Date: 20001024
Docket: 1999-3662-EI
BETWEEN:
SONIA DUCHESNE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Dussault, J.T.C.C.
[1] This is an appeal from a decision
by the Minister of National Revenue ("the Minister")
that the appellant did not hold insurable employment with the
payer, Omer Bouchard et Fils (Le Spécialiste des Petits
Moteurs) Inc. ("the company" or "the payer"),
from September 19 to December 18, 1997, and from June 10 to
October 9, 1998.
[2] The Minister's decision is
based on the application of paragraph 5(2)(i) and
subsection 5(3) of the Employment Insurance Act
("the Act"). In paragraph 8 of the Reply to
the Notice of Appeal, the Minister submits that the appellant and
the payer were not dealing with each other at arm's length
and concludes that the terms and conditions of employment would
not have been similar if they had been dealing with each other at
arm's length.
[3] In making his decision, the
Minister relied on the assumptions of fact set out in
subparagraphs (a) to (o) of paragraph 5 of the Reply to the
Notice of Appeal. Those subparagraphs read as follows:
[TRANSLATION]
(a) The payer was incorporated on
December 21, 1995.
(b) Martin Bouchard was the
payer's sole shareholder.
(c) The appellant is Martin
Bouchard's de facto spouse.
(d) The payer operated a business
selling parts for and repairing small engines for such things as
lawn mowers, snowblowers, garden tractors and boats.
(e) The business was located behind
the couple's home.
(f) The appellant's work
involved serving customers and keeping the payer's books.
(g) The business's hours were:
8:00 a.m. to 5:30 p.m. Monday to Friday; and
8:00 a.m. to noon on Saturday.
(h) The appellant provided services to
the payer without pay from April to June 1996.
(i) The business's quarterly
sales in 1997 were:
January to March
1997
$35,563.32
April to June
1997
$51,698.04
July to September
1997
$32,219.81
October to December
1997
$25,999.86
(j) In 1997, the appellant
provided services to the payer from September 19 to December 18,
the least busy time of the year.
(k) The business's quarterly sales
in 1998 were:
January to March
1998
$32,918.79
April to June
1998
$34,110.78
July to September
1998
$29,159.91
October to December
1998
$6,807.71
(l) In 1998, the appellant
provided services to the payer from June 10 to October 9, that
is, during part of the least busy time of the year.
(m) The payer paid the appellant $297.50 a
week, by cheque.
(n) The entries in the payer's
sales journal were made by the appellant all year round.
(o) The appellant provided services to
the payer without pay outside the periods at issue.
[4] Subparagraphs (b), (j), (k) and
(l) were denied. Subparagraphs (f), (h), (n) and (o) were
admitted subject to clarification, and the other subparagraphs
were simply admitted.
[5] I do not know why the
appellant's agent denied subparagraph (b), since all the
documents adduced in evidence clearly indicate that Martin
Bouchard, the appellant's de facto spouse, was the
payer's sole shareholder, director and officer during the
periods at issue. The reason is probably that no shares of the
company's capital stock were issued when it was incorporated
in December 1995, the only issue of shares in the capital
stock to Martin Bouchard having taken place on May 31,
1996.
[6] In actual fact, the payer's
business was initially owned by Aline Lavoie Bouchard,
the mother of the payer's sole shareholder,
Martin Bouchard. She owned it until the end of 1996. It was
her spouse, Omer Bouchard, who managed the business during
that time. Martin Bouchard, who wanted to purchase the business
but did not have the necessary funds, decided to use the payer,
the company incorporated as Omer Bouchard et Fils
(Le Spécialiste des Petits Moteurs) Inc., to lease
his mother's business as of July 16, 1996.
[7] Omer Bouchard died on July 21,
1996. Around the end of that year, the payer purchased from Aline
Lavoie Bouchard the business it was already operating under a
lease.
[8] Omer Bouchard was apparently
the one who initially hired the appellant in April 1996 to
replace him as counter clerk to serve customers on the premises
and over the telephone, to sell parts and to draw up invoices.
Mr. Bouchard was very ill at the time. In April and May 1996, he
and his son Martin apparently gave the appellant some basic
training, as it were, in such things as the identification of
mechanical parts, the drawing up of invoices and partial
bookkeeping. The appellant was then hired and paid from June 6 to
December 13, 1996.
[9] When they testified, both the
appellant and Martin Bouchard said that the appellant was
employed during the busiest time of the year, which was generally
from June to October of each year.
[10] In actual fact, the appellant was
officially employed from June to December in 1996. In 1997, she
was employed from September 19 to December 18. In 1998, she
worked from June 10 to October 9. She also worked another four
weeks in December 1998, although those weeks are not currently at
issue.
[11] In his testimony, Martin Bouchard
explained that the appellant's employment did not end until
December in 1996 because of his father's death in July of
that year and the fact that he himself was often away settling
the estate and seeing to the transfer of the business owned by
his mother, which since July had been operated under a lease by
the company he had himself incorporated a year earlier.
[12] In 1997, the arrival of two new
competitors was what prompted him not to hire the appellant in
June as he had done the previous year. He said that over the
summer he himself handled the sale of parts and did the
bookkeeping in addition to doing mechanical work. He said that,
although he did not have fewer customers in the summer of 1997,
profits were down because of the need to adjust to the
competition. Thus, according to his testimony, he himself worked
a great deal more during the summer of 1997 since he was, so to
speak, combining his duties as a mechanic and those of a parts
clerk, although another mechanic who was there during that time
was able to help him with parts sales. The appellant was
nevertheless employed from September to December mainly for the
purpose of telephone solicitation to offer snowblower tune-ups in
preparation for winter. According to Mr. Bouchard, the
winter before had been exceptional and it was a matter of
contacting customers who had been invoiced during the previous
years to offer them that tune-up service.
[13] In 1998, the appellant worked during
the usual summer season and for four weeks in December. As I
noted earlier, those four weeks are not at issue.
[14] Martin Bouchard explained that
there was more business in the summer although the mechanical
jobs were smaller during that period because they involved minor
repairs to small engines. He said that the snowblower repair and
maintenance jobs done in the winter were bigger.
[15] Both the appellant and Mr. Bouchard
said that, when the appellant was not employed by the payer, all
she did was make entries in what is called the [TRANSLATION]
"sales book". In other words, using the invoice
booklets, she transcribed the sales for the purpose of
calculating taxes (GST and QST). That activity required only four
or five hours a month. Aside from that, the appellant went to the
business's premises only occasionally during her periods of
unemployment, and she provided no services to the payer on such
occasions. She merely engaged in conversation with the
customers.
[16] Mr. Bouchard also testified that he had
had a trainee each year who worked 30 to 40 hours a week from the
end of September or the beginning of October until the end of the
school year. It was unpaid, on-the-job training for young people
who did not show much interest in school. According to Mr.
Bouchard, the presence of a trainee who could do some repairs
under his supervision and according to his instructions gave him
more time to serve customers, which meant that he could do the
appellant's work himself during the period he referred to as
the [TRANSLATION] "least busy", which was mainly from
January to May of each year.
[17] Mr. Bouchard said that, during the
last few years his father ran it, the business was usually closed
from the end of January until the beginning of June. He said that
he therefore received unemployment insurance benefits in a number
of years.
[18] For 1996, the payroll journal (Exhibit
A-2) starts in June. It shows that a mechanic, Réjean
Gagnon, was employed for all the rest of the year and that an
apprentice mechanic, Stéphane Thibeault, was employed from
June until the end of October only.
[19] In 1997, the mechanic
Réjean Gagnon was employed for the entire year while
a mechanic's helper, Michaël St-Pierre, worked in
June, July and August only.
[20] In 1998, Réjean Gagnon
worked from the end of May until the end of the year.
Michaël St-Pierre was employed for only one week in
November and three weeks in December.
[21] Finally, in 1999,
Réjean Gagnon was employed for just five weeks in
January and February while Michaël St-Pierre
worked for four weeks in January and then from May until the end
of December. He continued working in January and until the
beginning of March 2000. He then resumed working in early May and
continued until at least the date on which this case was
heard.
[22] On cross-examination, Mr. Bouchard
admitted that he had spoken with Dyane Fortin, an appeals
officer, about the application of the Employment Insurance
Act and said he had answered her questions. However, he said
that he had not told her that the reason he employed the
appellant until December 1996 was the time required to settle his
father's estate. Nor had he referred to the assistance given
by trainees during the years at issue to explain why the
appellant's presence was unnecessary during certain
periods.
[23] Ms. Fortin testified concerning her
investigation of the appellant's work. Her CPT-110
report and all the documents she consulted were adduced in
evidence (Exhibit I-1). In carrying out her investigation,
she spoke on the telephone with the appellant and Martin
Bouchard, who were in the presence of Lyne Poirier, the
appellant's agent. She also contacted another of the
payer's employees, Michaël St-Pierre.
[24] In her report, Ms. Fortin noted that,
according to the information obtained from the Human Resources
Branch, the appellant worked 556 hours in 1997 and 722 hours in
1998, while 420 hours were needed to be eligible for employment
insurance benefits for those years.
[25] Ms. Fortin next looked at the
circumstances surrounding the appellant's employment and
concluded that she had performed her work under a genuine
contract of service. However, since the payer and the appellant
were related persons, she concluded on the basis of the criteria
set out in paragraph 5(2)(i) of the Act that the
terms and conditions of the appellant's employment would not
have been [TRANSLATION] "the same" if the parties had
been dealing with each other at arm's length.
[26] Although Ms. Fortin felt that the
appellant's wages of $7.00 an hour were reasonable given the
work she did and that the other terms and conditions, including
her work schedule, seemed normal and similar to those of the
other employees, she noted certain incongruous factors that led
her to decide that the employment was excluded from insurable
employment.
[27] Thus, with regard to the
appellant's remuneration and the duration of her employment,
she noted that the appellant had spent four or five hours a month
outside her work periods helping the payer out without being
paid. Indeed, this has been admitted by the appellant.
[28] Moreover, since the appellant was paid
in cash for the first four weeks she worked in 1998, Ms. Fortin
raised the possibility that no wages had in fact been paid for
those weeks of work. As well, the fact that the appellant was
paid by cheque for the other weeks, that she endorsed the cheques
and that they were deposited in the account of her spouse, who
gave her the money she needed to cover her expenses while keeping
the rest for the family's needs, was viewed very negatively.
On page 6 of her report, Ms. Fortin noted the following in this
regard:
[TRANSLATION]
Her wages were cashed and shared with the payer's
shareholder, which enabled him to pay himself less and which
directly benefited the payer.
[29] The appellant is Mr. Bouchard's de
facto spouse and has two children. In his testimony, Mr. Bouchard
explained that the appellant paid her share of the family's
expenses and that her endorsing the cheques and their using his
bank account was just their way of doing things. The appellant
said that she did not drive a car and that she did not have time
to go to the bank herself to cash her cheques.
[30] Another aspect emphasized by Ms. Fortin
in her report concerns the appellant's periods of employment.
On that point, despite the explanations given by
Mr. Bouchard regarding the business's level of
activities during the years at issue, Ms. Fortin concluded that
[TRANSLATION] "the periods during which the appellant was
paid bear no relation to the payer's activities". In
this regard, she examined the number of transactions, sales and
repairs for each month in 1997 and 1998 and found that there were
as many if not more transactions during certain months when the
appellant was not paid.
[31] Moreover, subparagraph 5(h) of the
Reply to the Notice of Appeal states that the appellant provided
services to the payer without pay from April to
June 1996.
[32] Ms. Fortin testified that she did not
take account of that fact in making her decision because that
period was not at issue. She said that she simply read an earlier
report in which that period of work without pay prior to a work
period was not viewed unfavourably because the appellant had no
experience at that time (Exhibit I-1, Tab L).
[33] Ms. Fortin also testified that, during
her investigation, Martin Bouchard had not told her that
trainees were present at certain times each year or that in 1997
the appellant had been employed from September on to do telephone
solicitation of customers.
[34] Moreover, it should be noted that Ms.
Fortin also contacted another employee, Michaël
St-Pierre, on July 7, 1999. Mr. St-Pierre apparently
confirmed that the appellant worked during the busy periods and
did not work at the shop during her periods of unemployment.
[35] Commenting on the nature and importance
of the appellant's work, Ms. Fortin noted the following
on page 6 of her report:
[TRANSLATION]
After the periods during which she was paid, the appellant was
replaced by the shareholder, who performed her work and carried
out her duties without this costing the payer anything more (as
the shareholder still received the same salary).
She
noted the following in the next paragraph:
[TRANSLATION]
Although the parties claim that the appellant provides
services to the payer for only four or five hours a month outside
the periods during which she is paid, this is implausible given
the information (fact J) that there were as many if not more
transactions outside the periods at issue and, as the shareholder
mentioned, there was more work for him as a mechanic repairing
lawn mowers, yet the appellant did not start working until
mid-September in 1997.
The periods during which the appellant was paid bear no
relation to the payer's activities.
Ms.
Fortin concluded her analysis as follows:
[TRANSLATION]
Although we acknowledge that services were provided by the
appellant, it is our view that what was involved was more a
sharing of work and skills by spouses to ensure the profitability
and efficient operation of the business.
In light of the facts gathered and based on the criteria in
paragraph 5(2)(i) of the Employment Insurance Act,
the same terms and conditions of employment would not have
existed if the parties had been dealing with each other at
arm's length. The employment is therefore excluded from
insurable employment.
[36] In the opinion of the appellant's
agent, the Minister hastily and wrongly concluded that the
appellant's employment was excluded from insurable employment
without thoroughly analysing the facts concerning the type of
business being operated and the customers it served. She stated
that the appellant's terms and conditions of employment were
the same as those of the other employees and that the few hours
of work she did every month outside the periods at issue making
entries in the sales book are not an important enough factor to
exclude the employment from insurable employment. In her view,
the testimony heard would have led the Minister to a different
decision.
[37] In the opinion of counsel for the
respondent, the decision made is reasonable in the circumstances
despite the new facts brought forward by the appellant and
Martin Bouchard in their testimony. According to counsel,
Ms. Fortin's investigation was exhaustive. Counsel for
the respondent noted in particular the fact that the appellant
was not paid during certain periods when the volume of activity
was just as high as during her periods of paid employment.
[38] To begin with, it is important to
remember the limits of an appeal to the Tax Court of Canada in
cases where the Minister has exercised a discretion in the area
of employment insurance. In Ferme Émile Richard et Fils
Inc. v. Minister of National Revenue et al. (1995), 178
N.R. 361, the Federal Court of Appeal set out those limits with
reference to the application of subparagraph 3(2)(c)(ii)
of the Unemployment Insurance Act—the equivalent
provision to the current paragraph 5(3)(b) of the
Employment Insurance Act—in the following terms in
paragraph 4:
As this Court recently noted in Tignish Auto Parts Inc. v.
Minister of National Revenue, July 25, 1994, A-555-93,
F.C.A., not reported, an appeal to the Tax Court of Canada in a
case involving the application of s. 3(2)(c)(ii) is not an
appeal in the strict sense of the word and more closely resembles
an application for judicial review. In other words, the
Court does not have to consider whether the Minister's
decision was correct: what it must consider is whether the
Minister's decision resulted from the proper exercise of his
discretionary authority. It is only where the Court
concludes that the Minister made an improper use of his
discretion that the discussion before it is transformed into an
appeal de novo and the Court is empowered to decide
whether, taking all the circumstances into account, such a
contract of employment would have been concluded between the
employer and employee if they had been dealing at arm's
length.
[39] In Canada (Attorney General) v.
Jencan Ltd., [1998] 1 F.C. 187, the Federal Court of
Appeal, per Isaac C.J. as he then was, restated these
principles in the following terms in paragraphs 36-37:
Thus, by limiting the first stage of the Tax Court's
inquiry to a review of the legality of ministerial determinations
under subparagraph 3(2)(c)(ii), this Court has merely
applied accepted judicial principles in order to strike the
proper balance between the claimant's statutory right to have
a determination by the Minister reviewed and the need for
judicial deference in recognition of the fact that Parliament has
entrusted a discretionary authority under this provision to the
Minister.
On the basis of the foregoing, the Deputy Tax Court Judge was
justified in interfering with the Minister's determination
under subparagraph 3(2)(c)(ii) only if it was established
that the Minister exercised his discretion in a manner that was
contrary to law. And, as I already said, there are specific
grounds for interference implied by the requirement to exercise a
discretion judicially. The Tax Court is justified in
interfering with the Minister's determination under
subparagraph 3(2)(c)(ii)—by proceeding to review the
merits of the Minister's determination—where it is
established that the Minister: (i) acted in bad faith or for an
improper purpose or motive; (ii) failed to take into account all
of the relevant circumstances, as expressly required by paragraph
3(2)(c)(ii); or (iii) took into account an irrelevant
factor.
[40] It hardly needs to be pointed out that
it is the appellant who bears the burden of proving on a balance
of probabilities that the Minister's decision was made in a
manner contrary to the Act.
[41] In the case at bar, although the
appellant's terms and conditions of employment generally were
not different from those of the other employees, two specific
factors seem to have had a considerable impact on Ms.
Fortin's decision to exclude the appellant's employment
from insurable employment. Those factors are the sharing of the
appellant's pay with her de facto spouse, Martin Bouchard,
and the work done by the appellant for the payer outside the
periods during which she was paid.
[42] Regarding the first factor, it is
important to remember that the appellant is
Mr. Bouchard's de facto spouse and that she has two
children who are now 15 and 16 years old. In his testimony, Mr.
Bouchard explained that the appellant paid her share of the
family's expenses and that her endorsement of the cheques she
received from the payer and the use of his bank account were a
practical way of doing things. As well, the appellant said that
she did not drive a car and did not have time to go to the bank
after work to cash her cheques. I personally can see nothing
negative about this practice. The important thing, it seems to
me, is not how a person uses his or her pay; it is, rather, that
the person is genuinely paid for his or her work. I would add
that it is not abnormal either—quite the contrary—for
two people who live together to share the family's financial
responsibilities, each according to his or her means. This seems
all the more natural in the instant case when one considers the
fact that the appellant's two children are not
Mr. Bouchard's. Thus, as I see it, allowing this aspect
to have a negative impact on the decision concerning the
insurability of the appellant's employment is to take into
account an irrelevant factor.
[43] The second factor calls for a number of
comments. To begin with, subparagraph 5(h) of the Reply to the
Notice of Appeal states that account was taken of the fact that
the appellant had provided services to the payer without pay from
April to June 1996. First of all, that fact was considered for
the purposes of a previous decision and was not held against the
appellant because she was being trained at the time since she had
no experience in the field. After that initial period, she was
paid in a normal fashion. Second, although that temporary
situation involved a previous year and Ms. Fortin said she did
not take account of it, the fact remains that it is mentioned in
the Reply to the Notice of Appeal as a basis for the
decision.
[44] Moreover, Ms. Fortin's comments on
the nature and importance of the appellant's work—as
reproduced in paragraph [35]—are puzzling, since she states
that "[a]fter the periods during which she was paid, the
appellant was replaced by the shareholder, who performed her work
and carried out her duties without this costing the payer
anything more". In the next paragraph, she states that it is
"implausible" that the appellant provided services to
the payer for only four or five hours a month outside the periods
during which she was paid, given the number of transactions
during those periods. Either the appellant was replaced in her
work and duties by Mr. Bouchard when she was not being paid
or she was not so replaced and she worked during those periods.
Although the two propositions are at least partly contradictory,
subparagraph 5(o) of the Reply to the Notice of Appeal states
that "[t]he appellant provided services to the payer without
pay outside the periods at issue". That subparagraph was
admitted solely as regards the four or five hours a month that
the appellant spent making entries in the sales book.
[46] This brings me to the conclusion stated
by Ms. Fortin in her report, which I will reproduce again for the
sake of convenience:
[TRANSLATION]
Although we acknowledge that services were provided by the
appellant, it is our view that what was involved was more a
sharing of work and skills by spouses to ensure the profitability
and efficient operation of the business.
In light of the facts gathered and based on the criteria in
paragraph 5(2)(i) of the Employment Insurance Act,
the same terms and conditions of employment would not have
existed if the parties had been dealing with each other at
arm's length. The employment is therefore excluded from
insurable employment.
[47] First of all, concluding that
"what was involved was more a sharing of work and skills by
spouses to ensure the profitability and efficient operation of
the business" highlights the contradiction noted above.
[48] Second, that observation in itself is
not at all relevant for the purposes of subparagraph
5(3)(b) of the Act.
[49] Third, the issue to be determined
having regard to all the circumstances of the employment is not
whether the terms and conditions would have been "the
same" but rather whether it is reasonable to conclude that
the parties would have entered into "a substantially similar
contract of employment" if they had been dealing with each
other at arm's length. No doubt, this may be thought to be
but a subtle distinction. So be it. The fact remains that the
distinction exists and must be taken into account. In this
regard, I am of the opinion that the analysis was not carried out
using the test as stated in the Act, which, in my view,
amounts to taking into account an irrelevant factor.
[50] It is my opinion that the Court is
entitled to interfere in respect of the two factors identified,
since the Minister's decision was made in a manner contrary
to the Act.
[51] With regard to the merits of the
question, the only factor that could possibly lead one to
conclude that the parties would not have entered into a
substantially similar contract of employment if they had been
dealing with each other at arm's length is the unpaid work
done outside the periods at issue. However, despite
Ms. Fortin's testimony and her analysis of the number of
transactions by the payer during the various months of 1997 and
1998, I am far from convinced that the appellant actually worked
outside the periods during which she was paid for more than the
four or five hours a month she says she spent making entries in
the sales book. Her testimony and that of Martin Bouchard
are to that effect, and the explanations given at the hearing
seem credible to me. It should be emphasized here that another
employee with no relationship to the payer also confirmed to Ms.
Fortin during a telephone conversation on July 7, 1999, that the
appellant did not work at the shop during her periods of
unemployment. Yet in her report, Ms. Fortin gave no reason for
not accepting that evidence.
[52] Given the presence of trainees and the
other employees, some of whom did not work for all of 1997 and
1998 either, I consider it extremely difficult to determine on
the basis of the number of the payer's transactions the
periods during which the appellant's services should have
been required. In the circumstances, such a speculative exercise
leads only to rather vague inferences.
[53] As for the four or five hours a month
the appellant spent making entries in the sales book without
being paid, it is my view that that factor alone is not
sufficient. All the other factors, including the remuneration
paid, the appellant's terms and conditions of employment and
the duration, nature and importance of the work performed, must
be taken into account to establish that the appellant and the
payer would not have entered into a substantially similar
contract of employment if they had been dealing with each other
at arm's length. It is true that a third party would perhaps
not have given those few hours to the payer without being paid.
However, I consider this a very minor factor given all of the
circumstances, and it is something for which allowances can be
made in light of the words "substantially similar contract
of employment".
[54] As a result of the foregoing, the
appeal is allowed and the Minister's decision is varied on
the basis that the appellant held insurable employment from
September 19 to December 18, 1997, and from June 10 to October 9,
1998.
Signed at Ottawa, Canada, this 24th day of October 2000.
J.T.C.C.
Translation certified true
on this 30th day of November 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
1999-3662(EI)
BETWEEN:
SONIA DUCHESNE,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on August 16, 2000, at Chicoutimi,
Quebec, by
the Honourable Judge P.R. Dussault
Appearances
Agent for the
Appellant:
Lyne Poirier
Counsel for the
Respondent:
Yanick Houle
JUDGMENT
The appeal is allowed in accordance with the attached reasons
for judgment and the minister's decision is varied on the
basis that the appellant was engaged in insurable employment from
September 19 to December 18, 1997, and from June 10 to October 9,
1998.
Signed at Ottawa, Canada, this 24th day of October 2000.
J.T.C.C.
Translation certified true
on this 30th day of November 2001.
Erich Klein, Revisor
Email this Content