Équipement de Restaurant Laval Inc. c. M.R.N.

Équipement de Restaurant Laval Inc. c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-08-23 Neutral citation 2004 TCC 543 File numbers 2003-4683(EI) Judges and Taxing Officers Louise Lamarre Proulx Subjects Canada Pension Plan Decision Content [OFFICIAL ENGLISH TRANSLATION] Docket: 2003-4683(EI) BETWEEN: ÉQUIPEMENT DE RESTAURANT LAVAL INC., Appellant, And THE MINISTER OF NATIONAL REVENUE, Respondent, and RÉJEAN DUPLESSIS, RAYMOND DUPLESSIS AND JEAN-CLAUDE DUPLESSIS, Interveners. ____________________________________________________________________ Appeal heard on July 28, 2004, at Montréal, Quebec Before: The Honourable Judge Louise Lamarre Proulx Appearances: Agent for the Appellant: Alain Savoie Counsel for the Respondent: Claude Lamoureux Agent for the Interveners: Alain Savoie ____________________________________________________________________ JUDGMENT The appeal and the interventions are allowed, and the decisions by the Minister of National Revenue are vacated in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 23rd day of August 2004. "Louise Lamarre Proulx" Lamarre Proulx J. Certified true translation Colette Dupuis-Beaulne [OFFICIAL ENGLISH TRANSLATION] Citation: 2004TCC543 Date: 20040823 Docket: 2003-4683(EI) BETWEEN: ÉQUIPEMENT DE RESTAURANT LAVAL INC., Appellant, And THE MINISTER OF NATIONAL REVENUE, Respondent, and RÉJEAN DUPLESSIS, RAYMOND DUPLESSIS AND JEAN-CLAUDE DUPLESSIS, Interveners. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Lamarre Proulx J. [1] This appeal and these interventions concern the decisions by the Minister of National Revenue (the "Minister") that the Interveners, the Workers, held insurable employment from January 1, 2002, to March 21, 2003. [2] The applicable statutory provisions are paragraph 5(2)(i) and subsection 5(3) of the Employment Insurance Act (the "Act") and, to a certain extent, paragraph 5(1)(a) of that Act. [3] The point for determination is whether the Appellant would have entered into a substantially similar contract of employment with each of the Workers if it had been dealing with them at arm's length. [4] The facts on which the Minister relied in making his decision are described in paragraphs 9 and 10 of the Reply to the Notice of Appeal, as follows: [TRANSLATION] 9. The Minister has determined that the Workers held employment with the Appellant under a contract of service, relying on the following presumptions of fact: (a) the Appellant manufactures professional kitchen equipment for hotels, restaurants and institutions; (b) the Appellant sells its products mainly in Quebec and some in Ontario; (c) the Appellant employed approximately 18 persons; (d) the Appellant's business hours were from 7:30 a.m. to 4:30 p.m., Monday to Friday, for its administration and from 6:30 a.m. to 4:00 p.m., Monday to Thursday, and from 6:00 a.m. to 12:00 p.m. on Friday, for the plant; (e) each of the Workers was authorized to sign the cheques on behalf of the Appellant; two signatures were required; (f) the Workers were entitled to one week's vacation a year and were remunerated in case of illness; (g) the Workers were not remunerated for their overtime; (h) the Appellant had the power to control the work of each of the Workers; (i) the Workers' duties were well integrated into the Appellant's activities; (j) RÉJEAN DUPLESSIS performed the following duties: - hired and dismissed employees; - recovered amounts owed from customers; - created equipment models; - took measurements on the customers' premises; - went to the distributors to obtain contracts; (k) he worked in the kitchen and on the road; (l) the Appellant provided him with a work space, a vehicle and a cellular telephone; (m) the Appellant reimbursed him for entertainment expenses, meal and hotel expenses, vehicle expenses and cellular telephone expenses; (n) he received fixed remuneration of $55,000 a year; (o) RAYMOND DUPLESSIS performed the following duties: - was responsible for purchases; - attended to receiving and shipping; - managed the Appellant's inventory; - made bids; - handled parts at the counter and did the billing; - occasionally went to customers' premises to take measurements and orders; - prepared drawings for production; (p) he worked at the plant and occasionally on the road; (q) he worked between 50 and 60 hours a week; (r) he had to submit the bids and invoices to the Appellant; (s) the Appellant provided him with a work space and a cellular telephone; (t) he received fixed remuneration of $50,000 a year. (u) JEAN-CLAUDE DUPLESSIS performed the following duties: - prepared the bids; - made deliveries and bank deposits; - picked up equipment from suppliers; (v) he generally worked on the road; (w) he worked between 25 and 35 hours a week; (x) he had to submit the delivery orders to the Appellant; (y) the Appellant provided him with a truck and a cellular telephone; (z) the Appellant reimbursed him for truck expenses, meal expenses and cellular telephone expenses; (aa) he received fixed remuneration of $35,000 a year. 10. The Appellant is related to each of the Workers within the meaning of the Income Tax Act because: (a) the shareholders of the Appellant are the Workers; (b) they each hold one-third of the issued shares of the Appellant; (c) the Workers are brothers; (d) each of the Workers is a member of a related group that controls the Appellant. [5] For the Interveners and the Appellant, their agent admitted subparagraphs 9(a) to (e), (g), (i), (j), (l) to (p), (s), (t), (v), (w), (y) and (aa) and paragraph 10. [6] Subparagraph 9(f) was denied because the Workers took the vacation days that suited them. However, they never, or virtually never, took more than seven consecutive vacation days. [7] Subparagraph 9(h) was denied because Réjean Duplessis and Raymond Duplessis both managed the Appellant. [8] Subparagraph 9(k) was denied because Réjean Duplessis also worked at his home, where he had an office. According to his testimony, he liked to get up very early in the morning and worked at home on the business's files before going to the office. [9] Subparagraph 9(q) was denied because Raymond Duplessis normally worked 60 hours a week and many more when the needs of the business so required. The business moved in November 2000. The preparations and relocation took place from June 2002 to January 2003. During that period, the two brothers Réjean and Raymond, and to a certain extent Jean-Claude, worked twice as many hours as usual. They did not want to cut back the business's usual activities, and plans for the move and set-up on the new premises also had to be made. [10] As to subparagraph 9(u), Jean-Claude Duplessis did not prepare the bids, but rather did the errands. Counsel for the Respondent asked that the word "bids" be replaced by "errands", which was accepted. [11] The three Interveners testified. Réjean Duplessis is the president of the business. The business has been in existence since 1951 and operates in the manufacturing field. It was founded by the father of the three brothers. The business now has 20 employees, and its turnover is $1,900,000. Réjean Duplessis began working for the business in 1972, at the age of 15. He explained that he had no schedule. He usually got up around 4:00 or 5:00 in the morning to work on the business's files. He arrived at the office around 7:00 a.m. During the period of the move, he could work weeks of 80 to 100 hours. Now his weeks are between 60 and 80 hours. He says he works seven days a week. [12] There is no overtime for him. The witness said, however, that the business's workers are remunerated for hours worked and, if they work overtime, are paid for those overtime hours. [13] He decides on his own leave days. He does not remember taking a full week. A few years ago, he had a house built near the business's premises and was the general contractor for that job. As a result, he often had to travel to the house construction site. [14] He stated that, at the time of the move, each of the brothers had loaned the $50,000 to the Appellant, which needed capital at the time to set up on the new premises. Each of the three brothers also guaranteed a line of credit on an equal basis. Sometimes there were bonuses or dividends, and they were issued equally. [15] It was he who had determined his salary. He said that, if he had to be replaced, more than one person would be needed because, in addition to being an administrator, he is also the business's industrial designer. He stated that one of the key employees, a foreman, earns $60,000 a year. That person has 27 years' experience and takes seven weeks' vacation. [16] Raymond Duplessis began working for the business in 1978, when he was 16 years old. He is now vice-president of the corporation. [17] He confirmed that he had loaned the business $50,000 and guaranteed the line of credit. He handles purchases, inventory, billing and bids. The difference between him and his brother Réjean is that Réjean hires and dismisses staff, looks for customers, and negotiates contracts. [18] The witness said that he did not work a fixed schedule either. He also stated that he had a hobby: he was very much interested in certain cars. When he wanted to go away to auto shows or exhibitions, he informed his brother of the fact. He sometimes worked evenings and weekends. He also obviously worked much more around the time of the move. A short week was 60 hours. [19] It was he who told Jean-Claude what shopping or errands to do. Jean-Claude worked fewer hours and in fact worked on call. Raymond Duplessis said that he used his brother Jean-Claude's services as needed. If Jean-Claude was not their brother, his position would be abolished. It is simpler and more economical to do business with private carriers. [20] Jean-Claude Duplessis began working for the business in 1959. He worked in the shop, but that work caused him a lot of stress near the end. His brothers agreed to reduce his hours of work and to change his duties and offered him a position as an errand runner, which he had held for three years. [21] The agent of the Appellant and the Interveners referred to the decision in Crawford and Co. Ltd. and the Minister of National Revenue, [1999] T.C.J. No. 850 (Q.L.), and Planchers de bois franc 2000 (Laval) Inc. and the Minister of National Revenue, [2001] T.C.J. No. 479 (Q.L.). [22] In Planchers de bois franc 2000 (Laval) Inc., he cited paragraphs 20 and 23: 20 According to Maurice Lepage, the worker's responsibilities increased over the years. Her salary was set at $21,000 a year and she received that same salary during both peak and slow periods. A certain Mr. Blouin, a sales clerk, received a salary of $26,000, even though he had fewer responsibilities than the worker. According to Maurice Lepage, given her responsibilities, the worker should receive $10,000 to $15,000 more per year. [...] 23 It should be noted that Mr. Blouin enjoyed more favourable working conditions than the worker. The worker also worked at home in the evenings, on weekends and even during her holidays without being remunerated. [23] The agent of the Appellant and the Interveners argued that, in the instant case, the foreman similarly enjoyed more advantageous conditions than those of the Interveners. [24] Counsel for the Respondent referred to the decision by this Court in Roxboro Excavation Inc. v. The Minister of National Revenue, [1999] T.C.J. No. 32 (Q.L.), and that of the Court of Appeal in the same case, [2000] F.C.J. No. 799 (Q.L.), as well as the decisions in Groupe Desmarais Pinsonneault & Avard Inc. v. The Minister of National Revenue, [2002] F.C.J. No. 572 (Q.L.), Acier Inoxydable Fafard Inc. v. The Minister of National Revenue, [2002] F.C.J. No. 794 (Q.L.), Quigley Electric Ltd. v. The Minister of National Revenue, [2003] F.C.J. No. 1789 (Q.L.), and Industries J.S.P. Inc. v. The Minister of National Revenue, [1999] T.C.J. No. 423 (Q.L.). Analysis and Conclusion [25] First I will consider the decisions to which counsel for the Respondent referred. This Court's decision in Roxboro Excavation Inc. and that of the Federal Court of Appeal were made under paragraph 5(1)(a) of the Act. However, here we are concerned with an application of paragraph 5(2)(i) and subsection 5(3) of the Act. The decision in Quigley Electric Ltd. turned on the fact that Mrs. Quigley could not be characterized as a principal at Quigley Electric Ltd. She did not enjoy any special treatment within the corporation as a result of the personal relationship she had with the majority shareholder. The decision of the Federal Court of Appeal in Acier Inoxydable Fafard Inc. was rendered on the interpretation that should be given to paragraph 5(2)(b) of the Act. [26] Paragraphs 5(1)(a) and 5(2)(i) and subsection 5(3) of the Act read as follows: 5.(1) Subject to subsection (2), insurable employment is (a) employment in Canada by one or more employers, under any express or implied contract of service or apprenticeship, written or oral, whether the earnings of the employed person are received from the employer or some other person and whether the earnings are calculated by time or by the piece, or partly by time and partly by the piece, or otherwise; [...] (2) Insurable employment does not include [...] (i) employment if the employer and employee are not dealing with each other at arm's length. (3) For the purposes of paragraph (2)(i), (a) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the Income Tax Act; (b) if the employer is, within the meaning of that Act, related to the employee, they are 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. [27] First I refer to the decision of the Federal Court of Appeal in Pérusse v. Canada, [2000] F.C.J. No. 310 (Q.L.), in which, at paragraphs 13 to 15, Marceau J.A. analyzes the Minister's discretion under subsection 5(3) of the Act and the role of this Court in an appeal from a decision of that kind: 13 It is clear from reading the reasons for the decision that, for the presiding judge, the purpose of his hearing was to determine whether the Minister, in the well-known expression, had exercised "properly" the discretion conferred on him by the Act to "recognize the non-exception" of a contract between related persons. He therefore had to consider whether the decision was made in good faith, based on the relevant facts disclosed by a proper hearing, not under the influence of extraneous considerations. Accordingly, at the outset, at p. 2 of his reasons, the judge wrote: The determination at issue in the instant appeal results from the discretionary authority provided for by the provisions of s. 3(2)(c) of the Act, which reads as follows: The Appellant was required to discharge the burden of proof, on the balance of probabilities, that the Respondent in assessing the matter had not observed the rules applicable to ministerial discretion, and if this could not be done this Court would not have no basis for intervening. And finally, his conclusion at p. 14: So far as the appeal is concerned, I cannot allow it as the Appellant has not proven that the Respondent exercised his discretion improperly. 14 In fact, the judge was acting in the manner apparently prescribed by several previous decisions. However, in a recent judgment this Court undertook to reject that approach, and I take the liberty of citing what I then wrote in this connection in the reasons submitted for the Court (Francine Légaré v. M.N.R., case No. A-392-98, and Johanne Morin v. M.N.R., case No. A-393-98, dated May 28, 1999, not reported, at para. 4): 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. 15 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, as I was saying, 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. [28] It is therefore up to this Court to determine whether the facts assumed by Minister are true and, if they are true, whether they were correctly assessed in the context in which they occurred. [29] On the interpretation that should be given to subsection 5(3) of the Act, I wish to refer to the decision of the Federal Court of Appeal in Raymonde Bérard and The Minister of National Revenue, [1997] F.C.J. No. 88 (Q.L.), in which Hugessen J.A. wrote as follows: According to counsel, a teleological interpretation of this provision requires that only those employments of which the conditions are inordinately favourable to the employee be excepted. We disagree. Nothing in either the provision or the context suggests such an interpretation. The clear purpose of the legislation is to except contracts of employment between related persons that are not similar in nature to a normal contract between persons dealing with each other at arm's length. It is in our view clear that this abnormality can just as well take the form of conditions unfavourable to the employee as of favourable conditions. In either case, the employer-employee relationship is abnormal and can be suspected of having been influenced by factors other than economic forces in the labour market. [30] Contracts of employment between related persons, which are not of the same kind as a normal contract entered into between persons dealing with each other at arm's length, are excluded by the Act. The abnormal nature of a contract of employment can be as apparent in favourable conditions for the employee as in unfavourable conditions. [31] Counsel for the Respondent argues that a distinction must be drawn between employee rights and shareholder rights or between employee status and shareholder status. I concur in that argument. However, where employees are also shareholders who exercise, or can exercise, control over the payer, care must taken in declaring that their employment is similar to that of an employee who is dealing at arm's length. [32] It must be understood that, although a person may act qua shareholder and qua employee, we are nevertheless concerned with the same natural person. Consequently, that person, as a shareholder, may decide to work a large number of hours and to take a small salary in order to enable the business to become profitable or to reinvest profits in its operations. In that case, the contract of employment is not established on the basis of economic forces of the labour market. [33] In this particular case, the Workers Réjean and Raymond decided to pay themselves lower salaries than those to which they would have been entitled based on the number of hours worked and their experience. Being owners of the business, they agreed to make sacrifices with respect to amount of salary and number of hours of work in order to make their business profitable or more profitable. [34] Furthermore, Jean-Claude Duplessis' salary was paid to him for tasks the business could have done without and will do without when Mr. Duplessis retires. This amounted to more favourable conditions of employment for one person because that person was not dealing with the Appellant at arm's length. [35] With respect, I find that it was not reasonable for the Minister to conclude that, having regard to the remuneration paid and the terms and conditions, the Appellant would have entered into substantially similar contracts of employment with the Workers if they had been dealing with each other at arm's length. [36] For these reasons, the appeal and the interventions are allowed and the Minister's decisions are vacated. Signed at Ottawa, Canada, this 23rd day of August 2004. "Louise Lamarre Proulx" Lamarre Proulx J. Certified true translation Colette Dupuis-Beaulne CITATION: 2004TCC543 COURT FILE NUMBER: 2003-4683(EI) STYLE OF CAUSE: Équipement de Restaurant Laval Inc. and Her Majesty the Queen PLACE OF HEARING: Montréal, Quebec DATE OF HEARING: July 28, 2004 REASONS FOR JUDGMENT BY: The Honourable Judge Louise Lamarre Proulx DATE OF JUDGMENT: August 23, 2004 APPEARANCES: For the Appellant: Alain Savoie (agent) For the Respondent: Claude Lamoureux For the Interveners: Alain Savoie COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada