[OFFICIAL ENGLISH TRANSLATION]
Date: 19990715
Docket: 97-244(UI)
BETWEEN:
LES INDUSTRIES J. S. P. INC.,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] In this case, the Department of
National Revenue determined that the work performed by Serge
Perreault, Yoland Perreault, Pierre Perreault and Marie-Claude
Perreault for Les Industries J. S. P. Inc. ("the appellant
company") during the period beginning on June 26, 1995,
constituted insurable employment.
[2] In reaching his decision dated
November 15, 1996, the Minister of National Revenue
("the Respondent") relied on the following assumptions
of fact:
(a) the payor
company was incorporated on May 5, 1969;
(b) the holders of
voting shares in the payor company are Jacques Perreault holding
1,000 shares, Serge Perreault holding 40 shares,
Pierre Perreault holding 15 shares, Yoland Perreault
holding 15 shares, and Marie-Claude Perreault holding
30 shares;
(c) Serge Perreault,
Pierre Perreault and Marie-Claude Perreault are Jacques
Perreault's children;
(d) Yoland Perreault
is Jacques Perreault's brother;
(e) the payor
company operates a business specializing in building and selling
furniture;
(f) the payor
company's business employs between 45 and
50 employees;
(g) Serge Perreault
is the president of the payor company; his duties include being
responsible for customer service and, in co-operation with the
industrial designer, planning the payor company's
production;
(h) Yoland Perreault
is the director of the payor company's plant; his duties in
this capacity include, in particular, managing the payor
company's production unit and co-ordinating the various
departments;
(i) Pierre
Perreault is the purchasing director and the person responsible
for computers; his duties include, in particular, managing the
payor company's inventories and its computer system;
(j)
Marie-Claude Perreault is the payor company's sales and
marketing director; her duties are to develop the payor
company's sales and advertising materials and to manage the
office employees;
(k) Serge, Pierre
and Marie-Claude Perreault were paid a gross salary of
$600 per week;
(l) Yoland
Perreault was paid a gross salary of $700 per week;
(m) the family members
also received a year-end bonus depending on the payor
company's profits;
(n) during the
period at issue, there was a contract of service between the
payor company and the female family member.
[3] The appellant company was
represented by Sylvain Viau, its accountant.
[4] Marie-Claude Perreault testified
and gave a number of examples to describe and explain her
interest, enthusiasm and fervour and that of her brothers with
respect to the interests of the appellant company, which operates
in the difficult and highly competitive field of furniture
building.
[5] Sharing major strategic
responsibilities in the company controlled by Jacques Perreault,
who holds 1,000 voting but non-participating shares,
Marie-Claude Perreault and her brothers left nothing to chance in
ensuring the company's well-being and development.
[6] Each family member was paid more
than a reasonable salary and, at year end, received a bonus that
varied depending on the economic performance of the company and
the quality of the work performed.
[7] Major decisions were made jointly
and by consensus. The family members each devoted at least
60 hours [per week] to their respective duties for the
company.
[8] The balance of evidence,
therefore, was that the Perreault family members dedicated
themselves totally and entirely to the company's business.
They invested in it most of their available time (at least
60 hours [per week]) to ensure that the company could
succeed in a difficult market where competition is stiff.
[9] The family members affected by the
Minister's decision held important, essential positions and
were paid salaries probably lower than those the company should
have paid to third parties for performing similar duties. This
fact alone led the agent for the appellant company to state and
conclude that their employment was excluded from insurable
employment under paragraph 3(2)(c) of the
Unemployment Insurance Act ("the
Act").
[10] Sylvain Viau argued, rightly, that work
performed by related persons should be excluded from insurable
employment, not only where the persons concerned received profits
and advantages greater than those that third parties might
receive, but also where the persons involved received lower
salaries or were disadvantaged because they were related to those
who controlled the company.
[11] When a person occupies a strategic,
executive position in a business, it is customary and normal for
the job description to be very difficult to define. A partner or
an individual taking part in the management of a business can
hardly hope for a clearly defined, specific, limited job
description.
[12] Contributing to and being a partner in
the management, administration or development of a business,
particularly a small business, means that a person's job
description is strongly marked by responsibilities characteristic
of those often fulfilled by actual business owners or persons
holding more than 40 per cent of the voting shares in
the company employing them. In other words, in assessing
remuneration, at this level of responsibility, caution must be
exercised when a comparison is made with the salaries of third
parties; often there are advantages that offset the lower
salaries.
[13] In this case, the work performed by
Marie-Claude Perreault and her brothers was in many respects
comparable to the work performed by business owners. That fact
alone is not decisive or sufficient to exclude their work from
insurable employment, particularly since the company employing
them never waived its power to exercise control over their
work.
[14] It is possible and common for
individuals, particularly in executive positions, to dedicate
themselves totally to the business of the company employing them.
Motivation, the desire to develop the business, and pride in
contributing to the business's prosperity are all reasons for
some individuals' fervour and enthusiasm for their work. One
often encounters situations in which persons invest themselves
totally in the business and pay is not based essentially on the
hours worked.
[15] Dedication and enthusiasm are often
recognized and compensated when a business is successful. It is
always very difficult to draw comparisons among the advantages
and disadvantages relating to a strategic position in a business.
In addition to this difficulty, there is the further interest
resulting from the ownership of participating shares. The tests
set out in the case law become very helpful in identifying the
nature of the employment contract.
[16] In this case, the evidence has
established that the appellant company never waived its power to
exercise control over the work performed by the Perreault family
members. Nor did these persons have any chance of profit or risk
of loss. They worked with equipment provided to them by the
company. Lastly, their work was fully integrated into the
company's activities.
[17] Essentially, the agent for the
appellant company relied on paragraph 3(2)(c) of the
Act. He also referred to the Federal Court of Appeal
decision in Raymonde Bérard v. Minister of
National Revenue (January 16, 1997), Montréal
A-487-96, in which Hugessen J.A. wrote as follows:
According to counsel, a teleological interpretation of this
provision requires that only those employments of which the
conditions are inordinately favourable to the employee be
excepted. We disagree. Nothing in either the provision or the
context suggests such an interpretation. The clear purpose of the
legislation is to except contracts of employment between related
persons that are not similar in nature to a normal contract
between persons dealing with each other at arm's length. It
is in our view clear that this abnormality can just as well take
the form of conditions unfavourable to the employee as of
favourable conditions. In either case, the employer-employee
relationship is abnormal and can be suspected of having been
influenced by factors other than economic forces in the labour
market.
[18] Relying on
paragraph 3(2)(c) of the Act and the decision
in Bérard, the agent for the appellant company
argued that the work performed by Marie-Claude Perreault and
her brothers should be excluded from insurable employment since,
to some extent, the terms and conditions of their work penalized
them and subjected them to a number of disadvantages because they
were related to the person who controlled the company.
[19] This Court, while respecting that
interpretation, does not necessarily agree with it. Indeed, the
Court is not authorized to draw any conclusion whatsoever from
the facts shown by the evidence, since it has not been
established that the assessment forming the basis for the
Minister's determination was made in a manner contrary to
law.
[20] The Federal Court of Appeal has heard a
number of cases that dealt with the scope of the Tax Court of
Canada's powers regarding insurability, determined on the
basis of paragraph 3(2)(c) of the Act.
[21] The most important decisions are
undoubtedly the following:
Tignish Auto Parts Inc. v. Minister of National Revenue
(1994), 185 N.R. 73;
Ferme Émile Richard et Fils Inc. v. Minister of
National Revenue (1994), 178 N.R. 361 (F.C.A.);
Canada (Attorney General) v. Jolyn Sport Inc. (1997), 214
N.R. 314;
Canada (Attorney General) v. Jencan Ltd. (C.A.),
[1998] 1 F.C. 187; and
Bayside Drive-In Ltd. v. Her Majesty the Queen (1997), 218
N.R. 150.
[22] In this case, no evidence has been
adduced that the respondent exercised his discretion improperly;
no reproach has been made concerning the manner in which the
Minister's discretion was exercised. In her testimony,
Marie-Claude Perreault acknowledged that all the persons
affected by the Minister's decision had answered a number of
questions, for example, about their pay and how the work was
performed.
[23] The conclusions reached following the
Minister's assessment are indeed not what the company
expected and, as a result, the company has appealed. It was
nevertheless essential to establish on the balance of evidence
that the Minister's discretion was exercised improperly or
lacked thoroughness. Since it has not been established that the
Minister's discretion was exercised in a manner contrary to
law, I have no choice but to dismiss the appeal.
Signed at Ottawa, Canada, this 15th day of July 1999.
J.T.C.C.
Translation certified true
on this 16th day of September 2003.
Sophie Debbané, Revisor
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