
Colette Dupuis-Beaulne
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