REASONS
FOR JUDGMENT
Sommerfeldt J.
[1]
These Reasons pertain to an Appeal by Christian
Lalande from a decision (the “Decision”) dated September
17, 2014 on behalf of the Minister of National Revenue (the “Minister”) regarding the insurability of Mr.
Lalande’s employment with 2210066 Ontario Inc. (the “Corporation”) during the period from May 5, 2013 to
May 4, 2014.
I. Factual
Background
[2]
Christian Lalande is married to Patricia Mulder
Lalande,
who typically refers to herself as Patricia Mulder.
[3]
The Corporation was incorporated under the laws
of Ontario on June 23, 2009. On or shortly after the date of its incorporation,
the Corporation issued 100 voting Class A Common shares to Ms. Mulder and 100
voting Class C Special shares to Mr. Lalande.
No evidence was provided concerning the rights, privileges, restrictions and conditions
attaching to the shares of these two classes, other than an indication that
both classes of shares have similar voting rights and that the Class A Shares are
common shares and the Class C Shares are special shares.
[4]
In 2012 Ms. Mulder and Mr. Lalande decided to
change their respective shareholding proportions in the Corporation.
Accordingly, on May 11, 2012 Ms. Mulder subscribed for 80 additional Class
A Shares, paying a subscription price of $0.10 per share, and Mr. Lalande
subscribed for 20 additional Class C Shares, paying a subscription price of
$0.10 per share. After these additional shares were issued, Ms. Mulder held 180
Class A Shares of the capital stock of the Corporation, representing 60% of all
the issued voting shares, and Mr. Lalande held 120 Class C Shares of the
capital stock of Corporation, representing 40% of all the issued voting shares.
[5]
Mr. Lalande and Ms. Mulder explained that the
reason for this change in the relative shareholdings in the Corporation was that
Ms. Mulder had made, and was continuing to make, a greater contribution to the
restaurant than Ms. Mulder, in terms of both invested capital and
committed time. As well, Ms. Mulder unilaterally made all significant
decisions pertaining to the Corporation’s business. During the hearing, counsel
for the Minister suggested that the reason for the change in the relative
shareholdings in the Corporation was to enable Mr. Lalande, on the
termination of this employment, to qualify for benefits under the Employment
Insurance Act, S.C. 1996, c. 23, as amended (the “EIA”);
however, Mr. Lalande and Ms. Mulder were adamant that such was not the case. I
do not think that it is necessary for me to determine the reason for the change
in the shareholdings.
[6]
In conjunction with the incorporation of the
Corporation on June 23, 2009, Ms. Mulder and Mr. Lalande were appointed as the
only directors of the Corporation. As well, Ms. Mulder was appointed as the
president and as the secretary-treasurer of the Corporation. Mr. Lalande was
not appointed as an officer of the Corporation.
[7]
The Corporation was incorporated for the purpose
of operating a Harvey’s fast-food restaurant in Ottawa, Ontario. In conjunction
with this objective, the Corporation acquired a Harvey’s franchise from the
restaurant chain’s franchisor (the “Franchisor”).
To finance the acquisition of the franchise and the development of the
business, the Corporation obtained a loan from a financial institution. The
initial amount of the loan was not provided in evidence; however, in August
2014 (when Ms. Mulder completed a questionnaire provided to her by the Canada Revenue
Agency (the “CRA”)), the outstanding amount of
the loan was $153,000. To secure this loan, Ms. Mulder and Mr. Lalande
mortgaged their family home to the financial institution. The details of the
financing arrangement were not explained; however, Mr. Lalande stated that he incurred
personal liability for the repayment of the loan.
[8]
Ms. Mulder has worked in the fast-food industry
for approximately 30 years. She has extensive experience in operating and
managing fast-food restaurants.
[9]
The Corporation conducts its business in
premises leased from the Franchisor or an affiliate thereof (in either case, the
“Landlord”). In August 2014 the monthly
rent for the leased premises was $9,600. Mr. Lalande stated that he has incurred
personal liability in respect of the rent (although the precise nature of the
liability was not explained).
[10]
When the premises for the Corporation’s
restaurant were being constructed, Mr. Lalande was employed elsewhere as an
automotive mechanic. However, as a 50% (as he then was) shareholder of the
Corporation, he played a role in dealing with the general contractor and overseeing
the construction of the premises. When the restaurant opened, Ms. Mulder
managed it. As Mr. Lalande was then otherwise employed, he initially did not
participate in the day-to-day operations of the restaurant. Given Ms. Mulder’s
extensive experience in operating fast-food restaurants, and Mr. Lalande’s lack
of experience in the fast‑food industry, he deferred to her in respect of
the management and operational decisions pertaining to the restaurant.
[11]
In September 2012, when Mr. Lalande was
no longer employed as an automotive mechanic, the Corporation hired him as an
employee. Mr. Lalande and the Corporation entered into a standard-form
Associate Employment Agreement (the “Agreement”)
dated September 4, 2012, in a format provided and required by the Franchisor.
The Agreement describes Mr. Lalande’s position as “BOH
MGR,” presumably meaning “back-of-house manager.”
During his testimony, Mr. Lalande indicated that, as he learned his
duties and progressed in his position, he, in a sense, became an assistant
manager, although there was no change in his formal title.
[12]
While the Agreement contains a space (followed
by “/hour”) in which to insert Mr. Lalande’s
hourly rate of pay, that space was left blank and the word “SALARY” was written by hand to the right of the word “hour.”
The Agreement does not specify the amount of the salary. Mr. Lalande stated
that the Agreement was completed in this manner as it was not possible to
determine an hourly rate of pay because of the many factors that were in play.
He also said that, by leaving the amount of the salary blank, the amount could
be determined later. Ms. Mulder testified that the reason for leaving the
salary amount unspecified in the Agreement was that all associate employment agreements
were kept in the restaurant premises and she wanted to avoid the possibility of
another employee finding those agreements and discovering the amount of Mr.
Lalande’s salary.
[13]
Throughout the duration of Mr. Lalande’s
employment, including the period that is the subject of the Decision, Mr.
Lalande’s salary (once determined) was $40,000 per year.
[14]
Although the Agreement described Mr. Lalande as
a “BOH MGR,” the timesheets (entitled “Pay Summary Reports”) entered as Exhibit R-7
described him as a “cashier garnisher.” The
Minister, both in the Reply to the Notice of Appeal and in cross‑examination,
focused on Mr. Lalande’s job description in the timesheets as a “cashier garnisher.” The Minister’s suggestion was
that a salary of $40,000 per year was unreasonably high for a cashier or
garnisher. Mr. Lalande and Ms. Mulder testified that the payroll
software used by the Corporation was provided by the Franchisor and was
somewhat outdated, such that it required all employees to be described in the
timesheets as “cashiers garnishers,”
notwithstanding that they may have actually had different job titles. For
instance, Mr. Lalande stated that the cooks were also described in the
timesheets as “cashiers garnishers,”
notwithstanding that they clearly had a different job description and function.
Mr. Lalande also indicated that he did not handle cash or garnish burgers,
but the software required that his job description in the timesheets be shown
as “cashier garnisher.” Having listened to the
evidence and having reviewed the exhibits, I do not think that a lot
should be made of Mr. Lalande’s description in the timesheets as a “cashier garnisher.” Accordingly, I am satisfied that
Mr. Lalande’s position was back-of-house manager or assistant manager (both
descriptions were used in the evidence).
[15]
Mr. Lalande’s employment duties were extensive.
He was required to clean exhaust hoods, filters, fryers and floors, to get the
back of the restaurant ready for opening at 10:30 a.m. each morning, to cook
and prepare food, and to clean the back of the restaurant. As Mr. Lalande
generally worked in the morning and early-to-mid afternoon, he also prepared
food for the evening shift and for the next day. He performed general
maintenance repairs of the restaurant, made bank deposits, picked up supplies
and dealt with service technicians. Most of those duties were performed at the
restaurant premises, except when he was attending at the bank or picking up
supplies.
[16]
Each employee who worked at the restaurant was
required to punch in on a computerized time clock when beginning a shift or
returning from a break and to punch out when ending a shift or beginning a
break. As Ms. Mulder desired to know the amount of work done by all employees,
including Mr. Lalande, he too was required to punch in and to punch out.
[17]
Mr. Lalande had specified hours of employment at
the premises of the restaurant. On Mondays, Thursdays and Fridays he was expected
to work in the restaurant from 8:30 a.m. to 4:00 p.m. On Tuesdays and
Wednesdays he was expected to work in the restaurant from 8:30 a.m. to 2:00
p.m. There was some uncertainty in the evidence as to the number of paid hours
that Mr. Lalande was expected to work each day. The schedule set out above
suggests a work day of 7.5 hours on Mondays, Thursdays and Fridays and a work
day of 5.5 hours on Tuesdays and Wednesdays. However, Ms. Mulder stated that
each employee (including Mr. Lalande) was entitled to a half-hour unpaid lunch
break, meaning that Mr. Lalande would have 7 paid working hours on Mondays,
Thursdays and Fridays and 5 paid working hours on Tuesdays and Wednesdays.
[18]
Mr. Lalande and Ms. Mulder each completed a lengthy
questionnaire for the CRA. The questionnaires were entered as Exhibits R-3 and
R-4 respectively. In item 7(d) of each questionnaire, it was indicated that Mr.
Lalande was required to work 33 hours per week in the restaurant and 7 to
10 hours per week in respect of repairs and other duties. It was explained
in oral testimony that the requirement of 33 hours per week pertained to work
done on the premises while the restaurant was in operation and while
Mr. Lalande was punched in on the time clock. Mr. Lalande’s trips to
the bank or to pick up supplies were performed when he was punched out, and
thus would form part of the 7 to 10 hours per week of other duties. Most
repairs could not be made when the restaurant was in operation; therefore,
Mr. Lalande made those repairs when the restaurant was closed. The time
spent making the repairs would form part of the 7 to 10 hours per week to be
performed when Mr. Lalande was punched out. As will be discussed below, there
is an issue as to whether Mr. Lalande consistently worked the required number
of hours each week.
[19]
Mr. Lalande stated that he was aware that, while
he was employed by the Corporation, the Corporation was not profitable. Ms.
Mulder stated that the Corporation owed a considerable amount of money to the
Landlord for back rent and that the Landlord had been pressuring her to pay the
arrears. Ms. Mulder testified that in January 2014 she was advised by the
Corporation’s accountant that the Corporation should get rid of the “big salaries” (which was the term used by the accountant and
by Ms. Mulder in her testimony). Accordingly, Ms. Mulder decided
that it would be necessary for the Corporation to terminate the employment of
Mr. Lalande, as well as the employment of Ms. Mulder’s sister
as the Corporation’s bookkeeper. Hence, Mr. Lalande’s employment was terminated
in early May 2014. Mr. Lalande’s last day of employment was Friday, May 2,
2014.
[20]
Subsequent to the termination of Mr. Lalande’s
employment, no one was hired by the Corporation to replace him. Rather, Ms.
Mulder performed most of the duties that had been previously performed by Mr.
Lalande, other than the repair work, which was thereafter performed by
third-party contractors.
[21]
After Mr. Lalande’s employment was terminated by
the Corporation, he applied to the Department of Human Resources and Skills
Development Canada (“HRSDC”) for employment
insurance benefits. HRSDC requested a ruling from the CRA on the insurability
of Mr. Lalande’s employment with the Corporation for the period from May 5,
2013 to May 4, 2014. On June 9, 2014 the CRA sent a written ruling to Mr.
Lalande.
That ruling stated, in part:
Based on our
analysis, we have ruled that for the period under review, you were an employee.
However, you were related to 2210066 Ontario Inc, and it is not reasonable to
conclude that you would have entered into a substantially similar contract of
employment had you been dealing with each other at arm’s length. Therefore,
your employment was not insurable because of paragraph 5(2)(i) of the Employment
Insurance Act.
As well, on June
9, 2014 the CRA also sent a letter to the Corporation, to the attention of Ms.
Mulder, reiterating the ruling sent to Mr. Lalande.
[22]
After receiving the above-mentioned ruling, Mr.
Lalande appealed to the CRA’s Chief of Appeals in the London-Windsor Tax Services
Office.
On September 17, 2014 the CPP/EI Appeals Division of the CRA sent to
Mr. Lalande the letter described above as the Decision. The second paragraph of the Decision
states:
After the
impartial review of all of the information relating to this appeal, it has been
determined that this employment was not insurable. You were related to 2210066
ONTARIO INC. and after considering all of the circumstances of this employment,
the Minister of National Revenue is not satisfied that a substantially similar
contract of employment would have been entered into if you had been dealing
with each other at arm’s length. You were not dealing at arm’s length with
2210066 ONTARIO INC.; therefore, your employment was excluded from insurable
employment.
As well, the CRA
sent an undated letter to the Corporation and Ms. Mulder, stating essentially
the same thing.
[23]
After receiving the Decision from the CRA, Mr.
Lalande commenced the Appeal that is the subject of these Reasons, and the Corporation intervened
in that Appeal.
II. Statutory
Provisions
[24]
Paragraph 5(2)(i) of the EIA provides that insurable employment does not
include employment if the employer and the employee are not dealing with each
other at arm’s length. Paragraph 5(3)(a) of the EIA provides
that, for the purposes of paragraph 5(2)(i) of the EIA, the
question of whether persons are not dealing with each other at arm’s length is
to be determined in accordance with the Income Tax Act, RSA 1985, c. 1
(5th supplement), as amended (the “ITA”).
[25]
In the context of this Appeal, the critical statutory
provision is paragraph 5(3)(b) of the EIA, which, in
essence, states that, for the purposes of paragraph 5(2)(i) of the EIA,
if the employer is, within the meaning of the ITA, related to the
employee, they are deemed to deal with each other at arm’s length if the
Minister 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.
III. Analysis
A. Applicable Principles
[26]
As Mr. Lalande and Ms. Mulder are married to
each other and as Ms. Mulder controls the Corporation, it is clear, by
reason of subparagraph 251(2)(b)(iii) of the ITA, that
during the period in question the Corporation was, within the meaning of the ITA,
related to Mr. Lalande.
[27]
Paragraph 5(3)(b) of the EIA
contains the phrases “… if the Minister of National
Revenue is satisfied that … it is reasonable to conclude that….” These
phrases suggest that the Minister has an element of discretion when determining
whether an employer and an employee who are related to each other would have
entered into a substantially similar contract of employment if they had been
dealing with each other at arm’s length. There is a considerable body of
jurisprudence dealing with the interpretation and application of paragraph 5(3)(b)
of the EIA. In some of the earlier cases, the Federal Court of Appeal
indicated that the predecessor of paragraph 5(3)(b) of the EIA
required the Tax Court of Canada to undertake a two-stage inquiry when hearing
an appeal from a determination by the Minister under that predecessor
provision. At the first stage, the Court was required to confine its analysis
to a determination of the legality of the Minister’s decision (i.e., a
determination of whether the Minister properly exercised his or her discretion).
If, and only if, the Court found that an applicable ground for judicial interference
had been established, could the Court then consider the merits of the
Minister’s decision.
[28]
Subsequently, the Federal Court of Appeal
indicated that a different approach should be taken. That different approach
was described by Justice Marceau as follows:
The Act requires
the Minister to make a determination based on his own conviction drawn from a
review of the file. The wording used introduces a form of subjective element,
and while this has been called a discretionary power of the Minister, this
characterization should not obscure the fact that the exercise of this power
must clearly be completely and exclusively based on an objective appreciation
of known or inferred facts. And the Minister’s determination is subject to
review. In fact, the Act confers the power of review on the Tax Court of Canada
on the basis of what is discovered in an inquiry carried out in the presence of
all interested parties. The Court is not mandated to make the same kind of
determination as the Minister and thus cannot purely and simply substitute its
assessment for that of the Minister: that falls under the Minister’s so-called
discretionary power. However, the Court must verify whether the facts inferred
or relied on by the Minister are real and were correctly assessed having regard
to the context in which they occurred, and after doing so, it must decide
whether the conclusion with which the Minister was "satisfied" still
seems reasonable.
[29]
Thereafter, in a later case, Justice Marceau reiterated
that the two‑stage inquiry was no longer to be used and elaborated on the
different approach to be taken:
The function of
an appellate judge is thus not simply to consider whether the Minister was
right in concluding as he did based on the factual information which Commission
inspectors were able to obtain and the interpretation he or his officers may
have given to it. The judge's function is to investigate all the facts with the
parties and witnesses called to testify under oath for the first time and to
consider whether the Minister's conclusion, in this new light, still seems
“reasonable” (the word used by Parliament). The Act requires the judge to show
some deference towards the Minister's initial assessment and … directs him not
simply to substitute his own opinion for that of the Minister when there are no
new facts and there is nothing to indicate that the known facts were
misunderstood. However, simply referring to the Minister's discretion is
misleading.
[30]
Recently the Associate Chief Justice of this
Court has summarized the approach to be taken when considering an issue in the
context of paragraph 5(3)(b) of the EIA:
… the role of
this Court is to verify whether the facts inferred or relied on by the Minister
are real and were correctly assessed having regard to the context in which they
occurred, and after so doing, it must decide whether the conclusion with which
the Minister was “satisfied” still seems
reasonable.
[31]
The following principles are derived from the
cases referred to above:
(a)
When reviewing a conclusion of the Minister in
the context of paragraph 5(3)(b) of the EIA, this Court is to
verify the facts inferred or relied on by the Minister, in order to confirm
that those facts are real and were correctly assessed by the Minister.
(b)
After investigating all the facts, this Court
must decide whether the Minister’s conclusion seems reasonable.
(c)
The EIA requires this Court to show some
deference to the Minister’s initial assessment.
(d)
When there are no new facts and there is nothing
to indicate that the known facts were misunderstood by the Minister, this Court
is not to substitute its opinion for that of the Minister.
B. Assumptions of Fact
[32]
Given that this Court is required to verify
whether the facts inferred or relied on by the Minister are real and were
correctly assessed, it is helpful to reproduce the facts that were assumed by
the Minister, as set out in paragraph 8 of the Reply to the Notice of Appeal
(the “Reply”), as follows:
In determining
that the Appellant was not engaged in insurable employment by the Payer [i.e.,
the Corporation] for the Period [i.e., May 5, 2013 to May 4, 2014] , the
Minister relied on the following assumptions of fact:
The Payer
(a)
the Payer was incorporated on June 23, 2009;
(b)
the Payer’s business involved the operation of a
Harvey’s fast food restaurant in Ottawa, Ontario;
(c)
prior to May 12, 2012, the shareholders of the
Payer and their respective percentage holdings of the voting shares were:
Patricia
Mulder Lalande 50%; and
Christian
Lalande 50%;
(d)
effective May 12, 2012, the shareholders of the
Payer and their respective percentage holdings of the voting shares were:
Patricia
Mulder Lalande 60%; and
Christian
Lalande 40%;
(e)
both Patricia Mulder Lalande (Patricia) and the
Appellant were corporate directors;
(f)
Christian Lalande and Patricia are husband and
wife;
(g)
Patricia controlled the day-to-day operations of
the Payer’s business and made the major business decisions;
(h)
Patricia had 30 years experience in the
business;
(i)
the Payer’s business hours were Sunday to
Thursday from 10:30 a.m. to 10:00 p.m. and Friday and Saturday from
10:30 a.m. to 11:00 p.m.;
(j)
the Payer issued T4 slips to 34 employees for
the year 2013;
(k)
the Payer had the following gross monthly sales:
|
Month/year
|
Sales
|
Month/year
|
Sales
|
|
Nov 2012
|
$60,621.51
|
Oct 2013
|
$78,534.28
|
|
Dec 2012
|
$54,134.65
|
Nov 2013
|
$60,624.51
|
|
Jan 2013
|
$72,954.89
|
Dec 2013
|
$55,250.29
|
|
Feb 2013
|
$58,598.35
|
Jan 2014
|
$74,184.09
|
|
Mar 2013
|
$44,658.78
|
Feb 2014
|
$56,401.31
|
|
Apr 2013
|
$69,027.19
|
Mar 2014
|
$60,856.67
|
|
May 2013
|
$65,674.93
|
Apr 2014
|
$76,573.00
|
|
Jun 2013
|
$61,683.44
|
May 2014
|
$68,991.00
|
|
Jul 2013
|
$78,415.48
|
Jun 2014
|
$63,341.58
|
|
Aug 2013
|
$56,990.79
|
Jul 2014
|
$78,518.54
|
|
Sep 2013
|
$67,760.61
|
|
|
(l)
the Payer expensed maintenance and repairs of
$11,688 and $7,609 for the years ending December 31, 2012 and December 31,
2013, respectively.
The Appellant
(m)
the Appellant and the Payer are related persons;
(n)
the Appellant was hired by the Payer to work in
the restaurant;
(o)
the Appellant performed his services for the
Payer under a contract of service that was formed in the province of Ontario;
(p)
the Appellant first performed services for the
Payer in August of 2012;
(q)
the Appellant had worked as a licensed
automotive technician, prior to being hired by the Payer;
(r)
the Appellant had construction, mechanical and
managerial work experience;
(s)
the Appellant had no prior work experience in
the restaurant industry, at the time he was hired by the Payer;
(t)
the Appellant’s job title was “cashier/garnisher”;
(u)
the Appellant’s
duties included:
(i)
cleaning the back
of the restaurant;
(ii)
cleaning the
restaurant equipment;
(iii)
sweeping, mopping
and degreasing;
(iv)
general
maintenance and repairs to restaurant;
(v)
making bank
deposits;
(vi)
picking up
supplies;
(vii)
delivering
cheques to suppliers;
(viii)
washing dishes;
(ix)
preparing and
cooking food; and
(x)
dealing with
technicians;
(v)
the Appellant usually performed his duties at
the Payer’s premises;
(w)
the Appellant worked Monday to Friday each week;
(x)
the Appellant’s hours of work were roughly from
8:30 a.m. to 4:00 p.m., Monday, Thursday, Friday, and from 8:30 a.m. to 2:00
p.m., Tuesday and Wednesday;
(y)
the Appellant’s hours were based on his
children’s child-care needs;
(z)
the Appellant’s total daily hours were recorded
by the Payer on timesheets;
(aa)
the Appellant was required to punch in on
arrival at the restaurant and punch out when departing the restaurant;
(bb)
the Payer provided the Appellant with training
on how to use the restaurant equipment and cleaners;
(cc)
the Payer directed the Appellant on the work to
be performed;
(dd)
the Payer made certain that the Appellant
performed his duties properly and in accordance with the restaurant’s
standards;
(ee)
the Appellant did not supervise any of the
Payer’s employees;
(ff)
the Appellant’s rate of pay was $41,000
annually;
(gg)
the Appellant’s biweekly rate of pay was
$1,576.92;
(hh)
the Appellant’s biweekly pay remained the same
regardless of the actual hours he worked during a pay period;
(ii)
the Appellant’s hours varied from week to week;
(jj)
the Appellant worked a total of 1437.55 hours
during the Period;
(kk)
the Appellant worked an average of 27.64 hours
per week, during the Period;
(ll)
on average, the Appellant was paid $28.52 per
hour;
(mm)
the Appellant was paid on a biweekly basis,
which was the same for all of the Payer’s employees;
(nn)
the Payer’s other employees were paid between
$10.50 and $15.00 per hour;
(oo)
the Payer’s other employees were only paid for
the actual hours worked;
(pp)
based on Labour Market Wage Reports, the median
pay rate for a line cook was $11.00 per hour;
(qq)
the Payer paid an unrelated worker, who
performed similar duties as the Appellant, $12.00 per hour;
(rr)
the Payer reimbursed the Appellant for any
expense that he incurred in performing his services;
(ss)
the Payer paid the Appellant vacation pay, which
was the same for all employees;
(tt)
the Appellant was paid for sick days and
statutory holidays;
(uu)
with the exception of Patricia, the Payer’s
other employees’ total earnings typically varied each pay period;
(vv)
the Appellant did not receive any bonuses or
employee benefits from the Payer, which was the same for all employees;
(ww)
the Appellant assumed personal liability for the
business loans and lease agreements of the Payer;
(xx)
the Appellant’s and Patricia’s home was pledged
as security in support of the Payer’s business loans;
(yy)
the Appellant did not have signing authority on
the Payer’s business bank accounts;
(zz)
the Appellant was not laid off by the Payer due
to the Payer’s inability to pay the Appellant’s salary;
(aaa)
the Appellant was laid off by the Payer so that
he could apply for Employment Insurance benefits;
(bbb)
the Payer could have hired an unrelated worker
to do the same job as the Appellant, for $11.00 per hour;
(ccc)
Patricia performed the Appellant’s duties,
except for maintenance and repairs, after he was laid off;
(ddd)
the Payer did not replace the Appellant with
another worker;
(eee)
after the Appellant was laid off, Patricia
engaged the services of contractors to do the maintenance and repairs;
(fff)
Patricia took over the bookkeeping duties that
were performed by another worker;
(ggg)
prior to being hired by the Payer in 2012, the
Appellant collected Employment Insurance benefits totalling $14,210;
(hhh)
the Payer reported net losses of $32,815 and
$26,961, for the years 2012 and 2013, respectively; and
(iii)
the Payer expensed salaries and wages of
$249,240 and $250,806, for the years 2012 and 2013, respectively.
[33]
The facts assumed by the Minister, as set out
above, are taken as proven, unless they are refuted by Mr. Lalande or by the
Corporation.
[34]
During the hearing, by means of oral testimony
or documents entered as exhibits, the assumptions set out above as
subparagraphs (a) through (i), (m) through (s), (u), (w) through (y), (aa),
(cc), (gg) through (ii), (mm) through (oo), (ss), (tt), (ww) through (yy) and
(ccc) through (fff) were proven. Neither Mr. Lalande nor Ms. Mulder (on
behalf of the Intervenor) challenged, or provided any evidence in respect of,
the assumptions set out above as subparagraphs (j) through (l), (dd), (pp)
through (rr), (vv), (bbb) and (ggg) through (iii). Significant portions of the
hearing were devoted to the assumptions set out above as subparagraphs (t),
(v), (z), (bb), (ee), (ff), (jj) through (ll), (uu), (zz) and (aaa), which were
challenged or qualified by Mr. Lalande and Ms. Mulder. This latter group
of assumptions will be discussed below.
C. Preliminary Comments in Respect of Minister’s Conclusion
[35]
Before reviewing the challenged or qualified assumptions,
a few comments are in order. Paragraph 5(3)(b) of the EIA,
provides that, where an employer is related to an employee, in order for the
employer and the employee to be deemed to deal with each other at arm’s length,
the Minister must be satisfied that, having regard to all the circumstances of
the employment, it is reasonable to conclude that the employer and the employee
would have entered into a substantially similar contract of employment if they
had been dealing with each other at arm’s length. Therefore, the assumptions of
fact that are most critical in this Appeal are those which pertain to the
circumstances of Mr. Lalande’s employment.
[36]
As will be discussed below, Mr. Lalande and Ms.
Mulder succeeded in refuting, in whole or in part, some of the Minister’s
assumptions of fact. However, the assumptions of fact that were not refuted,
together with the evidence presented at the hearing of this Appeal, were, in my
view, sufficient to provide a reasonable basis for the Minister’s conclusion
that, if the Corporation and Mr. Lalande had been dealing with each other at
arm’s length, they would not have entered into a contract of employment
substantially similar to the agreement actually entered into by the Corporation
and Mr. Lalande. I will expand upon this view below.
D. Analysis of Certain Assumed Facts
[37]
I will now turn to an analysis of each of the
challenged or qualified assumptions.
[38]
In subparagraph 8(t) of the Reply, the
Respondent assumed that the Appellant’s job title was “cashier/garnisher.”
The key elements of the evidence in respect of this assumption are discussed
above in paragraph 14 of these Reasons. As indicated above, I am
satisfied that Mr. Lalande was described on the timesheets as a
cashier/garnisher only because no other description was available in the
timekeeping software used by the Corporation. While Mr. Lalande’s position
was described in the evidence as back-of-house manager or assistant manager,
the evidence was not clear as to which was his actual position or title. Notwithstanding
that lack of clarity, the assumption in subparagraph 8(t) of the Reply has been
refuted.
[39]
In subparagraph 8(v) of the Reply, the
Respondent assumed that Mr. Lalande usually performed his duties at the
Corporation’s premises. During the hearing Mr. Lalande and Ms. Mulder made it
clear that Mr. Lalande performed some of his duties, such as going to the bank,
picking up supplies and running other errands, away from the Corporation’s
premises. Accordingly, the assumption set out in subparagraph 8(v) of the Reply
has been refuted in part.
[40]
In subparagraph 8(z) of the Reply, the Minister
assumed that Mr. Lalande’s total daily hours were recorded by the
Corporation on timesheets. During the hearing Mr. Lalande and Ms. Mulder
clarified that the hours recorded on the timesheets were only the hours that
Mr. Lalande worked after he had punched in using the time clock and before he
punched out. In addition to the “punched-in”
hours, Mr. Lalande also worked other hours which were not recorded. The
unrecorded hours pertained to the duties performed by him away from the
Corporation’s premises (when he was going to the bank, picking up supplies and
running other errands) and the duties performed by him after the restaurant had
closed (when he was doing maintenance and repairs). Hence, the assumption set
out in subparagraph 8(z) of the Reply has been refuted in part.
[41]
In subparagraph 8(bb) of the Reply, the Minister
assumed that the Corporation provided Mr. Lalande with training on how to use
the restaurant equipment and cleaners. During this testimony, Mr. Lalande
stated that, when he commenced his employment with the Corporation, he received
a modest amount of training from some of the Corporation’s other employees.
However, as he had a managerial role, those employees were reluctant to give
him very much training, which meant that most of what he needed to know was
self-taught, with the exception of safe and proper cleaning techniques for the
fryers and grill hoods, in respect of which Ms. Mulder provided appropriate training
to him. The assumption set out in subparagraph 8(bb) of the Reply has been
refuted in part.
[42]
In subparagraph 8(ee) of the Reply, the Minister
assumed that Mr. Lalande did not supervise any of the Corporation’s
employees. During the hearing it became clear that Mr. Lalande functioned in a
managerial capacity during the course of his employment. I am satisfied that he
did supervise certain of the Corporation’s employees. Therefore, the assumption
set out in subparagraph 8(ee) of the Reply has been refuted. However, it
is noteworthy that the detailed description of the duties performed by Mr.
Lalande, as set out in paragraph 3(a) of the questionnaires completed by Mr.
Lalande and Ms. Mulder (Exhibits R-3 and R-4 respectively), makes no mention of
supervising employees or performing managerial duties. Therefore, I am left
with some uncertainty as to the amount of the supervisory or managerial duties
performed by Mr. Lalande.
[43]
In subparagraph 8(ff) of the Reply, the Minister
assumed that Mr. Lalande’s rate of pay was $41,000 per year. The evidence
during the hearing and the information provided in Exhibits R-3 and R-4
indicated that Mr. Lalande’s salary was $40,000 per year. Thus, the
assumption in subparagraph 8(ff) of the Reply has been refuted in part,
but only to the extent of $1,000 (i.e., $41,000 – $40,000).
[44]
In subparagraph 8(jj) of the Reply, the Minister
assumed that Mr. Lalande worked a total of 1,437.55 hours during the period
from May 5, 2013 to May 4, 2014.
While the precise manner in which the CRA determined the total number of hours
worked was not discussed in detail during the hearing, it is my understanding
that the assumed number of hours (i.e., 1,437.55 hours) was calculated by
reference to the number of “punched-in” hours
that were recorded on the timesheets entered as Exhibit R-7. As noted above,
neither Mr. Lalande nor Ms. Mulder challenged or contested the assumed
total number of hours worked. However, both Mr. Lalande and Ms. Mulder pointed
out that the timesheets only recorded the hours worked by Mr. Lalande when he
was “punched-in” and did not record the hours
that he worked outside the restaurant or after the restaurant was closed. Both
Mr. Lalande and Ms. Mulder indicated that the number of unrecorded hours worked
by Mr. Lalande was in the range of 7 to 10 hours per week. However, that
range was simply an estimate and was not corroborated. In particular, no
records were produced to confirm that 7 to 10 hours of “non‑punched-in”
hours were worked on a weekly basis or to confirm that such hours were
consistently worked each and every week. I am satisfied that Mr. Lalande
sometimes worked, away from the restaurant premises or after the restaurant was
closed, additional hours in the approximate range of 7 to 10 hours in some
weeks; however, I am not convinced that those additional hours were
consistently worked each and every week from May 5, 2013 to May 4, 2014.
Nevertheless, it is my view that the assumption in subparagraph 8(jj) has been
refuted in part, but not to such an extent as to demolish the foundation on
which the Minister based the Decision.
[45]
In subparagraph 8(kk) of the Reply, the Minister
assumed that Mr. Lalande worked an average of 27.64 hours per week during the
period May 5, 2013 to May 4, 2014. The method by which this average was
calculated was not discussed during the hearing; however, it is my
understanding that the CRA divided the assumed total number of hours worked
(i.e., 1,437.55 hours) by 52. Neither Mr. Lalande nor Ms. Mulder specifically challenged
or contested the assumption in subparagraph 8(kk); however, they both
vigorously testified that Mr. Lalande worked more hours than those that were
recorded by the timeclock in the restaurant. Thus, I am satisfied that Mr.
Lalande worked, on average, more than 27.64 hours per week. However, for the
reasons stated in paragraphs 44 and 54 of these Reasons, I am not
convinced that he worked an average of 40 hours per week during each and every week
in the period from May 5, 2013 to May 4, 2014. Thus, I consider that the
assumption in subparagraph 8(kk) has been refuted in part, but not to such an
extent as to demolish the foundation on which the Decision was premised.
[46]
In subparagraph 8(ll) of the Reply, the Minister
assumed that, on average, Mr. Lalande was paid $28.52 per hour. As I
understand the Minister’s calculations, this average amount was calculated by
reference to the number of “punched-in” hours
that were recorded on the timesheets entered as Exhibit R-7. As explained
above, those timesheets did not record the work that Mr. Lalande performed away
from the Corporation’s premises or after the restaurant was closed. Those hours
were not recorded. The only evidence as to the number of “non-punched-in” (or unrecorded) hours worked by Mr.
Lalande were unsubstantiated estimates provided by him and Ms. Mulder.
Responses provided in the respective questionnaires entered as Exhibits R-3 and
R-4 indicated that Mr. Lalande spent 7 to 10 hours per week in the
performance of duties away from the restaurant or after the restaurant was closed.
Based on the comments made in the preceding two paragraphs, I am satisfied that
Mr. Lalande worked more hours than those recorded on the timesheets, with the
result that, on average, he was paid less than $28.52 per hour. However, there
was no evidence as to the precise amount per hour that was, on average, paid
to Mr. Lalande. He testified that his annual salary was calculated on the
assumption that he would be paid $20 per hour. Nevertheless, for reasons
that will be set out below, I am of the view that his average hourly rate of
pay was greater than $20.00 per hour.
[47]
In subparagraph 8(uu) of the Reply, the Minister
assumed that, with the exception of Ms. Mulder, the total earnings of the
Corporation’s other employees (i.e., other than Mr. Lalande) typically varied
each pay period. The reason for which Mr. Lalande’s and Ms. Mulder’s respective
earnings did not vary from pay period to pay period was that they were each
being paid an annual salary, such that each pay period they each received a
proportionate amount of that annual salary. During the hearing, Mr. Lalande and
Ms. Mulder explained that, during the relevant period of time, the
Corporation’s bookkeeper was Ruby McCarville, who is Ms. Mulder’s sister
and who also worked as an assistant manager of the restaurant. As Mr. Lalande
and Ms. Mulder both testified that Ms. McCarville was paid an annual
salary, I am prepared to accept that her total earnings would likely not have
varied from one pay period to the next. Accordingly, I am of the view that this
assumption has been refuted in part, to the extent of one employee (i.e., Ms. McCarville),
given that Ms. McCarville, like Ms. Mulder and Mr. Lalande, received an annual
salary, but I do not think that anything turns on that point.
[48]
In subparagraph 8(zz) of the Reply, the Minister
assumed that Mr. Lalande was not laid off by the Corporation due to the
Corporation’s inability to pay Mr. Lalande’s salary. Mr. Lalande and Ms.
Mulder took issue with that assumption. Mr. Lalande and Ms. Mulder testified
that, while Mr. Lalande was employed by the Corporation, the Corporation was
losing money. As well, Mr. Lalande indicated in his evidence that he was
terminated because the Corporation could no longer afford his salary. In
addition, Ms. Mulder stated that, when she spoke with the Corporation’s
accountant about the Corporation’s difficult financial situation, he advised
her to reduce the Corporation’s expenses and, in particular, to get rid of the
Corporation’s “big salaries,” referring to the
salaries paid by the Corporation to Mr. Lalande and Ms. McCarville. In my view,
Mr. Lalande and Ms. Mulder have refuted this particular assumption. However, in
doing so, they have identified another factor that supports the position taken
by the Minister, namely, that, at a time when the Corporation was losing money,
it was paying to Mr. Lalande a salary that was considered by the Corporation’s
accountant to be a “big salary.” In my view,
that factor was suggestive of a non-arm’s-length arrangement.
[49]
In subparagraph 8(aaa) of the Reply, the
Minister assumed that Mr. Lalande was laid off by the Corporation so that
he could apply for benefits under the EIA. Mr. Lalande and Ms. Mulder vehemently
disagreed with this assumption. Based on the evidence presented during the
hearing, I am satisfied that the Corporation laid off Mr. Lalande for the
reasons set out in the preceding paragraph. Accordingly, this assumption has
been refuted. However, I do not think that the refutation of this assumption is
determinative of the issue that is before the Court.
E. Reasonableness of Minister’s Conclusion
[50]
While Mr. Lalande and Ms. Mulder have refuted
some of the Minister’s assumptions, it is important to note that not all of the
assumptions are of equal significance in resolving the issue before the Court. As
stated above, the underlying issue is whether, having regard to all the
circumstances of Mr. Lalande’s employment by the Corporation, including
the remuneration paid, the terms and conditions of the employment, the duration
and the nature and importance of the work performed, it is reasonable to
conclude that the Corporation and Mr. Lalande would have entered into a
substantially similar contract of employment if they had been dealing with each
other at arm’s length. In focusing on the factual assumptions and the evidence
that pertain to the circumstances of Mr. Lalande’s employment, I am of the view
that:
(a)
although Mr. Lalande and Ms. Mulder have refuted
some of the Minister’s assumptions of fact, the facts that were proven by oral or
documentary evidence and the assumed facts that were not refuted were
sufficient to support the Minister’s determination and conclusion that, having
regard to all the circumstances of Mr. Lalande’s employment, the Corporation
and Mr. Lalande would not have entered into a substantially similar contract of
employment if they had been dealing with each other at arm’s length; and
(b)
the conclusion with which the Minister was
satisfied (for the purposes of paragraph 5(3)(b) of the EIA) was
reasonable, particularly having regard to the factors discussed below.
F. Factors Supporting the Minister’s Conclusion
[51]
As mentioned above, when Mr. Lalande began to
work for the Corporation, the amount of his remuneration was initially left
undetermined and, when it was finally determined unilaterally by Ms. Mulder, it
was not written on the Agreement. As an employee’s rate of pay is a fundamental
term of a contract of employment, I would expect that, in a typical
arm’s-length employment situation, the rate of pay would generally be negotiated
and agreed upon by the employer and the employee at the commencement of the
employment and would be set out in writing. As this was not done here, it
suggests that the Minister’s conclusion was reasonable, i.e., that Mr.
Lalande’s contract of employment was not one into which arm’s-length parties
would have entered.
[52]
The Minister assumed that Ms. Mulder controlled
the day-to-day operations of the Corporation’s business and made the major
business decisions.
Neither Mr. Lalande nor Ms. Mulder disputed or challenged this assumption. In
fact, Mr. Lalande repeatedly testified that all major decisions were made
by Ms. Mulder, that she was the manager, that she told him what to do,
that she was extremely experienced in the fast-food industry, and that he had
no experience in that industry. When Mr. Lalande and Ms. Mulder described his duties,
in subparagraph 3(a) of the respective questionnaires completed by them (i.e., Exhibits
R-3 and R-4), neither of them referred to any managerial responsibilities.
Therefore, it appears that, although Mr. Lalande had some supervisory or
managerial functions, his managerial responsibilities may not have been as significant
as he suggested in his testimony.
[53]
Based on the questionnaires completed by
Mr. Lalande and Ms. Mulder, the Minister understood that Mr. Lalande was
expected to be “punched-in” and to work from
8:30 a.m. to 4:00 p.m. on Mondays, Thursdays and Fridays, and from 8:30 a.m. to
2:00 p.m. on Tuesdays and Wednesdays.
This would have resulted in either 33.5 “punched-in” hours per week, or,
as Mr. Lalande was entitled each day to an unpaid half-hour break (when he was “punched-out”), 31 “punched-in” hours per week.
The evidence is somewhat confusing in this regard, particularly as the
responses to the questionnaires completed by Mr. Lalande and
Ms. Mulder indicated that he was required to work 33 “punched-in” hours
per week. Nevertheless, regardless of whether Mr. Lalande was required to
work 31, 33 or 33.5 “punched-in” hours each week, he did so infrequently.[21]
[54]
The attached Schedule to these Reasons analyzes Mr.
Lalande’s required and actual “punched-in” hours
each week during the year that is the subject of the Decision, as those weeks
are set out in the Pay Summary Reports (or timesheets) in Exhibit R-7. The
focus of the Schedule is the number of “punched‑in” hours that Mr.
Lalande was required to work in a particular week and the number of “punched-in” hours that he actually worked in that
week. The third column of the Schedule shows the number of “punched-in” hours that were required each week. In a
typical five-day work week, Mr. Lalande would have been required to work 31, 33
or 33.5 “punched-in” hours, depending on the view that one takes of the
evidence that was presented. In a week containing fewer than five working days,
the required number of “punched-in” hours would
have been less and would have been a function of the days on which Mr. Lalande
worked (as he was expected to work two hours more on Mondays, Thursdays and
Fridays than he was on Tuesdays and Wednesdays). The fourth column of the
Schedule shows the actual number of “punched-in”
hours worked each week by Mr. Lalande, as set out in Exhibit R-7. The fifth
column of the Schedule shows whether Mr. Lalande met the required number
of “punched-in” hours each week. A review of that column indicates that,
particularly during the latter portion of the year in question, the number of “punched-in” hours actually worked by Mr. Lalande was frequently
less than the required number of “punched-in”
hours. In my view, in an arm’s-length employment relationship, it is unlikely
that an employer would countenance an employee frequently working fewer hours
than required.
[55]
Although the Corporation had a sophisticated
system for tracking the hours worked by the Corporation’s employees, including
Mr. Lalande, when they were working at the restaurant while it was open,
there was no system for tracking the number of hours worked by Mr. Lalande
away from the restaurant premises (when he was going to the bank or picking up
supplies) or when he was doing repairs while the restaurant was closed. The
lack of a system to track, or at least record, Mr. Lalande’s hours in those
circumstances may perhaps be indicative of a non-arm’s-length contract of
employment.
[56]
The Minister assumed that Mr. Lalande was paid
by the Corporation, on average, $28.52 per hour. As discussed above, Mr.
Lalande and Ms. Mulder provided evidence to satisfy me that his average rate of
pay was less than $28.52 per hour; however, by reason of the fewer-than-required
number of “punched‑in” hours actually worked
by Mr. Lalande, as set out in the Schedule to these Reasons, even if it were to
be accepted that each and every week of his employment Mr. Lalande worked an
additional 7 to 10 “non-punched-in” hours, his
average rate of pay would still have been greater than $20 per hour. As I am of the view that Mr. Lalande’s
average hourly rate of pay was greater than $20 per hour (which, according
to Mr. Lalande and Ms. Mulder, is a typical hourly wage for a restaurant
manager), I am reinforced in my view that the Minister’s conclusion was
reasonable, i.e., that Mr. Lalande’s contract of employment was not one that
would have been entered into by arm’s‑length parties.
[57]
The Minister assumed, and the evidence confirmed,
that, after Mr. Lalande’s employment was terminated, the Corporation did
not replace him with another worker. Rather, Ms. Mulder and third-party
contractors took over Mr. Lalande’s former duties. The fact that Mr. Lalande
was not replaced by the Corporation might suggest that his employment was not
essential to the operations of the Corporation, which, in turn, would support
the Minister’s conclusion that arm’s-length parties would not have entered into
a contract of employment with terms, conditions and circumstances similar to
those pertaining to Mr. Lalande’s contract of employment.
[58]
The Minister assumed, and the evidence confirmed,
that the Corporation paid vacation pay to Mr. Lalande, as was done in respect
of the Corporation’s other employees. Although this factor is indicative of an
arm’s-length employment relationship,
I am of the view that this factor does not outweigh the factors set out above,
which support the reasonableness of the Minister’s conclusion.
G. Summary
[59]
To sum up, and as indicated above, based on the
evidence, it is my view that:
(a)
the facts that were proven by oral or
documentary evidence and the assumed facts that were not refuted by Mr. Lalande
and Ms. Mulder were sufficient to support the Minister’s conclusion that,
having regard to all the circumstances of Mr. Lalande’s employment, the
Corporation and Mr. Lalande would not have entered into a substantially similar
contract of employment if they had been dealing with each other at arm’s length;
(b)
the conclusion with which the Minister was
satisfied (for the purposes of paragraph 5(3)(b) of the EIA) was
reasonable; and
(c)
there is no basis for me to reach a conclusion
different from the Minister’s conclusion.
IV. Conclusion
[60]
Accordingly, paragraph 5(3)(b) of the EIA
does not apply so as to deem the Corporation and Mr. Lalande to deal with
each other at arm’s length. Hence, by reason of paragraph 5(2)(i) of the
EIA, Mr. Lalande’s employment by the Corporation from May 5, 2013 to May
4, 2014 was not insurable employment. Therefore, Mr. Lalande’s Appeal is
dismissed and the Decision is confirmed.
V. Refund
of Premiums
[61]
In the fifth paragraph of the Decision, the CRA
advised Mr. Lalande that he may be entitled to a refund of the premiums paid by
him under the EIA. Similarly, in the undated letter sent by the CRA to
the Corporation, in conjunction with the Decision, the CRA advised the
Corporation that it may be entitled to a refund of the premiums paid by it
under the EIA. If Mr. Lalande and the Corporation have not already
applied for such refunds and if they choose to do so, I trust that the CRA will
work harmoniously with Mr. Lalande and the Corporation in processing the
applications for refunds.
Signed at Ottawa, Canada,
this 4th day of February 2016.
“Don R. Sommerfeldt”
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