Date: 19971017
Dockets: 96-1054-UI; 96-1055-UI
BETWEEN:
MONIQUE LACASSE, CHARLES LACASSE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,
Reasons for Judgment
Léger, D.J.T.C.C.
[1] By consent of the parties, these appeals were heard on common evidence at Québec, Quebec, on September 16, 1997.
[2] The appellants are husband and wife and were the shareholders of Centre de Chaussure Ste-Claire Inc. Charles held 23 of the 25 shares and Monique held the remaining two. On June 25, 1993, the appellants sold all the shares of the said Centre to 3092-1688 Québec Inc., which became the sole shareholder of the payer. A contract of sale signed by the parties concerned fixed the selling price at $160,000, $140,000 of which represented the value of inventory.
[3] Clause 20.1 of the contract of sale (Exhibit A-1) reads as follows:
[TRANSLATION]
In consideration of a salary of five hundred dollars per week ($500/week) on the basis of five days per week over a period of five months in the first two years commencing on the date of this contract, the vendor undertakes to cooperate with the purchaser by supporting it and giving it the benefit of his advice and knowledge on the practices of the trade as currently carried on by the corporation. A schedule shall be determined in advance by the parties in accordance with the agreement to be reached. Likewise, the purchaser undertakes to employ the vendor in customer service for those 10 months spread over a two-year period. The work weeks shall be continuous and uninterrupted.
[4] The vendor is defined in the contract of sale as being the appellants and the purchaser as being 3092-1688 Québec Inc., the sole shareholder of which is Gaétan Laflamme.
[5] The appellant Monique Lacasse worked as a saleswoman for Centre de Chaussure Ste-Claire Inc. for more than 23 years and was laid off by the purchaser, which had become the payer, on July 10, 1993. The female appellant was thus eligible for unemployment insurance benefits at that time.
[6] The evidence shows that the appellant Charles Lacasse continued to provide services to the payer until November 26, 1993. The payer used the appellant’s services until that date in order to comply with clause 20.1 of the contract of sale. Since the period of employment exceeded 20 weeks, this theoretically made the appellant Charles Lacasse eligible for unemployment insurance benefits. Again, to comply with the contract of sale, the payer hired the appellant Monique Lacasse on July 18, 1994, for a period of 20 weeks, which enabled her to reapply for unemployment insurance benefits.
[7] Taking into account the weekly salary of $500 paid to the appellants over a period of 10 months, as stipulated in clause 20.1 of the contract of sale cited above, the total amount paid would have been $20,000; based on this amount, we can estimate that, if the appellants each received unemployment insurance benefits for 40 weeks, the total amount of those benefits would theoretically have been about $30,000. Added to the selling price, these amounts, totalling $50,000, would bring the total selling price to $210,000.
[8] We can see that, when the contract was negotiated, the vendor declared to the purchaser that such a requirement would not cost much since, for income tax purposes, the salaries would be expenses deductible from business income. Furthermore, the amounts received by the appellants in respect of unemployment insurance benefits had to be paid by the Commission, not by the purchaser. This was a cleverly contrived scheme put together by the vendor.
[9] The Court considered the possibility that the combined effect of clause 20.1 of the contract of sale and of the other evidence was that the employment was excepted under paragraph 3(2)(c) of the Unemployment Insurance Act. When they negotiated this clause of the contract, were the parties dealing with each other at arm’s length?
[10] Clause 3.1 of the contract of sale (Exhibit A-1) reads in part as follows:
[TRANSLATION]
3.1 In consideration of this sale, the vendor acknowledges that it has received this day from the purchaser the sum of sixty-five thousand dollars ($65,000), for which release is hereby given by the vendor Charles A. Lacasse, and full and final release is given by the vendor Monique Morissette.
The balance of ninety-five thousand dollars ($95,000) will be payable to the vendor Charles A. Lacasse only, as follows:
(a) An amount of sixty thousand dollars ($60,000) on or around July 1, 1993, or not later than July 9, 1993, to be paid out of the proceeds of a loan in the form of a line of credit issued to the corporation by the Ste-Claire Caisse populaire Desjardins, 135-A, Rue Principale, Ste-Claire, upon conveyance of inventory to the creditor, the Ste-Claire caisse populaire, by the corporation.
(b) The sum of thirty-five thousand dollars ($35,000) in 20 equal and consecutive semi-annual principal payments of $1,750 each, in Canadian dollars, the first payment falling due on December 19, 1993, and the others successively on June 19 and December 19 each year until June 19, 2004, on which date any outstanding balance will become immediately payable without notice or formal demand of any kind.
The outstanding balance will bear interest at the rate of seven per cent calculated as of June 19, 1993. This interest will be payable at the same time as the aforementioned principal payments and will also bear interest at the same rate, without any requirement of notice or of a formal demand, starting on that date, the whole without prejudice to the right to require immediate payment upon forfeiture of the term, as stipulated below.
[11] Clause 4.1.7 of the said contract of sale dealing with the guarantees provided to the vendor by the purchaser reads as follows:
[TRANSLATION]
A number of shares proportionate to the balance of the selling price of the shares sold will be placed in trust with Jean-Marc Fortier, notary, with the stipulation that, if the purchaser does not remit on time the payments owed on the selling price or does not meet his obligations, the shares will then be transferred back to the vendor, unless the said vendor decides to exercise his other remedies to obtain payment of the balance of the selling price.
[12] The contract of sale also contains a no-competition clause (clause 9.1) which applies for a period of five years within a radius of 20 miles of the present limits of the municipality of Ste-Claire.
[13] In accordance with clause 19.1 of the contract, a mortgage of $35,000 was granted on an immovable as a guarantee of payment of the balance of the selling price.
[14] I have long been familiar with the law governing insurable contracts of employment. Counsel submitted the following judgments to me: Léon Guérette c. M.R.N., [1991] A.C.I. No. 824 (90-293(UI)), Ginette Grenier v. M.N.R. (96-1627(UI)) and Johanne Gervais v. M.N.R. (F.C.A. A-502-93).
[15] I carefully reviewed these decisions. However, each appeal is different and, although the applicable principles of law are the same, each appeal must be decided having regard to the circumstances revealed by the evidence.
[16] In the instant appeals, are we dealing with a contract of service or a contract for services? The evidence showed that significant sums had to be paid by the purchaser over a long period of time. It was therefore in the vendor’s interest to cooperate with the purchaser so that the business would continue to prosper and the purchaser could meet its obligations and pay the balance of the selling price. There were therefore elements such as the risk of loss and the lack of integration of the employees into the payer’s business and these elements involved criteria which enable us to resolve the above question.
[17] Having considered the whole of the evidence and having heard the arguments of counsel, the Court finds that the amounts paid to the appellants, allegedly in respect of salary in accordance with clause 20.1 cited above, were merely a supplementary consideration in addition to the selling price. The Court further concludes that the said employment described in clause 20.1 was merely held pursuant to a contract for services and was not insurable employment under paragraph 3(1)(a) of the Unemployment Insurance Act.
[18] For all these reasons, the Court dismisses the appeals and affirms the decisions of the Minister of National Revenue.
"C.I.L. Léger"
D.J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 26th day of June 1998.
Erich Klein, Revisor