Quinn-Hiscott v. M.N.R., docket 97-907-UI

Date: 19971212

Docket: 97-907-UI

BETWEEN:

AGNES QUINN-HISCOTT,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

(Delivered orally from the Bench at London, Ontario, on November 18, 1997)

Mogan, J.T.C.C.

[1] This appeal is under the provisions of the Unemployment Insurance Act, more recently named the Employment Insurance Act. The Appellant was engaged in employment by Ultra Panel Systems Inc. (the company) during the period April 8, 1996 to October 6, 1996. There is a non-arm’s length relationship between the Appellant and the company. The Appellant’s mother-in-law owns all but one of the issued shares of the company, and the remaining share is owned by the Appellant’s husband.

[2] As a result of the non-arm’s length relationship with the company, the Minister of National Revenue exercised her discretion under paragraph 3(2)(c) of the Unemployment Insurance Act and determined that the circumstances of employment were not substantially similar to those that would have existed if the parties had been at arm’s length. In effect, the Minister exercised her discretion against the interest of the Appellant and this appeal is the result.

[3] When the Appellant’s employment with the company ended on October 6, 1996, she made a claim for unemployment insurance benefits. The claim was denied on the basis that the employment was not insurable employment but was excepted employment pursuant to paragraph 3(2)(c) of the Act. Because the appeal arises under that particular provision, we are dealing with ministerial discretion which has, in recent years, been the subject of significant litigation in the Federal Court of Appeal. Specifically, there is the first case of Tignish Auto Parts Inc. v. Minister of National Revenue, (1996) 185 N.R. 73, followed by Ferme Emile Richard et Fils Inc. v. Minister of National Revenue (1995) 178 N.R. 361 and more recently in June 1997, a decision by the Chief Justice of the Federal Court of Appeal in the case of Attorney General of Canada v. Jencan Ltd., [1997] F.C.J. No. 876 (Q.L.) (F.C.A.).

[4] The Jencan decision is important because it summarizes what the Federal Court of Appeal has stated in the cases of Tignish and Ferme Emile Richard concerning the principles of law which govern appeals in these circumstances. After a summary of the law, Chief Justice Isaac makes the following statement:

... 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. But, if answered in the negative, the determination is contrary to law, and only then is the Tax Court justified in engaging in its own assessment of the balance of probabilities. ...

My duty, therefore, is clearly stated by the Federal Court of Appeal. It is particularly relevant in this case because a number of the facts assumed by the Minister have been disproved at trial and I will review them below. I have measured the strength of the remaining evidence to determine whether I am entitled to embark upon a fresh inquiry and ignore the Minister’s discretion.

[5] Although the period in question is only eight months from April to October 1996, there was considerable evidence given in connection with the Appellant’s employment by the company at a number of times prior to that period. Those earlier periods of employment are relevant because they form part of the Minister’s assumed facts. Also, the record of employment by the Appellant was brought out in evidence.

[6] The business of the company is that of supplying aluminum products mainly for domestic residences, patio doors and all of the various components that would go into the construction of a sun room in a personal residence. The company has certain products made by aluminum manufacturers and then there is a further manufacturing processing at the company’s plant. The product is then sold to distributors or dealers across Canada, most of whom are in the province of Ontario but there are dealers in the other provinces as well. The company is not engaged in retail sales except in those areas which are not serviced by a dealer and, in those circumstances, the company will make a direct sale to a retail customer.

[7] Until 1994, the company was also engaged in the installation business. It had two work crews which would install the product that was sold to those few retail customers not serviced by a dealer. According to the Appellant’s evidence, the company ceased the installation business in 1994 and it is now engaged only in selling on a wholesale basis. As such, the company has few employees. It had about six employees in 1990 and rose to as high as 10 employees in 1994 when it had two work crews installing product. In 1995, 1996 and 1997, however, the company is down to only four employees who are the Appellant’s mother-in-law (Mrs. Tunk), the Appellant’s husband (Brian Hiscott), the warehouse manager (Patrick Mooney), and the Appellant who is the office administrator. Those four individuals have run the business in the years after 1994. It is a seasonal business in the sense that the aluminum product cannot be installed outside in the winter months because of low temperatures, and so the business operates only from April to October. The period from November to March is regarded as off-season.

[8] The Appellant first came to work for the company in November 1993 and she worked until April 1994. At that time, she was an office administrator. She came to work in the off-season because her mother-in-law was seriously ill and was not able to do the administration. There had been a full-time bookkeeper (Trudy Bicknell) with the company but she worked only in the active season from April to October. When Trudy left the employ of the company in the fall, I understand from the evidence of the Appellant that the mother-in-law would run the business through the winter because it was off-season and a relatively quiet time. However, because of the mother-in-law’s serious illness in 1993-1994, she could not work and so the Appellant went to work that winter. When the active season began in the spring of 1994, the Appellant’s employment with the company ended and Trudy Bicknell came back to work. At that time, the Appellant sought other employment in the spring and summer of 1994, working for the County of Lambton and for the Victorian Order of Nurses in the City of London, or in Thedford, doing administrative work for the two organizations.

[9] The Appellant’s second period of employment with the company began in April 1995 and continued until October 1995. This employment began because the bookkeeper (Trudy Bicknell) worked during the active season in 1994 but when she left in the fall of 1994, she indicated she was not returning. Therefore, the Appellant began working for the company in April 1995 to replace Trudy Bicknell. She worked during the active period in 1995, and again in 1996. The period of employment in 1996 is the critical period giving rise to the claim for benefits which was denied to the Appellant.

[10] Against the above background of facts, I will follow the guidance of the Federal Court of Appeal and examine those facts which the Minister assumed in exercising her discretion in order to determine if they have been disproved or explained. The facts assumed by the Minister are disclosed in paragraph 6 of the Reply to the Notice of Appeal. I will summarize them without setting them out in full. The facts set out in paragraphs 6(a), (b), (c) and (d) relate to the non-arm’s length relationship between the Appellant and the company which is not in dispute. Paragraph 6(e) of the Reply describes the work of the payor (the company) and it is generally accurate, although very brief and not in dispute. The remaining paragraphs relate to what the Appellant’s duties were and how they fitted into the company’s operation.

[11] At first blush, the facts assumed by the Minister would, in my view, easily justify the Minister’s exercise of her discretion against the interest of the Appellant. Having heard the Appellant’s evidence, however, I am inclined to the view that almost all of the facts assumed by the Minister have been either contradicted by evidence which is not disputed, or explained in such a manner by the Appellant that there is very little evidence left to support the Minister’s decision. With that preliminary comment, I will proceed through the remaining assumed facts set out in the Reply to the Notice of Appeal which tend to slant the case against the Appellant. To the extent the statements and assumed facts are slanted against the Appellant in the special circumstances of this case, those assumed facts are either contradicted or explained.

[12] Paragraph 6(f) of the Reply states:

the Appellant was put on the Payor’s payroll during the off season from November 1, 1993 to April 7, 1994, was then laid off for the entire 1994 season, and was then put on the payroll for the 1995 and 1996 seasons;

That statement is unassailably true but it gives the impression that she was just put on the payroll to give her grounds to claim unemployment insurance benefits. In fact, as the Appellant explained, that was the first time she had ever worked for the company because her mother-in-law was seriously ill and unable to work during 1993-1994. Therefore, it is true she was put on the payroll but only because her mother-in-law could not work. This supports the Appellant. She was taken off the payroll in April 1994 when the arm’s length employee, Trudy, came back to do the office work. If this was an opportunity to create employment for the Appellant, she would have been kept on the payroll in the active season.

[13] Paragraph 6(g) states:

the Appellant was engaged by the Payor as a general office worker (primarily answer the business telephone, take messages and perform clerical functions as required);

That statement is simply not true. The Appellant explained that she came to this part of Ontario only in 1989 when she became connected with the family business. At the time, Harriet Turner was doing the office work in what might be called the pre-computer age. The way the Appellant described it, Harriet did the clerical work on a manual typewriter and, as recently as 1989 and 1990, the company did not have a photocopier or a fax machine. Harriet was paid $250 per week. When Harriet Turner left the employment of the company, Trudy Bicknell was employed. She did the bookkeeping and kept the employment records and the payroll during the active period for which she was paid $360 per week. During Trudy’s periods of employment, the company was moving from the Victorian Age to the Modern Age. It obtained a fax machine, a photocopier and computers. It was starting to put the invoicing, customer records and payroll on the computers. According to the uncontested evidence of the Appellant, Trudy did not have any interest in learning to operate computers. It was logical that she would in time and specifically, in 1994, disappear from the scene.

[14] The Appellant is a woman of obvious intelligence. She explained that she had taken a number of business courses. In particular, in the fall of 1994, she began a course through the Ontario Management Development Program (OMDP). In the spring of 1995, she obtained a certificate in office management from that program. Therefore, it would seem that the Appellant was better qualified to do the office administrative functions for the company than her two predecessors, Harriet Turner and Trudy Bicknell. Coming back to paragraph 6(g), the Appellant did not simply perform clerical functions. She was doing all of the work in the office which included putting important information into the computers, the invoicing, the purchase orders and the payroll.

[15] Paragraph 6(h) states:

considering the nature and scope of the Payor’s business, there was no business need to engage the Appellant as a general office worker for forty hours per week, each and every week during the season, and no need to have engaged her at all during the off season;

That statement is simply not true. In the two years we are dealing with, 1995 and 1996, there were only four employees. The Appellant’s husband was on the road almost all of the time as a salesman; Mr. Mooney was the warehouse manager looking after the receiving and storage of product, the shipment of product to dealers, and the delivery of product when the dealers came to pick it up; the mother-in-law performed the overall management of the company. The Appellant explained that there had to be someone in the office eight hours per day, five days per week in 1995 and 1996 to do the billing and to record it because almost all of the dealers who came to pick up the product paid COD (cash on delivery). For those who did not come to pick it up and to whom the product was shipped, someone had to make up the invoices, record the sending out of the invoices, record accounts receivable, whether they were paid and maintain the payroll of the other employees. As a result, I would say that the Minister’s view in paragraph 6(h) that there was no need to engage the Appellant as a general office worker each and every week during the season is proven to be not true. In reply to the following statement in paragraph 6(h): “No need to have engaged her at all during the off-season”, the Appellant explained that she was engaged during the “off-season” of 1993-1994 because she was replacing her mother-in-law who was ill.

[16] Paragraph 6(i) states:

the Appellant was paid a fixed weekly salary which was increased from approximately $350 per week in 1994 to $500 per week in 1996 (an arm’s length worker was paid approximately $360 per week during the 1994 season);

Paragraph (j) states:

contrary to the Payor’s arm’s length workers who received only minor wage increases from season to season, the Appellant’s gross weekly salary was increased by approximately 67% since 1994 (she received various increases in 1994 and 1995 and a $100 a week increase in June of 1996);

In support of those two paragraphs, there were entered Exhibits R-1, R-2 and R-3 (records of employment of the Appellant) and Exhibit R-4 (record of employment of Trudy Bicknell). Dealing with Exhibit R-4 first, it shows that for many weeks Trudy was paid $360 per week and for a 40-hour week that is precisely $9 per hour. In the busy period, it appears that Trudy earned about $400 per week and that in the months of June, July and August, she worked more than 40 hours per week in most of those weeks. In September and October, the hours tapered back to 40 hours per week. Therefore, I conclude that Trudy’s salary on a weekly basis was $360 per week for a 40-hour week based on $9 per hour.

[17] Dealing with Exhibit R-1, it appears that the Appellant was paid $395 per week from November 1993 to April 1994 when she replaced her mother-in-law. That is about $40 per week more than Trudy but I gather from what she said, she had more skills than Trudy. She was paid about 10% more than Trudy for working through that winter and, with her mother-in-law away ill, she would not only have had Trudy’s duties, but the mother-in-law’s duties as well. Therefore, there is nothing remarkable with the compensation paid during the winter of 1993-1994.

[18] Exhibit R-2 deals with the pay period of the Appellant from April 24, 1995 to October 27, 1995. It indicates she was earning $400 per week throughout that period. Again, that is comparable to what she was paid while she replaced her mother-in-law in the winter of 1993-1994 and it is only 10% more than what Trudy was earning. However, the Appellant was helping to bring the company on-stream with more modern business recording equipment. Given the fact that Trudy did not want to and would not learn to use computers, and the Appellant was anxious to use them, it seems to me that she would have had greater value to the company. She was worth $400 per week through the active season of 1995.

[19] Exhibit R-3 is the Appellant’s pay period from April 8, 1996 to October 6, 1996 when she earned $500 per week. In other words, her pay had been increased by 25%, but as she explained she had taken a course through the Ontario Management Development Program and had received a certificate. Also, she had taken another course to improve her management skills and ability to handle office work. Against the above facts, paragraph 6(i) states in part: “...a fixed weekly salary which was increased from approximately $350 per week in 1994 to $500 per week in 1996 ...”. In reviewing the records of employment, it is evident that the weekly salary was not approximately $350. It was $395 in 1993-1994. Also, in 1995, her weekly salary was increased to $400 and in 1996, it went up to $500.

[20] Referring to paragraph 6(j), I cannot arrive at a 67% increase in salary from 1994 to 1996. During the winter of 1993-1994, she was paid a weekly salary of about $400; during the summer of 1995, she was paid a weekly salary of $400; and during the summer of 1996, she was paid a weekly salary of $500, which is a 25% increase in one year. In that period, however, she had completed at least two business courses and obtained two certificates in business administration to justify her increase.

[21] Paragraph 6(k) states:

contrary to the Payor’s arm’s length workers who did not receive any bonuses, the Appellant was paid a bonus in the amount of $14,500 for the 1995 season;

The Appellant explained that the above amount was not a bonus but that she was paid commissions on sales. Patrick Mooney and her husband were also paid commissions on sales. Apparently, Patrick Mooney sold two units in 1997 on which he has been paid commissions. According to her unchallenged evidence, she had earned the above amount as commissions effecting sales herself. She also said that this amount as commissions was evidenced by a different type of T4 slip issued at the end of the year to herself and Patrick Mooney. They would each receive two income T4 slips, one for the regular salary and one for commissions earned. Therefore, the statement in paragraph 6(k) is wrong because the $14,500 was not a bonus but an earned commission.

[22] Paragraph 6(l) states:

the Appellant’s weekly salary and benefits were excessive under the circumstances;

In my opinion, that is not a fact and whether they were excessive or not depends upon the circumstances. Having regard to the evidence, I have concluded that the Appellant’s compensation was not excessive for the following reasons. According to her uncontradicted evidence, Harriet Turner who worked with a manual typewriter and no modern business equipment was paid $250 per week as recently as 1990. Trudy Bicknell who had more modern business equipment skills but would not work with computers was paid $360 per week as recently as 1994 and she was working at a time when the company was converting from old style business recording devices to modern devices. The Appellant who was able to work all the modern business equipment was paid about $400 per week in the winter of 1993-1994 and in the active season of 1995. In 1996, she was paid $500 per week. In 1996, it was not extraordinary or excessive for the Appellant to be paid twice the amount that Harriet Turner was paid in 1990 when working with business equipment that was antiquated by any standard at that time.

[23] I will comment on a factor which the Minister seldom considers. Payment to a non-arm’s length person does not ipso facto mean that the payor is simply showering some benefit on the payee because of the non-arm’s length relationship. Very often, the payee can be worth more to a business organization because of the non-arm’s length relationship because the payee has a family interest in seeing the business succeed. The payee does not watch the clock and skip out at 5:00 p.m.; is not looking to earn just her income and then be away from the business. It may be that this business is an integral part of the Appellant’s life because her husband earns his livelihood from it and her mother-in-law owns it. In my view, paragraph 3(2)(c) of the Unemployment Insurance Act is a necessary limitation to guard against circumstances where, in a non arm’s length relationship with an employee, some extraordinary benefit is showered upon a family member who makes no contribution to the business. In circumstances where a family member is making a very real contribution to the business, the Minister has to be more guarded in exercising her discretion against the interest of the employee.

[24] In this case, I find that not only are the facts relied on by the Minister either contradicted or explained but, there are very few facts, if any, left to support the Minister’s conclusion. Therefore, I am justified in embarking upon a second inquiry or a trial de novo to determine whether the circumstances of the employment between the Appellant and the company are similar to those that would exist with an arm’s length employee. To use the words of the legislation, is it reasonable to conclude that the Appellant and the company would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length? Based on the evidence before me, it is reasonable to assume that the company would have reached a substantially similar contract if it had been dealing with the Appellant at arm’s length. For these reasons, the appeal is allowed.

Signed at Ottawa, Canada, this 12th day of December, 1997.

"M.A. Mogan"

J.T.C.C.