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Citation: 2003TCC802
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Date: 20031118
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Docket: 2003-850(EI)
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BETWEEN:
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SERRES LACOSTE 2000 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
GABRIEL LACOSTE, DANIEL LACOSTE, LUCIE BEAUCHAMP,
Intervenors.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Savoie,
D.J.
[1] This
appeal was heard at Québec, Quebec on 31 July 2003.
[2] This
is an appeal in respect of the insurability of the employment held by
Gabriel Lacoste, the worker, while employed by the Appellant during the
period at issue, from April 15 to November 25, 2002.
[3] On February 18, 2003,
the Minister of National Revenue (the "Minister") informed the
Appellant of his decision that, during the period at issue, the worker held
insurable employment because that employment met the requirements of a contract
of service and there was an employer-employee relationship between it and the
worker. The Minister also determined that there was no dispute between him and
Daniel Lacoste or Lucie Beauchamp because, according to the
Minister's decision, those individuals did not hold insurable employment with
the Appellant, in accordance with the Appellant's claims.
[4] In making his decision, the Minister relied on
the following presumptions of fact, which were admitted or denied by the
Appellant:
[translation]
(a) the appellant was incorporated on January 4, 2001;
(admitted)
(b) the appellant
operated a greenhouse tomato and perennial production company; (admitted)
(c) the company
operated throughout the year; (admitted)
(d) from its
creation to October 24, 2002, the shareholders in the Appellant,
holding voting shares, were:
Daniel
Lacoste 50% of shares
Lucie
Beauchamp 50% of shares (admitted)
(e) as
of October 25, 2002, the shareholders in the Appellant, with
voting shares, were:
Daniel
Lacoste 40% of shares
Lucie
Beauchamp 40% of shares
the worker 20%
of shares (admitted)
(f) Daniel
Lacoste and Lucie Beauchamp are the worker's father and mother; (admitted)
(g) prior to
incorporation of the Appellant, Daniel Lacoste had run a personal business
since 1975; (denied)
(h) on
October 25, 2002, Daniel Lacoste and Lucie Beauchamp each gave 10% of
the shares in the Appellant to the worker; (denied)
(i) the
Appellant hired the worker to benefit from the $20,000 grant from the Ministère
de l'Agriculture's Relève agricole program, (denied)
(j) the worker
was trained as a programmer-analyst and had no experience in management or
operating an agricultural business; (denied)
(k) the appellant
allowed 6 months to train the worker in the intricacies of the company;
(denied)
(l) on
November 25, 2002, Daniel Lacoste stated to a representative of
the Respondent that the worker was still being coached by him or his mother;
(denied)
(m) the worker's
duties consisted of administration, purchasing, technical monitoring of tomato
production and production work; (denied)
n) the appellant
had an alternating work schedule with his father of 10 consecutive days to
ensure a 24‑hour presence in the event of greenhouse breakage, followed
by 4 days off and the following 10 days at 10 hours per day;
(admitted)
o) the worker's
father received an annual salary of $16,300; (denied)
p) the worker
rendered services for the entire year; (admitted subject to clarification)
q) the worker
lived in the family home; (admitted)
r) the worker
received an annual salary of $35,000 over 26 pay periods; (admitted)
s) the worker
had no risk of loss or chance for profit other than his salary; (denied)
t) the worker
worked at the Appellant's site; (admitted subject to clarification)
u) all equipment
used by the worker belonged to the appellant; (admitted subject to
clarification)
v) the services
rendered by the worker were an integral part of the appellant's activities.
(admitted subject to clarification)
[5] The
evidence revealed that Daniel Lacoste had operated a business since 1978
and that the Appellant was incorporated in 2001. On October 25, 2002,
Daniel Lacoste and Lucie Beauchamp each sold 10% of the shares that
they held in the corporation to the worker, making them eligible for a $15,000
start‑up grant from the Ministère de l'Agriculture. The worker also
received a $20,000 grant from the Ministère de l'Industrie et du Commerce. The
worker was trained as a programmer‑analyst and held a position as such in
Montréal. In early 2002, the worker wanted to change careers. He
approached his parents to offer his services and know‑how to the company
with a view to eventually becoming owner. The parties agreed to a six‑month
trial period.
[6] Having
grown up around his parents' business, the worker had learned some of its
operations. Very early, he learned a lot about growing tomatoes. For
accounting, he relied on his mother.
[7] The
worker claims that, like others, he is not an employee of the Appellant. The
evidence demonstrated that, as a minority shareholder with a certain
independence in carrying out his duties, he must be deemed a management
employee.
[8] By
associating himself with his parents' company, the worker provided the company
with the benefits of his knowledge, which resolved certain company problems regarding
storage, material orders and inventory.
[9] The
evidence demonstrated that, in addition to the duties recognized by the
Minister, the worker managed and supervised employees, met with agronomists and
participated in decisions as part of the company's operations.
[10] The worker feels he has access to the company's profits because of his
shareholder status and that his situation involves a risk of loss because he
guaranteed the loans.
[11] The evidence revealed that, during the period at issue, the worker was
trained by his father and mother in several aspects of the company operations,
although, in many ways, he was familiar with them, having grown up watching his
parents run it.
[12] It was demonstrated that several decisions were made by the three
parties around the table, during what Daniel Lacoste refers to as
"mini BOD meetings" (board of directors).
[13] The evidence furthermore revealed that major decisions, such as large
purchases, were made at the Board of Directors level. Daniel Lacoste also
admitted that he always kept an eye on the entire company in case there were
any major problems.
[14] Because Gabriel Lacoste, the worker, is the son of
Lucie Beauchamp and Daniel Lacoste, the three shareholders are
members of a related group that control the corporation in accordance with
subparagraph 251(2)(b)(ii) of the Income Tax Act.
[15] The Minister began his assessment of the file by examining the facts
in light of paragraph 5(2)(i) of the Employment Insurance Act
to first determine if the employment held by Gabriel Lacoste, the worker,
was excluded from insurable employment.
[16] The Minister first examined the worker's terms of employment based on
the criteria set forth in the sections indicated previously.
[17] In addition to the worker's duties indicated previously, he was in
charge of the greenhouse irrigations system, developed a computer program to
monitor employee performance per square metre, participated in tomato
production, made purchases, maintained equipment and managed the warehouse.
Since beginning with the company, he shared responsibility for controlling
greenhouse temperature with Daniel Lacoste.
[18] In terms of pay, he received an annual salary of $35,000. The Minister
determined that the salary was reasonable in light of the number of hours
worked. Furthermore, in 2002, the salaries paid to Lucie Beauchamp and
Daniel Lacoste were $16,300 each, the same as in 2001.
[19] It was determined that, since April 15, 2002,
Gabriel Lacoste worked the full year and played a full part in the
company's activities, and was necessary for the company's proper operation.
[20] Following this examination, the Minister determined that
Gabriel Lacoste's employment was not excluded from insurable employment
under paragraph 5(3)(b) of the Employment Insurance Act.
[21] It remains to be determined whether Gabriel Lacoste meets the
requirements for a contract of service. It was determined that, if
Gabriel Lacoste had not joined the company as shareholder, the Appellant
would have had to hire an agronomist or technician and offer a share of profits
in light of the low wages offered in the agricultural field.
[22] With the arrival of Gabriel Lacoste and
the government financing obtained, the company's share capital was
redistributed according to the terms indicated previously and the Appellant was
able to expand its greenhouses.
[23] The evidence revealed that, despite having learned about the company
when he was young, Gabriel Lacoste was trained in the intricacies of the
business by Lucie Beauchamp and Daniel Lacoste and is still in
training.
[24] Although he took part in decision‑making
since October 25, 2002, the worker's participation in those
decisions is limited to the 20% of shares that he holds. For their part, with
40% of voting shares each and $255,182 in preferred shares,
Lucie Beauchamp and Daniel Lacoste control the Appellant and its
future.
[25] The evidence revealed that the time and effort of Gabriel Lacoste
was thus controlled by the two main shareholders, although often from a
distance or without constraint. It was established that such control exercised,
although minimally, under the circumstances, was enough to establish a
relationship of subordination between the worker and the Appellant.
[26] In terms of opportunity for profit and risk of loss, the evidence
revealed that a payor's loans ($678,000 in 2001 plus $900,000 in 2002) were
guaranteed by property, land, equipment and personal guarantees from the three
shareholders proportional to their voting shares. As a result, the worker's
opportunity for profit and risk of loss in carrying out his duties are
attributable to the Appellant and the personal guarantee of the Appellant's
loans by each of the three shareholders in proportion to the number of shares that
they hold stems from their status as shareholders, not employees.
[27] It was determined that the worker used the Appellant's tools and
equipment and that Gabriel Lacoste's work was part of the Appellant's
business, not his own business.
[28] Because of the worker's shareholder status, the control criteria
require a specific interpretation of caselaw. In J.S.P. Inc. v. Canada
(Minister of National Revenue – M.N.R.), [1999] T.C.J. No. 423,
Tardif J. of this court, faced with a situation similar to the case at
bar, stated the following:
Contributing to and
being a partner in the management, administration or development of a business,
particularly a small business, means that a person's job description is
strongly marked by responsibilities characteristic of those often fulfilled by
actual business owners or persons holding more than 40 per cent of the
voting shares in the company employing them. In other words, in assessing
remuneration, at this level of responsibility, caution must be exercised when a
comparison is made with the salaries of third parties; often there are no
advantages that offset the lower salaries.
[29] The same principle was established by the Federal Court of Appeal in Groupe
Desmarais Pinsonneault & Avard Inc. v. Canada (Minister of National Revenue
– M.N.R.), [2002] F.C.J. No. 572, per Noël J., who stated
the following:
In concluding that
there was no relationship 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.
[30] Based on this analysis, it is thus reasonable to conclude, under the
circumstances in the case at bar, i.e., the remuneration paid, the terms of
employment and the duration, nature and importance of the work performed, that
the Appellant and the worker would have entered into a quite similar work contract
had they been dealing at arm's length.
[31] The criteria used to determine whether the worker's employment meets
the requirements of a contract of service were set forth in the following
decisions: Montreal v. Montreal Locomotive Works Ltd. (1947),
1 D.L.R. 161; Wiebe Door Services Ltd. v. M.N.R., [1986]
3 F.C. 553 (F.C.A.); Tignish Auto Parts
Inc. v. M.N.R., [1994] F.C.J. No. 1130. In the case at
bar, it is a question of control, ownership of tools, opportunity for profit,
risk of loss and integration.
[32] Having examined the facts in this case according to each criteria, I
must conclude that the worker's employment meets the requirements of a contract
of service and, as such, is insurable within the meaning of
paragraph 5(1)(a) of the Income Tax Act.
[33] For these reasons, the appeal is dismissed and
the Minister's decision confirmed.
Signed at
Grand-Barachois, New Brunswick, this 18th day of November 2003.
Savoie, D.J.
on this 26th
day of April 2004.
Gerald Woodard, Translator
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