Théberge v. Canada (National Revenue)

Théberge v. Canada (National Revenue) Court (s) Database Federal Court of Appeal Decisions Date 2002-03-28 Neutral citation 2002 FCA 123 File numbers A-91-00 Notes Digest Decision Content Date: 20020328 Docket: A-91-00 Ottawa, Ontario, March 28, 2002 CORAM: DESJARDINS J.A. DÉCARYJ.A. NOËLJ.A. BETWEEN: CAROL THÉBERGE Applicant and MINISTER OF NATIONAL REVENUE Respondent JUDGMENT The application for judicial review is allowed without costs, the decision of the Tax Court of Canada is set aside, and the matter is referred back to that Court for redetermination on the basis that the applicant held insurable employment during the periods of employment at issue. "Alice Desjardins" J.A. Certified true translation Sophie Debbané, LL.B. Date : 20020328 Docket: A-92-00 Ottawa, Ontario, March 28, 2002 CORAM: DESJARDINS J.A. DÉCARY J.A. NOËL J.A. BETWEEN: YVAN THÉBERGE Applicant and MINISTER OF NATIONAL REVENUE Respondent JUDGMENT The application for judicial review is allowed with costs, the decision of the Tax Court of Canada is set aside, and the matter is referred back to that Court for redetermination on the basis that the applicant held insurable employment during the periods of employment at issue. "Alice Desjardins" J.A. Certified true translation Sophie Debbané, LL.B. Date: 20020328 Docket: A-91-00 A-92-00 Neutral citation: 2002 FCA 123 CORAM: DESJARDINS J.A. DÉCARY J.A. NOËL J.A. BETWEEN: Docket: A-91-00 CAROL THÉBERGE Applicant and MINISTER OF NATIONAL REVENUE Respondent Docket: A-92-00 YVAN THÉBERGE Applicant and MINISTER OF NATIONAL REVENUE Respondent Hearing held at Québec, Quebec, on February 26, 2002. Judgment delivered at Ottawa, Ontario, on March 28, 2002. REASONS FOR JUDGMENT BY: DÉCARY J.A. CONCURRED IN BY: DESJARDINS J.A. DISSENTING REASONS BY: NOËL J.A. Date: 20020328 Docket: A-91-00 A-92-00 Neutral citation: 2002 FCA 123 CORAM: DESJARDINS J.A. DÉCARY J.A. NOËL J.A. BETWEEN: Docket: A-91-00 CAROL THÉBERGE Applicant and MINISTER OF NATIONAL REVENUE Respondent Docket: A-92-00 YVAN THÉBERGE Applicant and MINISTER OF NATIONAL REVENUE Respondent REASONS FOR JUDGMENT DÉCARY J.A. [1] These are two applications for judicial review of two decisions of a judge of the Tax Court of Canada ([2000] T.C.J. No. 99 (QL)). The judge dismissed the applicants' appeals and upheld the decision of the Minister that their employment on their father's farm was excepted from insurable employment under the rules concerning related persons in paragraph 3(2)(c) of the Unemployment Insurance Act and in paragraph 5(2)(i) and subsection 5(3) of the Employment Insurance Act. [2] It is common ground that the texts of the two Acts are almost identical on that point and that the principles that are applicable are the same. I will reproduce only paragraph 3(2)(c) of the Unemployment Insurance Act, which was in effect during the greater part of the years at issue: 3. (2) Excepted employment is ... (c) subject to paragraph (d), employment where the employer and employee are not dealing with each other at arm's length and, for the purposes of this paragraph, (i) the question of whether persons are not dealing with each other at arm's length shall be determined in accordance with the provisions of the Income Tax Act, and (ii) where the employer is, within the meaning of that Act, related to the employee, they shall be 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; .. 3. (2) Les emplois exclus sont les suivants : ... c) sous réserve de l'alinéa d), tout emploi lorsque l'employeur et l'employé ont entre eux un lien de dépendance, pour l'application du présent alinéa: (i) la question de savoir si des personnes ont entre elles un lien de dépendance étant déterminée en conformité avec la Loi de l'impôt sur le revenu, (ii) l'employeur et l'employé, lorsqu'ils sont des personnes liées entre elles, au sens de cette loi, étant réputés ne pas avoir de lien de dépendance si le ministre du Revenu national est convaincu qu'il est raisonnable de conclure, compte tenu de toutes les circonstances, notamment la rétribution versée, les modalités d'emploi ainsi que la durée, la nature et l'importance du travail accompli, qu'ils auraient conclu entre eux un contrat de travail à peu près semblable s'ils n'avaient pas eu un lien de dépendance; ... [3] The two applications were joined for hearing. These reasons, which are given in the case of Yvan Théberge (A-92-00), will apply to the case of Carol Théberge (A-91-00) and a copy will be placed on the file in docket A-91-00. [4] In his reply to the notice of appeal, the Minister stated that he [TRANSLATION] relied on the following facts, inter alia: (a) the payer has operated a dairy and crop farm since 1959; (b) his farmland includes approximately 200 cultivated acres (grain, pasture, and hay) and 500 wooded acres; (c) in 1996, his herd consisted of 46 head, 23 of which were dairy cows; (d) he also sells wood and maple sugar products; (e) the appellant is the son of André Théberge; (f) the appellant performed all of the work involved in operating the farm, including the ploughing, seeding, harvesting, milking, wood cutting and miscellaneous repairs; (g) he worked with his brother Carol; (h) he also took care of the bookkeeping throughout the year; (i) in late spring and all summer, the appellant worked 40 to 80 hours a week; (j) for that work, he received a fixed weekly salary, regardless of the number of hours he worked; (k) the hours worked were not recorded; (l) he was usually paid after 2 to 6 weeks; (m) all the rest of the year, he worked about 15 hours a week without pay; (n) the payer paid the appellant for the exact number of weeks required in order for him to qualify for unemployment insurance benefits; (o) each year, the appellant received the maximum benefits to which he was entitled before starting to be paid again; (p) in 1990, the appellant lent the payer $4,000, without a promissory note, and without interest or terms for repayment (he was repaid in April 1995); (q) the appellant expects to take over operating the farm (with his brother) in the near future. [5] In accordance with the instructions given by this Court (see Légaré v. Minister of National Revenue (1999), 246 N.R. 176 (F.C.A.); Her Majesty v. Bayside Drive-In Ltd. (1997), 218 N.R. 150 (F.C.A.) and Attorney General of Canada v. Jencan Ltd., [1998] 1 F.C. 187 (F.C.A.)), the judge first considered whether the Minister had exercised his discretion lawfully. He concluded that the Minister had [TRANSLATION] "failed in his duty of transparency ... by suggesting to the parties that the purpose of the investigation was essentially to establish that the appellants were employed by their employer year-round" (para. 23 of his reasons) and therefore that the exercise of the discretion had been [TRANSLATION] "so gravely and seriously tainted and flawed as to vitiate the entire discretionary process" (para. 28 of the reasons). The judge therefore found that he had the authority to analyze the facts again himself. [6] The respondent did not question that initial conclusion in his memorandum. However, I am not sure about the consequences that the judge himself found to follow from that conclusion. Did it follow that the statutory declarations made to the investigator should be excluded from the evidence? I believe it did, and I note that the judge did not make any subsequent reference to those declarations. Did it follow that the Minister's allegations should not be considered as the judge seems to have found? He did not rule formally on that point and counsel for the applicant did not submit that the allegations had to be struck out or that the assessment itself had to be vacated because it was illegal. In this case, therefore, what the judge had to do in the second step was to consider whether, having regard to the evidence before him, the allegations were nevertheless sound, in whole or in part, and then ultimately decide, as Marceau J. said in Légaré, at page 331, "whether the conclusion with which the Minister was 'satisfied' still seems reasonable". [7] The judge therefore proceeded to examine the evidence given before him and concluded that the employment had to be excepted. With respect, I am of the opinion that this Court must intervene. The judge erred by failing to consider both the Minister's allegations and the criteria referred to in paragraph 3(2)(c): the remuneration paid, the terms and conditions, the duration and the nature and importance of the work performed. He also erred by considering almost exclusively the duration and the nature and importance of the work performed outside of the periods of employment at issue. [8] The evidence showed that the applicant actually worked on the farm throughout his period of employment, that he worked forty to eighty hours per week as required and his salary was established based on an average of sixty hours, that the period in question fell within the active season in agriculture, and that he was paid an hourly wage consistent with the applicable standards. He was paid that wage after two to six weeks, but the employer-father explained this as follows: A. Well, it's true that the payroll is not necessarily done every week. When you say six weeks, yes it's true, and I must tell you at the same time that me too, my pay for milking, if I start milking cows on September 1, it will be November 15 before I get my first paycheck. So, I wait six weeks too. You aren't paid every week, every Thursday evening. We are paid every month and you have to do a month before getting your paycheque. Also, it takes 15 days to do the payroll. So, you're producing for six weeks before you get paid. (Applicant's Record, vol. 1, p. 125) [9] The evidence also showed that the dates when the active season started and ended varied over the years, and that on an average farm in the area, the season ran from May 15 to October 15, but that on the Théberge farm, [TRANSLATION] "it's not like that. Here, we start working when the bulk of the work has started and we finish when ... the bulk of the harvesting is done ..." (Applicant's record, vol. 1, p. 165). This would explain why the applicant worked from July 11 to October 1 in 1994; from June 5 to August 28 in 1995; and from June 6 to August 17 in 1996; and that his brother Carol worked from July 4 to September 24 in 1994; from June 12 to September 10 in 1995; and from May 20 to August 24 in 1996. [10] In my opinion, this disposes of paragraphs ( i),( j),(k) and (l) of the Minister's allegations; it cannot reasonably be concluded from any of those allegations that the employer and employee were not dealing with each other at arm's length. [11] The accuracy of paragraphs (n) and (o) was confirmed by the evidence. The applicant worked the minimum number of weeks required and drew the maximum benefits from the unemployment insurance scheme. That is common in seasonal employment, however, and is not explained by the non-arms length dealing. It is not the purpose of paragraph 3(2)(c) to penalize that practice. I note that in this case, the Minister acknowledged that the employment was insurable employment during the periods at issue. [12] The irrelevance of allegation (p) was established before the judge and the fact that the applicant expected to take over the farm, as stated in allegation (q), is typical of family businesses and explains perhaps why a father would hire his son rather than a stranger, but does not in any way show that the terms and conditions of employment are more favourable. I also note that there is no evidence to suggest that the applicant expected to take over "in the near future." [13] The only allegations that are relevant are allegation (h), relating to the year-round bookkeeping, and allegation (m), relating to the work performed year-round without pay, for about 15 hours each week. [14] With respect to the bookkeeping, the evidence showed that it required [TRANSLATION] "between half an hour and one hour per month" (Applicant's record,, vol. 1, p. 148). That is an insignificant amount of work for the purposes of this proceeding. [15] With respect to the fifteen hours of work each week for the rest of the year, I note, first, that this figure was reduced by the applicant's father to "10 to 15 hours/week" (Applicant's record, vol. 1, p. 136). [16] The evidence established that the applicant and his brother took turns milking the cows year-round, of their own accord, [TRANSLATION] "to help out" their father (Applicant's record, vol. 1, pp. 130 and 156). That was [TRANSLATION] "pretty much what everybody" did; it was [TRANSLATION] "pretty much" how things worked [TRANSLATION] "on every farm" (Applicant's record, vol. 1, p. 185). [17] Moreover, the evidence established that when the applicant and his brother did on-the-job training authorized by the Commission outside of their periods of employment, they received their employment insurance benefits, even though the Commission knew that they were milking cows while they were on training. [18] Furthermore, and contrary to the opinion of the judge, who placed conclusive weight on the wood cutting and sugar bush work, that work was minimal, and obviously, confined to very short periods of time. [19] What a claimant does outside the period during which he or she is employed in what the Minister considers to be insurable employment can be relevant, for example, to verify that the claimant is unemployed, to determine the amount of his or her benefits, or to establish his or her period of unemployment. However, for the purposes of the exception provided in paragraph 3(2)(c) of the Act, what a claimant does outside of his or her period of employment will be of little relevance when, as in this case, it is not alleged that the salary paid during the period of employment took into account the work performed outside of that period, that the applicant had included, in the hours spent on his or her insurable employment, hours worked outside of the period, or that work performed outside of his or her period of employment had been included in the work performed during his or her period of employment. It seems to me to be self-evident, and this is confirmed by the evidence, that in the case of family businesses engaged in seasonal work, the minimal amount of work that remains to be done outside the active season is usually performed by family members, without pay. Excepting seasonal employment, in a family farm business, on the ground that cows are milked year-round amounts, for all practical purposes, to depriving family members who qualify by working during the active season of unemployment insurance and to overlooking the two main characteristics of such a business: that it is a family business and a seasonal business. [20] A claimant is not required to remain completely inactive while he or she is receiving benefits. Under section 10 of the Act, benefits are payable for each "week of unemployment" included in the benefit period and a "week of unemployment" is a week during which the claimant does not work a full working week. Under subsection 15(2) of the Act, a claimant may have earnings in respect of any time that falls in a week of unemployment and those earnings will be deducted only if they are in excess of an amount equal to twenty-five per cent of the claimant's weekly benefit. It is moreover settled law that work that is truly unpaid does not affect a claimant's status as unemployed (Bérubé v. Canada (Employment and Immigration), (1990) 124 N.R. 354 (F.C.A.)). I also note that under subsection 43(3) of the Unemployment Insurance Regulations, a claimant who is employed in farming is not regarded as working a full working week at any time during the period from October 1 to March 31 if the claimant proves that the work he or she performed was so minor in extent that it would not have prevented him or her from accepting full-time employment. I realize that those provisions do not apply, strictly speaking, in insurability cases, but they are nonetheless part of the backdrop. [21] Getting back to this particular case, the fact that the applicant worked without pay for ten to fifteen hours each week outside the active season and while he was receiving benefits may indicate that he would not have performed that unpaid work if he had not been his employer's son. However, that is not the work we are concerned with, and the judge erred by taking it into account in the absence of any indication that the insurable employment at issue was subject to special terms and conditions that were attributable services being rendered outside the period of employment. [22] In short, the judge's conclusion that the employment must be excepted because the parties were not dealing with each other at arm's length does not stand up to analysis. [23] Since this is an application for judicial review, the Court should, as a general rule, simply refer the case back to the Tax Court of Canada for redetermination. In this case, however, an initial application for judicial review has already been allowed by this Court on May 21, 1999, on the basis of insufficient grounds (dockets A-440-98 and A-441-98). In my opinion, it would be unfair to make the applicant bear the costs and endure the time involved in a third hearing by the Tax Court of Canada when I am satisfied, after examining the case, that the only conclusion that may be drawn is that the applicant's insurable employment is not excepted. [24] Accordingly, I would allow the application for judicial review, I would set aside the decision of the Tax Court of Canada, and I would refer the matter back to that Court for redetermination on the basis that the applicant held insurable employment throughout the periods of employment at issue. I would award the applicant costs only in docket A-92-00. "Robert Décary" J.A. "I concur with these reasons. Alice Desjardins J.A" Certified true translation Sophie Debbané, LL.B. NOËL J.A.(Dissenting Reasons) [25] In my opinion, the judge of the Tax Court of Canada was correct in concluding that Mr. Théberge and his two sons would not have entered into a contract of employment that was "substantially similar" to those in question here "if they had been dealing with each other at arm's length ..." under paragraph 3(2)(c) of the Unemployment Insurance Act, R.S.C., 1985, c. V-1 (see also paragraph 5(2)(i) of the Employment Insurance Act, S.C. 1996, c. 23). [26] The evidence established that the two applicants worked for their father about fifteen hours a week on a regular and continuous basis, outside the earnings period. On that point, the Trial Judge made the following finding: [TRANSLATION] [41] A child-parent relationship may explain and justify a degree of generosity and flexibility but not to the point of doing the same work and being paid during some periods and not being paid most of the time; I refer in particular to milking cows, which was an important part of the job description (Exhibit A-2). For easier reading, that section of the job description is reproduced: (B) Milking cows: 1. Prepares the equipment needed for milking. 2. Milks the cows. 3. Washes the milking equipment. 4. Monitors the operation of the equipment for handling and storing milk. 5. Cleans the handling or storage system. [42]____The evidence concerning the appellants' job description was very brief: they chose to rely on a document (Exhibit A-2) to define the duties performed. That is a good theoretical description of all of the activities that are needed in operating a dairy farm. I must consider the only piece of evidence filed with respect to the appellants' job description and determine whether it corresponds to the periods of employment reported in the record of employment. [27] The Trial Judge then considered whether he could disregard the work performed outside of the period of earnings on the ground that the work was completely unpaid (Bérubé v. Canada (Employment and Immigration) (1990), 124 N.R. 354). He states on that point: [TRANSLATION] [56]___ To be excluded from the analysis, the unpaid work should have been completely different from the work for which the appellants were paid throughout the periods shown on the records of employment. Furthermore, the so-called unpaid work would have to have been very minor and performed on an ad hoc basis. In this case, the work was substantial and repetitive, and was necessary in any farm operation of a comparable size. [58]___If one of the duties inherent in the contract of employment continues to be performed, without pay, before or after the termination of employment established by the record of employment, the purpose of the employment contract is, at least partially, still being pursued. [59]___ In the event that there is no pay for the work or part of the paid work in the period shown on the record of employment, this creates a very strong presumption that the parties have made an arrangement to enable them to benefit under the Unemployment Insurance Act. [60]___ This also distorts the contractual reality in that it becomes reasonable to believe that part of the remuneration for the period shown in the records of employment took into account the fact that a part of that work would be performed after the fact, without remuneration. [61]___ Moreover, a person who receives unemployment insurance benefits and continues to work, without remuneration, after his or her termination of employment enables the employer to benefit from labour that is paid for not by the employer, but by the government. However, unemployment insurance is not a business support program; it is essentially a social measure that protects people who were genuinely employed and have lost their job. [62]___ In this case, there is no doubt that the appellants did substantial work outside the periods at issue, and the employer benefited from the appellants' services without paying them. (Emphasis added) [28] In my opinion, the Trial Judge had to conclude that the purpose of the contract of employment was being pursued outside the earnings period since milking the cows, which had to be done twice a day year-round, was an integral part of the appellants' paid work. The question that arose was therefore the following: would a third party who was paid to perform some farm duties, including milking the cows, for approximately 12 weeks a year, have agreed to continue performing that duty, without pay, at the rate of several hours a week for the rest of the year? In my humble opinion, the answer is self-evident. [29] If Parliament had intended to exclude farm businesses or certain of their operations from paragraph 3(2)(c), it would have provided an exception to that effect (see, in comparison, subsection 43(3) of the Unemployment Insurance Regulations). Absent such an exception, the Act must be applied to everyone in the same way. [30] I would dismiss the applications for judicial review with costs. "Marc Noël" J.A. Certified true translation Sophie Debbané, LL.B. FEDERAL COURT OF APPEAL NAMES OF COUNSEL AND SOLICITORS OF RECORD COURT FILE NO.: A-91-00 A-92-00 STYLE OF CAUSE: CAROL THÉBERGE v. MNR YVAN THÉBERGE v. MNR PLACE OF HEARING: QUÉBEC, QUEBEC DATE OF HEARING: February 26, 2002 REASONS FOR JUDGMENT OF THE COURT BY: Décary J.A. CONCURRED IN BY: Desjardins J.A. DISSENTING REASONS BY: Noël J.A. DATED: April 2, 2002 APPEARANCES: Frédéric St-JeanAPPLICANT Michel LamarreRESPONDENT SOLICITORS OF RECORD: FRÉDÉRIC ST-JEANAPPLICANT Sainte-Foy, Quebec Mr. Morris RosenbergRESPONDENT Deputy Attorney General of Canada Ottawa, Ontario