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Citation: 2003TCC477
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Date:20030716
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Docket: 2002-2729(EI)
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BETWEEN:
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NORTH STAR/FAIRMONT PLATING LTD.,
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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
Porter, D.J.
[1] This appeal was heard at Winnipeg,
Manitoba on the 16th of June, 2003.
[2] The Appellant has appealed from
the decision of the Minister of National Revenue (hereinafter
called the "Minister") that the employment with it of
John Santos ("Santos") and Lina Jones
("Jones") during the period January 1 to December 31,
2001 was insurable employment under the Employment Insurance
Act (the "EI Act") for the following
reason:
... John Santos and Lina Jones were employed under a contract
of service and were therefore your employees. The Minister is
satisfied that you would have entered into a substantially
similar contract of employment if you had been dealing with each
other at arm's length.
The decision in this letter is issued pursuant to subsection
93(3) of the EI Act and is based on paragraphs
5(1)(a) and 5(2)(i) thereof.
[3] The established facts reveal that
during the period in question (and for many years before) the
Appellant had carried on a business of repairing, replating and
refurbishing car bumpers. Santos and Jones are brother and
sister. Santos, through his family trust, controls 420 of the
1,120 issued common voting shares of the Appellant; Jones,
through her family trust, controls 100 of the common voting
shares of the Appellant. The remaining shares are controlled by
their father, Acacio Santos, through his family trust. Thus,
under the combined effect of section 251 of the Income
Tax Act (the "ITA") and paragraphs
5(2)(i) and 5(3)(a) of the EI Act,
their employment, Santos as general manager, and Jones as the
office manager, was automatically excluded by law from insurable
employment, subject to the exception contained in paragraph
5(3)(b) of the EI Act, whereby they are deemed to
deal with each other at arm's length if the Minister is satisfied
of the various criteria set out in that section and exercises his
discretion to allow them through the gates, so to speak. This,
the Minister has purported to do, and it is that decision which
is now in issue in this appeal.
[4] I made reference to the nature of
the situation, arising in this matter in my decision in
Crawford & Company Ltd. and M.N.R., [1999] T.C.J.
No. 850 (98 407(UI), 98-537(UI) and 98-538(UI). I adopt
what I said in that case as this is also an instance of the
Minister exercising his discretion to include employment
situations in the fold of the employment insurance scheme, when
the law would otherwise, in the natural course of events, have
excluded them.
[5] Usually, the Minister is being
asked to open the door to persons claiming benefits on the basis
that the exception should be applied. Appeals constantly come to
the Court after the Minister has refused to exercise his
discretion in their favour. In this case, however, as in the
Crawford case (above), the Minister is proactively
exercising his discretion to bring people into the fold of the
employment insurance scheme, who would not otherwise by operation
of the law, be there. Thus, as a result of the exercise of his
discretion, they are being assessed for premiums. I am of the
view that the law enables him to do that in the appropriate
circumstances, but that such is hardly consistent with the intent
of the amendments made to the Unemployment Insurance Act
in 1990 when this discretion was first introduced. In the House
of Commons, André Plourde, MP speaking on behalf of the
government of the day, at the time the amendments to the
Unemployment Insurance Act were introduced, said that Bill
C-21 had provisions to eliminate unfair restrictions on
eligibility of benefits and:
All the changes proposed in Bill C-21 have essentially been
designed to make that system more efficient and equitable and to
meet the needs of workers. (see Hansard June 7, 1989 House of
Commons Debates page 2722)
[6] Nonetheless, as a matter of strict
interpretation of the law, I am satisfied that the legal capacity
for the Minister to do this exists. It is not for the Court to
get involved in policy matters, but I do point out the
differences between the developing practice, as evidenced by
these cases, and the apparent intention of Parliament with
respect to this section, at the time it was introduced, namely to
alleviate the hardship and inequity that would be faced by
related people in genuine virtual arm's length relationships,
who would otherwise be unable to participate in the scheme. There
was never any suggestion that it was designed to provide a large
net to the Minister to go fishing and haul in those he could
catch by exercising his discretion, proactively.
[7] Furthermore, this interpretation
of the section by the Minister seems inherently unfair, in that
if this brother and sister were not related to the majority
shareholders and the Minister had decided as a matter of fact
that they were dealing with the Corporation at arm's length,
they would have the right to appeal to this Court on a de
novo basis. As it is, because they are related to the
majority shareholders, although the basic law says that they are
out of the scheme, due to the exercise of the discretion by the
Minister they are brought into it against their wishes and have
only a limited right of appeal; that is, their right to appeal is
curtailed by the deference the Court must give to the Minister in
the exercise of his discretion, in these circumstances.
[8] While that deference and the
limited appeal rights seem perfectly logical and fair when people
who are basically excluded by the law are trying to bring
themselves within the terms of an exception, and the Minister is
charged with the responsibility by Parliament to exercise his
discretion, the same cannot be said when the Minister by the
exercise of that discretion, proactively reaches out to bring
people into the scheme in order to collect premiums, when they
have no wish to be there.
[9] To be fair to the Minister, I
should add that for many years, prior to 2001, both Santos and
Jones did pay employment insurance premiums. They stopped paying
in the year 2001 and requested a refund, which has now led to
these proceedings.
The Law relating to a Review of the
Minister's Decision
[10] In the scheme established under the
EI Act, Parliament has made provision for certain
employment to be insurable, leading to the payment of
benefits upon termination, and other employment which is
"not included" and thus carrying no benefits upon
termination. Employment arrangements made between persons, who
are not dealing with each other at arm's length, are
categorized as not included. Brothers and corporations controlled
by persons related to them are deemed not to be dealing with each
other at arm's length pursuant to subsection 251(1) of
the ITA, which governs the situation. Quite clearly
the original purpose of this legislation was to safeguard
the system from having to pay out a multitude of benefits
based on artificial or fictitious employment arrangements; see
the comments of the Federal Court of Appeal in Paul v. The
Minister of National Revenue, [1986] F.C.J. No. 682,
#A-223-86 unreported, where Hugessen, J. said:
We are all prepared to assume, as invited by appellant's
counsel, that paragraph 3(2)(c) of the Unemployment Insurance
Act, 1971, ... and subsection 14(a) of the Unemployment Insurance
Regulations, ... have for at least one of their purposes the
prevention of abuse of the Unemployment Insurance
Fund through the creation of so called
"employer-employee" relationships between persons whose
relationship is, in fact, quite different. That purpose finds
obvious relevance and rational justification in the case of
spouses who are living together in a marital relationship.
But even if, as appellant would have us do, we must look
only at spouses who are legally separated and may be dealing at
arm's length with one another, the nature of their
relationship as spouses is such as, in our view, to justify
excluding from the scheme of the Act the employment of one by the
other.
...
We do not exclude the possibility that the provisions may
have other purposes, such as a social policy decision to remove
all employment within the family unit from the operation of the
Unemployment Insurance Act, 1971, as was suggested by
respondent's counsel.
[11] The harshness of this situation has
however been tempered by paragraph 5(3)(b) of the
EI Act, which provides for such employment between related
persons deemed to be at arm's length and thus in turn to be
treated as insurable employment, if it meets all the other
provisions, where the Minister is satisfied 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, that it is reasonable to
conclude that they would have entered into a substantially
similar contract if they had (in fact) been dealing with each
other at arm's length.
[12] It may be helpful to reframe my
understanding of this section. For people related to each other
the gate is closed by the statute to any claim for employment
benefits unless the Minister can be satisfied that in effect the
employment arrangement is the same as that which unrelated
persons, that is persons who are clearly at arm's length, would
have made. If it is a substantially similar contract of
employment, Parliament has deemed it to be only fair that it
should be included in the scheme. However, the Minister is the
gatekeeper. Unless he is so satisfied the gate remains closed,
the employment remains excepted and the employee is not eligible
for benefits.
[13] Subsection 93(3) of the EI
Act deals with appeals to and the determination of
questions by the Minister. It requires that:
The Minister shall decide the appeal within a reasonable
time after receiving it and shall notify the affected persons
of the decision.
[14] Thus, the Minister has no discretion
whether or not to decide the question. He is required by law to
do so. If he is not satisfied, the gate remains closed and the
employee is not eligible. If however, he is satisfied, without
more ado or any action on the part of the Minister (other than
notification of the decision) the employee becomes eligible for
benefits, provided he is otherwise qualified. It is not a
discretionary power in the sense that if the Minister is
satisfied he may then deem the employment to
be insurable. He must "determine the question" and depending on
that determination the law deems the employment to be either at
arm's length or not at arm's length. In this sense the Minister
has no discretion to exercise in the true sense of the word, for
in making his decision he must act quasi-judicially and is not
free to chose as he pleases. The various decisions of the Federal
Court of Appeal on this issue reveal that the same test applies
as to a myriad of other officials making quasi-judicial decisions
in many different fields. (See Tignish Auto Parts Inc. v.
M.N.R., 185 N.R. 73, Ferme Émile Richard et Fils
Inc. v. M.N.R., 178 N.R. 361, Attorney General of Canada
and Jencan Ltd., (1997) 215 N.R. 352 and Her Majesty the
Queen and Bayside Drive-in Ltd., (1997) 218 N.R. 150.)
[15] The function of this Court then, upon
appeal, is to review the decision of the Minister and decide
whether it was arrived at lawfully that is in accordance with the
Act and with the principles of natural justice. In the
case Her Majesty the Queen and Bayside et al.,
(supra), the Federal Court of Appeal laid out certain
matters which should be considered by this Court when hearing
these appeals. These were: (i) the Minister acted in bad faith or
for an improper purpose or motive; (ii) the Minister failed to
take into account all of the relevant circumstances as expressly
required by paragraph 3(2)(c) of the Unemployment
Insurance Act now subsection 5(3) of the EI Act;
or (iii) the Minister took into account an irrelevant factor.
[16] The Court went on to say:
It is only if the Minister made one or more of these
reviewable errors that it can be said that his discretion was
exercised in a manner contrary to law, and ... the Tax Court
judge would be justified in conducting his own assessment of
the balance of probabilities as to whether the respondents
would have entered into substantially similar contracts of
service, if they had been at arm's length.
[17] I remind myself, when reviewing this
case, that it is not for the Court to substitute its opinion of
the evidence for that of the Minister. However, if his or her
manner of arriving at the decision was unlawful in the context of
the judgments set out above, those affected parts of the stated
facts may be disregarded and I must then consider whether that
which is left affords justifiable grounds for the decision. If
those grounds, standing alone, are sufficient for the Minister to
form a decision, albeit that the Court may not agree with it, the
decision must stand. If on the other hand there is no basis left
upon which the Minister might lawfully make such a decision, from
an objective and reasonable point of view, then such decision may
be struck down and the Court can consider the evidence before it
on appeal and make its own decision.
[18] In summary then, if there are
sufficient facts before the Minister for his decision, it is his
or her determination to make and if he or she is
"not satisfied" it is not for this
Court to substitute its view of those facts and say he or she
should have been satisfied. Similarly, if he or she was satisfied
it is not for this Court to substitute its view that he or she
should not have been satisfied (an unlikely scenario in any
event). Only if the decision is reached in an improper manner and
it is unreasonable, from an objective point of view, on the basis
of the facts which were properly before the Minister, may the
Court interfere.
[19] I am fortified in this approach by a
number of decisions of various Courts of Appeal across the
country and the Supreme Court of Canada in related decisions
concerning the issue of various processes under the Criminal
Code, which subsequently came to be reviewed by the Courts and
are in my view analogous to the present situation. The standard
of review of the validity of a search warrant was set out by
Cory, J.A. (as he then was) in Times Square Book Store, Re
(1985) 21 C.C.C. (3d) 503 (C.A.), where he said that it was
not the role of the reviewing judge to look at or consider the
authorization of a search warrant de novo and it was not
open to the reviewing judge to substitute his or her own opinion
for that of the issuing judge. Rather, on review, the first issue
to be decided was whether or not there was evidence upon which a
justice of the peace, acting judicially, could determine that a
search warrant should be issued.
[20] The Ontario Court of Appeal reiterated
and expanded upon this point of view in R. v. Church of
Scientology of Toronto and Zaharia (1987) 31 C.C.C. (3d) 449
C.A. leave to appeal refused. In suggesting that the reviewing
Court look at the "totality of the circumstances" the
Court said at 492:
Obviously if there is not such evidence to provide a basis
for such a belief (that a criminal offence had been committed)
it cannot be said that in those circumstances the justice
should be satisfied. There will, however, be cases where such
evidence (showing reasonable grounds) does exist and the
justice could be satisfied but where he or she is not satisfied
and does not exercise his or her discretion in favour of
issuing a search warrant. In these circumstances, the reviewing
judge must not say that the justice should have been satisfied
and should have issued the warrant. Similarly, if the justice
in such circumstances says that he or she is satisfied and
issues the warrant, the reviewing judge must not say that the
justice should not have been so satisfied.
[21] The Supreme Court of Canada endorsed
this approach in R. v. Garofoli, [1990] 2 S.C.R. 1421. The
late Mr. Justice Sopinka, when dealing with the review of the
issue of an authorization to wiretap, then said:
...While a judge exercising this relatively new power need
not comply with the Wilson criteria, he should not
review the authorization de novo. The correct approach
is set out in the reasons of Martin J.A. in this appeal. He
states...
If the trial judge concludes that, on the material before
the authorizing judge, there was no basis upon which he could
be satisfied that the pre-conditions for the granting of
the authorization exist, then, it seems to me that the trial
judge is required to find that the search or seizure
contravened s. 8 of the Charter.
The reviewing judge does not substitute his or
her view for that of the authorizing judge. If, based on the
record which was before the authorizing judge as amplified on
the review, the reviewing judge concludes that the authorizing
judge could have granted the authorization, then he or she
should not interfere. In this process, the existence of fraud,
non-disclosure, misleading evidence and new evidence are all
relevant, but, rather than being a prerequisite to review,
their sole impact is to determine whether there continues to be
any basis for the decision of the authorizing judge.
[22] This approach appears to have been
adopted by almost every appellate court in the country. (See
R. v. Jackson (1983) 9 C.C.C. (3d) 125 (B.C. C.A.);
R. v. Conrad et al. (1989) 99 A.R. 197; 79 Alta.
L.R.; (2d) 307; 51 C.C.C. (3d) 311 (C.A.);
Hudon v. R. (1989) 74 Sask. R. 204 (C.A.); and
R. v. Turcotte (1988) 60 Sask. R. 289; 39
C.C.C. (3d) 193 (C.A.); R. v. Borowski (1990) 66 Man. R.
(2d) 49; 57 C.C.C. (3d) 87 (C.A.); Bâtiments Fafard Inc.
et autres c. Canada et autres (1991) 41 Q.A.C. 254 (C.A.);
Société Radio-Canada v. Nouveau-Brunswick
(Procureur général) et autres (1991) 104 N.B.R.
(2d) 1; 261 A.P.R. 1; 55 C.C.C. (3d) 133 (C.A.); R. v.
Carroll and Barker (1989) 88 N.S.R. (2d) 165;
225 A.P.R. 165; 47 C.C.C. (3d) 263 (C.A.);
R. v. MacFarlane (K.R.) (1993) 100 Nfld.
& P.E.I.R. 302; 318 A.P.R. 302; 76 C.C.C. (3d) 54
(P.E.I. C.A.). It seems to me most relevant to a review of the
Minister's determination, which is itself a quasi-judicial
decision.
Stage I - Review of the Decision of the Minister
[23] In the Reply to the Notice of Appeal
signed on his behalf, the Minister was said to have relied upon
the following assumptions of fact (I have set out the agreement
or disagreement of the Appellant in parenthesis):
(a) the Appellant is
in the business of remanufacturing bumpers; (Agreed, but there is
more to it than simply remanufacturing.)
(b) there are 1,120
issued common voting shares of the Appellant, owned as follows:
(Agreed)
Owner
Number of Shares Owned
Acacio Santos Family
Trust
600
John Santos Family
Trust
420
Lina Jones Family
Trust
100
Total
1,120
(c) Acacio Santos is the father of
John Santos and Lina Jones; (Agreed)
(d) the Appellant
and the Workers are related to each other within the meaning of
the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as
amended (the "Act"); (Agreed)
(e) the Appellant
employs approximately 90 employees; (Agreed. In 2001 there were
approximately 100 employees.)
(f) the hours
of operation of the Appellant are from 8:00 a.m. to
5:00 p.m., Monday to Friday; (Disagreed. The hours of the
various divisions of the company were quite different.)
(g) John Santos is
the President and General Manager of the Appellant, his duties of
which include: (Disagreed. These duties were only part and parcel
of all the other work undertaken by John Santos.)
(i)
overseeing the day-to-day operations of the
Appellant;
(ii)
negotiating contracts;
(iii) hiring and
firing staff;
(iv) attending to
any problems that arise; and
(v) purchasing
supplies and equipment;
(h) John Santos is
paid a yearly salary of $120,000.00, plus bonuses; (Agreed)
(i) John
Santos normally works from 6:30 a.m. to 5:00 p.m. during the
summer and from 8:30 a.m. to 6:00 p.m. during the winter,
although he is able to come and go as he pleases providing he
notifies the Appellant; (Disagreed)
(j) John
Santos is required to provide his personal service to the
Appellant; (Agreed)
(k) Lina Jones is
employed as an office manager with the Appellant, the duties of
which include: (Disagreed. These were only part of the total
duties of Lina Jones.)
(i) overseeing
the office staff;
(ii) hiring and
firing staff;
(iii) accounting;
(iv) solving problems;
(v) attending
meetings; and
(vi) performing any other
duties the Appellant requests her to do;
(l) Lina Jones
is paid a salary of $67,500.00, plus bonuses; (Agreed)
(m) Lina Jones normally
works the regular business hours of the Appellant, being from
8:00 a.m. to 5:00 p.m., Monday to Friday, although in the winter
she works about 12 to 13 hours per day when more motor vehicle
accidents take place; (Disagreed. She worked many more hours than
these.)
(n) Lina Jones was
not able to come and go from the office as she pleased;
(Disagreed)
(o) the Workers have
been employed with the Appellant since May, 1991; (Agreed. They
in fact worked for the company long before this.)
(p) the Workers have
singing authority on the bank account of the Appellant;
(Agreed)
(q) the Workers do
not get paid overtime; (Agreed)
(r) the Workers are
paid semi-monthly by cheque; (Agreed)
(s) the Workers were
always paid their salary on time; (Agreed. Sometimes Santos would
hold his paycheque if the company was short of funds.)
(t) the
Workers do not record their hours worked; (Agreed)
(u) at times, the
Workers did not work regular hours or days; (Agreed)
(v) since the
Workers were also shareholders and directors of the Appellant,
they were not supervised in the performance of their duties;
(Disagreed)
(w) the Workers were
experienced in their duties; (Agreed)
(x) the Workers
reported to a board of directors of which they were members;
(Agreed)
(y) the Workers
performed their duties at the Appellant's place of business
and at home; (Agreed)
(z) all of the tools
and equipment required by the Workers to perform their duties are
supplied by the Appellant; (Disagreed)
(aa) the Workers do not incur
any expenses in the performance of their duties; (Disagreed)
(bb) the Workers held necessary
and important positions with the Appellant; (Agreed)
(cc) the Workers would have to
be replaced if they were no longer performing their duties;
(Disagreed. They felt that their father would simply close the
company down if it was no longer being carried on as a family
business.)
(dd) the Workers were paid on
the same basis as workers employed in similar occupations;
(Disagreed)
(ee) if an emergency arose while
on holidays or a day off, the Workers could be required to return
to work; (Agreed)
(ff) the Workers, as
shareholders of the Appellant, received a share of the profits of
the Appellant; (Agreed)
(gg) the Workers were each
employed under a contract of service with the Appellant;
(Agreed)
(hh) and (ii) These are
the issues before the Court:
(hh) the Minister considered all
of the relevant facts that were available to him, including the
remuneration paid, the terms and conditions, the duration and the
nature and importance of the work performed; and
(ii) the Minister
was satisfied that it was reasonable to conclude that the
Appellant and the Workers would have entered into a substantially
similar contract of employment if they had been dealing with each
other at arm's length.
[24] Evidence was given on behalf of the
Appellant by Santos and Jones. I am perfectly satisfied that each
of them was entirely honest in giving their evidence and their
credibility is beyond doubt.
[25] Santos stated that he had started to
work in the business, operated by his father, in 1975 when he was
nineteen years old. He worked in every part of and learned all
aspects of the business, working up to be general manager as his
father stepped back from the day-to-day operations. Whilst his
main task, during the period in question, was management of the
business including sales and development of new opportunities, he
still stepped in to do whatever was needed on the operating side
when they were short-handed.
[26] The business has grown from about six
employees in the 1970's at one location, to over 100
employees working out of three locations, in Winnipeg, Saskatoon
and Regina. The Minister appeared not to know that there were
three locations running during the period in question. In
Winnipeg, they have a parts division, a rubber division and a
plating shop and thus have become quite diversified. Much of the
work takes place in different locations in Winnipeg, another fact
of which the Minister appeared to be unaware. Santos not only
oversees all of these operations and divisions, but when
necessary rolls up his sleeves and pitches in. It is not at all
clear from the assumptions that the Minister took this into
account as a relevant factor.
[27] Santos, as president and general
manager, also took care of the corporate and strategic planning
in this respect. Business was carried on in the way of many
family businesses started by a hard working, not particularly
well-educated, European immigrant. Although out of the every day
operations, the father was very much involved in the major
decisions and as major shareholder kept his eye on the books and
accounts. Meetings were held at his home in an informal way, when
the families visited, over a glass of wine. As Santos said, it
was often hard to distinguish family from business. I had the
sense that Santos and his sister Jones had always worked,
throughout their working life, for their father in the family
business, and whatever the old man said, was the way it was. He
was sometimes difficult to get along with and very strong-willed.
They had not worked anywhere else and the business was an
extension of their family. They were dedicated to it because it
was family and this manifested itself in ways which were
apparent, not only in what they did but the financial benefits
that they received. I do not find that the Minister grasped the
full tenure of this situation, which is obviously a highly
relevant fact.
[28] With respect to the financial side of
things, Santos said that he took a basic draw of $120,000.00 per
year, i.e. $10,000.00 per month, on which he paid income tax in
the usual way as an employee. There is no question that he was at
all times an employee, as well as a shareholder. His sister
Jones, who also was an employee, took her monthly draw based on
$67,500.00 per year. At the end of the year after all expenses
were paid, the balance of the profit would be divided between the
family members in accordance with their shareholdings, each
family member taking a percentage in the ratio that their
shareholding bore to the whole. Santos said he would take his as
a bonus and pay the income tax on it as an employee. He would
then deposit the net amount of it back into the company and it
would be attributed to his shareholder loan account. It is not
clear to me why he took it as a bonus/salary rather than a
dividend to shareholder, but that is what he said he did. The
point, however, is that after taxes were paid, all the money went
back into the company to keep its debts down and to enable it to
keep on expanding. There is, of course, an overlap here between
his capacity as general manager and employee of the company and
as shareholder in the corporation. However, this is what his
father had always done and what his father expected him to do,
which hardly smacks of an arm's length situation. Not many
general managers working as employees would pile all their
bonuses back into the company by way of a loan so the company, as
opposed to the employee, could profit further from that money. To
not follow his father in this way, I gather, would put his whole
situation in jeopardy. These, again, are relevant factors which
were not before the Minister and he did not take them into
account.
[29] I should add to this that from time to
time when he specifically needed extra money, e.g. to buy a car,
Santos was able to access his shareholder loan account and take
some money out. Generally speaking, though, it was left in the
company to work for the company.
[30] As a further indication of how his
personal affairs were integrated with those of the company,
Santos explained how often expenses he incurred on business trips
for the company were not reimbursed to him. On other occasions,
things like sporting tickets were purchased by the company for
promotion for clients and he would profit from these.
[31] Santos also spoke about equipment he
owned personally being used for company business, such as a lawn
mower, a high pressure spray hose and a snow blower, for which he
was never paid anything. They were just used when the company
needed them.
[32] Another indication of the
interrelationship of family and the company related to a party
held for his mother and father on their 50th wedding anniversary.
To the extent, this was a family affair, or a company affair, was
hard to say.
[33] Santos explained more of his work
involvement. In the winter, which is busier than summer on
account of there being more accidents on the road, he would start
his work day at 5:30 a.m. and work through to 6:00 p.m. and
sometimes later. He responded to alarms going off in the business
premises at night. He would take the bumpers and deliver them
himself if needed, even if that involved driving out of town.
Sometimes he worked 14 to 16 hours per day. He frequently worked
6 days per week. He said he did all of this because it was
family. It seems to me that the Minister, in his assumptions,
failed to take into account the extra time and effort Santos put
into this business because it was family, in a way that a
non-family general manager would not, at least not without extra
remuneration.
[34] Holidays were another thing in short
supply for Santos. He rarely took them, where a paid arm's length
employee would take regular holidays. Again, he explained that it
was his commitment to family, which drove him. Again, the
Minister failed to take into account this matter of vacation
time, except to the extent that if an emergency arose, Santos
would have to return from vacation (item (ee)).
[35] Another duty he took on, which Santos
considered a regular salaried general manager would not, was to
check the electroplating tank at night. This had to be done quite
regularly and he shared that responsibility with another paid
employee.
[36] Although I gleaned that it happened
infrequently, Santos described how, in the past, he had held off
depositing his pay cheque for a week to 10 days so that the
company would not exceed its line of credit and he would wait for
funds to come in. Again, infrequent as it was, this is a
significant factor and one not taken into account by the
Minister. It is further example of the interrelatedness that
existed between Santos and the Appellant in their financial
affairs.
[37] His sister ran the accounting side of
things. Lina Jones, in her evidence, also described how she had
spent her whole of working life, working for the company. She was
in charge of and managed the office. She oversaw 3 staff doing
reception, ordering and accounts payable. She herself did the
books and accounts.
[38] In 1990, she attended Red River College
to do a 2-year business course full time. Through the company,
her father arranged for her to be paid a full-time salary so that
she could afford to go to college. Ever since completing that
course, she has worked for the company. She also talked of it
being a family business. There are not many arm's length
employees who are funded full time to go to college at the
expense of the employer, and this is another factor that the
Minister failed to take into account in the working
relationship.
[39] Jones explained her working hours as
being between 7:00 a.m. and 5:00 or 6:00 p.m. on Mondays to
Fridays. Regular employees worked 5 days from 7:00 a.m. to
4:00 p.m. or 8:00 a.m. to 5:00 p.m. She also put in large amounts
of time on weekends. Whatever was needed, she did, again because
it was a family business. When the Minister said she did not
record her hours, it failed to capture the huge amount of time
she put into the business to make it work well. I had the sense
that it was almost her whole life to work in this business.
[40] She seemed to be taking one week off
per year by way of vacation. She tended not to take sick days.
Again, this is another factor that is not taken into account by
the Minister.
[41] She saw her parents on a daily basis
and much of the business was discussed with her father at his
home. Again, there was a mixing of family and business interests
which would not occur in an arm's length situation.
[42] The Minister, in assumption (n), said
Jones was not able to come and go as she pleased. Jones took
issue with that statement, saying that she was free to make her
choice in this respect as she saw fit. Sometimes she would work
from home and would not come to the office. The Minister was thus
incorrect in making this assumption.
[43] Both Santos and Jones had maintained
their annual base draw at the same amount since 1992, i.e. they
had had no increases. Jones, like Santos, ploughed all her
bonuses after tax, back into the company. Thus, in effect, they
are annually living on less money as inflation eats away at their
base salaries. It is true, of course, that their bonuses have
increased, but generally speaking, those have gone back into the
company. This again is a factor that the Minister has not taken
into consideration. Because it is a family business, they are now
working for considerably less, when one takes into account
inflation, than they were eleven years ago. Arm's length
people tend not to do this.
[44] When assessing the evidence, I find no
bad faith on the part of the Minister whatsoever.
[45] When I consider the factors which were
not considered by the Minister and which were highly relevant to
the decision he was required to make, I cannot but come to the
conclusion that if he had had them before him for consideration,
he could not, from an objective point of view, have reasonably
and lawfully arrived at the decision that he did. In particular,
I am of the view that the Minister completely failed to grasp the
total intermingling of the working lives of Santos and Jones with
the success of this company, as well as the intermingling of
their financial affairs. The company was run as their alter ego,
as if it was part and parcel of their own family. The
significance of this was unknown to the Minister and was not
considered by him. The decision is thus not sustainable in law
and I must now advance to the second stage of the appeal process
and decide whether on all the evidence, the parties had they been
at arm's length, would have entered into substantially similar
contracts of employment taking into account all of the
circumstances, including specifically those set out in paragraph
5(3)(b) of the EI Act.
Stage II - Review of the Evidence
[46] At the outset, I cannot help remarking,
upon the irony of the fact, that in this case, many of the
factors said to have been relied upon by the Minister are
precisely the same types of factors upon which he has been said
to rely upon so often in appeals where he has declined to
exercise his discretion, e.g. setting own hours of work, setting
own salaries, not keeping records of hours worked, taking time
off without having to seek permission, holding pay cheques when
the company was short of funds, to name but a few. I cannot help
but think that if the Minister had been looking through the other
end of the telescope in a situation whereby one of the siblings
had been claiming employment benefits in these circumstances he
would have quickly come to a contrary conclusion. I am not
suggesting any bad faith here, but there does seem to be
something of a double standard being established.
[47] I do not intend to set out all of the
evidence again. I have already referred to the significant facts.
It is clear in my mind, that the two siblings worked in and for
this company as if it was part of their family. Their economic
interests were inexorably bound up with those of the company.
Those interests were tied to the company and those of the company
were tied to theirs to such an extent that it could not be said
there was an independent or adverse economic interest existing
between them. In effect, Santos and Jones were the operating
minds of the company. They themselves were related and had a
common family economic interest which was indivisible from that
of the company. They worked very much under the exigencies of
their father, the majority shareholder. This is exactly the
situation contemplated by Parliament in setting up the employment
insurance scheme to exclude persons, who are operating or
controlling their own businesses, in an entrepreneurial fashion,
from participating in that scheme and being able to claim
benefits if their employment fails. I am not saying that simply
because they are unlikely to collect benefits that they should
not be participating in the scheme because that is not the law.
Clearly, however, this is exactly the type of business
arrangement that was excluded by Parliament from inclusion in the
insurance scheme.
[48] Taking into account all of the
circumstances, including in particular the extensive hours and
days put in by Santos and Jones, their opportunity to just take
leave without permission from anyone and still get paid, their
willingness to hold their pay cheques if the company was short of
funds, their total commitment to doing whatever was needed in the
company without extra recompense, I am of the firm view that
there was no independence of thought or purpose prevailing
between the company and the siblings. There was no adverse
economic interest and their stakes were inextricably woven
together. There was not the bona fide type of separate
negotiation permeating their relationship that one would expect
to find existing between those traders in the marketplace to whom
I referred at some length in the Crawford decision
(above). Their purse was very much the purse of the company and
vice versa. I am overwhelmingly of the view that the arrangements
they made between themselves and the company were not
substantially similar to those that would have been made if they
had been dealing with the company at arm's length. Accordingly, I
hold that neither of them was employed in insurable
employment.
[49] In the event, the appeal is allowed and
the decision of the Minister is vacated.
Signed at Calgary, Alberta, this 16th day of July 2003.
Porter, D.J.
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