Automobiles Paillé Inc v. M.N.R.

Automobiles Paillé Inc v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-02-24 Neutral citation 2005 TCC 131 File numbers 2004-3246(EI) Judges and Taxing Officers Alain Tardif Subjects Old Age Security Act Decision Content Docket: 2004-3246(EI) BETWEEN: AUTOMOBILES PAILLÉ INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] _______________________________________________________________ Appeal heard on February 4, 2005, at Trois-Rivières, Quebec. Before: The Honourable Justice Alain Tardif Appearances: Agent for the Appellant: Jean-Claude Paillé Counsel for the Respondent: Antonia Paraherakis _______________________________________________________________ JUDGMENT The appeal under subsection 103(1) of the Employment Insurance Act is dismissed and the decision of the Minister of National Revenue is confirmed in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 24th day of February 2005. "Alain Tardif" Tardif J Certified true translation J. Poirier . Citation: 2005TCC131 Date: 20050224 Docket: 2004-3246(EI) BETWEEN: AUTOMOBILES PAILLÉ INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT [OFFICIAL ENGLISH TRANSLATION] Tardif J. [1] This is an appeal from a determination dated July 19, 2004, concerning the insurability of Jean-Claude Paillé's work for appellant Automobiles Paillé Inc. The period in issue is January 1, 2003, to March 31, 2004. [2] The determination under appeal results from the following assumptions of fact: 5. . . . (a) The appellant was incorporated on July 22, 1980; (admitted) (b) The appellant operated a General Motors new and used car dealership; (admitted) (c) The appellant hired about 25 employees; (admitted) (d) The appellant had a sales figure of $15 million at December 31, 2002; (admitted) (e) Used car sales account for 25% of the appellant's sales figure; (admitted) (f) The worker has been working for the appellant full-time since 1999; (admitted) (g) The worker's position was director of new car and used truck sales; (admitted) (h) The worker's duties were to manage the used vehicle inventory, assess the value of trade-ins, participate in used car auctions and supervise 7-8 of the appellant's employees; (admitted) (i) The worker had a variable schedule involving 50-60 hours of work per week; (admitted) (j) The worker spent 80% of his work time at the appellant's premises and 20% of it on the road; (admitted) (k) The worker was paid roughly $950 per week; (admitted) (l) The worker was paid by direct deposit every week; (admitted) (m) The worker received no commissions for his work; (admitted) (n) In 2003, the worker received a bonus from the appellant; (admitted) (o) The worker notified the appellant if he was going to be absent from work; (denied) (p) The appellant controlled the worker's conditions of employment; (denied) (q) The appellant reimbursed the worker for his travel expenses; (admitted) (r) The worker was exposed to no financial risk in the performance of his duties for the appellant; (denied) (s) All the materials and equipment that the worker used belonged to the appellant; (admitted) (t) Like many others of the appellant's employees, the worker had a car provided by the appellant; (admitted) (u) The worker's duties were integrated into the appellant's activities; (admitted) 6. . . . (a) The appellant's voting shareholders were as follows: Claude Paillé Gestion Claude Paillé Inc. The worker 57% of shares 28% of shares 15% of shares (admitted) (b) Claude Paillé holds 100% of the shares of Claude Paillé Inc; (admitted) (c) Claude Paillé is the worker's father; (admitted) d) The worker is part of a related group that controls the appellant; (admitted) 7. . . . (a) The appellant gave the worker substantial freedom in the performance of his duties but the worker's father had the last word on important decisions; (denied) (b) On June 21, 2004, the worker told a representative of the respondent that his salary was reasonable considering his duties and that he preferred a base salary without commissions because he wanted income that did not vary from week to week; (admitted) (c) The worker was always paid regularly; (admitted) (d) In 2003, some of the appellant's employees received higher overall remuneration than the worker; (denied) (e) In 2003, the business manager, service manager, parts manager and new car sales manager received bonuses from the appellant; (admitted) (f) The worker did not guarantee any of the appellant's debts; (admitted) (g) The worker's hours were comparable to those of the salespersons and of the new car sales manager; (denied) (h) The worker performed services for the appellant throughout the year; (admitted) [3] The appellant had no formal representative other than the worker Jean-Claude Paillé. After the Court's explanations, he was sworn in and admitted to the facts alleged in paragraphs 5(j), (k), (p), and (u) as well as paragraphs 7(b), (e), (f), (g) and (h). [4] Jean-Claude Paillé is in his mid-twenties. He is the only son of Claude Paillé, the majority shareholder of Automobiles Paillé Inc., the appellant company. He explained that the company was a family business that was originally owned by his grandfather. [5] He said that his father, age 57, put in motion a transition process that will ultimately make him the company's principal shareholder. [6] He explained that he has a lot of experience because he has been working in auto sales for a few years, and could now take over from his father. [7] In this regard, he explained that General Motors had already recognized his skill and expertise in a way because it agreed to his holding 15% of the share capital of the company that own the General Motors dealership. The owner of a car dealership cannot sell or assign his business without the formal approval of the franchisor company. In order for such approval to be obtained, it must be shown that the purchaser has the abilities and skills needed to operate such a business. [8] Jean-Claude Paillé explained that his main responsibility at the beginning of the period in issue was the used car department - a very important, perhaps even strategic component of a business of this kind because the success of the entire business often depends on whether the used car department is doing well. [9] Starting in April 2004, his responsibilities increased to such a great extent that he was, purportedly, managing the business practically on his own. [10] He supervises all the department heads, is responsible for hiring and firing employees, participates in the meetings held by General Motors and makes all the final decisions regarding the numerous operations. He sees to it that everything works smoothly and efficiently. He has a great deal of autonomy and chooses whether and when to take vacations. [11] He chooses to have a fixed weekly salary and said that he pays out a premium that he determines based on financial results. The key employees receive such a premium as well. The salary is comparable to those of other employees whose services are essential, notably the employees from the car sales department. [12] The explanations that Jean-Claude Paillé provided were highly detailed; it is no exaggeration to say that he had a lot of flexibility and freedom, not only with regard to day-to-day questions, but also with regard to the future of the business. He had major responsibilities in relation to the business. [13] The explanations are all the more plausible considering the fact that Claude Paillé, his 57 year-old father, has started taking increasingly frequent and lengthy periods off work. The father did not attend the hearing of this matter. [14] Jean-Claude Paillé also said that he sometimes discussed certain decisions with his father, but he added that he was generally the one who made the final decision. [15] However, the cross-examination of Jean-Claude Paillé caused an important and perhaps even decisive element to emerge regarding the nature of the employment relationship. [16] Indeed, Jean-Claude Paillé acknowledged that he did not have the authority to sign the business cheques alone. He did sign such cheques, but he needed a second signature: the comptroller's or his father's. [17] When his father was at the dealership, the cheques that he signed required only his signature. This small detail is obviously a very significant indicator of the difference between Claude Paillé's authority and that of his son who will one day replace him. [18] Denis Hamel, whose recommendations resulted in the determination, also testified. He explained that his conclusions stemmed from his conversations with the father and the son. In his view, the employment relationship was clearly a relationship of subordination. [19] Mr. Hamel determined that Jean-Claude Paillé's terms and conditions of employment were comparable to those of other strategic workers in the business in terms of hours and rate of pay. [20] He set out the following findings, among others (Exhibit I-1): [TRANSLATION] . . . (V) FACTS: . . . 6- According to our printouts, the worker's gross pay in 2001 was $52,588, including a $6,479 automobile benefit. His father Claude's total gross pay in that year was $54,601, and that also included a $6,479 automobile benefit. In 2001, four other salaried employees had annual gross pay in excess of the worker's. 7- According to our printouts, the worker's total gross pay in 2002 was $61,275, including a $6,863 automobile benefit. His father Claude's gross pay that year was $54,985, and that also included a $6,863 automobile benefit. In 2002, two other salaried employees had annual gross pay that exceeded the worker's. 8- According to our printouts, the worker's total gross pay in 2003 was $66,402, including a $6,996 automobile benefit. His father Claude's gross pay that year was $55,145, and that also included a $6,696 automobile benefit. In 2003, two other salaried employees had annual gross pay exceeding the worker's, and there is another one whose T4 sheet shows a gross salary of $66,037. . . . Facts obtained from Jean-Claude Paillé over the telephone on June 23, 2004. 28- . . . In 2003, he obtained a $10,000 bonus due to the good performance of the payor company. His bonus in 2002 had been $5,000. He was not the only one to get a bonus in 2003. Among those who got one were the business manager, the service manager, the parts manager and the new car sales manager. He did receive the highest bonus in 2003, however. Comments: . . . 31- The worker told us that his salary is reasonable considering his duties. He is neither underpaid nor overpaid considering the nature of his duties. He prefers a fixed salary without commissions because he wants his earnings to be the same every week. He claims that certain used car sales managers like him can earn up to $75,000 a year. Most get commissions. . . . 37- If the worker is away from work for any reason, he notifies his father in the morning so that no one looks for him during the day. . . . Facts obtained from Jean-Claude Paillé over the telephone on June 23, 2004. . . . 48- Mr. Paillé makes the important decisions for the business. For the moment, the worker does not go over Mr. Paillé's head. 49- Mr. Claude Paillé still works full-time for the payor company. On day-to-day matters, he leaves the worker room to manoeuvre in the performance of his duties. However, he has a right of supervision over the worker's decisions. . . . 51- The worker's salary is based on his duties and has nothing to do with the fact that he is Mr. Paillé's son. Mr. Paillé decided on the amounts of the 2002 and 2003 bonuses, and the worker was not the only person who got such bonuses. 52- The worker takes few annual vacations. He is a bit like his father. The son took a total of about two weeks off in 2003. He tends to take a single day off from time to time. The other employees - salespersons and mechanics - are governed by the parity committee and get three to four weeks of vacation per year. . . . Terms and conditions of employment - The worker is the new car and used truck sales manager. . . . - His father Claude does not impose a fixed schedule on him. He trusts him but could exercise some control over his schedule if truly necessary. - Jean-Claude's weekly hours are comparable to those of the salespersons and the new car sales manager. - His father gives him some flexibility in the day-to-day management of his department, but reserves the right to have the last word on any important decision. For the moment, the worker does not [TRANSLATION] "go over Claude Paillé's head" to use Claude Paillé's words in our telephone interview. - While Jean-Claude Paillé has some discretion in his day-to-day tasks, the fact remains that his father still has the power to intervene in any significant decision because he still has the most to gain or lose financially. The worker has not yet had to invest money in the payor company. . . . Nature and importance of work Jean-Claude Paillé's work is indispensable to the sound operation of the payor company. Duration of work Jean-Claude Paillé is employed year-round. Remuneration paid The worker's gross pay in 2004 was $1,000 per week. He gets no commissions. In 2003, the worker's T4 slip shows gross earnings of $66,402, including an automobile benefit of $6,996. In addition, there was a $10,000 bonus. His regular pay in 2003 was roughly $950 a week. The worker is not the only employee to have a car supplied by the payor. As for bonuses, other employees - including the business manager, the service manager, the parts manager and the new car sales manager - got one in 2003. In 2003, certain employees, including the business manager and a salesperson, received higher overall pay than the worker. Claude Paillé and the worker told us that the worker's salary was reasonable considering his duties. He is neither underpaid nor overpaid considering the nature of his duties. His pay is based on his work and has nothing to do with his being the majority shareholder's son. . . . [21] The facts that Denis Hamel recorded focused mainly on the period during which Jean-Claude Paillé's primary responsibility was the used car department. At that time, based on the information obtained, it would appear that the principal shareholder of the business spent more time at the dealership. [22] This case involves the nicest and most delicate of distinctions between two determinations. Was Jean-Claude Paillé advantaged or disadvantaged because he was not at arm's length from his father, the majority shareholder? [23] Some facts tend to show that he was advantaged or disadvantaged, while others support a contrary finding. Since the criteria to be considered are terms and conditions of employment, remuneration paid and all the circumstances, this matter should be examined with reference to these criteria. [24] In this regard, both the evidence and the facts recorded by Mr. Hamel disclosed that Jean-Claude Paillé did not benefit from conditions advantageous enough to warrant a finding that they resulted from the non-arm's-length relationship. On the contrary, the evidence disclosed that he was certainly an important link in the chain but that his working conditions were comparable to those of other people in the same enterprise. [25] Where the determination regarding insurability results from an exercise of discretion, the appellate jurisdiction of the Tax Court of Canada is subject to certain limitations set by the Federal Court of Appeal, notably in Pérusse v. Canada, A-722-97, March 10, 2000, [2000] F.C.J. No. 310 (QL), and Légaré v. MRN, Morin v. MRN, A-392-98 and A-393-98, May 28, 1999, [1999] F.C.J. No. 878 (QL). The following excerpts from Légaré andMorin, supra, at paragraph 4, articulate these limitations: 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. [26] In Pérusse, supra, Marceau J.A. cites the previous excerpt and continues, at paragraph 15: 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. [27] The fact that Jean-Claude Paillé has already been chosen as the future owner of the business is sufficient to explain and justify certain particularities, although these particularities have nothing to do with the non-arm's-length relationship. [28] A person dealing with the payor at arm's length could have worked under or benefited from conditions of the same kind. None of Jean-Claude Paillé's representations and arguments showed that he was advantaged or disadvantaged because he was not dealing with the majority shareholder, his father, at arm's length. [29] The work that Jean-Claude Paillé did was quite special in that his workload or job description varied. His power over the business grew, and he took on increasingly broad and significant responsibilities. [30] Admittedly, the circumstances were special. To gain a better understanding, it is important to recall that Jean-Claude Paillé himself explained that his father had named him as his successor. Consequently, Jean-Claude Paillé took more and more initiative, and his father, who remained the majority shareholder, gradually lessened his involvement and presence, but did so without abandoning his management of the activities or renouncing his authority over them. [31] How does such a situation differ from one in which a childless businessperson identifies a key, reliable and responsible employee and decides to make that employee the future owner of his business? [32] Although burden of proof with regard to this issue was on the appellant, no evidence going to the issue was adduced. [33] In a situation of this kind, the line between employer and subordinate is very thin - so thin that it is difficult to identify facts that can decide the outcome. [34] The evidence in the case at bar pointed to just such a fact: Jean-Claude Paillé could sign the cheques, provided they were countersigned by the comptroller, or by the majority shareholder, i.e. his father. [35] This fact speaks volumes about the contractual relationship. Cheque signing is certainly a fundamental act when it comes to determining the nature, significance and scope of a person's authority over the management of a business, but it is also fundamental in determining the limits. While Claude Paillé did not attend, his son said that, in the conduct of the business, Claude Paillé signed the cheques as the majority shareholder without a counter-signer. [36] I have no doubt that Jean-Claude Paillé had a great deal of autonomy and conducted himself like a boss, but the evidence did not show that the true boss, majority shareholder Claude Paillé, waived his right of supervision or authority or abdicated the rights conferred by his shares. [37] Jean-Claude Paillé acknowledged that he discussed with his father before making important decisions, but he added that he ultimately made the final decisions alone. [38] The evidence of Jean-Claude Paillé was in every respect consistent with the facts recorded as part of the analysis that led to the determination in this case, except for the fact that Jean-Claude Paillé's responsibilities increased effective April 2004, which is after the period in issue. [39] In fact, where a non-arm's-length relationship has no effect or influence on the assignment of his responsibilities, the importance and scope of those responsibilities are not the decisive factors. [40] The facts taken into account and used by the Minister were real and were examined and assessed correctly and judiciously. Consequently, I have not identified anything that casts doubt on the reasonableness of the determination. [41] All the relevant facts available during the analysis were confirmed at the hearing; the determination was appropriate at the time the analysis was done, and it remains so. [42] Consequently, the appeal is dismissed. Signed at Ottawa, Canada, this 24th day of February 2005. "Alain Tardif" Tardif J Certified true translation J. Poirier . CITATION: 2005TCC131 COURT FILE NO.: 2004-3246(EI) STYLE OF CAUSE: 2530-8552 QUÉBEC INC. and the MNR PLACE OF HEARING: Trois-Rivières, Quebec DATE OF HEARING: February 4, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice Alain Tardif DATE OF JUDGMENT: February 24, 2005 APPEARANCES: Agent for the Appellant: Jean-Claude Paillé Counsel for the Respondent: Antonia Paraherakis COUNSEL OF RECORD: For the Appellant: For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada