[OFFICIAL ENGLISH TRANSLATION]
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Citation: 2004TCC543
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Date: 20040823
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Docket: 2003-4683(EI)
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BETWEEN:
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ÉQUIPEMENT DE RESTAURANT LAVAL
INC.,
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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
RÉJEAN DUPLESSIS, RAYMOND DUPLESSIS
AND
JEAN-CLAUDE DUPLESSIS,
Interveners.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre Proulx J.
[1] This appeal and these
interventions concern the decisions by the Minister of National
Revenue (the "Minister") that the Interveners, the
Workers, held insurable employment from January 1, 2002, to
March 21, 2003.
[2] The applicable statutory
provisions are paragraph 5(2)(i) and
subsection 5(3) of the Employment Insurance Act (the
"Act") and, to a certain extent,
paragraph 5(1)(a) of that Act.
[3] The point for determination is
whether the Appellant would have entered into a substantially
similar contract of employment with each of the Workers if it had
been dealing with them at arm's length.
[4] The facts on which the Minister
relied in making his decision are described in paragraphs 9
and 10 of the Reply to the Notice of Appeal, as follows:
[TRANSLATION]
9. The
Minister has determined that the Workers held employment with the
Appellant under a contract of service, relying on the following
presumptions of fact:
(a) the Appellant
manufactures professional kitchen equipment for hotels,
restaurants and institutions;
(b) the Appellant
sells its products mainly in Quebec and some in Ontario;
(c) the Appellant
employed approximately 18 persons;
(d) the
Appellant's business hours were from 7:30 a.m. to
4:30 p.m., Monday to Friday, for its administration and from
6:30 a.m. to 4:00 p.m., Monday to Thursday, and from
6:00 a.m. to 12:00 p.m. on Friday, for the plant;
(e) each of the
Workers was authorized to sign the cheques on behalf of the
Appellant; two signatures were required;
(f) the
Workers were entitled to one week's vacation a year and were
remunerated in case of illness;
(g) the Workers were
not remunerated for their overtime;
(h) the Appellant
had the power to control the work of each of the Workers;
(i) the
Workers' duties were well integrated into the Appellant's
activities;
(j)
RÉJEAN DUPLESSIS performed the following
duties:
- hired and dismissed employees;
- recovered amounts owed from customers;
- created equipment models;
- took measurements on the customers'
premises;
- went to the distributors to obtain contracts;
(k) he worked in the
kitchen and on the road;
(l) the
Appellant provided him with a work space, a vehicle and a
cellular telephone;
(m) the Appellant
reimbursed him for entertainment expenses, meal and hotel
expenses, vehicle expenses and cellular telephone expenses;
(n) he received
fixed remuneration of $55,000 a year;
(o)
RAYMOND DUPLESSIS performed the following duties:
- was responsible for purchases;
- attended to receiving and shipping;
- managed the Appellant's inventory;
- made bids;
- handled parts at the counter and did the
billing;
- occasionally went to customers' premises to
take measurements and orders;
- prepared drawings for production;
(p) he worked at the
plant and occasionally on the road;
(q) he worked
between 50 and 60 hours a week;
(r) he had to submit
the bids and invoices to the Appellant;
(s) the Appellant
provided him with a work space and a cellular telephone;
(t) he
received fixed remuneration of $50,000 a year.
(u)
JEAN-CLAUDE DUPLESSIS performed the following
duties:
- prepared the bids;
- made deliveries and bank deposits;
- picked up equipment from suppliers;
(v) he generally
worked on the road;
(w) he worked between 25
and 35 hours a week;
(x) he had to submit
the delivery orders to the Appellant;
(y) the Appellant
provided him with a truck and a cellular telephone;
(z) the Appellant
reimbursed him for truck expenses, meal expenses and cellular
telephone expenses;
(aa) he received fixed
remuneration of $35,000 a year.
10. The Appellant is
related to each of the Workers within the meaning of the
Income Tax Act because:
(a) the shareholders
of the Appellant are the Workers;
(b) they each hold
one-third of the issued shares of the Appellant;
(c) the Workers are
brothers;
(d) each of the
Workers is a member of a related group that controls the
Appellant.
[5] For the Interveners and the
Appellant, their agent admitted subparagraphs 9(a) to (e),
(g), (i), (j), (l) to (p), (s), (t), (v), (w), (y) and (aa) and
paragraph 10.
[6] Subparagraph 9(f) was denied
because the Workers took the vacation days that suited them.
However, they never, or virtually never, took more than seven
consecutive vacation days.
[7] Subparagraph 9(h) was denied
because Réjean Duplessis and Raymond Duplessis
both managed the Appellant.
[8] Subparagraph 9(k) was denied
because Réjean Duplessis also worked at his home,
where he had an office. According to his testimony, he liked to
get up very early in the morning and worked at home on the
business's files before going to the office.
[9] Subparagraph 9(q) was denied
because Raymond Duplessis normally worked 60 hours a
week and many more when the needs of the business so required.
The business moved in November 2000. The preparations and
relocation took place from June 2002 to January 2003. During that
period, the two brothers Réjean and Raymond, and to a
certain extent Jean-Claude, worked twice as many hours as
usual. They did not want to cut back the business's usual
activities, and plans for the move and set-up on the new
premises also had to be made.
[10] As to subparagraph 9(u),
Jean-Claude Duplessis did not prepare the bids, but
rather did the errands. Counsel for the Respondent asked that the
word "bids" be replaced by "errands", which
was accepted.
[11] The three Interveners testified.
Réjean Duplessis is the president of the business.
The business has been in existence since 1951 and operates in the
manufacturing field. It was founded by the father of the three
brothers. The business now has 20 employees, and its
turnover is $1,900,000. Réjean Duplessis began
working for the business in 1972, at the age of 15. He explained
that he had no schedule. He usually got up around 4:00 or 5:00 in
the morning to work on the business's files. He arrived at
the office around 7:00 a.m. During the period of the move,
he could work weeks of 80 to 100 hours. Now his weeks are
between 60 and 80 hours. He says he works seven days a
week.
[12] There is no overtime for him. The
witness said, however, that the business's workers are
remunerated for hours worked and, if they work overtime, are paid
for those overtime hours.
[13] He decides on his own leave days. He
does not remember taking a full week. A few years ago, he had a
house built near the business's premises and was the general
contractor for that job. As a result, he often had to travel to
the house construction site.
[14] He stated that, at the time of the
move, each of the brothers had loaned the $50,000 to the
Appellant, which needed capital at the time to set up on the new
premises. Each of the three brothers also guaranteed a line of
credit on an equal basis. Sometimes there were bonuses or
dividends, and they were issued equally.
[15] It was he who had determined his
salary. He said that, if he had to be replaced, more than one
person would be needed because, in addition to being an
administrator, he is also the business's industrial designer.
He stated that one of the key employees, a foreman, earns $60,000
a year. That person has 27 years' experience and takes
seven weeks' vacation.
[16] Raymond Duplessis began working
for the business in 1978, when he was 16 years old. He is
now vice-president of the corporation.
[17] He confirmed that he had loaned the
business $50,000 and guaranteed the line of credit. He handles
purchases, inventory, billing and bids. The difference between
him and his brother Réjean is that Réjean hires and
dismisses staff, looks for customers, and negotiates
contracts.
[18] The witness said that he did not work a
fixed schedule either. He also stated that he had a hobby: he was
very much interested in certain cars. When he wanted to go away
to auto shows or exhibitions, he informed his brother of the
fact. He sometimes worked evenings and weekends. He also
obviously worked much more around the time of the move. A short
week was 60 hours.
[19] It was he who told Jean-Claude
what shopping or errands to do. Jean-Claude worked fewer
hours and in fact worked on call. Raymond Duplessis said
that he used his brother Jean-Claude's services as
needed. If Jean-Claude was not their brother, his position
would be abolished. It is simpler and more economical to do
business with private carriers.
[20] Jean-Claude Duplessis began
working for the business in 1959. He worked in the shop, but that
work caused him a lot of stress near the end. His brothers agreed
to reduce his hours of work and to change his duties and offered
him a position as an errand runner, which he had held for three
years.
[21] The agent of the Appellant and the
Interveners referred to the decision in Crawford and Co. Ltd.
and the Minister of National Revenue, [1999] T.C.J.
No. 850 (Q.L.), and Planchers de bois franc 2000 (Laval)
Inc. and the Minister of National Revenue, [2001] T.C.J.
No. 479 (Q.L.).
[22] In Planchers de bois franc 2000
(Laval) Inc., he cited paragraphs 20 and 23:
20 According to Maurice Lepage, the
worker's responsibilities increased over the years. Her
salary was set at $21,000 a year and she received that same
salary during both peak and slow periods. A certain
Mr. Blouin, a sales clerk, received a salary of $26,000,
even though he had fewer responsibilities than the worker.
According to Maurice Lepage, given her responsibilities, the
worker should receive $10,000 to $15,000 more per year.
[...]
23 It should be noted that Mr. Blouin enjoyed
more favourable working conditions than the worker. The worker
also worked at home in the evenings, on weekends and even during
her holidays without being remunerated.
[23] The agent of the Appellant and the
Interveners argued that, in the instant case, the foreman
similarly enjoyed more advantageous conditions than those of the
Interveners.
[24] Counsel for the Respondent referred to
the decision by this Court in Roxboro Excavation Inc. v.
The Minister of National Revenue, [1999] T.C.J. No. 32
(Q.L.), and that of the Court of Appeal in the same case, [2000]
F.C.J. No. 799 (Q.L.), as well as the decisions in Groupe
Desmarais Pinsonneault & Avard Inc. v. The Minister of
National Revenue, [2002] F.C.J. No. 572 (Q.L.), Acier
Inoxydable Fafard Inc. v. The Minister of National
Revenue, [2002] F.C.J. No. 794 (Q.L.), Quigley
Electric Ltd. v. The Minister of National
Revenue, [2003] F.C.J. No. 1789 (Q.L.), and
Industries J.S.P. Inc. v. The Minister of National
Revenue, [1999] T.C.J. No. 423 (Q.L.).
Analysis and Conclusion
[25] First I will consider the decisions to
which counsel for the Respondent referred. This Court's
decision in Roxboro Excavation Inc. and that of the
Federal Court of Appeal were made under
paragraph 5(1)(a) of the Act. However, here we
are concerned with an application of
paragraph 5(2)(i) and subsection 5(3) of the
Act. The decision in Quigley Electric Ltd. turned on the
fact that Mrs. Quigley could not be characterized as a
principal at Quigley Electric Ltd. She did not enjoy any
special treatment within the corporation as a result of the
personal relationship she had with the majority shareholder.
The decision of the Federal Court of Appeal in Acier
Inoxydable Fafard Inc. was rendered on the interpretation
that should be given to paragraph 5(2)(b) of the
Act.
[26] Paragraphs 5(1)(a) and
5(2)(i) and subsection 5(3) of the Act read as
follows:
5.(1) Subject to subsection (2), insurable employment
is
(a) employment in Canada by one or more employers,
under any express or implied contract of service or
apprenticeship, written or oral, whether the earnings of the
employed person are received from the employer or some other
person and whether the earnings are calculated by time or by the
piece, or partly by time and partly by the piece, or
otherwise;
[...]
(2) Insurable
employment does not include
[...]
(i) employment if the employer and employee are
not dealing with each other at arm's length.
(3) For the purposes
of paragraph (2)(i),
(a) the question of whether persons are not
dealing with each other at arm's length shall be determined
in accordance with the Income Tax Act;
(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.
[27] First I refer to the decision of the
Federal Court of Appeal in Pérusse v. Canada,
[2000] F.C.J. No. 310 (Q.L.), in which, at
paragraphs 13 to 15, Marceau J.A. analyzes the
Minister's discretion under subsection 5(3) of the Act
and the role of this Court in an appeal from a decision of that
kind:
13 It is clear from
reading the reasons for the decision that, for the presiding
judge, the purpose of his hearing was to determine whether the
Minister, in the well-known expression, had exercised
"properly" the discretion conferred on him by the Act
to "recognize the non-exception" of a contract between
related persons. He therefore had to consider whether the
decision was made in good faith, based on the relevant facts
disclosed by a proper hearing, not under the influence of
extraneous considerations. Accordingly, at the outset, at
p. 2 of his reasons, the judge wrote:
The determination at issue in the instant appeal results from
the discretionary authority provided for by the provisions of
s. 3(2)(c) of the Act, which reads as follows:
The Appellant was required to discharge the burden of proof,
on the balance of probabilities, that the Respondent in assessing
the matter had not observed the rules applicable to ministerial
discretion, and if this could not be done this Court would not
have no basis for intervening.
And finally, his conclusion at p. 14:
So far as the appeal is concerned, I cannot allow it as the
Appellant has not proven that the Respondent exercised his
discretion improperly.
14 In fact, the
judge was acting in the manner apparently prescribed by several
previous decisions. However, in a recent judgment this Court
undertook to reject that approach, and I take the liberty of
citing what I then wrote in this connection in the reasons
submitted for the Court
(Francine Légaré v. M.N.R., case
No. A-392-98, and Johanne Morin v.
M.N.R., case No. A-393-98, dated
May 28, 1999, not reported, at para. 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.
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.
[28] It is therefore up to this Court to
determine whether the facts assumed by Minister are true and, if
they are true, whether they were correctly assessed in the
context in which they occurred.
[29] On the interpretation that should be
given to subsection 5(3) of the Act, I wish to refer to the
decision of the Federal Court of Appeal in
Raymonde Bérard and The Minister of National
Revenue, [1997] F.C.J. No. 88 (Q.L.), in which
Hugessen J.A. wrote as follows:
According to counsel, a teleological interpretation of this
provision requires that only those employments of which the
conditions are inordinately favourable to the employee be
excepted. We disagree. Nothing in either the provision or the
context suggests such an interpretation. 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.
[30] Contracts of employment between related
persons, which are not of the same kind as a normal contract
entered into between persons dealing with each other at arm's
length, are excluded by the Act. The abnormal nature of a
contract of employment can be as apparent in favourable
conditions for the employee as in unfavourable conditions.
[31] Counsel for the Respondent argues that
a distinction must be drawn between employee rights and
shareholder rights or between employee status and shareholder
status. I concur in that argument. However, where employees are
also shareholders who exercise, or can exercise, control over the
payer, care must taken in declaring that their employment is
similar to that of an employee who is dealing at arm's
length.
[32] It must be understood that, although a
person may act qua shareholder and qua employee, we
are nevertheless concerned with the same natural person.
Consequently, that person, as a shareholder, may decide to work a
large number of hours and to take a small salary in order to
enable the business to become profitable or to reinvest profits
in its operations. In that case, the contract of employment is
not established on the basis of economic forces of the labour
market.
[33] In this particular case, the Workers
Réjean and Raymond decided to pay themselves lower
salaries than those to which they would have been entitled based
on the number of hours worked and their experience. Being owners
of the business, they agreed to make sacrifices with respect to
amount of salary and number of hours of work in order to make
their business profitable or more profitable.
[34] Furthermore,
Jean-Claude Duplessis' salary was paid to him for
tasks the business could have done without and will do without
when Mr. Duplessis retires. This amounted to more favourable
conditions of employment for one person because that person was
not dealing with the Appellant at arm's length.
[35] With respect, I find that it was not
reasonable for the Minister to conclude that, having regard to
the remuneration paid and the terms and conditions, the Appellant
would have entered into substantially similar contracts of
employment with the Workers if they had been dealing with each
other at arm's length.
[36] For these reasons, the appeal and the
interventions are allowed and the Minister's decisions are
vacated.
Signed at Ottawa, Canada, this 23rd day of August 2004.
Lamarre Proulx J.
Certified true translation
Colette Dupuis-Beaulne
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