Date: 20001112
Dockets: 98-753-UI; 98-755-UI
BETWEEN:
ALEXANDER MARCHAND, MARY BABIN,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Cain, D.J.T.C.C.
[1] These are appeals by the two Appellants who worked for the same employer under totally different circumstances, but who agreed to hear the appeals at the same time with the evidence adduced to apply to their respective appeals as the context required and without the necessity of making two separate records.
APPEAL OF ALEXANDER MARCHAND
[2] The Appellant appeals the determination of the Respondent dated May 8, 1998 that his employment by Superior Contracting Ltd. (the "Payor") for the periods May 27, 1991 to July 18, 1993, July 19, 1993 to March 4, 1994, March 28, 1994 to July 30, 1995 and from July 31, 1995 to June 29, 1996 was not insurable employment, such employment being excepted employment as the Appellant and the Payor were not dealing with each other at arm's length within the meaning of paragraph 3(2)(c) of the Unemployment Insurance Act (the "UI Act"); further that the employment of the Appellant by the Payor from June 30, 1996 to March 8, 1997 was not insurable employment for the same reason within the meaning of paragraph 5(2)(i) of the Employment Insurance Act (the "EI Act").
[3] All of the above periods are hereinafter referred to as the "periods in question".
[4] The Respondent based his determination on the following assumptions:
"(a) the Payor was a corporation duly incorporated under the laws of the Province of Nova Scotia in 1983;
(b) at all material times the outstanding voting shares of the Payor were owned (sic) 100% by Glenn Marchand son of the worker;
(c) the Payor operates a year-round business involved in contracting for excavation, bulldozing, harbour dredging and development work;
(d) the Payor's garage was located on the Appellant's property and the Payor's office was maintained in the Appellant's personal residence;
(e) the Appellant received no reimbursement for the use of the garage or the office in his home;
(f) during the UI and EI periods in question the Payor engaged between 30 and 50 workers depending on the work available;
(g) the Appellant has been involved in the operation of the Payor since incorporation;
(h) the duties of the Appellant during the UI and EI periods in question were to handle the excavator when required, to provide supervision in the absence of Glenn Marchand and to pick up supplies as needed;
(i) the Appellant supervised other workers during periods outside the UI and EI periods in question when he was not recorded as being on the payroll and for which he did not receive remuneration;
(j) the Appellant performed other duties for the Payor outside the periods in question without remuneration;
(k) both the Appellant and the Payor alleged that the Appellant was to be paid at the rate of $15.00 per hour but the Appellant was paid the same amount for each week worked during the UI and EI periods in question, regardless of the number of days or hours worked;
(l) all other workers of the Payor that performed similar duties as the Appellant were paid at lower rates of pay;
(m) all other workers were paid for actual hours worked;
(n) the Appellant was recorded on the Payor's payroll for only sufficient weeks during the UI periods in question and for only sufficient hours during the EI period in question to qualify for benefits;
(o) the Appellant was related to the Payor within the meaning of the Income Tax Act;
(p) the Appellant was not dealing with the Payor at arm's length;
(q) having regard to all the circumstances of the employment, including the remuneration paid, the terms and conditions, the duration and importance of the work performed, it is not reasonable to conclude that the Appellant and the Payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length."
[5] The Appellant admitted assumptions (a), (b) and (g) but denied all of the other above assumptions.
FACTS
[6] From the evidence adduced the Court makes the following finding of fact.
[7] The Payor operated a construction company. It hired the Appellant as a machine operator and, when instructed, as a supervisor of other company employees. From time to time the Payor employed other persons who were particularly skilled in a specialized sector of the construction industry. They were paid more than the Appellant and their duties included supervising others including the Appellant.
[8] The Appellant's son Glenn was the sole shareholder of the Payor.
[9] The Payor's business premises were located on lands owned by the Appellant and consisted of a construction garage, constructed by the Payor from used materials at a cost of approximately $8,000 and an office premise located in the basement of the Appellant's personal residence, renovated by the Payor as well to accommodate equipment and staff.
[10] The Appellant's land consisted of approximately 27 acres purchased by him in 1952 for $50.00. Other than the front portion of the property, where his personal residence was located, the land was wet and boggy. The Payor recovered a portion of the land measuring approximately 200 feet square with fill on which it placed the said garage and recovered sufficient land to park his trucks and machinery.
[11] The Payor paid no rent or land taxes for the property recovered but did pay occupancy taxes for both the land occupied and the office space.
[12] The Payor used the personal telephone line of the Appellant for the business and paid the telephone including any use made thereof by the Appellant. When staff in the office was not present, the Appellant would answer the phone and receive deliveries both when employed and when not employed and pass messages on to the Payor.
[13] The Appellant and other persons who worked for the Payor from time to time would pick up materials for the Payor when they were not on the payroll and happened to be in the locale where the materials were ordered from. In addition, the Appellant would often run specific errands for the business when not employed without remuneration. In all cases he was not reimbursed for transportation costs. It should be understood that the business was located at Arachat, Nova Scotia, and the main source of supply of materials was Port Hawkesbury, Nova Scotia, some 20 to 30 miles away.
[14] Glenn Marchand testified that he kept the hours of all employees including the Appellant but no record of such time keeping was entered in evidence. The Appellant however, on direct examination when being examined about the periods in question, testified that he "could not get all dates" meaning that he was unable to work during inclement weather or when his service as an operator was not required.
DECISION
[15] In Hickman Motors Limited v. The Queen, [1997] 2 S.C.R. 336 the Supreme Court of Canada outlined the principles applicable when a person challenges the assumptions made by the Minister of National Revenue (the "Minister"). In that case, the Court was dealing with assumptions made by the Minister in making an assessment in a tax matter. The principles apply equally as well to assumptions made by the Respondent under the UI Act.
[16] The following is a summary of those principles:
1. That it was trite law that in taxation, the standard of proof is the civil balance of probabilities and that within that balance there can be varying degrees of proof required in order to discharge the onus depending on the subject matter.
2. That the Minister in making assessments proceeds on assumptions and the initial onus is on the taxpayer to destroy the Minister's assumptions in the assessment. The initial burden on the taxpayer is to demolish the exact assumptions of the Minister but not more.
3. That the initial onus of demolishing the Minister's assumptions is met where the Appellant makes out at least a prima facie case and the law is settled that unchallenged and uncontradicted evidence demolishes the Minister's assumptions.
4. That where the Minister's assumptions have been demolished by the Appellant, the onus shifts to the Minister to rebut the prima facie case made out by the Appellant and to prove the assumptions.
5. That where the burden has shifted to the Minister and the Minister adduces no evidence the taxpayer is entitled to succeed.
[17] A prima facie case is one supported by evidence which raises such a degree of probability in its favour that it must be accepted if believed by the Court unless it is rebutted or the contrary is proved. It may be contrasted with conclusive evidence which excludes the possibility of the truth of any other conclusion than the one established by the evidence.
[18] The jurisprudence in respect to the principles applicable to non-arm's length transactions under the Income Tax Act of Canada were canvassed extensively in a judgment of this Court in Parill v. Canada (Minister of National Revenue - M.N.R., [1996] T.C.J. No. 1680, Court files Nos. 95-2644(UI), 95-2649(UI) inclusive by Cuddihy T.C.J. which judgment was affirmed by the Federal Court of Appeal (1998) F.C.J. No. 836 DRS 98-16759.
[19] The learned Judge concluded from an examination of the relevant authorities that parties are not dealing with each other at arm's length when the predominate consideration or the overall interest or the method used amount to a process that is not typical of what might be expected of parties who are dealing with each other at arm's length. He further stated that parties are not dealing with each other at arm's length if there is the existence of a common mind which directs the bargaining for both parties to a transaction or that the parties to a transaction are acting in concert without separate interests or that either party to a transaction did or had the power to influence or exert control over the other and that the dealings of the parties are not consistent with the object and the spirit of the provisions of the law and they do not demonstrate a fair participation in the ordinary operation of the economic forces of the market place (see Attorney General of Canada v. Rousselle et al., 124 N.R. 339).
[20] Cuddihy T.C.J. concluded that the existence of a combination of one or several of these initiatives that would be inconsistent or interfere in due process negotiating between employer and employee and with the intent of the legislation, will not survive the arm's length test.
[21] The process of structuring salaries in a way that are not in keeping with what might be expected of a true arm's length relationship will not stand the test. Such structuring should demonstrate the real and ordinary operation of the economic forces of the market place, unhindered by arrangements or transactions that are not consistent with the object or intent of the law, the law being the UI Act and the EI Act.
[22] The Appellant failed to lead sufficient evidence to establish a prima facie case to demolish assumptions (c), (d), (e), (h), (j), (k), (m), (n) and (o).
[23] In respect to assumption (f) the Payor never employed more than 15 employees at any time during his operation but that assumption is of no significance.
[24] Evidence was led but did not demolish assumption (i). The Appellant testified that from time to time he visited the various sites of the Payor's operation when not employed and did from time to time purchase and carry lunch for employees on the job but that he did not work. As stated above he did take business calls on behalf of the business at home and did from time to time run errands for the Payor and pick up materials while on private trips without remuneration.
[25] Evidence was led in respect to assumption (l) that all workers hired to perform duties similar to the Appellant were paid at the same rate which evidence the Court accepts and that evidence demolishes that assumption.
[26] It is clear that the Respondent in making his determination took into account that the Appellant was hired at an hourly rate of $15.00, the standard wage for a machine operator, but for that remuneration provided land and buildings without rent, received that rate for periods in which he did not actually work, performed services outside of the periods in which he did work without salary, and was employed for the exact period required to qualify for benefits consistently year after year.
[27] The Respondent presumably concluded that the method used to determine the remuneration to which the Appellant should be entitled was not typical of what might be expected of parties dealing with each other at arm's length and that the dealings between the Appellant and the Payor were not consistent with0 the object and spirit of the UI Act and the EI Act and does not demonstrate a fair participation in the ordinary operation of the economic forces of the market place. He presumably concluded that the Payor would never have been able to negotiate such a financial package with a stranger.
[28] The federal Court of Appeal in Attorney General of Canada and Jencan Ltd., (1997) 215 N.R. 352 set out the criteria by which the Tax Court of Canada should exercise its jurisdiction in dealing with appeals in respect to rejected claims for employment insurance benefits by the Minister of National Revenue (the "Minister") where the Payor and the Appellant are related and the Minister determines that the relationship is one of non-arm's length. These criteria may be summarized as follows:
1. In the exercise of its jurisdiction, the Tax Court must exhibit a high degree of judicial deference in reviewing the Minister's determination. While the Court has authority to decide questions of law and fact, the Court's jurisdiction is circumscribed.
2. While the process is called an appeal, in reality it most resembles a judicial review. The Court does not have to decide whether the Minister's determination was correct but whether it resulted from a proper exercise of his discretionary authority.
3. Failure to take into account all of the relevant circumstances required by either the Unemployment or the Employment Insurance Act or taking into consideration irrelevant facts would result in an improper exercise of that jurisdiction. If the Minister acted in bad faith or for an improper purpose then the same result would occur.
4. The Court does not have the right to substitute its decision for that of the Minister because the Court would have come to a different conclusion on the facts relied on by the Minister. However since the Appellant is not privy to the Minister's decision and has the onus of proving his or her case, the Appellant has the right to bring new evidence to challenge the assumptions of facts relied on by the Minister. If after considering all of the evidence the Court finds the facts on which the Minister acted are insufficient in law to support his determination, the Court is justified in scrutinizing that determination and if it finds it legally wanting, of intervening.
5. An assumption of fact that is disproved at trial may not necessarily constitute a defect which renders the Minister's determination contrary to law. It will depend on the strength and weakness of the remaining evidence. The Court must go one step further and ask itself whether without the assumption of fact or facts that has or have been disproved there is sufficient evidence to support the Minister's determination.
6. In summary to find the Minister's determination insufficient in law, the Appellant must establish that he acted in bad faith or for an improper motive, that he failed to take into account all of the relevant circumstances as required by subparagraph 3(2)(c)(ii) of the UI Act and paragraph 5(3)(b) of the EI Act or that he took into account an irrelevant factor.
[29] The Court is satisfied that the Respondent did not act in bad faith or from an improper motive and that he took into account the relevant considerations as set out above. Although the Appellant demolished assumption (1) and that would have been significant if it had been standing alone, the Court is satisfied that the balance of the assumptions are sufficient to support the Respondent's determination. The Respondent having exercised his discretion judicially, this Court cannot intervene.
[30] The Appellant's appeal is dismissed and the determination of the Respondent is confirmed.
APPEAL OF MARY BABIN
[31] This is an appeal by the Appellant from a determination of the Respondent dated March 31, 1998, that her employment by Superior Contracting Ltd., the "Payor" for the periods April 18, 1994 to April 19, 1995, May 22, 1995 to January 5, 1996 and from April 22 to June 29, 1996 was not insurable employment by reason that the Appellant was not employed pursuant to a contract of service within the meaning of the UI Act and that her employment by the Payor for the period June 30, 1996 to May 31, 1997 was not insurable employment for the same reason within the meaning of the EI Act all of which periods are hereinafter referred to as the "periods in question".
[32] The Respondent based his determination on the following assumptions:
"(a) the Payor was a corporation duly incorporated under the laws of the Province of Nova Scotia in 1983;
(b) the Payor operates a year-round business involved in contracting for excavation, bulldozing, harbour dredging and development work;
(c) the Appellant has performed services for the Payor since 1988;
(d) the Appellant provided bookkeeping services to the Payor;
(e) the Appellant assessed the workload and determined when she would perform the services for the Payor;
(f) the Appellant kept track of her own hours which were not verified by the Payor;
(g) the Appellant was not supervised or monitored in the performance of her duties;
(h) the Appellant was paid at the rate of $10.00 per hour plus vacation pay;
(i) the Appellant had substantially similar working arrangements with two other companies in the area;
(j) the Appellant operated in a manner similar to a self-employed person;
(k) the Appellant was at liberty to arrange her schedule if there were conflicts between the timing of work to be done for the Payor and the other companies;
(l) the Payor did not have first call on the Appellant's time;
(m) there was no contract of service between the Appellant and the Payor."
[33] The Appellant admitted assumptions (a), (c) and (h), but denied all of the other above assumptions.
FACTS
[34] From the evidence adduced the Court makes the following finding of fact.
[35] The Appellant was hired by the Payor as a part-time bookkeeper and office clerk in October 1988. Her first task was to convert the Payor's manual system to a computerized one.
[36] The Payor supplied her with an office and all of the tools needed to perform her duties. She would perform all office work while employed, including typing letters and contracts, payroll, making up deposits, invoicing and paying all outstanding accounts.
[37] The Payor allowed most of the book work and invoicing to build so that it could hire the Appellant for a full week at a time. However the Payor's sole shareholder and President, Glenn Marchand ("Marchand") would do some himself in the interim when necessary, particularly the weekly payroll. He would assess when there was sufficient work and call her in.
[38] She undertook to give the Payor first choice on her services. When not employed by the Payor she would work for other companies when called, but only to assist their staff with data entries. The work she did for other employers was not similar to the work performed for the Payor.
[39] The Appellant was paid at the rate of $10.00 per hour and she kept track of her own hours. Glenn Marchand, the sole shareholder of the Payor, was usually in the office when the Appellant arrived, at times during the day and when she left at the end of the day.
DECISION
[40] The evidence confirms assumptions (b) and (d), which were originally denied merely because they needed further explanation
[41] The evidence led to demolish assumptions (e), (i), (j), (k) and (l) establish a prima facie case and that case has not been met by the Respondent. Pursuant to Hickman Motors Limited (supra) those assumptions are demolished.
[42] In respect to assumptions (f) and (g) the Payor's operation was such that Marchand was required to be out of the office from time to time and accordingly the Appellant was not personally supervised or monitored. However Marchand gave her instructions and the fact that she was employed over a long period of time indicates that he was satisfied with her work. Employees of small companies are often left to their own devices in the pursuit of their employment without direct supervision and monitoring, but that fact alone does not detract from their status as an employee.
[43] The Court finds there was a contract of service and the appeal is allowed and the determination of the Respondent is set aside and quashed.
Signed at Rothesay, New Brunswick, this 12th day of November 2000.
"Murray F. Cain"
D.J.T.C.C.