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Citation: 2003TCC220
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Date: 2003-04-23
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Dockets:
97-1418(UI)
97-1420(UI)
97-1421(UI)
97-1422(UI)
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BETWEEN:
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VARDY VILLA LIMITED,
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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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AND
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Docket: 96-2493(UI)
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ROY GOOBIE,
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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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AND
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Docket: 97-33(UI)
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VIOLET L. DIAMOND,
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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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AND
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Docket: 97-34(UI)
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JOSEPH DIAMOND,
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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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AND
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Docket: 97-263(UI)
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DAVID KEOUGH,
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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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REASONS FOR JUDGMENT
Cain,
D.J.T.C.C.
[1] The above Corporate Appellant (the
"Payor") and the personal Appellants (the "Workers")
appealed the determinations of the Respondent that the engagements of the
Workers by the Payor during specific periods ("the periods in question")
were not insurable employments in accordance with the Unemployment Insurance
Act (the "Act"). The Respondent in all cases notified the
Appellants in writing that the reason for his decision was that there was no
contract of service between the Payor and each respective Worker and therefore
no employer‑employee relationships.
[2] The appeals were
heard at Gander, Newfoundland/Labrador on July 13, 2000 and the Parties agreed that the appeals should
be heard at the same time, the evidence adduced to be applied to each
respective appeal as the context required and that there was no necessity of
creating more than one record.
[3] The periods in
question determined by the Respondent for each of the Workers are as follows:
1.
Roy
Goobie - August 14, 1995 to November 17, 1995.
2.
David
Keough - April 3, 1995 to June 23, 1995 and September 4, 1995 to June 21,
1996.
3.
Violet
L. Diamond - April 3, 1995 to June 23, 1995 and September 4, 1995 to
June 21,1996
4.
Joseph
Diamond - April 3, 1995 to June 23, 1995 and September 4, 1995 to June 21,
1996.
[4] The
Court notes that in describing the period in question of Worker
Roy Goobie, the Respondent did not include the period of November 20,
1995 to June 12, 1996. However the Respondent did include that period in
his Reply. For the purpose of the record the Worker admitted the fact.
[5] The
Respondent in his initial notice to the Appellants determined that the work
performed by the Workers was not insurable because there was no contract of
service between the Payor and the Workers during the respective periods in
question. In his Replies to the Appellants' Notices of Appeal, the Respondent
added, in the alternative, that the work was not insurable as it was excepted
employment within the meaning of subparagraph 3(2)(c)(i) of the Act as in
accordance with paragraph 251(1)(b) of the Income Tax
Act the Payor
and the Workers were factually not dealing with each other at arm's length.
[6] At
the conclusion of the Appellants' case, the Court decided that the Appellants
had established a prima facie case that there was in fact a contract of
service between the Payor and the Workers. The Respondent led evidence contra
and at the close of the case the Court heard oral submissions and reserved
judgment.
[7] The
Court subsequently called upon the parties to make and the parties did
subsequently file submissions as to whether the Court had jurisdiction to
decide the issue on the basis of the Respondent's alternate ground that there
was no arm's length relationship between the Payor and the Workers.
[8] The Court delivered its judgment on
February 5, 2001 and found that it had no jurisdiction to decide the issue on
the basis that the Respondent could not raise an alternate ground in his
Replies to the Appellants' Notices of Appeal without originally having
expressly determined that the employment was not insurable on that specific
basis.
[9] The Court relied on Candor Enterprises
Ltd. v. Canada (Minister of National Revenue - M.N.R.), 2000 264 N.R. 149, a decision of the Federal Court of Appeal. Although
that case was decided on a factual situation arising under subparagraph 3(2)(c)(ii)
of the Unemployment Insurance Act, this Court extended its ratio to
apply to all determinations made by the Respondent irrespective of the section
of the appropriate legislation relied upon.
[10] The Minister in Candor determined
that the employment of the Applicant was not insurable. The Federal Court of
Appeal dealt with the question of whether the Tax Court could consider a ground
of appeal that had not been considered by the Minister in his initial
determination but had only been raised in the pleadings that followed the
Applicant's Notice of Appeal filed subsequent to that determination.
[11] In its judgment, the Federal Court of
Appeal questioned the validity of characterizing the Minister's determination
under subparagraph 3(2)(c)(ii) as "discretionary" and whether
the two-step procedure suggested in these cases is necessary or helpful. It
held that the Tax Court Judge must verify whether the facts inferred or relied
on by the Minister in making his determination were real and were correctly
assessed having regard to the context in which they occurred. And after so
doing, it must decide whether the conclusion with which the Minister was
satisfied still seems reasonable. The Court stated that the Minister could not
raise subparagraph 3(2)(c)(ii) for the first time in its
pleadings because it was clear from the notice received by the Applicant of his
uninsurability that the Minister had never considered the issues raised under subparagraph
3(2)(c)(ii) in making his determination. Therefore there will
have been no determination by the Minister from which an appeal can be brought.
This Court concluded that such a process must be used in every appeal
irrespective of the section on which the Minister relied.
[12] Applying that ratio this Court concluded it
had no jurisdiction to consider the alternate ground.
[13] The Respondent appealed the judgment of
this Court to the Federal Court of Appeal and on July 17, 2002, that Honourable
Court set aside the judgment. Linden J.A. who wrote the decision of the Court
said at paragraph [3]:
In my view, the Deputy Tax Court Judge
erred in extending the reach of the Candor Enterprises decision which dealt
only with a case under subparagraph 3(2)(c)(ii), and not with any case under
subparagraph 3(2)(c)(i) of the Employment Act. [sic]
[14] The
learned Judge then went on to review the various provisions of the Act
dealing with the duties and responsibilities of a Tax Court Judge, relying on
the discretionary aspect of the Tax Court Judge's jurisdiction and the two-step
procedure peculiar to subparagraph 3(2)(c)(ii) and concluded as follows:
[10] In this case,
therefore, the Minister's determination was merely that the employment in
question was not insurable. While the reason initially given by the Minister
was that there was no contract of service (para. 3(1)(a)), there was added in
the Reply to the Notice of Appeal the alternative ground of no arm's length.
The authorities permit this, as is evidenced in Schnurer and Doucet, supra, and Candor Enterprises does not bar this
procedure, as explained above. Subject to the Candor Enterprises exception, the Tax Court
had the jurisdiction to decide any question of law necessary to determine
whether the worker's employment was insurable. It had the jurisdiction to
consider subparagraph 3(2)(c)(i), even though it was not raised until
the Reply to the Notice of Appeal was filed in the Tax Court.
[15] The
learned Judge ordered that the matter be remitted to the Chief Judge of the Tax
Court of Canada, or his delegate, to determine whether subparagraph 3(2)(c)(i)
excepts the employment in issue on the basis of the facts originally presented
and any other evidence that may, with the permission of the Deputy Tax Court
Judge, be adduced.
[16] On
February 7, 2003 the case resumed before this Court at Gander, Newfoundland at which
time counsel for the Appellants requested that they be permitted to lead
evidence as it related to the relationship that existed between the Payor and
the Workers.
[17] The
Respondent objected on the grounds that extensive evidence had been led at
trial on the relationship. The Court permitted the Appellants to lead further
evidence on that issue alone.
[18] The
Appellants called Dennis Vardy who was the controlling officer of the Payor and
David Keough. Their evidence reinforced their previous evidence that they were
not either social or close friends. Counsel for the Appellants filed with the
Court jurisprudence in support of the principle that the relationship that
existed between the employer and the Workers, or in this case the controlling
officer of the Payor, is an important factor in determining whether a
relationship was one of arm's length or not. The Court reserved judgment.
DECISION ON ISSUES
[19] The
Respondent based his determinations on the following assumptions in respect to
the Workers:
JOSEPH AND VIOLET DIAMOND
(a) the Appellant was a corporation duly
incorporated under the laws of the Province of Newfoundland
on September 21, 1987;
(b) at all relevant times the
Appellant's issued shares were owned by Dennis Vardy and his spouse, Amy Vardy;
(c) the Appellant engaged the Worker
to drive students from the Newfoundland communities of Jamestown, Portland, Brooklyn and Lethbridge to and from the Musgravetown High School and Elementary Schools;
(d) during the period in question
the Worker drove the same routes which took 1 hour in the morning and 1 hour in
the afternoon for a total of 2 hours work, 5 days a week;
(e) the Worker was paid $50 per week
from January 1, 1995 to March 31, 1995 and then $260 per week from April
30, 1995 to June 23, 1995;
(f) the Worker was paid $50 per
week from September 4, 1995 to March 29, 1996 and then $250 per week from April
1, 1996 to June 21,1996;
(g) the Worker was paid the same
weekly amount even if the bus did not operate due to inclement weather;
(h) the Worker did not perform any
additional or different duties in the periods where he was paid $260 or $250
per week than he did in the periods where he was paid $50 per week;
(i) the Worker was not supervised
when carrying out his duties;
(j) the Worker was free to
substitute his personal services with that of another driver without first
obtaining permission from the Appellant;
(k) the Worker received his full pay
even when he did not drive the school bus every day during the week;
(l) the Appellant was only interested in the
completion of the service, not in how it was done or who performed the tasks;
(m) the Worker took the school bus
home each day and was responsible for seeing that maintenance was done to the
bus as needed;
(n) there
was no contract of service between the Worker and the Appellant.
[20] In the
alternative he based his determination on the following assumptions.
(a) while performing services for the
Appellant, the Worker was in receipt of unemployment insurance benefits from
January 1, 1995 to January 28, 1995 and from September 4, 1995 to March 29,
1996;
(b) while in receipt of unemployment insurance
benefits the Worker's pay was reduced to $50 per week;
(c) the Worker's duties remained the same
whether he was paid $50 per week or $250 per week;
(d) as per the ... Schedule “A”, the Appellant
engaged other workers under schemes similar to the Worker's employment
arrangement in 1995 and 1996;
(e) the Worker's rate of pay when employed full
time was excessive;
(f) the Worker's employment with the Appellant
was an artificial arrangement designed to take advantage of the unemployment
insurance benefits system;
(g) the Worker benefited from the arrangement
by receiving unemployment insurance benefits while working for the Appellant
and receiving a weekly pay of $50 to top up his income;
(h) the Appellant benefited from this
arrangement by having its wage costs subsidized by unemployment insurance
benefits which enabled the Appellant to pay lower weekly wages to the Worker of
$50 for the same services that cost the Appellant $250 per week during the
period in question;
(i) the
Appellant was factually not dealing with the Worker at arm's length.
DAVID KEOUGH
(a) the Appellant was a corporation duly
incorporated under the laws of the Province of
Newfoundland on September 21, 1987;
(b) at all relevant times the
Appellant's issued shares were owned by Dennis Vardy and his spouse, Amy Vardy;
(c) the Appellant engaged the Worker
to drive students from the Newfoundland communities of Catalina and Little
Catalina to and from the Catalina Elementary School;
(d) during the period in question
the Worker drove the same routes which took 25 minutes in the morning, 25
minutes at lunch time and 25 minutes in the afternoon for a total of 1 hour and
15 minutes, 5 days a week;
(e) the Worker was paid $60 per week
with no vacation pay from January 1, 1995 to March 31, 1995 and then $300 per
week plus $12 vacation pay from April 2, 1995 to June 22, 1995;
(f) the Worker was paid $60 per
week with no vacation pay from September 4, 1995 to March 29, 1996 and then
$300 plus $12 vacation pay per week from April 1, 1996 to June 21, 1996;
(g) the Worker was paid the same
weekly amount even if the bus did not operate due to inclement weather;
(h) the Worker did not perform any
additional or different duties in the periods where he was paid $300 per week
than he did in the periods where he was paid $60 per week;
(i) the Worker was not supervised
when carrying out his duties;
(j) the Worker was free to
substitute his personal services with that of another driver without first
obtaining permission from the Appellant;
(k) the Worker received his full pay
even when he personally did not drive the school bus every day during the week;
(l) the Appellant was only interested in the
completion of the service, not in how it was done or who performed the tasks;
(m) the Worker took the school bus
home each day and was responsible for seeing that maintenance was done to the
bus as needed;
(n) there
was no contract of service between the Worker and the Appellant.
[21] In the
alternative he based his determination on the following assumptions.
(a) while performing services for the
Appellant, the Worker was in receipt of unemployment insurance benefits from
January 1, 1995 to January 28, 1995 and from September 4, 1995 to May 15, 1996;
(b) while in receipt of unemployment insurance benefits
the Appellant's pay was reduced to $60 per week to perform the same services;
(c) as per the ... Schedule “A”, the Appellant
engaged other workers under schemes similar to the Worker's employment
arrangement in 1995 and 1996;
(d) the Worker's rate of pay when employed full
time was excessive;
(e) the Worker's employment with the Appellant
was an artificial arrangement designed to take advantage of the unemployment
insurance benefits system;
(f) the Worker benefited from the arrangement
by receiving unemployment insurance benefits while working for the Appellant
and receiving a weekly pay of $60 to top up his income;
(g) the Appellant benefited from this
arrangement by having its wage costs subsidized by unemployment insurance
benefits which enabled the Appellant to pay lower weekly wages to the Worker of
$60 for the same services that cost the Appellant $312 per week during the
period in question;
(h) the
Appellant was factually not dealing with the Worker at arm's length.
ROY GOOBIE
(a) the Appellant was a corporation duly
incorporated under the laws of the Province of Newfoundland on September 21, 1987;
(b) at all relevant times the
Appellant's issued shares were owned by Dennis Vardy and his spouse, Amy Vardy;
(c) the Appellant engaged the Worker
to drive students from the Newfoundland communities of Jamestown, Portland, Brooklyn and Lethbridge to and from the Musgravetown High School and Elementary Schools;
(d) during the period in question
the Worker drove the same routes which took 40 minutes in the morning and 35
minutes in the afternoon for a total of 1 hour and 15 minutes work, 5 days a
week;
(e) the Worker was paid $400 per
week plus 4% vacation pay from August 14, 1995 to November 17, 1995 and then
$65 per week without vacation pay from November 20, 1995 to June 28, 1996;
(f) the Worker was paid $400 per
week plus 4% vacation pay from September 2, 1996 to October 11, 1996;
(g) the Worker was paid the same
weekly amount even if the bus did not operate due to inclement weather;
(h) the Worker did not perform any
additional or different duties in the periods where he was paid $400 per week
plus vacation pay than he did in the periods where he was paid $65 per week;
(i) the Worker was not supervised
when carrying out his duties;
(j) the Worker was free to
substitute his personal services with that of another driver without first
obtaining permission from the Appellant;
(k) the Worker received his full pay
even when he did not drive the school bus every day during the week;
(l) the Appellant was only interested in the
completion of the service, not in how it was done or who performed the tasks;
(m) the Worker took the school bus
home each day and was responsible for seeing that maintenance was done to the
bus as needed;
(n) there
was no contract of service between the Appellant and the Worker.
[22] In the
alternative he based his determination on the following assumptions.
(a) the Worker was in receipt of unemployment
insurance benefits from December 25, 1994 to August 5, 1995 and when his claim
expired he was put on the Appellant's payroll full time as of August 14,
1995 at full pay;
(b) while performing services for the
Appellant, the Worker was in receipt of unemployment insurance benefits from
November 20, 1995 to June 12, 1996;
(c) while in receipt of unemployment insurance
benefits the Appellant's pay was reduced to $65 per week to perform the same
duties;
(d) as per the ... Schedule "A", the
Appellant engaged other workers under schemes similar to the Worker's
employment arrangement in 1995 and 1996;
(e) the Worker's rate of pay when employed full
time was excessive;
(f) the Worker's employment with the Appellant
was an artificial arrangement designed to take advantage of the unemployment
insurance benefit system;
(g) the Worker benefited from the arrangement
by receiving unemployment insurance benefits while working for the Appellant
and receiving a weekly pay of $65 to top up his income;
(h) the Appellant benefited from this
arrangement by having its wage costs subsidized by unemployment insurance
benefits which enabled the Appellant to pay lower weekly wages to the Worker of
$65 for the same services that cost the Appellant $400 per week during the
period in question;
(i) the
Worker was factually not dealing with the Appellant at arm's length.
[23] Schedules
"A" mentioned in the alternative assumptions is the same for appeals
of the Payor and each of the Workers and is as follows:
Schedule "A"
Employee No. 1
On the
Payor's payroll for:
14
weeks at $50.00/week from January 1, 1995 to March 31, 1995;
12
weeks at $260.00/week from April 3, 1995 to June 23, 1995;
30
weeks at $50.00/week from September 4, 1995 to March 29, 1996; 12 weeks
at $250.00/week from April 1, 1996 to June 28, 1996;
6 weeks at $100/week from September
2, 1996 to October 11, 1996.
Employee No. 2
On the Payor's payroll
for:
13 weeks at
$50.00/week from January 1, 1995 to March 31, 1995;
12 weeks at
$250.00/week from April 3, 1995 to June 23, 1995;
30 weeks at
$50.00/week from September 4, 1995 to March 29, 1996; 12 weeks
at $250.00/week from April 1, 1996 to June 28, 1996;
6 weeks at $100/week from September 2,
1996 to October 11, 1996.
Employee No. 4
On the Payor's payroll
for:
14 weeks at
$400.00/week from August 14, 1995 to November 17, 1995;
30 weeks
at $65.00/week from November 20, 1995 to June 28, 1996;
12 weeks at $400/week from September 2,
1996 to October 11, 1996.
Employee No. 5
On the Payor's payroll
for:
13 weeks at
$60.00/week from January 1, 1995 to March 31, 1995;
12 weeks at
$300.00/week from April 3, 1995 to June 23, 1995;
30 weeks
at $60.00/week from September 4, 1995 to March 29, 1996;
12 weeks at
$300/week from April 1, 1996 to June 28, 1996;
4 weeks at
$100/week from September 2, 1996 to September 27, 1996;
2 weeks at $300/week from September 30,
1996 to October 11, 1996.
Employee No. 6
On the Payor's payroll
for:
8 weeks at
$60.00/week from January 1, 1995 to February 23, 1995;
17 weeks at
$250.00/week from February 27, 1995 to June 23, 1995;
2 weeks at
$40.00/week from September 4, 1995 to September 15, 1995;
27 weeks
at $50.00/week from September 18, 1995 to March 29, 1996;
12 weeks at
$250.00/week from April 1, 1996 to June 28, 1996;
6
weeks at $100/week from September 2, 1996 to October 11, 1996.
Employee No. 7
On the Payor's payroll
for:
12
weeks at $400.00/week from September 4 to November 24, 1995;
25 weeks
at $50.00/week from November 27, 1995 to May 26, 1996.
[24] The
Workers Joseph and Violet Diamond admitted assumptions (a), (b), (d) to (g) inclusive,
(k), and (m) first above set out under their names and assumptions (a) and (b)
of the alternative claim, but denied all other assumptions hereinabove set out.
[25] The
Worker Keough admitted assumptions (a), (b), (d) to (g) inclusive, (k), and (m)
first above set out under his name and assumptions (a) and (b) of the
alternative claim, but denied all other assumptions hereinabove set out.
[26] The
Worker Goobie admitted assumptions (a), b), (d) to (g) inclusive, (k) and (m)
first above set out under his name and assumptions (a) and (b) of the
alternative claim, but denied all other assumptions hereinabove set out.
FACTS
[27] The
Payor contracted with the Government of Newfoundland/Labrador to convey
children to schools by bus.
[28] He hired
bus drivers at various times and at various rates of pay, specified the routes
they were to follow and provided them with buses. All of the Workers were
employed during the periods in question on the same basis in that at some time
during those periods, they worked for twelve consecutive weeks as full-time
employees at a full-time wage rate. At all other times during those periods
they were in receipt of unemployment insurance benefits and continued to work
but at a rate of pay within that permitted by the Act for people working
and drawing benefits at the same time.
[29] The
rates of pay of the Workers differed. However all with the exception of Worker
Goobie were placed on full‑time employment during the months of April,
May and June of the periods in question, laid off for the summer and then
worked from September through the following April as part-time employees while
in receipt of unemployment insurance benefits. Worker Goobie was hired full
time during the period August to November because of special skills which he
possessed, was then hired part time until June while in receipt of unemployment
benefits and then presumably would have been re-hired the following August.
SUBMISSIONS
[30] The
Respondent's submissions may be summarized as follows. The Payor and the
Workers concocted a scheme by which they would be employed by the Payor as bus
drivers principally during the school year and the Payor's costs of such
employment would be subsidized by benefits received by the Workers from the
unemployment insurance fund during that term.
[31] The
Payor would hire the Workers at a salary for 12 to 14 months during the above
term. The Workers would then make application for and become entitled to
unemployment insurance benefits and then be re-employed by the Payor to perform
the same duties on an alleged part-time basis at an hourly rate, within the
permissible limits authorized by the Act, while receiving those
benefits. He submitted such a scheme was excepted employment under the Act
as it created a factual non-arm's length relationship.
[32] The
Payor and the Workers submitted and I quote:
... the Appellants were
dealing factually at arm's length. All employees testified they were given
duties to perform by their employer, Dennis Vardy, of Vardy Villa Limited and
none of the employees were in any way associated with the directing mind of the
corporation. The Appellants submit the test whether an employer/employee are
factually dealing with each other at arm's length would have to be very similar
to the test for the employer/employer have a contract of service, which we
submit is conceded by the Respondent.
[33] It is
clear the words "employer/employer" in the
second last line of the above quote should read "employer/employee" and that the
word "to" should be
inserted between the word "employer/employer" and "have" in the same line.
[34] In
addition the Appellants submitted that it was incumbent on the Respondent to
call evidence what the respondent was thinking at the time his determination
was made and should have called evidence of the investigation made by his
Department prior to formulating his determination.
DECISION
[35] All of
the Workers testified and described their duties. Based on that evidence it was
clear to me that during both their full-time and part-time work they were
employed under contracts of service. They were bus drivers and were given
routes to run and buses to drive by the Payor and were under the control of the
Payor as much as they could possibly be.
[36] They all
denied that there was any agreement between them and the Payor as submitted by
the Respondent.
[37] In
making this finding, I concluded as follows:
1.
In respect to the appeal of Vardy Villa Limited, Joseph and Violet
Diamond, their evidence demolished assumptions (i), (l) and (n), that
assumption (c) was only denied because the routes were inaccurately described.
2.
In respect to the appeal of Vardy Villa Limited and Roy Goobie, their
evidence demolished assumptions (i), (l), (m), and (n), that assumption (c) was
only denied because the routes were inaccurately described.
3.
In respect to the appeal of Vardy Villa Limited and David Keough, their
evidence demolished assumptions (i), (l), and (n), that assumption (c) was only
denied because the routes were inaccurately described.
[38] In all
of the above findings, the Payor and the Workers established a prima facie
case.
[39] During
the investigation by the Department of Human Resources and Development, a
departmental investigator, Ms. Angela Wells, interviewed the President of the
Payor, Dennis Vardy, on two occasions.
[40] The
result of interviews with Dennis Vardy were reproduced in two forms, one a
verbatim question and answer statement and the other a summary of an interview
conducted by Ms. Wells. Both were admitted in evidence without objection as
Exhibit R-2. Both statements were typed and subsequently shown to
Dennis Vardy. He was given an opportunity to read them over and he
initialed each page at the bottom. The statements were damaging to the appeals
of the Workers in that the contents ascribed to them knowledge of the scheme on
which the Respondent based his determinations.
[41] In
Exhibit R-2 questions and answers 6, 9, and 11 in the verbatim statement read
as follows:
6. How is the pay decided?
For Bus Drivers
The rate is based on what I
can get them for. It varies. I also will hire them on with full time pay for 12
weeks somewhere in the year. They would not agree to work for me, if I didn't
in some cases. The part time salary is decided on also by what they will do it
for [sic]. It sort of works out to $50 week, but varies. I try to get
the drivers for about $150 a week if they don't come on for full salary
sometime throughout the year.
9. Why are drivers being laid
off after 12 weeks in some cases when school is still ongoing?
This is because I agreed to
take them on for full pay for 12‑14 weeks somewhere in the year. I
didn't do it in the summer because it would cost me too much money as school is
out. After the 12 weeks were up they agreed to get part‑time wages again.
The hours of work didn't change.
11. Were there any negotiations
with the employees on how long you would keep them on full salary or when they
would go on full salary? Did they tell you when they needed their weeks in
order to qualify for UIC?
No, I just told them I would
take them on sometime during the year for 12-14 weeks full‑time salary. I
put them on full salary at different times because I couldn't afford to have
them on all at the same time. I wouldn't do it in summer time, and I wouldn't do
it for everyone. Some would drive the bus without this arrangement.
I didn't realize there could
be a problem with this agreement. I have been doing it for several years.
[42] Part of
Exhibit R-2 is a summary of the duties and responsibilities of the Workers that
Mr. Vardy gave to Ms. Wells. The summary was not verbatim but was compiled by
the notes Ms. Wells took during the interview. The summary was typed, shown to
Mr. Vardy and he initialed each page at the bottom and signed the last page.
The following are excerpts from that summary:
Joseph Diamond 105-879-787
Joe drove the bus a couple of
hours per day. He kept the bus at his place in Lethbridge. He said that Joe would look after buses when full time
but there was no difference in work when he was a part-time driver. Mr. Vardy
said he did not know why there were no earnings reported for the week when Mr.
Diamond was supposed to be working (June 6-10, 1994 885). He should have been
working that week and report earnings. He said that Mr. Diamond agreed to
work for $260.00 per week as full time and was then paid $50.00 per week after
as a part-time employee. There was no differences in duties for the above
period. Spring/summertime the bus was kept in Jamestown and at his house during the winter time. Mr. Vardy said
that the hours did not change either.
Mr. Vardy stated that he
could not get Mr.Diamond as a part‑time employee without taking him on as
full time for 12 weeks sometime during the year at $260.00/week.
Violet Diamond 105-987-432
Mr. Vardy stated that Violet
Diamond had the same duties when she was paid $50.00 as a part-time employee
and when she was a full-time employee and paid $260.00 week. She drove the bus
the same number of hours for these periods. The bus remained at her home in winter
time, parked in Jamestown in spring/summertime.
Mr. Vardy could not account for Mrs. Diamond not reporting earnings from
June 6-10,1994 and states that she should have been driving the bus during that
time. Her duties were bus driver only. He would not be able to get her to drive
without giving her $260.00/week full time pay for 12 weeks sometime during the
year.
Roy Goobie 103-724-142
Hired on August 7, 1995 to do
bus maintenance and work in the garage. He received 40 hours per week and $416
salary a week. He does not know why Roy was not on payroll from November 20-24, 1995 because bus runs had
to be made. Mr. Vardy feels that there was an error on the payroll and he
did complete the run that week. He would have received $65 that week and
received $65 for each week following for doing the bus run only effective
November 20, 1995.
David Keough 119-026-847
Mr. Keough was hired on
January 2, 1994 to drive buses in Catalina area. He had a 20-minute morning run
and a 25-minute afternoon run. Claimant agreed to the pay of $60.00 a week to
drive bus as long as the employer agreed to pay him $312 a week and have Mr.
Keough employed as a full-time employee for 12 weeks sometime throughout
the school year.
Mr. Vardy states that there
was no change in the hours and work duties for Mr. Keough when he works for
$60.00 a week to when he received $312.00 a week. Mr. Vardy states that
Mr. Keough did do grease jobs on local buses when employed full-time but
this was only a couple of hours work. This work did not make forty hours a
week.
[43] During
extensive cross-examination Dennis Vardy equivocated whether he made the
verbatim and summary statements, whether he understood the statements or
whether the contents thereof were consistent with what he said during the interview.
(See Transcript of cross-examination of Dennis Vardy, page 40, lines 17 to 25
inclusive and page 41 lines 1 to 16 inclusive; pages 48 and 49; page 50 lines 4
to 25 inclusive and page 51 lines 1 to 5 inclusive.)
[44] Mr.
Vardy was cross-examined in respect to the difference between his testimony on
the appeals and the answers he gave and comments he made to Ms. Wells
during the questioning and interview. In particular the Respondent zeroed in on
his answer to Question
6
and the description of the duties of the Workers that appear in the summary.
Beginning at line 7 on page 42 and continuing on page 43 of the transcript of
Dennis Vardy's cross-examination, he testified as follows:
Q. Okay.
Now, she does talk about people that aren't involved in this, but I'll get you
to look at question number 6. "How was the pay decided"? And it says,
"for bus drivers, the rate is based on what I can get them for, it varies.
I also will hire them on full-time pay for 12 weeks somewhere in the year. They
would not"
A. That's
not always true.
Q. That's
not always true?
A. No.
Q. Okay.
Now, tell me about that then. Would you have said that?
A. No, I
wouldn't have said that, no.
Q. You
wouldn't have said that?
A. No.
Q. Okay,
What's the -- you did sign the bottom of that page though, right?
A. That'
right.
Q. Did you
read that question?
A. What did
I read five or six years ago, I don't know.
Q. You don't
remember if you read that question?
A. No, I
can't remember, no.
Q. Okay. It
says, "they would not agree to work for me if I didn't, in some
cases". Is that true, that they wouldn't agree to work for you if they
wouldn't get 12 full weeks of employment at –
A. Well, I
guess there are people out there that if they know they're not going to get at
least 12 weeks work, they're not going to go to work.
[45] And
continuing the cross-examination in respect to Question 6 from line 21 of page 45
and continuing on page 46:
Q. All
right. Now, is there a reason why your answer would have been different here?
A. I don't
know, I mean, I don't -- the way it is with Angela Wells, I don't want to
tell her nothing.
HIS HONOUR:
Q. I'm
sorry, what did you say, sir?
A. The way
it is with the person that interviewed me, me and she don't get along and so, I
don't really know, you know, what -
[46] And on
Page 56, lines 6 to 23 Mr. Vardy testified as follows:
Q. All
right. And the same thing a little further on, "there was no differences
in duties for the above period". Now, they're talking about the full‑time
period and the part‑time period.
A. It's completely different.
Q. You're saying now that
they're completely –
A. Sure it is, yeah.
Q. Would you
have told Ms. Wells if there was a difference?
A. I would
have told her if it would have avoided being here today.
HIS HONOUR:
Q. I'm
sorry, what did you say, sir? You would what?
A. I
should, you know, I don't know what the -- I don't know, she's -- I don't know.
Me and she don't get along very well.
[47] Clearly
Mr. Vardy had difficulty explaining statements he made minutes before. The
answers he gave to the Court indicate that he did not wish to repeat the same
answers again.
[48] Ms.
Wells testified that the verbatim statement and the summary statement were
prepared as a result of two meetings with Mr. Vardy and that he reviewed the
statement in her presence and confirmed that it was accurate. At no time did
Mr. Vardy request that he be allowed to take the statement home to read. She
further testified that had he made such a request she would have permitted it.
(See transcript of evidence of direct examination of Ms. Angela Wells pages 1
to 7 inclusive).
[49] Mr.
Vardy protested that he should not be expected to remember things that he did 4
or 5 years ago. That was a valid complaint. However the statements were taken
in March of 1996 during the periods in question. One would imagine that his
memory and understanding would be clearer then than on the day of hearing of
the appeals. I am satisfied that the answers and the summary statement are
consistent with what he told Ms. Wells and I accept those statements as
evidence of the situation that existed at that time between the Payor and the
Workers and reject the denials of Mr. Vardy.
[50] I find
that those answers and the summary statement clearly establish the scheme that
the Respondent submitted existed during the periods in question. There is no
question in my mind that the suggested scheme existed and was in fact initiated
by the Payor.
[51] The next
question to be determined is whether the Workers were party to that scheme.
[52] The
Workers testified that when they were engaged in full employment as bus
drivers, that employment included maintaining the vehicles they were driving
and in the case of David Keough, maintaining several other buses. Other than
testifying that they maintained the buses, with the exception of Worker
Roy Goobie, no evidence was led that satisfied me that any extensive
maintenance was carried out by any of the Workers that would justify the full‑time
pay. The statements of Mr. Vardy described such maintenance in very casual
terms and downplayed the Workers' responsibility for such tasks.
[53] The
Respondent entered invoices in respect to buses that were allegedly under the
care of David Keough while he was employed and those invoices showed that the
maintenance was carried out by an independent contractor.
[54] Worker
Violet Diamond testified that her bus had a maintenance log but she was not
sure where it was or whether it was filled out. Production of logs for the
buses involved would have been useful. Her only task appears to have been
sweeping out the bus at periodic intervals.
[55] Worker
Roy Goobie was employed approximately one half month in advance of the time
that the other Workers were engaged. His evidence and the evidence of Mr. Vardy
establish that during the month of August he would work full time in the head
office shop of the Payor. From the first week in September to November 17, 1995
he would spend 50% of his time bussing and 50% at mechanical and carpentry work
at the head office. His salary is reasonable considering the work performed
while working full time and part time. After November 14, 1995 he was part time
and only made the school runs in the morning and afternoon. Between the morning
and afternoon runs he would be at home. This evidence establishes a prima
facie case and has not been demolished by any evidence led by the
Respondent. I find that the employment of Worker Roy Goobie was insurable.
[56] The
jurisprudence in respect to the principles applicable to non arm's length transactions
under the Income Tax Act were canvassed extensively in a judgment of
this Court in Parrill v.
Canada (Minister of National Revenue - M.N.R.), [1996]
T.C.J. No. 1680, Court file numbers 95-2644(UI) to 95‑2649(UI), by
Cuddihy T.C.J. which judgment
was affirmed by the Federal Court of Appeal in ([1998] F.C.J. No. 836).
[57] The learned Judge
concluded from an examination of the relevant authorities that
... parties are not
dealing at arm's length when the predominant consideration or the overall
interest or the method used amount to a process that is not typical of what
might be expected of parties that are dealing with each other at arm's length.
[58] He further stated
that
Parties will not be
dealing with each other at arm's length if there is the existence of a common
mind which directs the bargaining for both parties to a transaction or that the
parties to a transaction are acting in concert without separate interests or
that either party to a transaction did or had the power to influence or exert
control over the other and that the dealings of the parties are not consistent
with the object and spirit of the provisions of the law and they do not
demonstrate a fair participation in the ordinary operation of the economic
forces of the market place. (See Attorney General of Canada v. Rousselle et al. 124 N.R. 339.)
[59] The learned Judge
concluded that
... the existence of
a combination of one or several of these initiatives that would be inconsistent
or interfere, in due process negotiating between employer and employee and with
the object and intent of the legislation, will not survive the arm's length
test.
[60] And he said that:
The Court is also
bound to insure in analyzing all the circumstances and the accepted evidence,
that the parties are not defeating the purpose of the legislation.
[61] The issue in these
appeals is essentially one of fact. The onus rests on the Payor and the Workers
to establish on the balance of probabilities that they did deal with each other
at arm's length.
[62] The Payor testified
that he could not afford to hire the Workers on a full‑time basis and
that presumably means that he would have operated at a loss or at an
unacceptable margin of profit. However no financial information or
documentation was entered in evidence to support or justify this contention.
[63] The evidence of the
Payor and Workers Joseph Diamond, Violet Diamond and David Keough fails to
demolish any of the assumptions in respect to the alternate ground. While their
duties may have varied slightly during full time, the Court finds their
respective salaries for full time was clearly excessive when one compares the
duties performed in each category of employment.
[64] The engagement and
the structuring of the salaries in the way described is not in keeping with
what might be expected of a true arm's length relationship that should
demonstrate the real ordinary operation of the economic forces of the market
place unhindered by arrangements or transactions that are not consistent with
the object or intent of the law.
[65] With the co-operation and knowledge of these
Workers, the Payor created a scheme to use the Act to subsidize its bus
operation. As was stated by Pratte J. in Tanguay v. Canada (Unemployment
Insurance Commission), 68 N.R. 154 at 157 quoting Donaldson L.J. in Crewe
et al. v. Social Security Commissioner, [1982] 2 All E.R. 745:
In my
judgment it is crucial to reaching a decision on this appeal to remember that
this is an insurance scheme, however it may be funded, and that it is an
insurance against unemployment. It is of the essence of insurance that the
assured shall not deliberately create or increase the risk...
[66] I find
that the employment of Workers Joseph Diamond, Violet Diamond and David Keough
was not insurable as the relationship created by the contracts of service was
one of non-arm's length.
[67] In
summary the appeal of Worker Roy Goobie and the appeal of the Payor in respect
of this Worker are allowed and the determinations of the Respondent are
vacated. The remaining appeals of the Payor and the appeals of the other
Workers are dismissed and the determinations of the Respondent are confirmed.
Signed this
23rd day of April 2003.
D.J.T.C.C.
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