Annette Leblanc Enterprises Ltd. v. M.N.R., docket 98-173-UI

Date: 19991021

Docket: 98-173-UI

BETWEEN:

ANNETTE LEBLANC ENTERPRISES LIMITED,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for judgment

Bowman, J.T.C.C.

[1] The appellant has appealed from a decision by the Minister of National Revenue that Cindy LeBlanc was not employed in insurable employment by the appellant Annette LeBlanc Enterprises Limited during the periods from July 30, 1995 to December 31, 1995 and from January 1, 1996 to June 29, 1996 pursuant to the Unemployment Insurance Act ("the UIA") and from June 30, 1996 to November 2, 1996 pursuant to the Employment Insurance Act ("the EIA").

[2] Cindy LeBlanc is the daughter of Annette LeBlanc, who is the appellant's majority shareholder. The appellant operates a post office in Annette LeBlanc's house and a convenience store in an adjoining building. Cindy LeBlanc was employed by the appellant during the periods in question. The appellant and Cindy LeBlanc were clearly not dealing with each other at arm's length. Her employment was thus excepted under paragraph 3(2)(c) of the UIA unless the provisions of subparagraph 3(2)(c)(ii) apply. Subparagraph 3(2)(c)(ii) reads as follows:

(ii) where the employer is, within the meaning of that Act, related to the employee, they shall be 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 . . . .

[3] Cindy LeBlanc and the appellant were related to each other.

[4] It is quite clear from the case law that the words "if the Minister of National Revenue is satisfied" in subparagraph 3(2)(c)(ii) of the UIA confer a discretion on the Minister. Where this discretion has been properly exercised, the Court cannot substitute its own discretion for that of the Minister if it reaches a different conclusion. However, if the Minister's conclusion was based on an erroneous principle of law, if the Minister failed to take into account all the relevant circumstances of the employment, considered irrelevant factors, acted arbitrarily or failed to observe a principle of natural justice, or if the discretion was exercised by a person who did not have authority to do so, the Court may intervene, reverse the decision and itself make the decision the Minister should have made.

[5] Annette LeBlanc stated the following in the Notice of Appeal:

I, Annette LeBlanc, am the major shareholder of the company and I manage the affairs or business of the company. The rural post office of which I am the post mistress is located in my house and the grocery or variety store is connected to my house.

Every year, from November to April I generally do all the post office (which I do year round), tend to the store except a few hours in daytime as it is not very busy during the winter months, and do my household chores. From June to October, the store becomes much busier as we live in a tourist destination. The post office naturally become [sic] busier during the summer months. During the winter months, there is not much activity in our community, therefore I can take care of the store, post office, and my household chores.

During the summer months, there is too much work in the post office, [sic] and the store for me to take care of all business. In addition, I like to have more time for myself during the summer which I think is my prerogative. To do this, I hired my daughter who I have trained to take care of the duties in managing the store. I supervise her as I am always around. She does the purchasing, she stocks the shelves, she does the paperwork, she writes cheques to pay the store expenses and purchases, she handles customer complaints, she decides on store decorations, she decides on what advertising or promotions to carry out, etc.

In essence, she replaces me during the summer months.

The employees at Revenue Canada have told me that they do not believe that I would have paid a non-related person the same wages that I paid to my daughter, Cindy LeBlanc. I have told them that I would have if I had hired a non-related person and that she would have carried out all the responsibilities that my daughter did. But Revenue Canada employees tell me that they do not believe me. I do not know how to prove something in a situation that did not exist.

I agree that if I had hired a person just to take care of the cash register, that [sic] I would not have paid her the same wages.

I have been told that onus [sic] is on me to prove that Revenue Canada is incorrect. I can see the logic in many instances, but in this case, it just doesn't make sense.

[6] In the Reply to the Notice of Appeal, the respondent accepted many of Ms. LeBlanc's allegations, as follows:

2. He admits the following allegations of fact stated in the Notice of Appeal:

(a) Annette Leblanc [sic] is the major shareholder and manage [sic] the affairs or business of the Appellant;

(b) the rural post office is located in her house and the variety store is connected to her house;

(c) Annette Leblanc generally does all of the post office work from November to April;

(d) from June to October the store and the post office are much busier;

(e) during the summer months there is too much work in the post office and the store for Annette Leblanc to take care of all of the business;

(f) the Appellant hired the [sic] Cindy Leblanc (the "Worker");

(g) Annette Leblanc supervised the Worker;

(h) during the summer months, the Worker does the purchasing, stocking [sic] the shelves, does the paperwork, writes cheques to pay store expense [sic] and purchases, handles customer complaints, decides on store decorations, decides on advertising;

(i) the Worker replaces Annette Leblanc in the variety store during the summer months;

(j) Revenue Canada does not believe that the Appellant would have paid an unrelated person the same wages paid to the Worker;

(k) the onus is on the Appellant to prove that Revenue Canada is correct [sic].

[7] Paragraph 9 of the Reply to the Notice of Appeal reads as follows:

9. In making his decision that the Appellant and the Payor [sic] were not dealing at arm's length, the Respondent relied on the following assumptions of fact:

(a) the Appellant was a corporation duly incorporated under the laws of the Province of Nova Scotia on July 11, 1995;

(b) during all material time [sic] the owners of the outstanding shares of the Appellant were Annette Leblanc, the Worker's mother, with 90% and Angus Leblanc, the Worker's father, with 10%;

(c) the Appellant was involved in the operation of a convenience store and rural retail postal outlet;

(d) both the convenience store and the postal outlet are attached to the shareholders' home;

(e) the Worker was engaged during the UI and EI periods in question on a full time basis;

(f) the Worker was paid at the rate of $550.00 per week based on a 48 hour work week which calculates to an hourly rate of $11.46;

(g) the Worker's duties were purchasing, stocking the shelves, doing the paperwork, writing cheques to pay store expense [sic] and purchases, handling customer complaints, deciding on store decorations, and deciding on advertising;

(h) the Worker was engaged by the Appellant outside the UI and EI periods in question to perform the same duties as mentioned above;

(i) the Worker was recorded in the Appellant's payroll records during those periods as working 10 hours per week at the rate of $7.50 per hour;

(j) the $75.00 per week paid to the Worker during those periods was just below the amount of $76.00 which would result in reductions to the Worker's UI and EI benefits;

(k) the Worker's father was engaged by the Appellant on a full time basis year round at a rate of pay of $400.00 per week;

(l) the rate of pay of $550.00 paid to the Worker by the Appellant during the UI and EI periods in question was excessive for the duties and responsibilities being performed;

(m) once the Worker's UI and EI benefits were revoked, the Appellant engaged the Worker and paid her at the rate of $550.00 per week for periods other than the summer months;

(n) the Worker was related to the Appellant within the meaning of the Income Tax Act;

(o) the Worker was not dealing with the Appellant at arm's length;

(p) having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and importance of the work performed, it is not reasonable to conclude that the Worker 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.

[8] It should be noted that the Notice of Appeal and the Reply to the Notice of Appeal were written in English.

[9] The introduction to paragraph 9 is somewhat misleading. The Minister did not rely on the facts it sets out to reach the conclusion that Cindy LeBlanc and the appellant were not dealing with each other at arm's length. There was no doubt whatsoever that they were not dealing with each other at arm's length. The Minister relied on these facts to reach the conclusion that the employer and the employee would not have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.

[10] Annette and Cindy LeBlanc both testified and statutory declarations were filed in evidence. David Shaw also testified. It was he who conducted most of the investigations, although it was Mr. M. Morrison, Assistant Director of Appeals at the Department of National Revenue's Sydney office, who exercised the discretion. In his letter of February 6, 1998, Mr. Morrison wrote:

Having regard to all the circumstances of the employment including the terms and conditions, the rate of pay, the duties and the duration, the Minister has concluded that the Parties would not have entered into a substantially similar contract of employment if they had been dealing with each other at Arms [sic] length.

As a result the employment was considered to be excepted/excluded employment and was not insurable for purposes of the Unemployment and Employment Insurance Acts.

[11] Mr. Shaw based his conclusion essentially on the assumption that Cindy LeBlanc's salary was excessive.

[12] Cindy LeBlanc earned $550 a week during the months when she worked full time, whereas her father earned $400 a week. She received $75 a week when she worked part time. However, during the period when she worked part time, and even when, according to the payroll record, she was not working, she signed as many invoices, cheques and order forms as during the periods when she was supposed to be working full time.

[13] Mr. Shaw testified that he relied in part on a document prepared by the Human Resource Centre of Canada entitled "Wage Rates and Conditions of Employment, HRCC Industrial Cape Breton Zone, November 1996". This document contains the following information:

6611 Cashiers

Low: $ 5.35 per hour

Cluster: $ 5.35 – 6.00 per hour

High: $ 10.00 per hour

Full-time or part-time, days, evening or weekends

6622 Grocery Clerks and Shelf Stockers

Low: $ 5.50 per hour

Cluster: $ 9.00 – 11.00 per hour

High: $ 11 – 12.75 per hour

Full-time or part-time, days, evenings and weekends

[14] I am satisfied that Mr. Shaw gave Cindy LeBlanc and her mother every opportunity to answer all the questions he asked them. He did not violate the rules of natural justice.

[15] Mr. Aucoin stated that Mr. Shaw failed to consider the fact that Cindy LeBlanc had been working for the appellant for 10 years and that her salary had increased during that period. He also pointed out that the business was located in a tourist region and that it would have been much busier during the period when she was employed on a full-time basis. He claimed that Mr. Shaw had failed to consider Cindy LeBlanc's duties as store manager when her mother was absent and that he should have compared her salary to those of grocery clerks and shelf stockers instead of cashiers.

[16] Whatever the case may be, these are factors that the Minister was in a position to weigh in exercising his discretionary authority. I cannot assign them a different weight in order to substitute my opinion for that of the Minister.

[17] Although I was inclined to vacate the decision reached by the Minister in exercising his discretion and make the decision myself, I have serious doubts that, having regard to the factors stated in paragraph 3(2)(c) of the UIA, Cindy LeBlanc and the appellant would have entered into a similar contract of employment if they had been dealing with each other at arm's length. In light of the fact that Cindy LeBlanc performed essentially the same duties while receiving a salary of $550 a week and working full time, while receiving a salary of $75 a week and working part time, and while receiving unemployment insurance benefits, I am not satisfied that it would be reasonable to conclude that she and the appellant would have entered into a substantially similar contract if they had been dealing with each other at arm's length.

[18] The appeal is dismissed.

Signed at Ottawa, Canada, this 21st day of October 1999.

"D.G.H. Bowman"

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 19th day of January 2000.

Stephen Balogh, Revisor