Date: 19980910
Dockets: 97-684-UI; 97-685-UI
BETWEEN:
GERTRUDE MADORE, SYLVIE MADORE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
G. Tremblay, J.T.C.C.
Point at issue
[1] The question is whether during the period from June 9 to September 7, 1996 Sylvie Madore held insurable employment within the meaning of the Unemployment Insurance Act (“the Act”) with the appellant Gertrude Madore, doing business as Les Agrès de pêche du Kamouraska Enr. She fished for eels and also owned an eel interpretation site.
[2] The appellant employed her two daughters Sylvie and Katy Madore whose work involved receiving visitors, preparing snacks for them and cleaning up the site. Opening hours were from 9 a.m. to 6 p.m. seven days a week. Each worker was paid $332.80 a week, or $8 an hour. The gross income generated by the eel interpretation site is about $5,800 a year.
[3] The respondent maintained that the appellant payer would not have offered the same working conditions if she had been dealing with the workers at arm’s length. The appellant argued the contrary.
Burden of proof
[4] The appellants have the burden of showing that the respondent’s assessments are incorrect. This burden of proof derives from a number of judicial decisions, including that of the Supreme Court of Canada in Johnston v. The Minister of National Revenue.[1]
[5] In Johnston the Supreme Court held that the facts assumed by the respondent in support of assessments or reassessments must be presumed to be true until the contrary is shown. The facts assumed by the respondent in the instant case are set out in subparagraphs (a) to (v) of paragraph 5 of the Reply to the Notice of Appeal. Paragraph 5 reads as follows:
[TRANSLATION]
5. In arriving at his decision the respondent Minister of National Revenue relied inter alia on the following facts:
(a) the appellant has fished for herring and eels since 1965 and has operated an eel fishing interpretation centre since 1989; [admitted]
(b) the appellant fishes for eels in September and October of each year; [admitted]
(c) the interpretation centre is open each year from May 15 to late October; [denied as drafted]
(d) its opening hours are from 9 a.m. to 6 p.m. seven days a week; [admitted]
(e) a visit to the interpretation centre generally lasts between half an hour and an hour; [denied as drafted]
(f) the gross income generated by the interpretation centre is about $5,800 a year; [denied]
(g) the worker is the appellant’s daughter; [admitted]
(h) the worker’s duties involved receiving visitors, preparing snacks for them and cleaning up the site; [admitted subject to amplification]
(i) in addition to her work at the interpretation centre, the worker mended nets for the appellant; [admitted]
(j) the worker did the work of mending nets at her own residence; [admitted without prejudice]
(k) the mending of nets accounted for only 20 percent of the worker’s volume of work; [denied]
(l) in addition to the worker [Sylvie Madore], the centre had only one other employee, Katy Madore; [admitted]
(m) Katy Madore performed the same duties as the worker; [admitted without prejudice]
(n) Katy Madore is the worker’s sister and the appellant’s daughter; [admitted]
(o) during the period at issue the worker was paid $332.80 a week; [denied]
(p) although the interpretation centre is open about 22 weeks a year, the worker worked only 12 weeks in 1994 and 14 weeks in 1995 [admitted in part], or approximately the minimum she needed to qualify for unemployment insurance benefits; [denied]
(q) the appellant terminated her two employees' employment on the same day, seven weeks before the interpretation centre closed; [denied as drafted]
(r) during those seven weeks no employee was assigned to work at the interpretation centre; [denied]
(s) the worker’s period of employment was arranged in order to qualify her for unemployment insurance benefits and was not based on the real needs of the business; [denied]
(t) the appellant and the worker were not dealing with each other at arm’s length within the meaning of the Income Tax Act; [admitted]
(u) were it not for the relationship between the appellant and the worker, the worker would not have been hired to do work such as this; [denied] and
(v) the appellant would never have hired a person with whom she was dealing at arm's length on the same terms as those offered the worker, still less for the period in question. [denied]
[6] The foregoing admissions of fact also apply to the case bearing number 97-684(UI).
[7] In addition to the foregoing admissions, the evidence consisted of the testimony of Gertrude and Sylvie Madore and of Exhibits A-1 to A-6 filed by the appellants and I-1 to I-6 filed by the respondent.
Testimony of Gertrude Madore
[8] The witness explained that she has been operating the business in question since 1976. A fifty-four page pamphlet on her business, published in 1994, was filed as Exhibit A-1. It is entitled “Le Site d’interprétation de l’anguille de Kamouraska” [the Kamouraska eel interpretation site]. Françoise Michaud Dufresne is identified as the author and Gertrude Madore as the publisher.
[9] The witness explained that her business's fishing operations can be divided into two periods: May and June is the herring season and from October on is the eel season.
[10] However, although the eel season is in the fall, preparations for it begin in the spring.
The following extract from pp. 27 to 32 of Exhibit A-1 explains the physical assets that are required and the work that must be done to set up the nets for eel fishing:
[TRANSLATION]
You do not suddenly become an “eel fisher” simply by obtaining a licence. You have to purchase equipment to set up the nets and catch eels.
Nowadays a multi-purpose tractor is needed in order to pull the dumper when going to collect eels in the traps, or to use the hydraulic drill to drive in the posts from which the cables are hung.
Gertrude and Philippe Madore prepare for two types of fishing methods, one known as [TRANSLATION] “fixed gear” and the other as “floating gear”. They have to obtain 20 ft. (6 m) long black spruce posts and two types of maple rods measuring 7 ft. (2.1 m) and 3 ft. (0.9 m) long. They need 3,200 ft. (960 m) of nets for a single structure (12 to 15 ft. – 3.6 to 4.5 m high), and an equal length of chains. Each 1,500 ft. (450 m) deep structure has three traps in which eels are caught; if the structure stretches 2,000 ft. (600 m) from the river bank, it will be equipped with four boxes. No fewer than 750 floats have to be installed ten inches apart in the case of floating gear. At the Coast Guard's request, a yellow triangle, which indicates that river vessels must stay clear, must be placed in a prominent position on the posts.
Every spring, when the ice melts, the whole family hurries to set up the “pêches à anguilles” [eel net structures], which are characteristic of our region, on the sea floor. So many tourists ask each summer what these hanging nets are used for! The nets can be set up only at low tide. This means that the work has to be done during two dry intervals every 24 hours.
The area must first be surveyed to determine where to put the traps.
This location has to be identified every year. As it is accepted that the traps must be located about 500 ft. (150 m) apart, the long posts measuring 20 ft. (6 m) high by 3 to 4 in. (7.8 to 10.4 cm) in diameter are placed 25 ft. (7.5 m) upstream from the position of the trap. These two rows of posts perpendicular to the bank are 35 ft. (10.5 m) apart. To keep these posts, which are pushed back and forth by wind and sea, in place rods measuring 7 ft. (2.1 m) long by 4 to 5 in (10.4 to 13 cm) in diameter are inserted in the mud. Only 1 ft. (30 cm) shows above the surface, where the cables will be attached.
The 3/8 in. (0.975 cm) thick steel cable is hung between the two rows of posts. In order to hang this cable using the tractor, the long posts are allowed to lean 20 ° on one side. As the cable becomes taut the posts straighten up again.
After the posts are straightened up it is time to install the long cable measuring 500 to 600 ft. (150 to 180 m) long that will support the net. The cables which cross each other will be attached by a clip so that the net which remains to be hung does not slip towards the posts.
Only one trap and its funnel-shaped entranceway can be installed during each low tide. As can be seen, the work takes many hours and has to be adjusted in accordance with the rise and fall of the water.
At this point, the heavy nets must be laid out on the bank before being picked up and attached to the cables. These nets, which are 500 to 600 ft. (150 to 180 m) long, have already been mended, that is, attached to a half in. (1.3 cm) rope on each of their short sides. Gertrude calculates 8 meshes per linear foot. This difficult work has of course been done during the preceding months. It is this rope which will be attached to the cable already in place. Like all the nets, the 100 to 150 ft. (30 to 45 m) long zigzag-shaped side wings are held by a ½-in. (1.3 cm) thick chain sewn to the bottom of the net. This heavy chain keeps the nets on the sea bottom. The top of the net will be attached to the large steel cable already in place by a 5 ft. (1.5 m) long rope attached at 2 ft. (0.6 m) intervals.
In the “floating gear” method, the entranceway and the trap are installed in the same way as in the “fixed gear” method. The top of the net, instead of being attached to a cable, is kept at the surface of the water by firmly securing floats every 10 in. (26 cm). The chain must be kept firmly anchored in the mud. The shape of the net is maintained by driving in the small rods measuring 3 ft. (0.9 m) long by 2 to 3 in. (5.2 to 7.8 cm) in diameter every 50 ft. (15 m) upstream from the trap. This ensures that eels trapped in the bottom of the net cannot escape. It takes much less work to install floating gear. The fisher's decision to opt for one method or the other will depend on the currents.
While heading east to its spawning ground an eel runs into an obstacle, the net. It tries to get around it but has nowhere to go but the entranceway, which leads it to the trap at the end of the net. When the tide goes down, the eel is trapped and cannot escape.
Gertrude and her family also fish for herring in May and June while waiting for the eel season in the fall.
To evaluate, at the end of a year, the ongoing occupation of Gertrude and Philippe Madore’s family since 1989, it must be borne in mind that the family's members work for the “Site d'interprétation de l'anguille” tourist business from May 15 to late October. They also have to mend the nets before setting up the “pêches à anguilles”, maintaining them, emptying the traps day and night depending on when the tide ebbs, dismantling in November the net structures so painstakingly set up in the spring, and cleaning and repairing all the equipment necessary for any fishing operation to succeed.
[11] The witness explained that the nets are mended and made in the spring. The witness’s two daughters do this work. They also receive visitors at the eel interpretation site, showing them around the site and giving them samples to taste. They have been doing this work since 1986 and are very familiar with it, and they have always received unemployment insurance benefits.
[12] Where the mending of nets is concerned, the appellant’s business does not make only fishing nets. At p. 9 of Exhibit A-1, the following is said on this point:
[TRANSLATION]
On November 11, 1986 Gertrude and Philippe started their business “Les Agrès de pêche du Kamouraska Enr.” They intended to serve fishers in the Lower St. Lawrence by “mending” and repairing nets. “Mending” involves attaching a rope to the net. Gertrude admits that at first it took her three months to put the net onto the entranceway attached to the box used as a trap. She now does this in four or five days. They will soon be selling nets for softball diamonds and tennis courts, and for other enclosures. In 1987 they asked Steven Grant of Matane, a former shrimp fisherman, to come and give courses on mending nets; Mr. Grant had extensive experience making nets. Gertrude and Philippe made their premises available to the students. They wanted to create jobs and thus develop sturgeon fishing (mid-June to mid-July) or eel fishing (in the fall) activities.
[13] The witness’s two daughters do not participate directly in the eel fishing activities in October and November. Eels are collected in the nets and the trap. This work is done by the merchant, Les Pêcheries Gingras among others, that has purchased the eels. They are transferred to freezer transport trucks which are often driven directly onto boats headed for Europe. In any case, where the eel harvest is concerned, Les Agrès de pêche du Kamouraska Enr. needs only to check the weight of the product sold for payment purposes.
[14] In addition to herring and eel fishing, the business offers guided tours to tourists:
[TRANSLATION]
This family business, created on November 11, 1986, offers instructive guided tours, fishing excursions at low tide (groups must reserve) and a demonstration of mending. A surprise awaits visitors at the end of their visit: the hostess happily treats them to (extremely delicious) smoked eel canapés and pickled herring if they are available. [Exhibit A-1, p. 35]
The site can be visited from mid-May to early September. However, on request or with advance notice organized groups (schoolchildren among others) can go on a guided tour. An adult pays $4 (the group rate is $3.50), schoolchildren pay $2.50 and there is no charge for children under six. Visitors may also buy containers of pickled herring. Four hundred of them were sold in 1996.
[15] The business's 1994 gross income was as follows:
Fishing income $29,510
Other income (visitors) $3,086
$32,596
Expenses $30,678
Net income before capital cost allowance $1,918
[16] In 1995, gross income was $29,874.27, apart from the tourist attraction, and expenses $27,141.64 (Exhibit I-2).
[17] In 1996, the year at issue, the sale of herring and tourist income brought in $9,614 and the sale of eels $49,500.
[18] According to Exhibit A-2, the sale of herring brought in $979.12 in the week ending May 25, 1996 and $995.32 in the week ending June 1, 1996. For 1996, Exhibit I-4 contains 15 sales invoices for two nets to be repaired ($105), one net assembled for the Department of Transport ($55), the sale of two eels (at $38 each), and so on.
[19] Exhibit I-5 contains 18 pages on which tourists wrote their comments, all of which were extremely complimentary, between May 27 and October 8, 1996. The number of visitors broke down as follows:
May 9 visitors
June 94
July 158
August 141
September 84
October 70
Total: 556 visitors
[20] The employees’ pay sheets for 1990 to 1996 were filed as Exhibit I-1. One employee, Aline Lavoie, appears to have worked as a fisherman’s helper in 1991 and to have earned $8 an hour, like the two appellants, who also worked as fisherman’s helpers in addition to serving as tour guides and mending nets.
[21] Sylvie Madore testified that she has worked for this employer for 10 years. She mends nets, puts herring in jars and receives visitors. She used sketches to explain how eel fishing takes place using the structures on site.
[22] As Exhibit A-6 the appellant filed a letter to the respondent dated June 10, 1997 requesting [TRANSLATION] “documents and information contained in our clients' files”. Among the documents received was an opinion relating to Sylvie Madore written by Jaco Ouellet, appeals officer. The conclusion reads as follows, at p. 6:
[TRANSLATION]
Consequently, the appellant’s employment is insurable as there was a true employee-employer relationship and the employment meets the requirements for the existence of a contract of service under s. 3(1)(a) of the Unemployment Insurance Act and s. 5(1)(a) of the Employment Insurance Act.
Precedents
Bellemare v. M.N.R., T.C.C. 86-45, February 13, 1987, Judge Potvin; and
Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161.
Recommendation
We recommend that notices by the Minister be issued indicating that Sylvie Madore held insurable employment under s. 3(1)(a) of the Unemployment Insurance Act and s. 5(1)(a) of the Employment Insurance Act when employed by Gertrude Madore, operating as “Les Agrès de pêche du Kamouraska Enr.”, in the period from June 9 to September 7, 1996.
Counsel for the respondent did not deny that the appellant’s employment was insurable under s. 3(1)(a) of the Unemployment Insurance Act but argued that it was excepted under s. 3(2)(c) because of the appellant's relationship with the employer.
[23] Regarding Jaco Ouellet’s conclusion, counsel for the appellant responded to counsel for the respondent that it dealt not only with s. 3(1)(a), but also with s. 3(2)(c) of the Unemployment Insurance Act. He referred to the paragraphs headed “Nature of the question” and “Statutory provisions” at p. 2 of Exhibit A-6:
[TRANSLATION]
Nature of the question
The question is whether the appellant Sylvie Madore held excepted employment under s. 3(2)(c) of the Unemployment Insurance Act and/or s. 5(2)(i) of the Employment Insurance Act when employed by Gertrude Madore, operating as “Les Agrès de pêche du Kamouraska Enr.”, in the period from June 9 to September 7, 1996. We will also consider whether this employment was held under a contract of service as required by s. 3(1)(a) of the Unemployment Insurance Act and s. 5(1)(a) of the Employment Insurance Act.
The Trois-Rivières district office decided that this employment was excepted from insurable employment under s. 5(2)(i) of the Employment Insurance Act.
Statutory provisions
Section 3(1)(a) of the Unemployment Insurance Act.
Section 3(2)(c) of the Unemployment Insurance Act.
Section 61(3)(a) of the Unemployment Insurance Act.
Section 5(1)(a) of the Employment Insurance Act.
Section 5(2)(i) of the Employment Insurance Act.
Section 91 of the Employment Insurance Act.
Section 251 of the Income Tax Act.
[24] It is true that Jaco Ouellet seems to have dealt with only s. 3(1)(a), but the comment in the last paragraph under the heading “Nature of the question” that the Trois-Rivières district office had decided that this employment was excepted from insurable employment under s. 5(2)(i) of the Employment Insurance Act leaves the court uncertain as to whether Mr. Ouellet’s decision was not intended, implicitly, to preclude further discussion.
[25] The Federal Court of Appeal has rendered a number of judgments on the application of s. 3(2)(c) of the Act, including those in Tignish Auto Parts Inc. v. Minister of National Revenue[2] and Ferme Émile Richard et Fils Inc. v. Minister of National Revenue and Deputy Attorney General of Canada.[3]
[26] In the first of these judgments, Tignish Auto Parts Inc. (F.C.A., A-555-93), dated July 25, 1994, the Court cited counsel for the respondent, with 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.
[27] There are thus four tests which the Tax Court of Canada can apply to decide whether it is entitled to intervene:
the Minister
(1) has not had regard to all the circumstances of the employment;
(2) has considered irrelevant factors;
(3) had acted in contravention of some principle of law; or
(4) has based his decision on insufficient facts.
[28] The Court went on as follows:
In my view, the respondent’s position is correct in law except that it does not indicate what powers the Court enjoys once an intervention is deemed to be justified.
After some further comments, the Court added the following:
It is therefore appropriate, in the case at bar, to analyze the provisions of the Unemployment Insurance Act under which the jurisdiction of the Tax Court is exercised in order to determine the type of decision it may render.
The Tax Court, not being a superior court of record, has no inherent jurisdiction to refer the matter back to the Minister. It does, however, enjoy implied powers and could, perhaps, on this basis, as claimed by the respondent, refer the matter back to the Minister. But the difficulty here is that the power of the Tax Court to refer back has already been legislated upon. Subsection 70(2) of the Act, which I have reproduced earlier, reads thus:
70. (2) On an appeal under this section, the Tax Court of Canada may reverse, affirm or vary the determination, may vacate, confirm or vary the assessment or may refer the matter back to the Minister for reconsideration and reassessment, and shall thereupon in writing notify the parties to the appeal of its decision and the reasons therefor.
[29] In Ferme Émile Richard et Fils Inc., the Federal Court of Appeal summarized Tignish Auto Parts Inc. as follows:
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.
[30] It must now be asked whether the Minister’s decision in the instant case resulted from the proper exercise of his discretionary authority.
[31] The respondent’s principal argument was that the appellants did not work during the eel fishing season, which was when most of the employer's income was generated.
[32] Paragraph 9 of the Reply to the Notice of Appeal reads as follows:
[TRANSLATION]
9. The respondent submits that the working conditions would not have been the same if the appellant and the payer had been dealing with each other at arm’s length.
[33] During the eel fishing season it was Gertrude Madore herself who received visitors. There was nothing in the evidence to show that the worker’s period of employment was established in order to qualify her for unemployment insurance benefits.
[34] The statement contained in subparagraph 5(v) of the Reply to the Notice of Appeal is the only one which could lead the Court to draw the desired conclusion:
[TRANSLATION]
(v) the appellant would never have hired a person with whom she was dealing at arm's length on the same terms as those offered the worker, still less for the period in question. [denied]
This statement is actually a conclusion, but there are no facts to support it.
[35] Let us re-read s. 3(2)(c)(ii) of the Unemployment Insurance Act:
Excepted employment.
3.(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 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 . . . .
[36] The remuneration of $8 an hour was not excessive; the terms and conditions, the duration and the nature and importance of the work performed were the same for Aline Lavoie, who also worked as a fisherman’s helper and received the same salary under similar conditions.
Conclusion
[37] The appeal is allowed.
Signed at Québec, Quebec, this 10th day of September 1998.
“Guy Tremblay”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 23rd day of April 1999.
Stephen Balogh, Revisor