Cadieux-Johanny v. M.N.R., docket 97-2051-UI

Date: 19990615

Dockets: 97-2051-UI; 97-2052-UI

BETWEEN:

HÉLÈNE CADIEUX JOHANNY,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

CHEZ FRANÇOISE LTÉE,

Intervener,

AND

BETWEEN:

CHEZ FRANÇOISE LTÉE,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1] These are two appeals from a decision dated October 3, 1997.

[2] In that decision, it was found that the work done by the appellant Hélène Cadieux Johanny for Chez Françoise Ltée from May 7 to December 30, 1995, and May 1, 1996, to January 4, 1997, was excepted from insurable employment because she was not dealing at arm’s length with the company controlled by her father, Jean Cadieux. It was agreed to proceed on common evidence in the two appeals.

[3] Testimony was given only by Jean Cadieux, as Chez Françoise Ltée’s agent, and by the appellant Hélène Cadieux Johanny.

[4] The evidence showed that Ms. Cadieux Johanny’s work had previously been assessed and found insurable.

[5] At the time of the file assessment which gave rise to the current appeals for 1995 and 1996, Ms. Cadieux Johanny and her father were therefore very surprised that the insurability of the work was being reassessed. They even hired a lawyer to determine the relevance of and reasons for the new investigation concerning employment that had already been assessed and found insurable by the same authorities. I consider it helpful to reproduce the content of a letter dated August 25, 1995, that clearly expresses Ms. Cadieux Johanny’s surprise.

[TRANSLATION]

R. Gould

Appeals Division

Revenue Canada

126 Prince William Street

Saint John, N.B.

E2L 4H9

Dear Sir:

I have received your letter of August 14 concerning my file review request. I have completed the questionnaire attached to your letter. In my opinion, it contains more or less the same questions that Noëlla Hébert from employment insurance asked me during an interview on May 20.

I would like to remind you that I did not contribute to unemployment insurance during the first few years Chez Françoise was operating. The Commission decided that my employment was insurable, and I have been contributing to unemployment insurance ever since. The following provides a picture of the situation:

Business opened May 1982

Unemployment insurance contributions started 1987

You can thus understand my surprise at the investigation you are pursuing and at the dates chosen: May 7 to December 30, 1995, and January 4, 1996, to January 4, 1997. I never doubted the insurability of my employment, since it was the unemployment insurance authorities that decided it was insurable. Moreover, I was never informed before the spring of 1997 that the situation could change.

. . .

[6] The quality of the work done by Ms. Cadieux Johanny was not called into question, nor was her remuneration considered unreasonable. Moreover, the evidence showed that the wages paid could correspond to those paid to a person with the same responsibilities.

[7] When the hearing began, the Court explained at length to Ms. Cadieux Johanny and Mr. Cadieux, the appellant company’s spokesperson, that it was essential to show that the respondent had acted arbitrarily during the process leading up to the decision, failing which the determination would have to be affirmed and the appeal dismissed.

[8] This is a fundamental prerequisite. In matters of insurability where there is a non-arm’s-length relationship, it is absolutely essential to show on the balance of evidence that the respondent made improper use of the discretion conferred on him by Parliament.

[9] Without such evidence, this Court does not have the authority to vary the decision resulting from the exercise of that discretion.

[10] The parameters of the Tax Court of Canada’s jurisdiction as regards the insurability of employment affected by a non-arm’s-length relationship were laid down, explained and qualified in important decisions by the Federal Court of Appeal in the following cases:

Tignish Auto Parts Inc. v. Minister of National Revenue

(July 25, 1994, 185 N.R. 73)

Ferme Émile Richard et Fils Inc. v. Minister of National Revenue

(December 1, 1994, 178 N.R. 361)

Attorney General of Canada v. Jolyn Sport Inc.

(April 24, 1997, A-96-96, F.C.A.)

Attorney General of Canada v. Jencan Ltd.

(June 24, 1997, 215 N.R. 352)

Bayside Drive-In Ltd. v. Her Majesty the Queen

(July 25, 1997, 218 N.R. 150)

[11] Those important decisions make it clear that this Court cannot overrule, vary or interfere with the factual assessment that led to a determination unless it first be shown by the weight of the evidence that the decision resulted from an unlawful or clearly unreasonable process.

[12] In other words, it is absolutely essential that the evidence demonstrate that those responsible for the decision acted capriciously, rashly, arbitrarily or even unlawfully.

[13] This is generally proved by showing that those responsible for the files failed to consider factors of decisive importance or attached inordinate importance to certain points whose value and relevance were doubtful.

[14] The same result may also be arrived at if the appellants show that their files were dealt with in a grossly negligent manner or in bad faith.

[15] In the case at bar, Mr. Cadieux, who properly understood the significance of this prerequisite, focused his energies on the arguments relating to the fact that the appellant Hélène Cadieux Johanny never owned 50 percent of the shares as alleged in paragraph 5(b) of the Reply to the Notice of Appeal, as follows:

[TRANSLATION]

before 1998, the worker owned 50 percent of those shares;

He also stressed the fact that the business was officially closed to the public from January 1 to May 1 of each year. Finally, he argued that the wages paid were reasonable, justified and appropriate given Ms. Cadieux Johanny’s responsibilities.

[16] Lastly, he said that, as the head of the payer company, he was offended at not being involved in the process leading to the determination.

[17] This was a very relevant point until he admitted on cross-examination that he had talked with some of the people responsible for the file and had been present when documentary evidence in the form of photocopies had been gathered at his offices. As well, the evidence showed that he had himself completed a long questionnaire about the disputed employment during the stage prior to the decision.

[18] Both Mr. Cadieux and the appellant Hélène Cadieux Johanny testified honestly and spontaneously, and their testimony showed their good faith. Moreover, the Court understands their surprise at the fact that the insurability of the job, which, according to them, had always been done the same way, was again being looked into.

[19] It may indeed be difficult to understand why employment that has already been found to be insurable is being investigated again to determine whether it is still insurable. In this regard, it is important to understand that the employment world is constantly changing; it is thus normal for the authorities to carry out certain periodic checks to determine whether new facts may have changed the status of employment. The fact that a review was conducted here therefore does not mean that this file was treated differently or unfairly.

[20] I must first decide whether Ms. Cadieux Johanny has discharged the burden of proof to be met in order for me to be able to analyze all the facts concerning the work done during the two periods at issue.

[21] The judgments referred to above indicate that any errors, arbitrariness and omissions must affect the basis for a determination.

[22] In the case at bar, what are the essential facts that could prove the soundness of the determination?

[23] Those facts are unquestionably as follows:

[TRANSLATION]

(f) during the rest of the year, the inn is available on request for special occasions;

. . .

(i) outside the periods at issue, the worker continued to take reservations, to do the planning and organizing required in order to open for special events, to manage the appellant and to make the necessary preparations prior to the inn’s seasonal opening;

(j) the worker was not paid for the hours she worked outside the periods at issue;

(k) the worker did not receive all the weeks of wages noted in the appellant’s payroll journal;

(l) since July 1996, the appellant’s telephone line has also been connected to the worker’s private home, which is next door to the inn;

(m) after the period at issue, namely from April 4 to 18, 1997, the worker supervised and provided training in the hotel business to a student interning with the appellant and she did so without receiving any remuneration from the appellant.

[24] The facts referred to in subparagraphs (f), (i) and (j) were in themselves decisive and justified the determination. The evidence consisting of the testimony of Ms. Cadieux Johanny and her father confirmed the correctness of those allegations of fact, which were in themselves highly relevant in supporting the determination.

[25] Moreover, none of the criticisms directed against the respondent as regards the discretionary process did anything to discredit or dilute the decisive value of the fundamental and relevant allegations supporting the determination.

[26] On this point, I consider it relevant to refer to certain excerpts from the judgment in Attorney General of Canada v. Jencan Ltd., A-599-96, in which the Chief Justice of the Federal Court, the Honourable Julius A. Isaac, stated the following:

The Deputy Tax Court Judge, however, erred in law in concluding that, because some of the assumptions of fact relied upon by the Minister had been disproved at trial, he was automatically entitled to review the merits of the determination made by the Minister. Having found that certain assumptions relied upon by the Minister were disproved at trial, the Deputy Tax Court Judge should have then asked whether the remaining facts which were proved at trial were sufficient in law to support the Minister’s determination that the parties would not have entered into a substantially similar contract of service if they had been at arm’s length. If there is sufficient material to support the Minister’s determination, the Deputy Tax Court Judge is not at liberty to overrule the Minister merely because one or more of the Minister’s assumptions were disproved at trial and the judge would have come to a different conclusion on the balance of probabilities. In other words, it is only where the Minister’s determination lacks a reasonable evidentiary foundation that the Tax Court’s intervention is warranted. An assumption of fact that is disproved at trial may, but does not necessarily, constitute a defect which renders a determination by the Minister contrary to law. It will depend on the strength or weakness of the remaining evidence. The Tax Court must, therefore, go one step further and ask itself whether, without the assumptions of fact which have been disproved, there is sufficient evidence remaining to support the determination made by the Minister. If that question is answered in the affirmative, the inquiry ends.

[27] Accordingly, I must conclude that the evidence adduced by the appellants has not shown that any significant error was made in dealing with their files. It would perhaps have been preferable for those responsible for their files to be more explicit about the reasons for the new analysis or assessment of the facts and circumstances associated with the disputed employment. That was not a requirement, however, since their only responsibility was to obtain the facts and material needed to make a sound decision. It can be seen on the face of the record that it was quickly noted that Ms. Cadieux Johanny did unpaid work outside the periods at issue.

[28] Once that fact was found and corroborated by the documentary evidence, including a copy of the deposit ledger and the payroll journal, everything else became superfluous, since there was then sufficient material to support and strengthen the conclusion behind the decision now at issue in these appeals.

[29] In the circumstances and in light of the evidence, I cannot intervene, since it has not been established that the determination resulted from an improper use of discretion.

[30] Moreover, even if Ms. Cadieux Johanny had discharged the burden of proof having to be met in order to justify the Court’s intervention, I do not think that the facts established by the evidence and the admissions concerning the work done outside the periods at issue would have called for a conclusion favourable to the appellants.

[31] I have stated time and time again that it is usual and normal for a person not dealing with his or her employer at arm’s length to be more generous and co-operative. However, such co-operation and generosity must not be so considerable that it would be absolutely impossible to imagine such a relationship between parties who are at arm’s length.

[32] In the instant case, the evidence has shown that the work done by Ms. Cadieux Johanny outside the periods at issue went far beyond occasional generosity or co-operation that could be justified by a very enthusiastic interest in her employment.

[33] As for the explanation that the parties had agreed that the wages paid were to include the free services provided outside the periods at issue, it is in no way relevant. What is more, it has the effect of reinforcing the uninsurability of the employment in question.

[34] To accept such an explanation would be contrary to the purpose of the Unemployment Insurance Act (“the Act”), namely protecting individuals who have lost their jobs.

[35] It would mean that part of the salary was paid in advance for deferred work; yet unemployment insurance benefits are determined on the basis of the wages received for work done during work periods, not for deferred work.

[36] In other words, paying wages for work performed at a later time would have the direct effect of artificially inflating the potentially insurable amounts, thus resulting in higher benefits at the very time when the deferred work is being performed and not paid for.

[37] Not only is such an agreement unacceptable from an insurability point of view, but it also totally at variance with the very nature of a genuine contract of service. The Act insures only genuine employment. Employment in which the amount of the remuneration anticipates the performance of some of the work during the non-working periods covered by unemployment insurance benefits is not employment pursuant to a contract of employment that is insurable under the Act.

[38] Employment may be assessed a number of times to determine whether changes have occurred since the last assessment. In practice, however, this type of investigation may worry or even traumatize those being investigated, who often think that the system is accusing them of or reproaching them for acting unlawfully.

[39] This perception is especially common among those whose employment has already been declared insurable, often following initiatives that they themselves took to ensure that everything was proper, in order, in compliance and lawful.

[40] In a society in which everything evolves very quickly and major changes occur very regularly, it is normal or even essential that the system be able to provide for periodic reviews.

[41] In the case at bar, in view of the evidence and the limitations of the Tax Court of Canada’s jurisdiction in the matter of insurability, the Court must dismiss the appeals.

Signed at Ottawa, Canada, this 15th day of June 1999.

“Alain Tardif”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 31st day of March 2000.

Erich Klein, Revisor