[OFFICIAL ENGLISH TRANSLATION]
Date: 20011026
Docket: 2001-935(EI)
BETWEEN:
NOËLLA POIRIER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
and
CHARLES -GUY LANGFORD s/n
LES BATEAUX MADELEINE ENR.,
Intervenor.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] Charles-Guy Langford appeared as
intervenor in his quality of employer who issued the record of
employment on which the instant appeal is based.
[2] This is an appeal from a decision
dated December 15, 2000, concerning work performed by the
appellant for and on behalf of the intervenor, her spouse, from
June 19 to July 14, 2000.
[3] The work described on the record
of employment was excluded from insurable employment because of
the non-arm's length relationship between the appellant and the
payer, the appellant's spouse, in accordance with the
Employment Insurance Act (the "Act").
[4] The respondent relied on paragraph
5(2)(i), subsection 5(3) and subsection 93(3) of the
Employment Insurance Act and on sections 251 and 252 of
the Income Tax Act.
[5] The respondent also found that
there had been an arrangement between the appellant and her
spouse for the purpose of qualifying the appellant for employment
insurance benefits.
[6] In support of the decision, the
respondent relied on the following facts:
[TRANSLATION]
(a) Charles-Guy
Langford had operated a boat building business for 20 years;
(b) the payer
operated his boat building business on a seasonal basis from
April to June;
(c) Charles-Guy
Langford is the spouse of the appellant;
(d) the payer had a
workshop located 75 feet from the residence of the payer and the
appellant;
(e) for the year
2000, the payer's gross income totalled approximately $20,000,
that is, the sale of 2 boats, one for $6,200 and the other
for $5,000, blade sharpening for $5,000 and the sale of boat
accessories for $1,000;
(f) in the
year 2000, the payer had sold his 2 boats, that is, on May 24,
2000, and June 13, 2000, before hiring the appellant;
(g) the appellant
was a part-time adult education teacher;
(h) for the period
at issue, the appellant had been hired as a secretary and
receptionist;
(i) the
appellant's duties consisted of answering the telephone and
handling the correspondence;
(j) the
payer's telephone was the same as the home telephone;
(k) before the
period at issue, the payer had never hired a secretary;
(l) the payer
performed the duties of the appellant before and after the period
at issue;
(m) the appellant received
an alleged gross income of $400 per work week, or $10 an hour for
40 hours;
(n) the appellant
was allegedly paid in cash;
(o) in reality, with
the exception of some receipts signed by the appellant, there is
no evidence that the appellant was paid a salary;
(p) on August 18,
2000, the payer issued a record of employment to the appellant
for the period beginning on June 19, 2000, and ending on July 14,
2000, that indicated 160 insurable hours and total insurable
earnings of $1,600;
(q) for the year
2000, the appellant had received from the Commission Scolaire des
Îles [the Islands school board], two records of employment
totalling 284 insurable hours;
(r) the appellant
needed 420 insurable hours to qualify for employment insurance
benefits;
(s) in view of the
payer's low income and the nature of the operations, the
appellant's employment was an employment of convenience;
(t) the payer
and the appellant made an arrangement in order to qualify the
appellant for employment insurance benefits.
[7] At the outset of the hearing, the
appellant and her spouse-intervenor had strong recriminations
over the manner in which they had been treated when their case
was being studied. They argued that, on some occasions, they had
been discriminated against, while on others, they had had to deal
with total indifference and a lack of co-operation.
[8] After voicing their very harsh
criticisms and grievances, the appellant explained that she
generally worked part-time teaching adults for and on behalf of a
school board.
[9] In the year 2000, she had
accumulated 284 insurable hours with the Commission Scolaire des
Îles, as a result of which she was issued a record of
employment that did not make her eligible for employment
insurance benefits.
[10] She submitted that the number of hours
she was missing in order to qualify for benefits had not been a
determining factor when she agreed to work for her spouse.
According to her, the needs of the business alone were the reason
she had been hired.
[11] She explained that her duties, during
the period at issue, had consisted of answering the telephone,
handling the correspondence, doing the ordering, answering
customers and being responsible for the various tasks involved in
paper work and bookkeeping.
[12] At the end of the period, that is, on
July 14, 2000, a record of employment indicating 160 hours of
work was issued, which resulted in her qualifying for employment
insurance benefits.
[13] After the record of employment had been
issued, she said she waited six weeks before submitting her claim
for benefits. Her claim resulted in the issue of a few cheques,
following which she also claimed the benefits to which she would
have been entitled had she submitted her claim within the
prescribed time period.
[14] Following this claim, the benefits
stopped and she was sent a request for the recovery of the
benefits previously paid, to which a stiff penalty of $801 was
added (Exhibit A-4) and, in addition, a number of hours was added
to the number required to requalify for benefits in the future.
The whole had the effect of disqualifying her claim after her
former employer, the Commission Scolaire des Îles, called
her back for work.
[15] The evidence also revealed that the
appellant and her spouse had sought information regarding the
appellant's employment insurance status; this clearly emerges
from the contents of the letter dated July 11, 2001, which read
as follows: (Exhibit A-2)
[TRANSLATION]
. . .
Further to our telephone conversation of this afternoon, this
is to inquire whether, as an employer, I must deduct employment
insurance premiums for my spouse? She has worked for the last
four weeks as a secretary/receptionist, on a 40-hour a week
schedule in the company's office. I want to point out that
she has no shares in this company.
I would appreciate receiving a reply this week since the
deductions must be paid on Friday, July 14.
. . .
[16] Jean-Claude Favron, an investigations
officer with the Department of Human Resources Development Canada
(the "Department") moreover confirmed that the appellant and her
spouse, the intervenor, had actually appeared to be in good faith
and had wanted to find out the extent of their rights and duties
with respect to employment insurance as a result of the duties
performed by the appellant for and on behalf of her spouse.
[17] Mr. Langford said that the
investigation arising from the appeal for reconsideration had
been quite brief and that he estimated that the telephone
interview had lasted a few minutes. To the knowledge of the
appellant and her spouse, the telephone interview was the only
initiative as far as they knew behind the determination that is
the subject of this appeal.
[18] Although Parliament excluded from
insurable employment any work performed by a person not dealing
at arm's length with the employer, it also provided that the
exclusion could be set aside and the work could become insurable
if, after assessing and analysing all the terms and conditions
and circumstances, the Minister of National Revenue (the
"Minister") was satisfied that the work was performed under a
contract of employment similar and comparable to the contract
that would have been entered into by persons dealing with each
other at arm's length.
[19] Analysis and assessment are part of the
discretionary authority conferred by Parliament on the
Minister.
[20] This Court cannot intervene where that discretionary
authority has been properly exercised. In other words, it is
essential to show, on the balance of evidence, that in
exercising his discretion, the respondent acted in an arbitrary
or unreasonable manner.
[21] The evidence also showed that most of
the facts relied on were true; however, the conclusions stated in
subparagraphs (s) and (t) are completely inappropriate and
unreasonable.
[22] Did the respondent nevertheless
exercise his discretion irreproachably and in a just and
equitable manner? I do not think so.
[23] Subparagraphs (s) and (t) illustrate
very clearly the animus towards the appellant. This severity is
also clear from the contents of Exhibit A-4, which is indeed part
of the appellant's file. Neither her testimony, the testimony of
the intervenor or the testimony of Mr. Favron, the officer
responsible for the investigation at the first level¾-the
only person who conducted a field investigation¾-allow or
warrant the conclusion, stated in this letter, that the appellant
knowingly made a false representation, as a result of which a
penalty of $801 was added to the overpayment of $1,187.
[24] The severity of the penalty is
definitely unreasonable having regard to the circumstances and
the evidence available at the time. In my view, this element is
more than sufficient to show malice towards the appellant, or at
the very least, feelings at odds with the objective handling of
her case.
[25] The severity of the penalty explains
beyond a shadow of a doubt the lack of cooperation experienced by
the appellant and her spouse when their case was being processed.
Nothing in the evidence allowed or warranted such a
disproportionate reaction to facts that, in the circumstances,
had nothing unusual about them.
[26] The evidence showed that the appellant
did not have enough hours to be entitled to employment insurance
benefits. Her spouse operated a small business and it was
completely legitimate and reasonable to think that she could make
up the missing hours by working for her spouse's business.
[27] The balance of the evidence shows that
the appellant was not given an adequate, reasonable and proper
investigation and, therefore, I claim the right to re-assess the
facts.
[28] The evidence showed that the intervenor
was the owner of a very small business that in the past, and only
on a few occasions, had hired an employee for very brief periods.
It has also been shown that the boat building took place during a
very specific period of the year, namely, in the wintertime. The
income from the business was minimal and, as the evidence showed,
did not warrant hiring a person at a time when the boat building
season was nearly finished, as the interested parties themselves
admitted. At the time of the period at issue, the intervenor was
and could be available to perform the duties described by the
appellant, especially since he did this work when the appellant
was not available.
[29] As she herself testified, the appellant
did not have the knowledge to advise, guide and answer the
customers whose needs and concerns were very technical. The
payer-intervenor was or had to be available to perform the work
described by the appellant.
[30] The evidence also established that the
appellant was paid in cash. I understand that there is no duty on
an employer to pay his employees by cheque. It is, however, a bad
idea to pay a person in cash where the person's status may be a
problem and where an astute analysis may be made as to whether a
true contract of service exists, especially if the facts and
circumstances have already aroused some suspicion.
[31] On the whole, I do not think that a
third party in similar circumstances would have received a
substantially similar contract of employment. In the light of the
evidence, I believe that the appellant could indeed have
performed work for and on behalf of her spouse. I do not believe,
however, that the work was as intense and demanding as the
description on the record of employment. The explanations
concerning the terms and conditions of payment and the
appropriateness of and justification for the length of the
employment were not very convincing and certainly insufficient to
discharge the burden of proof that fell on the appellant and her
spouse.
[32] Consequently, I am of the opinion that
the balance of evidence, the burden of which fell on the
appellant, did not establish that there would have been a similar
contract of employment were it not for the non-arm's length
dealing. In other words, I believe that many factors unrelated to
those that should make up a genuine contract of service were
considered in making the contract of employment. A genuine
contract of service essentially originates in a business'
basic need to have some work performed by a qualified person in
return for a salary consistent with the market for the length of
time that is needed.
[33] In the case at bar, the facts are not
at all unusual and occur very frequently, particularly when a
person is excluded from receiving benefits because of too few
insurable hours.
[34] When a relative of such a person is the
owner of a business, it is not unlawful to consider working for
pay to obtain the missing hours as long as it is not part of a
scheme.
[35] When a business has no real need for
labour, it does not hire, even if a close relative is involved.
If a business has a real need, it hires someone for as long as is
needed at a salary consistent with the quality and quantity of
the work that is required and performed; nothing more, nothing
less.
[36] Any contract of employment that does
not meet these strict criteria, which are essentially economic in
nature, will most likely not be considered a genuine contract of
service.
[37] In the case at bar, it has not been
shown on the balance of evidence that there was a contract of
service, since the work performed by the appellant was not
absolutely essential and fundamental in properly running the
business. The business had a very limited ability to pay a
salary. The facts and circumstances surrounding the performance
of the work strongly support the conclusion that it was an
employment of convenience, which does not mean that the appellant
did not perform any work at all.
[38] It was never established on this
balance of evidence, however, that the appellant and her spouse
had made a concerted plan to act illegally. The contents of the
letter dated July 11, 2000, totally disprove such an
interpretation.
[39] Accordingly, there was no reason to
penalize the appellant and, as a result, I very strongly
recommend that her case be the subject of an administrative
review to take into account that lack of bad faith and what
appears to me to be grossly exaggerated, having regard to the
facts and circumstances surrounding this case.
[40] I am aware, however, that this
recommendation goes beyond the jurisdiction conferred on me,
which prevents me from enforcing this decision (104(2)).
[41] The analysis of the facts supporting a
finding that unrelated parties would not have entered into a
similar contract of employment, although warranted and
appropriate, does not automatically amount to a finding of bad
faith, of concerted action and abuse that would warrant heavy
penalties. In the case at bar, the facts in no way warranted the
penalties assessed, although these show clearly the approach that
was taken.
[42] With regard to the merits of the
appeal, it must be dismissed since it has not been shown on the
balance of evidence that persons not dealing with each other at
arm's length would have entered into a substantially similar
contract of employment.
Signed at Ottawa, Canada, this 26th day of October 2001.
J.T.C.C.
Translation certified true
on this 21st day of February 2003.
Sophie Debbané, Revisor
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