|
Citation:2004TCC475
|
|
Date:2004/06/29
|
|
Docket: 2002-4259(EI)
|
|
BETWEEN:
|
|
NEERALTA WELDING & SALES LTD.,
|
|
Appellant,
|
|
and
|
|
|
|
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondent;
and
Docket: 2002-4261(EI)
AND BETWEEN:
JOHN WIERENGA,
Appellant,
THE MINISTER OF NATIONAL REVENUE,
Respondent;
Docket: 2002-4260(EI)
AND BETWEEN:
ROBERT WIERENGA,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
|
REASONS FOR JUDGMENT
Woods J.
[1] These are appeals by John Wierenga, his
brother Robert Wierenga and their employer Neeralta Welding & Sales Ltd. from rulings in which the Minister of
National Revenue decided that the brothers were engaged in insurable employment
for purposes of the Employment Insurance Act during the period January,
2001 to March 22, 2002. The appeals were heard together on common evidence.
[2] The shares of Neeralta Welding are owned by
the brothers’ parents, Bert and Tena Wierenga. The corporation, based in a small town near Edmonton, Alberta, was started by Bert Wierenga, who is a
journeyman welder by trade. The
corporation does a combination of manufacturing, custom fitting and sales, all
connected in some fashion with welding. At the relevant time, the corporation
employed the father, the two
sons and three or four arm’s
length employees. The father was
the manager of the business.
John, 29 years of age, was also a journeyman welder and was involved in all
aspects of the business including marketing, supervising, welding and office
work. Robert, 23 years of age, is
not a welder and at the relevant time was in charge of the office.
[3] For purposes of determining whether a
person is engaged in insurable employment under the Employment Insurance Act,
the employment of a person who is related to the employer, as the two Wierenga
brothers were, is excluded unless the Minister is satisfied that the terms of
employment are substantially similar to arm’s length terms.
[4] These appeals arose as a result of an
application for a refund of employment insurance premiums. The Minister
concluded that the terms and conditions were substantially arm’s length and
ruled that the employment was insurable.
Statutory provisions
[5] The relevant statutory provisions are
contained in paragraphs 5(2)(i) and (3)(b) of the Employment
Insurance Act which read:
(2) Insurable employment does
not include
…
i) employment
if the employer and employee are not dealing with each other at arm's length.
(3) For the purposes of
paragraph (2)(i),
…
(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.
(emphasis added)
[6] This case was one of four appeals that I
heard in Edmonton, Alberta over a one week period. In the reasons in one of the other cases, C&B Woodcraft Ltd., I
commented generally on the scope of these provisions. I will not repeat
that discussion here.
The Minister’s determination
[7] The Minister concluded that John and Robert
Wierenga were engaged in insurable employment because the terms and conditions
of their employment were substantially similar to arm’s length terms. The facts
upon which the Minister relied are set out as assumptions of fact in the
pleadings and are attached as
an appendix to these reasons.
[8] The father and the two sons all testified at the hearing. Based on
their testimony, I conclude that the Minister did not take into account several
facts that should have had a bearing on the decision. Some of these are:
-
The Minister failed to
appreciate the number of hours that John Wierenga put into the business.
The Minister assumed that he worked 40 hours per week and attended some elk
conventions. I conclude based on the testimony that John Wierenga worked substantially more than that. He testified that he
worked about 60 hours per week. While an individual’s estimate of hours worked
might be viewed with some caution because it is not based on a written record,
I accept that John Wierenga worked close to that number of hours per week based
on the duties that he described.
-
The Minister failed to
appreciate that the brothers were not paid for all of their work. John Wierenga
was paid on an hourly basis for his time recorded. He recorded approximately 42
to 45 hours per week which was generally the time that the shop was open. There
was a substantial number of hours worked for which he was not compensated.
Robert Wierenga was also paid on an hourly basis for his recorded hours. These
hours were approximately 25 to 30 hours per week,
which corresponded to the hours that he worked in the office. Robert performed a number of miscellaneous
duties away from the office for which he did not record his time and for which
he was not paid.
-
The Minister was aware
of the hourly rates paid to the two brothers but failed to appreciate that the
wages earned by Robert Wierenga were based in part on his financial need.
Robert Wierenga has a physical disability that restricts the type of work and
hours that he can work. Because he was only being paid for his recorded hours
of 25 to 30 hours per week, his remuneration was quite low. Bert Wierenga
testified that he increased the
wages substantially in order
to help his son out.
-
The Minister
appreciated that John Wierenga assisted with some financing for the business on one occasion but assumed that this was
an isolated incident. There were two other occasions that John Wierenga
financially participated in projects that the Minister did not consider.
-
The Minister failed to
appreciate that many of Robert Wierenga’s duties probably would not be
performed by an arm’s length employee. During the relevant period Robert
performed various miscellaneous tasks such as picking up supplies and cleaning
the shop. More recently, Robert Wierenga has cut back on the work performed for Neeralta and now
only does the bookkeeping which takes about 10 hours per week. There has been
no replacement for the other duties that he had performed. Because of this, I conclude that Neeralta
Welding would not have hired an arm’s length employee to do the tasks that
Robert Wierenga was doing other
than the bookkeeping. A small
welding shop would generally not be in a position to hire someone to do
miscellaneous jobs such as
picking up supplies and cleaning.
Robert Wierenga’s terms of
employment were clearly
motivated by the father trying to help out his son.
-
The Minister
acknowledged that John Wierenga was entitled to four weeks vacation but did not
appreciate that he only took two weeks.
-
The Minister failed to
appreciate that not all the expenses incurred by the brothers in performing
their duties were reimbursed by the corporation. The brothers incurred business
related expenses for cell phones and travel to conventions. On the other hand,
all business related expenses incurred by the arm’s length employees were
reimbursed.
-
The Minister did not
appreciate that John Wierenga used the shop for an upholstery business that he
had on the side.
-
The Minister did not
appreciate that Robert Wierenga took a computer course to help the business and
was not paid for the time spent at the course.
[9] Taken together, these factors indicate that
the employment terms that the Minister considered were quite different from the
actual terms and conditions of employment for each of John and Robert
Wierenga. For this reason, I have concluded that the Minister's decision is
not supportable.
Are employment terms arm's length
[10] The arm's length test in paragraph 5(3)(b)
requires a comparison of the actual terms and conditions of employment to what
they might be if the Wierenga brothers were dealing at arm's length with
Neeralta Welding. This appeal is similar to others that I heard the same week
involving businesses managed by the fathers of the appellants where the
employment relationship was substantially affected by this relationship. It
would be surprising if this were not the case. Generally, children working in a
small family business tend to put in extra hours for which they are not paid,
they tend to be less rigorous in requesting reimbursement of employment related
expenses and they tend to blur the distinctions between ownership of equipment
by the employer and the family personally. The fathers, on the other hand, tend
to show more trust of family members and give them greater responsibilities
than they would assign to arm's length employees and involve them more in
important business decisions and financial matters. The fathers might also be
more lenient with taking time off for personal matters and the compensation
paid to the children might be affected by their personal situation.
[11] The terms and conditions of employment of
John and Robert Wierenga were certainly influenced by a number of these factors
that are not typical of arm's length employment. These factors are listed above
and it is not necessary to repeat them. For these reasons, I conclude that John
and Robert Wierenga's terms and conditions of employment are not substantially
similar to what they would be if they had been dealing at arm's length with
their employer.
Conclusion
[12] The appeals are allowed and the decision of
the Minister that John and Robert Wierenga were engaged in insurable employment
is vacated.
Signed at Ottawa, Canada, this 29th day of June 2004.
J.M.
Woods J.
APPENDIX
Assumptions of Fact
In deciding as he
did, the Minister relied on the following assumptions of fact:
(a) Bert Wierenga and Tena Wierenga each own 50%
of the voting shares of the Appellant;
(b) Bert Wierenga and Tena Wierenga are married
to one another;
(c) the Workers are the sons of Bert Wierenga and
Tena Wierenga;
(d) the Workers and the Appellant are related to
each other within the within the meaning of the Income Tax Act, R.S.C.
1985 (5th Supp.) c. 1, as amended (the "Act");
(e) the Appellant operates a welding shop;
(f) the business of the Appellant includes:
(i) manufacturing and installing gates,
panelling, squeezers and handlers for farmers in the elk industry;
(ii) manufacturing and installing dozer blades,
bitch forks and other products for farmers; and
(iii) prefabricating and installing conveyor
belts and other products for sawmills;
(g) the Appellant has been operating for about 17
years;
(h) the Appellant's business is located in Neerlandia, Alberta;
(i) the Appellant's business generally operates
from 8:00 a.m. to 5:00 p.m., Monday to Friday;
(j) Bert Wierenga is generally available to
supervise the business;
(k) Bert Wierenga, Tena Wierenga and the Workers
are all involved in the decision making of the Appellant;
(l) during the period in issue, the Appellant
employed between 6 to 7 employees, including the Workers;
(m) 2 of the employees work in the front of the
shop and look after repairs and do sawmill work;
(n) John Wierenga works in the back with the
other employees doing work related to the elk industry;
(o) Robert Wierenga performs most of the office
duties, including bookkeeping, ordering parts and supplies, answering the
telephone and other minor office duties;
(p) Robert Wierenga also cleans shop and fixes
equipment on some weekends or on days off;
(q) Robert Wierenga's authority in the business
is increasing as Bert Wierenga and Tena Wierenga decrease their involvement in
the business;
(r) Robert Wierenga started working for the
Appellant in April, 2000;
(s) Robert Wierenga convinced his parents to
install a computer for the business of the Appellant;
(t) initially, Robert Wierenga worked part-time
to get the computer system working;
(u) the job of bookkeeping became Robert Wierenga's as his
mother, Tena Wierenga, could not do the bookkeeping on the computer;
(v) although Robert Wierenga taught himself how to do the
bookkeeping on the computer, he Appellant also paid him to take a computer
course;
(w) Robert Wierenga works without supervision for he most part
since he is the only one that knows how to do the work that he does;
(x) Robert Wierenga has signing authority on the business bank
account of the Appellant and he signs the payroll cheques;
(y) Robert Wierenga was paid $9.00 per hour when he started
working for the Appellant, but he is currently being paid $12.00 per hour;
(z) Robert Wierenga is expected to be at work from 9:00 a.m. to
5:00 p.m., Monday to Friday;
(aa) Robert Wierenga also works on some Saturdays for a couple of
hours, if necessary;
(bb) Robert Wierenga currently works about 30 to 40 hours per
week;
(cc) if Robert Wierenga was not available to perform his duties,
his work would not get done;
(dd) if Robert Wierenga was away for a long period of time, the
Appellant would have to train someone else to perform his duties;
(ee) Robert Wierenga only has one leg;
(ff) although Robert Wierenga uses crutches to get around, he is
able to drive without difficulty;
(gg) Robert Wierenga is limited in his ability in that the cannot
perform hard physical labour;
(hh) as both Robert Wierenga and the Appellant needed a truck,
they each paid 1/2 of the cost of a truck that was used by both of them;
(ii) John Wierenga's duties include:
(i) being responsible for supervising, quality control and
welding in the shop. and
(ii) working in the office performing such tasks as material
ordering, sales, preparing quotes and helping out where needed;
(jj) John Wierenga started working for the Appellant when he
was 11 1/2 years sold, making $5.00 per hour;
(kk) John Wierenga is a journeyman welder;
(ll) John Wierenga is currently being paid $18.00 per hour;
(mm) John Wierenga is expected to be at work during regular shop
hours, Monday to Friday, since he supervises the shop;
(nn) John Wierenga is on call on his days off;
(oo) John Wierenga usually works about 40 hours per week;
(pp) as part of his duties, John Wierenga also attends elk
conventions on behalf of the Appellant since his duties include selling
products to the elk industry;
(qq) John Wierenga has a lot of influence over the direction and
operation of the business;
(rr) while his parents were in Holland, John Wierenga had wanted to purchase pipe costing $28,000.00;
(ss) John Wierenga discussed the decision to purchase the pipe
with his father and brother;
(tt) to finance the purchase of the pipe, John Wierenga invested
$6,000.00 of his own money, in changes for 25% of the profit that was generated
as a result of the acquisition of the pipe;
(uu) the transaction involving the purchase of pipe was a one
time occurrence;
(vv) John Wierenga took out a personal loan to purchase a truck
used in the business of the Appellant;
(ww) it is the intention of the Appellant that John Wierenga be
paid back in respect of the purchase of the truck;
(xx) the Workers both decided on the type of advertising to be
used for the business;
(yy) in addition to their regular duties, the Workers also
travelled to Edmonton to pick
up parts for the business of the Appellant;
(zz) the hours worked by the employees, including the Workers,
were recorded;
(aaa) the rate of pay received by the employees, including the
Workers was set by the Appellant;
(bbb) all of the employees of the Appellant, including the Workers,
were paid by the hour;
(ccc) the other employees of the Appellant were paid around $8.00
to $9.00 per hour to start, depending on their duties and whether they required
any training;
(ddd) the employees of the Appellant, including the Workers, receive
and advance on the 15th of each month, with the balance of their wages being
paid at the end of the month;
(eee) the Workers were always paid on time;
(fff) the highest paid employee was Charlie De Boer, who was paid
$21.00 per hour;
(ggg) all of the employees, including the Workers, were entitled to
wage increases as their duration of employment increased;
(hhh) all of the employees, including the Workers, were paid
vacation pay at increasing rates based on their length of employment;
(iii) Robert Wierenga is paid vacation pay of 4% and is entitled
to 2 weeks vacation;
(jjj) John Wierenga is paid vacation pay of 8% and is entitled
to 4 weeks vacation;
(kkk) all of the employees of the Appellant, including the Workers,
were paid overtime;
(lll) all of the employees, including the Workers, receive a
Christmas bonus;
(mmm)both Workers are not paid if they are sick and unable to work;
(nnn) both Workers receive little supervision;
(ooo) both Workers and the Appellant consider the wages
paid to the Workers to be reasonable;
(ppp) although all of the employees of the Appellant could take time
off, both Workers were given more leniency in that they did not have to give
the Appellant advanced notice;
(qqq) Robert Wierenga stated that an unrelated employee would:
(i) work from 8:00 a.m. to 5:00 p.m.;
(ii) not be expected to work after hours;
(iii) not have signing authority; and
(iv) not have the same scope of authority or responsibility;
(rrr) John Wierenga stated that an unrelated employee would:
(i) not buy a truck for use by the Appellant;
(ii) not attend an elk convention;
(iii) not have the same scope of authority or responsibility;
and
(iv) not be included in making major decisions;
(sss) the Workers were each employed under a contract of service
with the Appellant;
(ttt) the Minister considered all of the relevant facts available
to him, including the remuneration paid, the terms and conditions, the duration
and the nature and importance of the work performed; and
(uuu) the Minister was satisfied that it was reasonable to conclude
that the Workers and the Appellant would have entered into a substantially
similar contract of employment if they had been dealing with each other at
arm's length.
Email this Content