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Citation: 2004TCC410
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Date: 20040622
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Docket: 2003-3253(EI)
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BETWEEN:
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RONALD MELVIN,
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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
Angers, J.
[1] These are appeals from a decision
of the Minister of National Revenue (minister) determining
that the appellant's employment with David Boucher,
doing business under the firm name of "North East
Holdings" (payor) was not insurable employment within
the meaning of the Employment Insurance Act (EIA).
That determination was made for the periods beginning May 4
to December 31, 1998; from January 1 to
December 31, 1999; from January 1 to December 31,
2000; from January 1 to December 31, 2001; and from
January 1 to October 1, 2002, and was based on the
submission that the appellant and the payor acted in concert
during these periods to create an artificial arrangement using
employment insurance benefits to reduce the payor's wage
expense. The appellant was working while receiving these
benefits, therefore rendering his employment uninsurable for not
being within the meaning of paragraph 5(1)(a) of the
EIA. In addition, the minister submits that the appellant's
employment was excepted employment within the meaning of
paragraphs 5(2)(i) and 5(3)(a) of the EIA
because the appellant and the payor were in fact not dealing with
each other at arm's length during the periods at issue.
[2] The payor's firm name was
registered on April 1, 1998, and the appellant was employed
on May 4, 1998, as a salesman, buyer, bookkeeper and
principal employee of the store.
[3] He worked on and off for the payor
until August 10, 2002. The appellant was remunerated by the
payor when he worked during the following periods:
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May 4 to Nov. 27, 1998
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40 hrs/week at $12/hr
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May 24 to Sept. 10, 1999
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40 hrs/week at $12/hr
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June 19 to Oct. 7, 2000
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44 hrs/week at $13/hr
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April 2 to July 14, 2001
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44 hrs/week at $14/hr
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April 29 to Aug. 10, 2002
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43 hrs/week at $14/hr
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[4] At the end of each of the
above-remunerated periods, the appellant was laid off for what
the record of employment indicated to be lack of work. At the end
of all these periods, the appellant applied for and received
unemployment insurance benefits until they ran out, at which
point he was hired by the payor for another number of weeks that
allowed him to qualify for more benefits.
[5] The payor's business consisted
of a hardware and building supply store and was open for business
year-round, but its peaks were in the spring and summer
months. The appellant was familiar with that type of business
since he had owned one himself before working for the payor as an
employee. In fact, the payor admitted that the appellant's
abilities were an asset for his business, particularly in terms
of the paperwork associated with the operation of a business. In
addition, the payor had another full-time job during all the
periods in issue, managing thirty apartments that he owned and
snowplowing all of his properties and those of his family
members.
[6] As part of his duties, the
appellant had signing authority on the payor's bank account.
He would make most, if not all of the bank deposits, prepared
receipts and invoices, did the bookkeeping and had the keys
allowing him to open and close the store at any time. He also
acted as a salesperson. The issue is whether the appellant
continued to do all this work for the payor while receiving
unemployment benefits.
[7] The appellant admitted working for
the payor at reduced hours and for no remuneration while
receiving unemployment benefits. He characterized this work as
volunteer work in order to help his friend the payor. This
occurred during all the periods in issue for a number of hours
per week but most certainly for at least 30 hours a week in
2002. While receiving unemployment benefits, the appellant signed
cheques, prepared bank deposits, did the bookkeeping, prepared
receipts and invoices and occasionally, opened and closed the
store. An impressive number of documents were gathered including
correspondence, cheques, invoices, receipts, books, price
confirmations and purchase orders, all dated outside the period
the appellant was remunerated. These documents are part of the
record and some are only samples far too numerous to copy. This
leaves no doubt that the appellant was working and was at the
payor's premises while receiving unemployment benefits.
[8] The investigating officer for
Human Resources Development Canada testified that after the
appellant had applied for unemployment benefits after his layoff
on August 10, 2002, she visited the store and was greeted by
him. He informed her that the payor did not work at the store and
told her where the payor could be reached. She later phoned the
payor and was told by his wife that the payor did not work at the
store. The evidence showed that the payor's only other
employee was one son who made some deliveries and did carpentry
work, but he did not work at the store. In statements that she
obtained from both the payor and the appellant, the presence of
the appellant at the store almost, if not, all year-round
was confirmed. The payor stated: "... Le plus fort
du temps, c'est aussi lui qui est au magasin toute
l'année." He later stated: "Le fait
de ne pas payer Ronald me permettais de rester ouvert
l'hiver." As for the appellant, he said:
...
In between my RoE, all time spent was on a strictly volunteer
basis with no remuneration. I had full access to the property. I
was helping my friend.
The reason this was not reported was there was no money in
return.
I assume my time was my own to do as I so wish.
...
[9] The payor's son also confirmed
to the investigating officer that the appellant was at the store
all the time. He apparently added that the appellant's
volunteer work for the local Legion was not done at the store but
at the Legion's offices, since he would leave the store
earlier in the winter months. The point had been raised by the
appellant as a justification for being at the store in the winter
months.
[10] The burden of proof is on the appellant
to show, on a balance of probabilities, that the minister's
decision is wrong and unfounded. On this appeal, the
minister's first submission is based on the assumption that
the employment contract between the appellant and the payor is
not a genuine contract of employment, as contemplated by the EIA.
This Court has addressed this issue in some of its decisions. It
first surfaced in a decision by Mr. Justice Tardif in
Thibeault v. Canada, [1998] T.C.J. No. 690 (Q.L.),
which decision was subsequently affirmed by the Federal Court of
Appeal [2000] F.C.J. No. 2152. Justice Tardif said:
22 Genuine
employment is employment remunerated according to market
conditions, which contributes in a real and positive way to the
advancement and development of the business paying the salary in
consideration of work performed. These are basically economic
factors that leave little, if any, room for generosity or
compassion.
...
29 Of course, it is
neither illegal nor reprehensible to organize one's affairs
so as to profit from the social program that is the unemployment
insurance scheme, subject to the express condition that nothing
be misrepresented, disguised or contrived and that the payment of
benefits occur as a result of events over which the beneficiary
has no control. Where the size of the salary bears no relation to
the economic value of the services rendered, where the beginning
and end of word periods coincide with the end and the beginning
of the payment period and where the length of the work period
also coincides with the number of weeks required to requalify,
very serious doubts arise as to the legitimacy of the employment
contract. Where the coincidences are numerous and
improbable, there is a risk of giving rise to an inference that
the parties agreed to an artificial arrangement to enable them to
profit from the benefits.
[11] In Laverdière v. Canada,
[1999] T.C.J. No. 124 (Q.L.), Justice Tardif
stated:
48 Of course, a
contract of employment may be lawful and legitimate even if it
sets out all kinds of other conditions, including remuneration
much higher or lower than the value of the work performed; some
contracts may even involve work performed gratuitously. Work may
be performed on a volunteer basis. All kinds of assumptions and
scenarios can be imagined
49 Any contract of
employment that includes special terms can generally be set up
only against the contracting parties and is not binding on third
parties, including the respondent.
50 This is the case
with any agreement or arrangement whose purpose and object is to
spread out or accumulate the remuneration owed or that will be
owed so as to take advantage of the Act's provisions. There
can be no contract of service where there is any planning or
agreement that disguises or distorts the facts concerning
remuneration in order to derive the greatest possible benefit
from the Act.
51 The Act insures
only genuine contracts of service; a contract of employment under
which remuneration is not based on the period during which work
is performed cannot be defined as a genuine contract of service.
It is an agreement or arrangement that is inconsistent with the
existence of a genuine contract of service since it includes
elements foreign to the contractual reality required by the
Act.
[12] In Duplin v. Canada, [2001]
T.C.J. No. 136 (Q.L.), he noted:
18 When services are
provided or errands are run for an employer, I do not think that
this automatically means there is no contract of service, where
this is done from time to time or in special circumstances.
However, if the services or errands are recurring, frequent and
performed or run by a majority of an employer's employees,
this raises questions; even where those providing such services
or running such errands characterize what they are doing as free
and voluntary, as mutual aid volunteer work, as support or as an
expression of solidarity with their co-workers, the fact remains
that such conditions, circumstances and facts are hard to
reconcile with a genuine contract of service, under which all
work must be paid work.
...
31 The fundamental
components of a contract of service are essentially economic in
nature. The records kept, such as payroll journals and records
concerning the mode of remuneration, must be genuine and must
also correspond to reality. For example, the payroll journal must
record hours worked corresponding with the wages paid. Where a
payroll journal records hours that were not worked or fails to
record hours that were worked during the period shown, that is a
serious indication of falsification. Such is the case where pay
does not correspond with the hours worked. Both situations create
a very strong presumption that the parties have agreed on a false
scenario in order to derive various benefits therefrom, including
benefits with respect to taxes and employment insurance.
32 It is possible
for an arrangement to be more profitable for one party than the
other, but this is a secondary effect that is not relevant in
characterizing a contract of service, since as soon as a contract
of employment is shaped by false or inaccurate information, it no
longer meets the essential conditions for being characterized as
a contract of service. Thus, when the evidence shows that
the records containing the information essential to the existence
of a genuine contract of employment are false and incomplete, it
becomes essential to prove conclusively that the real facts
support the existence of a genuine contract of service.
[13] In this appeal, all the records of
employment signed by the payor, for all the periods, indicated
that the layoffs were due to a lack of work. Yet, we know for a
fact that this was not the case. On the weight of all the
evidence, there is no conclusion in this appeal other than that
the appellant never stopped doing needed work for the payor after
his layoffs. The appellant may characterize this time spent at
the payor's place of business as volunteer work, but in the
final analysis, it is work that needed to be done. In a normal
business environment, it is also work that had to be remunerated.
The records of employment do not reflect the truth since the
payor still had work that needed to be done. The payor's
activities are year-round and although business may be slow
in the winter months, the payor still needed someone, be it the
appellant or someone else to run the store, do the paperwork and
handle other matters with which the payor was not familiar. The
layoff dates are also not consistent with the peak periods. The
date of one lay off is as early as August 10, 2002.
[14] The appellant's presence at the
payor's place of business to perform this needed work at no
cost to the payor was a definite advantage for him. The appellant
was able to volunteer his time to help his friend and did not
incur any economic losses since he was receiving unemployment
benefits. Given that the return to work and the layoffs coincided
with the period during which he was receiving full unemployment
benefits and the number of weeks to qualify for same, it provided
the payor with an employee year-round; an expense for which he
only had to pay in part. It has definitely subsidized his
business and that is precisely what the unemployment insurance
program was not intended to do. The program was designed to
support workers that lose their jobs, for example because the
employer no longer has work for them. It was not set up to pay
workers because the employer's business cannot afford to do
so.
[15] In such circumstances, it is difficult
to believe that both the appellant and the payor were not aware
that this type of arrangement was beneficial. At the same time,
they should have known that the arrangement was improper and
unacceptable. A layoff for lack of work and an immediate return
on the job, even at reduced hours, to perform the exact same work
for which there was a supposed lack thereof while receiving
unemployment insurance benefits is sufficient to realize that it
is contrary to the intent of the Act. It is not sufficient to
believe, as the appellant does, that because you are working
without pay, it is not work. The work benefitted the payor and at
the same time he avoided the wage expense. The evidence presented
by the appellant offered no reasonable explanation for these
coincidences. Occasional volunteer work may, in certain
circumstances, be acceptable but not on a scale such as the one
in this appeal.
[16] The appellant appears to be a
well-minded citizen and may not have contemplated all the
consequences of such an arrangement, but one cannot help
wondering why his free services were not available to his friend
year-round.
[17] I therefore find that, during all the
periods in issue, the work performed by the appellant was not
done under a genuine contract of employment, as contemplated by
the Act. Having come to this conclusion, I will not address the
other submission raised by the minister.
[18] The appeals are therefore dismissed and
the minister's decision is confirmed.
Signed at Edmundston, New Brunswick, this 22nd day
of June 2004.
Angers, J.
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