Côté v. M.N.R., docket 96-98-UI

Date: 19971119

Docket: 96-98-UI

BETWEEN:

PIERRE CÔTÉ,

Appellant,

and

THE MINISTER OF NATIONAL REVENUE,

Respondent,

and

JACINTHE BEAULIEU,

Intervener.

Reasons for Judgment

Charron, D.J.T.C.C.

[1] This appeal was heard at Québec, Quebec on November 7, 1997 to determine whether the appellant held insurable employment within the meaning of the Unemployment Insurance Act ("the Act") when he worked for the payer, Jacinthe Beaulieu, doing business under the trade name "Pension Belle Nuit Enr.", during the periods from July 27 to August 14, 1992, June 13 to September 25, 1993 and June 12 to October 1, 1994.

[2] In a letter dated December 13, 1995 the respondent informed the appellant that this employment was not insurable because he and the payer were not dealing at arm's length.

Summary of facts

[3] The facts on which the respondent relied in arriving at his decision are set out as follows in paragraph 5 of the Reply to the Notice of Appeal:

[TRANSLATION]

(a) the appellant is the payer's spouse; (admitted)

(b) since 1989 the payer has operated a business of which she is the sole owner; (admitted)

(c) the business operated by the payer offers accommodation services for small pets: its facilities allow it to accommodate up to 40 animals; (admitted)

(d) the payer operates her business throughout the year, but is busier between June 24 and early September and during the year-end holidays; (denied)

(e) at least one person must be present at all times and at all hours to provide care for the animals; (admitted)

(f) the business’s income was $22,971 in 1992, $22,780 in 1993 and $25,488 in 1994; (admitted)

(g) the payer alleges that she hired the appellant during the periods at issue only, to serve customers, care for the animals and maintain the premises; (denied)

(h) the appellant alleges that during the periods at issue he had no fixed work schedule, had to be available seven days a week as required and worked an average of 35 hours a week; (denied)

(i) during the periods at issue the appellant received a fixed weekly salary regardless of the hours he actually worked; (admitted)

(j) this salary was $225 in 1992, $275 in 1993 and $300 in 1994; (admitted)

(k) the payer hired part-time workers whom she paid at an hourly rate of $6.50, and only for the hours they actually worked; (admitted)

(l) the appellant rendered similar services to the payer outside the periods at issue without receiving any pay; (denied)

(m) the periods at issue did not correspond to the payer's busy periods; (denied)

(n) the payer and the appellant were not dealing at arm's length; (no knowledge)

(o) having regard to all the foregoing circumstances, in particular the periods at issue and the salary, it is not reasonable to conclude that the appellant and the payer would have entered into a similar contract of employment if they had been dealing with each other at arm's length. (denied)

[4] The appellant admitted all the allegations in the subparagraphs of paragraph 5 of the Reply to the Notice of Appeal except those which he denied or of which he said he had no knowledge, as is indicated in parentheses at the end of each paragraph.

Testimony of Pierre Côté

[5] Pierre Côté was a miner from 1982 to 1992. Since 1992 he has worked for Jacinthe Beaulieu, his wife. She operates a boarding kennel for domestic animals under the trade name "Pension Belle Nuit Enr." on the family property of the couple, who were married under the partnership of acquests regime. The business was founded by Beaulieu and Côté invested nothing in it. With Côté standing surety, Beaulieu simply had to borrow the money needed to start her business from the Caisse populaire de Pintendre.

[6] The kennel can hold 30 dogs and 10 or 12 cats. In 1992 Côté began working for Beaulieu free of charge, and the following year she hired him to look after the maintenance of the buildings. His duties also included looking after the animals, walking the dogs and sweeping and disinfecting the pens. He worked five hours a day, seven days a week and received a weekly salary of $225, $275 and $300 in 1992, 1993 and 1994 respectively, or the same salary as the other employees. Côté worked a few hours in the morning and a few hours in the afternoon, depending on the animals' requirements. Beaulieu looked after administration: she made decisions, hired employees, set their schedules and made up paycheques. Mr. Samson was responsible for accounting. If the payer was absent the appellant received the animals: he drew up 301 invoices in 1,460 days without pay. Côté also owns his own business, which involves taking in and caring for stray animals caught by the Pintendre municipal council. This business is quite separate from that of the payer and now serves some 12 towns in the area. In 1992 Côté's work was regarded as insurable, but in 1993 the respondent considered it to be excepted from insurable employment. The appellant also owns woodlots, although he does not operate them. The tools and instruments used by Côté in performing his duties were owned by the payer. The appellant did not work for the payer during the winter. He looked after the children, cut wood, worked for Matériaux L.M. or replaced his wife at home when she went on vacation in Myrtle Beach.

Testimony of Jacinthe Beaulieu

[7] Beaulieu has been the owner of a kennel for domestic animals since 1989 in which she looks after dogs, cats and other small animals. To set up this business the payer borrowed $10,000 from the Caisse populaire de Pintendre and her husband stood surety for her (Exhibit I-1). The office is located in the basement of the family home. In 1992, 1993 and 1994 she worked days and evenings and her husband helped her in his free time. The payer looked after administration. At the start of the summer she hired her husband until early September. He worked from 8:00 a.m. to 11:00 a.m. and from 6:00 p.m. to 8:00 p.m. every day. The appellant received a paycheque once a week regardless of the hours he worked, whereas the two or three employees were paid according to the hours they worked. When she was absent her husband replaced her, as the kennel was open year round. When Côté ceased working for the payer she had to hire two people to replace him: people do not like working hours spread over the day.

Analysis of the facts in light of the law

[8] As it was proven that the payer and the appellant were not dealing at arm's length, it must now be decided whether the appellant's contract of employment would have been substantially similar if he had been dealing with the payer at arm's length. Did the respondent act properly in exercising the discretionary authority conferred on him by s. 3(2)(c)(ii) of the Act?

[9] Section 3(2) reads in part as follows:

(2) Excepted employment is

. . .

(c) subject to paragraph (d), employment where the employer and employee are not dealing with each other at arm's length and, for the purposes of this paragraph,

(i) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the provisions of the Income Tax Act, and

(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 . . . .

[10] Under s. 251(1)(a) of the Income Tax Act related persons are deemed not to deal with each other at arm's length. When persons are related, employment cannot be considered insurable unless the Minister of National Revenue is satisfied otherwise in accordance with s. 3(2)(c)(ii) of the Unemployment Insurance Act, reproduced supra.

[11] The Federal Court of Appeal has handed down two major judgments on the application of s. 3(2)(c) of the Unemployment Insurance Act.

[12] In the first of these judgments, Tignish Auto Parts Inc. v. M.N.R. (185 N.R. 73) dated July 25, 1994, the Court cited counsel for the respondent, in whose opinion it concurred:

Under the authority of Minister of National Revenue v. Wrights' Canadian Ropes Ltd., contends the respondent, unless the Minister has not had regard to all the circumstances of the employment (as required by subparagraph 3(2)(c)(ii) of the Act), has considered irrelevant factors, or has acted in contravention of some principle of law, the court may not interfere. Moreover, the court is entitled to examine the facts which are shown by evidence to have been before the Minister when he reached his conclusion so as to determine if these facts are proven. But if there is sufficient material to support the Minister's conclusion, the court is not at liberty to overrule it merely because it would have come to a different conclusion. If, however, those facts are, in the opinion of the court, insufficient in law to support the conclusion arrived at by the Minister, his determination cannot stand and the court is justified in intervening.

[13] There are thus four tests which the Tax Court of Canada can apply to decide whether it is entitled to intervene:

the Minister of National Revenue

(1) did not have regard to all the circumstances;

(2) considered irrelevant factors;

(3) acted in contravention of a principle of law; or

(4) based his decision on insufficient facts.

[14] In Ferme Émile Richard et Fils Inc. (178 N.R. 361), dated December 1, 1994, the Federal Court of Appeal summed up Tignish Auto Parts Inc. as follows:

As this Court recently noted in Tignish Auto Parts Inc. v. Minister of National Revenue . . . 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.

[15] As for the comparisons that must be made between the work of an employer's various employees, they must lead to the conclusion that the working conditions of one are inordinately favourable or unfavourable as compared with those of another who would have entered into a contract of employment at arm's length. This is what Hugessen J.A. held in Raymonde Bérard v. M.N.R. (A-487-96):

According to counsel, a teleological interpretation of this provision requires that only those employments of which the conditions are inordinately favourable to the employee be excepted. We disagree. Nothing in either the provision or the context suggests such an interpretation. The clear purpose of the legislation is to except contracts of employment between related persons that are not similar in nature to a normal contract between persons dealing with each other at arm's length. It is in our view clear that this abnormality can just as well take the form of conditions unfavourable to the employee as of favourable conditions. In either case, the employer-employee relationship is abnormal and can be suspected of having been influenced by factors other than economic forces in the labour market.

[16] In view of the fact that it seems clear from the evidence presented and the documents filed by the parties that the respondent had regard to all the circumstances, eliminated the irrelevant factors, applied the accepted principles of law and based his decision on sufficient facts, in view of the fact there was collusion between the payer and the appellant solely to enable the latter to qualify for unemployment insurance benefits, in view of the many contradictions, and in view of the fact that the appellant did not prove that the payer and he would haveentered into such a contract if they had been dealing at arm's length, the appeal is dismissed and the respondent's decision affirmed.

“G. Charron”

D.J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 13th day of August 1998.

Stephen Balogh, Revisor