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Citation: 2003TCC490
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Date: 20030718
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Docket: 2002-3915(EI)
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BETWEEN:
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SATNAM DHEENSHAW,
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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
HARBHAJAN DHEENSHAW,
Intervenor.
REASONS FOR JUDGMENT
Rowe, D.J.
[1] The appellant, Satnam Dheenshaw -
worker - appeals from a decision of the Minister of National
Revenue (the "Minister") - dated May 9, 2002 - wherein
it was decided his employment with Harbhajan Dheenshaw - payor or
intervenor - during the period from May 15 to November 30, 2001
was not insurable because he and the payor were not dealing with
each other at arm's length and the Minister was not satisfied
they would have entered into a substantially similar contract of
employment had they been dealing with each other at arm's
length. The decision of the Minister - issued
pursuant to subsection 93(3) of the Employment Insurance
Act (the "Act") - was based on paragraphs
5(3)(b) and 5(2)(i) of said Act.
[2] Subjit Dheenshaw - daughter of the
intervenor and sister of the
appellant - conducted the appeal on behalf of the
appellant.
[3] Subjit Dheenshaw testified she
currently lives in North Vancouver, British Columbia and is
employed as a sales agent for a pharmaceutical company. She grew
up on the property - Gobind Farms - located on the Saanich
Peninsula on Vancouver Island, B.C., near Victoria. That farm
formed part of approximately 70 acres - either owned or
leased by her father - in the course of carrying on a market farm
business as a sole proprietorship. After the appellant - her
brother - had received the ruling informing him
that his employment with the payor was considered to have been
uninsurable for purposes of the Act, Subjit Dheenshaw
stated she contacted an office of Canada Customs and Revenue
Agency (CCRA) in an effort to determine the sort of evidence
required to demonstrate to the Minister that the parties were
dealing with each other on an arm's length basis. Although
she left the farm in 1994, she continued to perform the
bookkeeping until 1999 and stated she continues to have an
intimate knowledge of certain aspects of the payor's business
including the amount of the monthly salary - $3,800 - paid by her
father to the appellant. According to the books and records
maintained by the payor - operating as Gobind
Farms - the appellant was the only salaried employee and, before
2001, had been paid on either an hourly or piecework basis.
Subjit Dheenshaw stated that from her experience on the
farm, it was usual to have as many as 30 people working during
strawberry season while other periods of the season might require
only 3 or 4 workers. Prior to arriving at the sum of
$3,800 per month as the amount of the appellant's
remuneration, Subjit Dheenshaw stated she had participated in a
discussion with her father and mother in an effort to establish a
reasonable and appropriate salary for a Farm Manager within the
context of the local farming industry. She stated that
non-salaried workers also had to wait for their wages - on
occasion - due to lack of cash flow but were always paid - in
full - after Gobind Farms sold the last crop of pumpkins. In her
experience, this was not unusual within the farming industry.
Subjit Dheenshaw stated the appellant was not involved in any of
the paperwork arising out of conduct of the business and did not
have any signing authority on the bank account nor was he
entitled to any bonus or profit sharing. During the relevant
period, the only signatories on the account were herself and her
father and currently her father is the only person named on said
account. Prior to 2001, the intervenor - as sole proprietor - had
been the manager of the farm and the appellant - who had worked
previously for Save-On Foods - was an ordinary worker. Various
products are sold to customers from a booth situated on the home
farm property and the cash received is often used for incidental
business purposes. In Subjit Dheenshaw's opinion - based on
her participation in the business affairs of the farm over many
years - her father always considered the payment of wages to
employees to have been a priority and had borrowed money in order
to meet the payroll even though he had not established a Line of
Credit specifically for the business.
[4] In cross-examination by counsel
for the respondent, Subjit Dheenshaw recounted the procedures
required to be undertaken during a growing season. In April,
machinery is repaired, supplies are ordered and thereafter
planting occurs, followed by the growing season - which involves
irrigation procedures to be undertaken - culminating in the
harvest and sale of products. While her
brother - the appellant - did not hire and fire
workers, he was responsible for interviewing part-time or casual
workers. In her view, decisions were made by her father and then
relayed to the appellant for implementation. During the
2001 harvest, the casual pickers were paid on a daily basis
by an employee of Gobind Farms assigned that task. With regard to
the monthly salary in the sum of $3,800 paid to the appellant,
Subjit Dheensaw stated she had undertaken some research and had
determined that - in view of the long hours required during the
summer - that amount was reasonable. Because the appellant was
paid a monthly salary, she did not believe there was any need to
record the appellant's working hours. However, in her
opinion, it was not unusual for the appellant to work
5-7 days per week particularly during July and August
which are always exceptionally busy months. The Record of
Employment - ROE - Exhibit R-1 - issued to the appellant on
December 7, 2001, indicated his insurable earnings were in the
sum of $21,000, representing 1,030 insurable hours. The
appellant's starting date was May 15, 2001 and the last day
of work was November 30, 2001. The insurable hours were based on
28 work-weeks at less than 40 hours per week. The amount of the
insurable earnings was based on 5.5 months of salary at the rate
of $3,800 per month. Counsel for the respondent pointed out that
the appellant had worked a total of 6.5 months and Subjit
Dheenshaw responded by stating there had been no money in the
farm account to pay him for the month of May, 2001. She agreed
she had no first-hand knowledge of payments received by the
appellant from the payor. Two sheets of photocopied cheques
- Exhibit R-2 - were shown to Subjit Dheenshaw and she
identified her writing in the body of cheques #1509, #1510 and
#1511. The memorandum line indicated the payment was for wages. A
cheque - #3083 - dated April 15, 2002 - in the sum of $1,400 -
was in payment of some portion of the appellant's wages for
the month of October, 2001. Subjit Dheenshaw stated she
thought cheque #3062 - dated March 15, 2002 - in the sum of
$2,300 - may have represented payment of the appellant's
November, 2001, wages. In her experience, it was usual for the
appellant - and other workers - to receive cash advances
from time to time which would be taken into account at a later
date when the payor issued a cheque for the full amount of
outstanding wages. Although she wrote cheques #1509, #1510 and
#1511, Subjit Dheenshaw could not explain why all of them
were dated September 14, 2001 except that she was on holidays for
3 weeks following July 1. Her recollection was that 2001 was a
difficult year for the farm - financially - but could not produce
any documentation to substantiate whether any loans had been
required in order to meet operational expenses. In 1994, when
Subjit Dheenshaw left the farm, it had been a much smaller
operation. Thereafter, she spent one week each year at Gobind
Farms and was in contact with the appellant and the payor on a
regular basis by means of a series of regular telephone
conversations.
[5] Satnam Dheenshaw stated he is a
Farm Manager residing in Brentwood Bay, British Columbia and had
worked at several jobs earlier in his career. Over the course of
many years, he became qualified to manage Gobind Farms and agreed
his duties included ordering plants and seeds, preparing for
planting, cultivation, spraying, irrigation, maintenance of farm
equipment, contacting clients to sell produce, lining up
contracts for the following year, delivering goods and managing
employees. With regard to his salary of $3,800 per month, he
stated it had not been that much at the beginning of the season
and to some extent was based on his workload and the availability
of funds. However, as the season drew to a close, his monthly
salary was $3800. Having regard to the photocopies of cancelled
cheques - Exhibit R-2 - received by him, the appellant expressed
the opinion that his rate of pay seemed to depend on the amount
of work done. He stated he was never paid any wages in cash but
recalls there was a major loss to the cabbage crop which led to a
shortage of funds and he was not able to receive his full salary,
although most other workers were paid in full. The cabbage crop -
grown over the winter months - is usually sold prior to
spring, thereby producing revenue to be used as operating capital
for the forthcoming season. He confirmed he had no signing
authority on the Gobind Farms bank account. With respect to the
delay in receiving his salary for October and November, the
appellant stated it may have been due to problems with other
crops - including pumpkins - caused by excessive moisture and
lack of sunshine. He thought the delayed payment in the form of
three cheques - each dated September 14, 2001 representing some
portions of salary accruing during May, June and August - was due
to a lack of funds during those months caused by a reduced
harvest of the strawberry crop. He had spoken to his father and
agreed to receive payment in September and was aware that - from
time to time - other employees also had to wait for payment of
wages. In the end, he and others were paid in full. Prior to
2001, he had not been responsible for management and was not
required to deal with wholesalers. In 1997 and 1998, he worked on
the farm and after leaving high school - in 1996 - held various
jobs for different entities involved in the wholesale produce
business. He stated he does not receive any share of Gobind Farm
profits nor any bonuses. Prior to 2001, he had applied for - and
received - employment insurance (EI) benefits. Currently, he
still is employed as Manager of Gobind Farms but lives with his
wife in their own residence at another location.
[6] In cross-examination by counsel
for the respondent, Satnam Dheenshaw confirmed that 2001 was the
first year during which he had been designated by his father -
the payor - to perform a specific managerial function. His father
informed him of the extent of his duties and the salary he would
receive as Manager. The appellant stated he understood other
managers earned between $50,000 and $60,000 per year particularly
since some of the larger farms operated 12 months per year.
Gobind Farms is comprised of approximately 70 acres of productive
land out of a total holding of 90 acres. The appellant was
referred to the photocopies of cancelled cheques - Exhibit R-2 -
and stated he thought his rate of monthly pay was flexible to
some extent in the sense he was not expecting to be paid the sum
of $3,800 each and every month in 2001. Currently, he receives
the same amount of salary each month in his role as Manager. He
agreed the total of the cheques received by him - in 2001 -
amounted to $9,010.28. He received 3 cheques on September 14,
2001 which he attributed to wages due in May and June whereas the
cheque dated August 5, 2001 - in the sum of $2,200 - was
applicable - probably - to July wages. Other than the cheques
comprising Exhibit R-2, the appellant stated he was not able to
demonstrate any other payment in 2001. He had requested his
father to pay the outstanding wages "as soon as
possible" and received a cheque - in the sum of $2,800 on
March 15, 2002 followed by a final cheque - dated April 15,
2002 - in the sum of $1,400. Upon being advised of the ruling
concerning his lack of insurability arising from his employment
with Gobind Farms, the appellant objected - by letter -
Exhibit R-3 - to the decision. Following his layoff on November
30, 2001, the appellant stated he assisted his mother - who lives
on the farm and is confined to a wheelchair - but he did not
perform any tasks for the benefit of Gobind Farms on any
volunteer basis. His own residence is about a 10-minute drive
from the farm.
[7] Subjit Dheenshaw, agent for the
appellant submitted there must have been other cheques paid to
the appellant but are not currently available for production in
Court. In her view of the evidence, the appellant provided
managerial services and was compensated at a reasonable rate
although the cash flow of the farm prevented him from being paid
on a timely basis.
[8] Counsel for the respondent
submitted the decision of the Minister was correct and did not
require any intervention by the Court.
[9] The relevant provision of the
Act is paragraph 5(3)(b) which reads as
follows:
(3) For the purpose of paragraph
(2)(i),
...
(b) if the
employer is, within the meaning of that Act, related to the
employee, they are deemed to deal with each other at arm's
length if the Minister of National Revenue is satisfied that,
having regard to all the circumstances of the employment,
including the remuneration paid, the terms and conditions, the
duration and the nature and importance of the work performed, it
is reasonable to conclude that they would have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length.
[10] In the case of Adolfo Elia v.Canada
(Minister of National Revenue - M.N.R.), [1998] F.C.J. No.
316 - a decision of the Federal Court of Appeal dated
March 3, 1998, at page 2 of the certified translation
Pratte, J.A. stated:
Contrary to what the judge thought, it is not necessary, in
order for the judge to be able to exercise that power, for it to
be established that the Minister's decision was unreasonable
or made in bad faith having regard to the evidence before the
Minister. What is necessary is that the evidence presented to the
judge establish that the Minister acted in bad faith, or
capriciously or unlawfully, or based his decision on irrelevant
facts or did not have regard to relevant facts. The judge may
then substitute his decision for that of the Minister.
[11] In Légaré v. Canada
(Minister of National Revenue - M.N.R.), [1999] F.C.J. No.
878 - another decision of the Federal Court of Appeal - Marceau,
J.A. speaking for the Court stated at page 2 of the judgment:
In this matter, the Court has before it two applications for
judicial review against two judgments by a judge of the Tax Court
of Canada in related cases heard on the basis of common evidence
which raise yet again the problems of interpretation and
application of the saving provision, subparagraph
3(2)(c)(ii). I say yet again because since its passage in
1990, several decisions of the Tax Court of Canada and several
judgments of this Court have already considered what workable
meaning could be given to subparagraph 3(2)(c)(ii).
In reading the text, the problems it poses beyond its deficient
wording are immediately obvious, problems which essentially
involve the nature of the role conferred on the Minister, the
scope of the Minister's determination and, by extension, the
extent of the Tax Court of Canada's general power of review
in the context of an appeal under section 70 et seq. of the
Act.
While the applicable principles for resolving these problems have
frequently been discussed, judging by the number of disputes
raised and opinions expressed, the statement of these principles
has apparently not always been completely understood. For the
purposes of the applications before us, we wish to restate the
guidelines which can be drawn from this long line of authority,
in terms which may perhaps make our findings more meaningful.
The Act requires the Minister to make a determination based on
his own conviction drawn from a review of the file. The wording
used introduces a form of subjective element, and while this has
been called a discretionary power of the Minister, this
characterization should not obscure the fact that the exercise of
this power must clearly be completely and exclusively based on an
objective appreciation of known or inferred facts. And the
Minister's determination is subject to review. In fact, the
Act confers the power of review on the Tax Court of Canada on the
basis of what is discovered in an inquiry carried out in the
presence of all interested parties. The Court is not mandated to
make the same kind of determination as the Minister and thus
cannot purely and simply substitute its assessment for that of
the Minister: that falls under the Minister's so-called
discretionary power. However, the Court must verify whether the
facts inferred or relied on by the Minister are real and were
correctly assessed having regard to the context in which they
occurred, and after doing so, it must decide whether the
conclusion with which the Minister was "satisfied"
still seems reasonable.
[12] The Minister relied on certain
assumptions of fact prior to concluding the appellant was in
excluded employment while providing services to the payor during
the relevant period. The assumptions reproduced below are those I
consider to represent the core of the Minister's position as
set forth in subparagraphs 4(g) to 4(r), inclusive, of the Reply
to the Notice of Appeal (Reply).
g) during the
Period the Appellant worked long hours often working from 6:30
a.m. to 11:00 p.m. 6 to 7 days per week;
h) the
Appellant was in charge of writing cheques and handling paperwork
before the bookkeeper is involved;
i) the
Appellant worked approximately 100 hours per week on the farm
during the Period;
j) the
Appellant set his rate of pay;
k) the
Appellant received cheques as follows: August 5, 2001, $2,200.00;
September 14, 2001, $3,400.00; September 14, 2001, $2,160.00;
September 14, 2001, $1,250.00; March 15, 2002, $2,800.00 and
April 15, 2002, $1,400;
l) the
Appellant was not paid overtime;
m) the
Appellant's record of employment was based on a 40-hour
week;
n) the
Appellant's rate of pay was set at $3,800.00 per month as
determined by the Appellant;
o) the
Appellant helped himself to money in the cash register when he
needed money but did not record the amounts taken;
p) the
Appellant was not sure if he had received all his wages;
q) the
Appellant received two paycheques after the appeal to the
Minister was initiated and after he was interviewed by the
Appeals Officer;
r) the
Appellant provides service to Gobind outside of the period
reported on the record of employment without remuneration;
[13] The assumption at subparagraph 4(h) of
the Reply that the appellant was in charge of writing cheques and
handling paperwork is not borne out by the evidence. It is also
clear the appellant did not set his own rate of pay as stated by
the Minister at subparagraph 4(j) and - curiously - re-stated in
a slightly different manner at subparagraph 4(n). The appellant
did not refute the allegation - subparagraph 4(o) - that he
"helped himself to money in the cash register when ...
needed ... but did not record the amounts taken". The
appellant denied he had provided any service to Gobind Farms
outside the period reported on the ROE, as assumed by the
Minister as subparagraph 4(r) of said Reply.
[14] The assumptions remaining intact and
the evidence before me lead to these conclusions.
1. The appellant worked
extremely long hours - perhaps 100 hours per week - yet the ROE
was based on less than a 40-hour week.
2. The ROE stated the
appellant had been paid the sum of $21,000 during the period from
May 15, 2001 to November 30, 2001.
3. The amount proved to
have been received by the appellant from the payor during the
relevant period was $9,010.28.
4. The total remuneration
allegedly attributable to the appellant's provision of
services to the payor - in 2001- including $4,200 paid by two
cheques written in 2002 - amounts to only $13,210.28.
5. The total salary due
and payable - at the rate of $3,800 per month - for the working
period of 6.5 months would have been in the sum of $24,700.
6. The salary actually
received by the appellant - in 2001- is $15,689.72 less than the
sum used in the ROE and after the 2002 payments are included, the
shortfall is still $11,489.72.
[15] Unless certain specific conditions
apply which are not relevant to the within appeal, in order for a
worker to receive EI benefits based on a certain amount of
insurable earnings representing a certain number of insurable
hours, there must have been remuneration paid in respect of that
employment in accordance with section 10(1) of the
Regulations pursuant to the Act.
[16] Apart from the assertions of Subjit
Dheenshaw - in the course of her testimony - that she had
undertaken some research into the matter, there is no evidence
the sum of $3,800 per month is reasonable within the market
farming industry in that area of Vancouver Island. It may well be
fair considering the extensive hours needed during the summer
months and the various duties that must be performed including
supervision of employees during the busy picking seasons of
different crops. However, it is difficult to imagine that a
non-related person would work 5-7 days per week - and up to 100
hours per week - during the busy months and not be paid on a
regular basis. The appellant worked between May 15, 2001 and
September 15, 2001 - a period of 4 months - in a managerial
position and was paid a total of $9,010.28 during that period
with the first payment - in the sum of $2,200 - not being
received until August 5, 2002. Ordinarily, a Manager would expect
to receive gross pay in the sum of $15,200 in that 4-month period
based on $3,800 per month. Question: Is it reasonable to expect
that a stranger, after not being paid for nearly 3 months, and
being owed more than $5,000 in salary at the end of 4 months hard
work, would continue to provide services for another two and
one-half months and then wait until March and April, 2002, for
partial payment leaving a significant balance of unpaid salary
for 2001. Answer: No.
[17] The appellant was unsure of the basis
for his remuneration which had been established by his sister in
conjunction with his parents. That is a peculiar method of
negotiating a remuneration package and is not recommended for
neophytes about to assume executive positions within a
family-owned business. One can understand the appellant's
confusion because his purported salary of $3,800 per month bore
no relation to amounts actually received and the notations on the
memo line of the cheques are not linked to the specific amount of
salary actually earned. If the cheque dated September 14,
2001 - in the sum of $1,250 - was supposed to be payment for 15
days wages in May, then the appellant's salary must have been
approximately $2,500 per month. Another cheque of same date - in
the odd sum of $2,160.28 - purported to be in payment of wages
for June. Perhaps that is based on a salary of $2,500 per month
but it certainly is not based on the sum of $3,800. The final
cheque of same date - in the sum of $3,400 - appears to be for
payment of August wages. That comes closer to the mark but -
after appropriate deductions - it should be much less even taking
into account recent cuts to income tax by the federal government
and the Province of British Columbia.
[18] The ROE misrepresented the amount of
insurable earnings by a significant amount. EI benefits - had
they been paid - would have been based on that sum. At that rate,
the EI benefits may have amounted to nearly as much as the total
remuneration actually paid to the appellant during 2001. The
system is not designed to dispense benefits based on IOU's or
some other form of notional compensation in accordance with the
specific dynamics inherent in relationships between members of a
family. Instead, it requires conformity with the Act and
any relevant Regulations thereunder.
[19] Although some of the assumptions of
fact relied on by the Minister were not supported by the
evidence, in my opinion, there is ample remaining material to
justify the decision of the Minister that the parties would not
have entered into a substantially similar contract of employment
if they had been dealing with each other at arm's length. The
Minister's decision is correct having regard to the
circumstances within the context of the working relationship
between the appellant and the payor because it is based on a
proper assessment of facts either inferred or relied upon
directly. As a result, the decision is reasonable and
sustainable.
[20] The appeal is dismissed and the
decision of the Minister is hereby confirmed.
Signed at Sidney, British Columbia, this 18th day of July
2003.
Rowe, D.J.
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