Fradette c. M.R.N.

Fradette c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-12-06 Neutral citation 2004 TCC 749 File numbers 2003-1084(EI) Judges and Taxing Officers Alain Tardif Subjects Employment Insurance Act Decision Content Docket: 2003-1084(EI) BETWEEN: CANDIDE FRADETTE, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] __________________________________________________________________ Appeal heard on common evidence with the appeal of 9072-5755Québec Inc. (2003-1087(EI)), on November 3, 2004, at Roberval, Quebec Before: The Honourable Justice Alain Tardif Appearances: Agent for the Appellant: Réal Brassard Counsel for the Respondent: Emmanuelle Faulkner _______________________________________________________________ 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 6th day of December 2004. "Alain Tardif" Tardif J. Translation certified true on this 3rd day of March 2005. Jacques Deschênes, Translator Docket: 2003-1087(EI) BETWEEN: 9072-5755 QUÉBEC INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] _______________________________________________________________ Appeal heard on common evidence with the appeal of Candide Fradette (2003-1084(EI)), on November 3, 2004, at Roberval, Quebec Before: The Honourable Justice Alain Tardif Appearances: Agent for the Appellant: Réal Brassard Counsel for the Respondent: Emmanuelle Faulkner _______________________________________________________________ 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 6th day of December 2004. "Alain Tardif" Tardif J. Translation certified true on this 3rd day of March 2005. Jacques Deschênes, Translator Citation: 2004TCC749 Date: 20041206 Docket: 2003-1084(EI) BETWEEN: CANDIDE FRADETTE, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. AND BETWEEN: Docket: 2003-1087(EI) 9072-5755 QUÉBEC INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Tardif J. [1] This is an appeal from a decision dated December 17, 2002. According to the decision, the work that the appellant Candide Fradette did for 9072-5755 Québec Inc., another appellant, was excluded from insurable employment because Ms. Fradette, and the manager of the appellant 9072-5755 Québec Inc., were not dealing with each other at arm's length. [2] The parties agreed to have the two matters heard on common evidence. [3] The Minister of Revenue relied on the following assumptions of fact to explain and justify his determination: [TRANSLATION] (a) the appellant was incorporated on January 14, 1999; (b) the appellant carried on business under the firm name "Hôtel Richelieu"; (c) within the same building, the appellant operated a room rental business (11 rooms); two taverns with capacities of 75 and 90 seats respectively; and 9 video poker machines; (d) the appellant operated throughout the year; (e) the appellant hired roughly ten employees; (f) Roch Cantin was the appellant's sole shareholder; (g) Roch Cantin is the worker's spouse; (h) the worker was hired by the appellant as a manager; (i) according to the worker, her tasks were to show people the rooms, empty the video poker machines and maintain the payroll journal; (j) the worker had no fixed work schedule; (k) the worker was paid a gross fixed salary of $350 per week; (l) the worker's hours were not entered in the appellant's payroll journal; (m) the appellant's other employees were paid on an hourly basis; (n) during the period in issue, the worker signed only two room rental cards; (o) the worker took 15-20 minutes a day to empty the video poker machines; (p) the worker's tasks were minor in relation to her pay; (q) before and after the period in issue, the worker continued to empty the video poker machines and make entries in the payroll journal; (r) before and after the period in issue, the worker rendered services to the appellant for no declared remuneration; (s) the period during which the worker claims to have worked is not the same as the period during which she actually worked; (t) on November 13, 2001, the appellant issued a Record of Employment (ROE) to the worker. The ROE stated that the worker's first day of work was July 1, 2001, that her last day was November 10, 2001, that she had 760 insurable hours, that her insurable earnings totalled $6,650 and that the reason for issuing the ROE was a shortage of work; and (u) the worker's ROE does not reflect the reality as to the number of hours she actually worked or the period during which she actually worked. [4] Both appellants admitted to the contents of paragraphs (a), (b), (c), (d), (e), (f), (g), (h), (k) and (m). The contents of the other paragraphs were denied. [5] Since the assumptions of fact in docket 2003-1084(EI) were the same, there is no reason to reproduce them. [6] 9072-5755 Québec Inc. operates a commercial establishment under the name "Hôtel Richelieu". The hotel has roughly a dozen rooms. It has three beverage licences, two for the operation of the bar and the other for the operation of an indoor-outdoor café. It also has ten video poker machines. The establishment sells no meals; in addition to alcohol, it sells cigarettes, chips, cheese and pickled eggs. [7] Room revenues are much higher during the summer but account for a rather marginal share of total revenues, which are derived primarily from video poker machines (up to $60,000 per week) and are complemented by bar sales. [8] The business employs roughly a dozen people to look after all the income-producing operations. [9] The period in issue is July 1 to November 10, 2001. [10] In order to explain and justify the appellant's work, Mr. Roch Cantin, the appellant's husband and the sole shareholder of 9072-5755 Québec Inc., explained and described the numerous managerial duties of his wife. [11] She is in charge of all aspects of the video poker machines, from collecting the money (emptying the machines) to daily local or out-of-town deposits. She ensures that the automatic teller machine is loaded with sufficient money because the video poker enthusiasts get their money from it. She is also responsible for the cleanliness of the rooms and the entire premises, including the inventory. As far as the bars are concerned, she is responsible for cleaning and maintaining the jiggers on the drink bottles. Thus, she has oversight over the entire organization. She runs errands, looks after the employees' pay, etc. [12] The appellant's husband explained that room rentals have diminished considerably over the years, especially since the arrival of B & Bs in large numbers. He said that because the hotel is not right on the major highway, the appellant has had to seek referrals from better-located establishments when those establishments are fully booked. He also said that she had to show the rooms to potential guests because 80% of them need to see a room before they will rent it. [13] Once the period in issue ended, i.e. November 10, the appellant purportedly ceased these activities and essentially emptied the poker machines, made deposits, ran errands, looked after the pay and did short rounds of the establishment. This is based on her testimony, which added nothing to the evidence except perhaps this element; indeed, she essentially confirmed her husband's answers by answering a question to the following effect: "You understand your husband's testimony. Is everything he stated accurate and consistent with what you would say yourself?" She essentially acquiesced. [14] In essence, the appellants sought to establish that the rental of rooms was the principal duty of the job and that this work was seasonal because it was based on the tourist season. This room rental aspect was markedly exaggerated. The evidence adduced showed conclusively that the employment was real, significant and clearly essential. The pay was appropriate and reasonable. [15] The true concern of the employment contract was to see to it that the video poker machines operated well; room rentals were a marginal and very secondary addition that demanded little time, especially considering that the Court is not convinced the appellant actually did that excess work. [16] The appellant is Roch Cantin's wife and trusted colleague. Her presence was indispensable to the business. Given the immense cash flow, it was essential that the employer have the fullest confidence in the person who handled all the money. [17] Upon reading the assumptions of fact that served to justify and explain the decision under appeal, it is clear that the Minister determined that the work done by the appellant Candide Fradette was marginal and of no economic value. [18] In other words, the Minister determined that job she was given was, in a sense, a job of convenience. The Minister also found that the work was unessential, of little importance and overpaid. This assessment is especially reflected in paragraphs 9 (j), (k), (l), (m), (n), (o) and (p), which read as follows: [TRANSLATION] (j) the worker had no fixed work schedule; (k) the worker was paid a gross fixed salary of $350 per week; (l) the worker's hours were not entered in the appellant's payroll journal; (m) the appellant's other employees were paid on an hourly basis; (n) during the period in issue, the worker signed only two room rental cards; (o) the worker took 15-20 minutes a day to empty the video poker machines; (p) the worker's tasks were minor in relation to her pay; [19] In fact, the evidence established conclusively that the appellant's work was significant, regular and essential to the business. The employment required a relationship of trust with the employer. [20] The appellant saw to it that the video poker machines, which generated very large revenues, were operating well, and ensured that the premises were clean, the inventories were sufficient the and equipment was in good condition. These things are absolutely essential to the operation of the business. While the appellant's testimony was very limited, she did express something that described her role in the business very accurately: [TRANSLATION] "I did little rounds roughly 20 minutes in length." This sentence is banal, but it is very telling and shows very effectively how important she was to the economic activities of the business. [21] Since the video poker machines generated significant revenues, they needed to be emptied of their contents every day, seven days a week. The money was then placed in a safe located on the premises. [22] At the same time, the appellant looked after an automatic teller machine on the premises. She placed the necessary amounts in it and ensured that all the bank notes were in excellent condition to avoid problems caused by worn notes. [23] Colossal amounts, all in small-denomination notes and in 25 ¢ , 50 ¢ , $1 and $2 coins, needed to be accounted for. Every week, the business would make a remittance to Loto-Québec and submit various reports along with it. [24] Apart from these operations, the business had to remit and manage payouts, i.e. amounts won by video poker players. [25] There were ten video poker machines. The machines generated substantial revenues and operated several hours each day of the week. [26] According to Roch Cantin's testimony, the appellant was the one who ensured that these machines operated properly. When describing the duties, Mr. Cantin made a considerable effort to show that his wife's workload increased considerably during the period in issue (i.e. July 10 to November 10, 2001) because of room rentals. [27] The explanations provided in this regard were not convincing. The traffic and paperwork involved in room rentals, such as registration cards, did not succeed in reversing this assessment. The room rental component essentially made the duration of the employment seem legitimate in theory, but the evidence did not lend any air of plausibility to the explanation. In fact, the evidence to the effect that rentals were entirely the appellant's responsibility was not very convincing. [28] Since the respondent had determined that his wife's work was marginal and of little significance, Mr. Cantin thought that it would be sufficient to establish the quality and quantity of the work, and thereby justify the $350 weekly pay; he insisted a great deal on the numerous and significant duties that she carried out. [29] For her part, the appellant essentially added nothing new; she confirmed her husband's testimony by means of a very general response to the effect that Roch Cantin had explained her job well and that all his explanations were correct. [30] The appellant and her husband were very successful in establishing the quantity and quality of work as a justification for insurability. At the same time, they established that the person or people who did the investigation and analysis on which the decision was based considerably underestimated the scope and importance of the tasks carried out by the appellant ― so much so, that it would be no exaggeration to say that they did slapdash work. [31] Under these circumstances, the facts as a whole should be reviewed to determine whether the work done by the appellant meets the requirements for insurability. [32] In order to do this, it is certainly important to consider remuneration, workload and the entire context in which the work in question was carried out. The beginning and end of the periods of employment are also very important factors because they are often very probative in discovering instances of abuse. [33] The evidence in the instant case established that the business operated by the appellant's spouse through 9072-5755 Québec Inc., a corporation in which he was the only shareholder, obtained most of its revenues from the operation of ten video poker machines which generated $45,000 to $60,000 in revenues every week. Such revenues do not fall from the sky; things must be monitored and followed through, important or even essential daily tasks must be carried out and an indispensable presence is needed on the premises. [34] The operation of this aspect of the business entailed other corollary requirements such as the preparation of automatic teller machines for players, the collection of revenues, the deposits and reports, the trips to and from banks, the revenue accounting, etc. [35] The evidence disclosed that the appellant was responsible for collecting the revenues throughout the year. She was also responsible for roughly a dozen employees' pay and for running on errands and purchasing the alcoholic beverages. In addition, the appellant herself said that she did short rounds, roughly 20 minutes in duration, to ensure that everything was working well. [36] All the appellant's duties were of considerable importance. Her admission regarding the short rounds was telling. She was the embodiment of authority and ensured that the equipment operated properly. [37] I have no doubt that Roch Cantin played a major role, but it is important in my view to emphasize that the video poker machines were actively used several hours a day, seven days a week, and that this necessarily required the presence of two responsible persons. [38] Roch Cantin explained that in the course of an investigation into his spouse's entitlement to employment insurance premiums, he learned he was required as an employer to report all work performed by the appellant, even if insignificant. [39] From that point onward, he said he declared a few hours of work every week; he estimated that the work took roughly four hours a week. [40] When questioned about the duration of each task done outside the period in issue, said that it took about 30 minutes a day to collect the money from the video poker machine and roughly 1½ hours a week to prepare the employees' pay. He did not consider the time required to look after the liquor inventory or run errands. If the time needed for the appellant to do her short rounds is added to all these duties, the total exceeds the four-hour estimate considerably. [41] Moreover, I am convinced that the appellant's husband deliberately concealed or considerably underestimated the time the appellant spent every day to ensure that the video poker machines operated properly and to carry out the whole set of corollary tasks. [42] The appellant was responsible for overseeing and monitoring all the activities. These were not manual or clerical duties, but rather, duties that were and should be part of her job description. It is difficult to estimate the time these duties required, but it is clear that the duties are very important and that the business can only function well if they are carried out. [43] According to Roch Cantin's account, the function was a very important one for the business, and perhaps even essential, but only during the period in issue, after which the same task, function or responsibility became insignificant and marginal. This is, quite simply, most implausible. [44] There is no credibility to these explanations. The appellant unquestionably had many important and ongoing tasks for which employment insurance benefits may well have been her only remuneration. [45] This approach is totally unacceptable and affects the employment agreement to such an extent that it is not insurable because it is not a true employment contract. [46] The objective of a true employment contract between two parties is the performance of work for appropriate or reasonable remuneration, and the payor of the remuneration has the authority to intervene at any time. [47] The parameters of such a contract are generally established based on essentially economic considerations that stem from a balance between a desire to obtain as much as possible, and a competing desire to do as little as possible for the most remuneration possible. [48] Such characteristics cannot generally be reconciled with unpaid or volunteer work or with disproportionate cooperation, especially to the extent that prevailed in the instant case. [49] While the appellant's hours might not have been computed to the nearest second, she had a significant workload that justified fully the pay that she received. She knew what to do and how to do it, and the fact that the entire organization was functioning properly showed the payor that she was doing efficient and high-quality work. [50] Since her function was crucial to this unquestionably core aspect of the business, how can it be that the work which constituted the true reason for her pay from July to November suddenly, and for no reason, have become so insignificant or marginal that it is was not even computed or entered in the accounting records? [51] The explanations provided are implausible. Either the work in question was marginal and insignificant throughout the year, or it was significant throughout the year. The court finds that it was significant work done throughout the year, but that that the appellant was only paid for it during the period in issue. [52] The appellant's evidence also showed that the Minister had already determined that the work was insurable in a decision dated February 20, 2001, the contents of which are as follows (see Exhibit A-1). [TRANSLATION] February 20, 2001 MS. CANDIDE FRADET [sic] . . . Re: EMPLOYMENT INSURANCE LEGISLATION Decision No. CE2001 2849 8402 We have received a request from the Department of Human Resources Development for a decision regarding the insurability of your employment with 9072-5755 Québec Inc., c.o.b. Hôtel Richelieu during the period of July 2 to November 4, 2000. We have determined that you were an employee under an employment contract. While your employment with 9072-5755 Québec Inc., c.o.b. Hôtel Richelieu, was carried out as part of an employment contract, you and the employer were not dealing with each other at arm's length for the purposes of the Employment Insurance Act. Despite this fact, it is our opinion, having regard to all the circumstances, that you and 9072-5755Québec Inc. would have entered into a substantially similar employment contract if you had been dealing with each other's at arm's length. Consequently, pursuant to paragraph 5(3)(b) of the Employment Insurance Act, you and 9072-5755 Québec Inc., c.o.b. Hôtel Richelieu, are deemed to deal with each other at arm's length for the purposes of the Employment Insurance Act. You employment in Canada by 9072-5755 Québec Inc., c.o.b. Hôtel Richelieu, during the period in issue, was insurable under paragraph 5(1)(a) of the Employment Insurance Act. We have established it because: 9072-5755 Québec Inc., c.o.b. Hôtel Richelieu exercised control over you and your work because: - It determined your hours of work. - It monitored hours of work. - You were required to carry out the services personally. You did not have to provide the equipment or materials needed to carry out the work. . . . [53] Based on their belief that this determination of February 20, 2001, protected them from any problem regarding the right to receive employment insurance benefits following the payment of the necessary contributions, the appellants thought it would be sufficient to prepare a ROE indicating the number of hours necessary to receive employment insurance benefits, hence the ROE for the period of July 1 to November 10, 2001. [54] To explain and justify the date on which the period of employment ended, Roch Cantin said the very short tourist season was the primary reason, and, secondarily, that he wanted and deserved a bit of leisure, which he secured for himself when his wife was working. [55] Given the evidence that the room rental component was of little importance, and the evidence that the appellant had almost no hand in the room rental process, the explanations do not meet the reasonableness test. Quite the contrary: the explanations are far-fetched. [56] In fact, why July and not late May? Why November 10 and not September 15? The tourist season is a special element that can vary from one region to another. The room rental component was a marginal part of the job description. It was emphasized and exaggerated because it was the only way to explain and justify a beginning and ending date for a period. [57] The evidence adduced by the appellants decisively established the quality and quantity of the work that was done. It was so decisive in that regard that it is entirely implausible that work lasted for the amount of time stated in the record of employment. [58] The appellant's work is carried out on an annual basis, though there may be a very small amount of extra work during the summer. [59] The preponderance of the evidence showed that there was an arrangement between the parties to take advantage of employment insurance benefits. Such an arrangement totally discredits the claims to the effect that this was a true employment contract. [60] The non-arm's-length dealings between the parties affected the employment relationship to such a great extent that the parties fashioned an agreement in the guise of an employment contract so that employment insurance benefits would be paid. This arrangement ultimately benefited both appellants in the instant case. [61] For these reasons, the appeal is dismissed. Signed at Ottawa, Canada, this 6th day of December 2004. "Alain Tardif" Tardif J. Translation certified true on this 3rd day of March 2005. Jacques Deschênes, Translator CITATION 2004TCC749 COURT FILE NOS.: 2003-1084(EI); 2003-1087(EI) STYLES OF CAUSE: Candide Fradette and 9072-5755 Québec Inc. and the Minister of National Revenue PLACE OF HEARING: Roberval, Quebec DATE OF HEARING November 3, 2004 REASONS FOR JUDGMENT BY: The Honourable Justice Alain Tardif DATE OF JUDGMENT: December 6, 2004 APPEARANCES: Agent for the Appellants: Réal Brassard Counsel for the Respondent Emmanuelle Faulkner COUNSEL OF RECORD For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada