Groupe A.B.H. Assurances Inc. v. M.N.R., docket 96-2290-UI

Date: 19971222

Docket: 96-2290-UI

BETWEEN:

GROUPE A.B.H. ASSURANCES INC.,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1] This is an appeal from a determination dated October 17, 1996. In that determination, the Minister of National Revenue (“the Minister”) concluded that the work done by Bernard Allaire, Robert Houle and Louis P. Bernard for Groupe A.B.H. Assurances inc. during the period from January 1 to December 31, 1995, amounted to contracts of service.

[2] In other words, after doing a review, the respondent concluded that the individuals referred to above held insurable employment.

[3] To support his determination, the respondent described the facts he considered relevant and decisive in paragraph 6 of the Reply to the Notice of Appeal. Those facts were described as follows:

[TRANSLATION]

(a) the appellant is a business that operates in the insurance field;

(b) the appellant’s capital stock is distributed as follows:

(i) Gestion B. Allaire inc. 32.42 %

(ii) Gestion Louis P. Bernard inc. 32.42 %

(iii) Gestion R. Houle inc. 32.42 %

(iv) Robin Bernard 2.74 %;

(c) Bernard Allaire owns all of the capital stock of Gestion B. Allaire inc.;

(d) Louis P. Bernard owns all of the capital stock of Gestion Louis P. Bernard inc.;

(e) Robert Houle owns all of the capital stock of Gestion R. Houle inc.;

(f) the building in which the business’ premises are located is at 425, rue Meigs in Farnham and is owned by the appellant;

(g) the appellant has annual sales in the neighbourhood of $1 million;

(h) the appellant has about 5,000 customers;

(i) the appellant employs 15 to 20 workers each year;

(j) Mr. Allaire’s duties involve selling insurance contracts, providing customer service and following up on insurance contract renewals;

(k) Robert Houle’s duties are the same as Mr. Allaire’s as regards the sale of insurance contracts, but he is also responsible for supervising the work of two office employees, preparing the appellant’s budgets and looking after the expense accounts;

(l) Louis P. Bernard’s duties are the same as Mr. Allaire’s and Mr. Houle’s as regards the sale of insurance contracts, but he is also responsible for the computer system and for negotiations to contract out the maintenance and leasing of the building;

(m) the three workers, who are also directors of the appellant, meet an average of once a week to ensure that the business operates smoothly;

(n) the three workers worked between 40 and 50 hours a week;

(o) the three workers always had to tell the secretary when they were going to be absent or travelling;

(p) the three workers/directors decided by mutual agreement to vote themselves an annual salary;

(q) when they use their vehicles in performing their work, the three workers are reimbursed by the appellant for the expenses they incur;

(r) during the periods at issue, there was a contract of service between the appellant and the three workers.

[4] The agent for the company admitted the content of subparagraphs (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (n) and (q). He denied the content of subparagraphs (m), (o), (p) and (r).

[5] Robert Houle testified, and his testimony showed that the content of subparagraphs (m), (o) and (p) was correct. Mr. Houle explained that the corporate structure had been created through a merger motivated by a concern for profitability and efficiency. Tax planning had then been done in connection with the setup of the structure.

[6] Robert Houle explained that he and his two colleagues worked in the insurance field; he himself was very specifically involved in administering and managing a staff of about 20 people.

[7] The other two were basically responsible for insurance, one in the agricultural field and the other in the commercial field. All three were involved in selling insurance to individuals.

[8] All of the files, the customers and the income generated by the three partners’ work was deposited in the account of Groupe A.B.H. Assurances inc.

[9] Each of them received a salary of about $50,000 a year, except Robert Houle, whose salary was a few thousand dollars higher for reasons that were not explained.

[10] An agreement entered into on December 18, 1986 (Exhibit A-2) was discussed at length. Relying on the content of that agreement, the appellant’s agent argued that the company had no power to control the work done by Bernard Allaire, Robert Houle and Louis P. Bernard. He also stated that those men managed the company’s business together in a spirit of collegiality and conviviality.

[11] This is a case in which it is essential to determine whether Groupe A.B.H. Assurances inc., which paid the salaries, had the power to control the work done by the individuals involved. During the period in question, was there a relationship of subordination between the company and those individuals? Was there an employer-employee relationship between the company and individuals in question?

[12] The facts alleged in answer to these questions are few in number and, above all, not very persuasive.

[TRANSLATION]

(o) the three workers always had to tell the secretary when they were going to be absent or travelling;

[13] This allegation is completely immaterial and does not prove in the least that an individual is subject to a control mechanism because the individual informs someone about his or her comings and goings.

[14] Sole proprietors of small, medium-sized and even very large businesses restrict their own freedom in this way for the good and simple reason that doing so is essential to the smooth operation of any business.

[15] Was the respondent trying to argue, by making this allegation, that the company’s secretary was the instrument through which the power to control was exercised?

[16] The preponderance of the evidence, which was made up of the testimony of Mr. Allaire, Mr. Houle and Mr. Bernard and the documentary evidence, showed that, mainly because of the shareholders’ agreement, the three shareholders’ powers were more extensive than would arise from the percentage of shares they owned.

[17] It is, of course, essential to draw a clear distinction between the status of shareholder and the status of worker, when an individual combines the two. Normally, a shareholders’ agreement provides mainly for mechanisms for resolving differences among the shareholders, valuing shares, restricting share transfers, etc.

[18] In the case at bar, the agreement also provided for the withdrawal of one of the shareholders as an insurer. The agreement therefore set out some specific scenarios in which the insurers were considered to be businesspersons rather than shareholders. The agreement provided that as individual businesspersons, they had substantial powers that directly limited the others’ powers.

[19] Thus, it was shown that for all practical purposes the company could not dismiss any of the three individuals whose work is at issue in this case without endangering the company’s very survival. The dismissal of an employee is the ultimate expression of the power to control. Without the power to dismiss or reprimand, the power to control becomes fictitious and ineffectual.

[20] The evidence also showed that the relationship between Mr. Allaire, Mr. Houle and Mr. Bernard was very harmonious and that all administrative decisions were made by unanimous agreement. As a result, each individual’s importance went far beyond the relative importance derived from his percentage of the vote.

[21] The evidence showed to the satisfaction of this Court that Groupe A.B.H. Assurances inc. was not entitled to control the actions of Mr. Allaire, Mr. Houle and Mr. Bernard.

[22] Given that this element was essential to the formation of a contract of service between the company and these men, I see no point in continuing the analysis by looking at the other tests.

[23] I allow the appeal, since the work done by Mr. Allaire, Mr. Houle and Mr. Bernard during the period at issue did not amount to contracts of service within the meaning of the Unemployment Insurance Act.

Signed at Ottawa, Canada, this 22nd day of December 1997.

“Alain Tardif”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 16th day of November 1998.

Kathryn Barnard, Revisor