Ménard Audet c. M.R.N.

Ménard Audet c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-03-17 Neutral citation 2004 TCC 177 File numbers 2003-2687(EI) Judges and Taxing Officers Alain Tardif Subjects Employment Insurance Act Decision Content [OFFICIAL ENGLISH TRANSLATION] Dockets: 2003-2687(EI) 2003-2688(EI) BETWEEN: DENYSE MÉNARD AUDET, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. _______________________________________________________________ Appeals heard on February 9, 2004, at Quebec City, Quebec. Before: The Honourable Justice Alain Tardif Appearances: For the Appellant: The Appellant herself Counsel for the Respondent: Me Agathe Cavanagh _______________________________________________________________ JUDGMENT The appeals under the Employment Insurance Act from a decision of the Minister of National Revenue dated May 21, 2003, are allowed and the Minister's decision is amended to the effect that the work performed by the Appellant for the Payer, Jude Audet, and Placements Jude Audet Inc., from January 1, 2001, to March 14, 2002, was insurable employment pursuant to the attached Reasons for Judgment. Signed at Ottawa, Canada, this 17th day of March, 2004. "Alain Tardif" Tardif, J. Certified true translation Colette Beaulne [OFFICIAL ENGLISH TRANSLATION] Citation: 2004TCC177 Date: 20040317 Dockets: 2003-2687(EI) 2003-2688(EI) BETWEEN: DENYSE MÉNARD AUDET, Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent. REASONS FOR JUDGMENT Tardif, J. [1] These two appeals concern the insurability of work performed by the Appellant. [2] The first docket is number 2003-2687(EI) and involves the period from January 1, 2001, to April 18, 2002, and the work performed for Jude Audet. [3] The second docket is number 2003-2688(EI) and also involves the same period from January 1, 2001, to April 18, 2002, as well as a May 21, 2003, determination. The payer of the remuneration at the time was Les Placements Jude Audet Inc. [4] The determination was based on the following facts from docket 2003-2687(EI): a) the Payer ran a service station; b) the Payer was the sole proprietor of the business; c) the Payer went bankrupt on May 14, 2002; d) the Appellant is the Payer's spouse; e) the Appellant worked for the Payer as an office clerk; f) the Appellant's duties involved preparing orders, issuing paycheques, paying bills, doing the accounting on the computer, making deposits and carrying out the end-of-month reconciliation; g) based on the Payer's payroll register, the Appellant worked 40 hours a week, and during the period at issue, the Appellant was also entered as working 40 hours a week in the payroll register for Les Placements Jude Audet Inc.; i) in fact, the Appellant worked for both payers simultaneously; j) before the period at issue, the Appellant had worked for years for the Payer without any declared earnings; k) during the period at issue, the Appellant was entered in the Payer's payroll register as receiving $480.77 a week in remuneration, while the Appellant did not receive any pay from the Payer from September 9, 2001, to April 18, 2002; l) further, during the period at issue, the Appellant deposited two of her paycheques into the Payer's bank account; m) the Appellant did not file a complaint with the Commission des normes du travail [labour standards board] for unpaid salary; n) the Appellant did not make any claims for unpaid salary when the Payer went bankrupt; o) the Payer's financial situation deteriorated during the period at issue; p) the Appellant sold some of her assets to finance the Payer's business; q) the Appellant ran the risk of financial loss in the Payer's business; r) the Payer suffered health problems on November 19, 2001, and was no longer able to look after his property and his affairs; s) further to a Superior Court judgment, the Appellant was named the Payer's curator on March 14, 2002; t) the Appellant has managed the Payer's business since November 19, 2001; u) the Payer issued the Appellant a Record of Employment on May 20, 2002, for the period from January 1, 1971[sic] to April 18, 2002, on which was indicated 2,120 hours of insurable employment and a total of $5,192.37 in insurable remuneration for the last 27 weeks of the period; v) after she was supposedly laid off, the Appellant continued to render services to the Payer until it went bankrupt; w) after she was supposedly laid off, the Appellant provided the Payer and Les Placements Jude Audet with between 35 and 40 hours of services a week; x) the Record of Employment did not contain accurate information on the period worked, the hours worked or the remuneration received. [5] The determination was based on the following facts from docket 2003-2688(EI): a) the Payer was incorporated on December 19, 1989; b) the Payer ran a pool hall; c) Jude Audet was the Payer's sole shareholder; d) the Appellant is Jude Audet's spouse; e) the Payer went bankrupt on May 14, 2002; f) the Appellant worked as an office clerk for the Payer; g) the Appellant's duties involved preparing orders, issuing paycheques, paying bills, doing the accounting on the computer, making deposits and carrying out the end-of-month reconciliation; h) based on the Payer's payroll register, the Appellant worked 40 hours a week, and during the period at issue, the Appellant was also entered as working 40 hours a week in the payroll register for the business of her spouse, Jude Audet, who ran a service station; i) in fact, the Appellant worked for both payers simultaneously; j) before the period at issue, the Appellant had worked for the Payer for years without any declared earnings; k) during the entire period at issue, the Appellant was entered in the Payer's payroll register as being paid $192.31 a week when she did not receive any remuneration from the Payer; l) the Appellant did not file a complaint with the Commission des normes du travail [labour standards board] for unpaid salary; m) the Appellant did not make any claims for unpaid salary when the Payer went bankrupt; n) the Payer's financial situation deteriorated during the period at issue; o) the Appellant sold some of her assets to finance the Payer's business; p) the Appellant ran the risk of financial loss in the Payer's business; q) the Payer suffered health problems on November 19, 2001, and was no longer able to look after his property and his affairs; r) further to a Superior Court judgment, the Appellant was named the Payer's conservator on March 14, 2002; s) the Appellant has managed the Payer's business since November 19, 2001; t) the Payer issued the Appellant a Record of Employment on May 20, 2002, for the period from January 1, 1971[sic] to April 18, 2002, on which was indicated 2,120 hours of insurable employment and a total of $5,192.37 in insurable remuneration for the last 27 weeks of the period; u) after she was supposedly laid off, the Appellant continued to provide the Payer with services until it went bankrupt; v) after she was supposedly laid off, the Appellant provided the Payer and Les Placements Jude Audet with between 35 and 40 hours of services a week; w) the Record of Employment did not contain accurate information on the period worked, the hours worked or the remuneration received. [6] Since the facts are related, it was agreed that common evidence would be submitted for the two dockets. [7] As part of the two determinations, the Respondent decided that the work performed by the Appellant for and on behalf of Les Placements Jude Audet Inc. and Jude Audet from January 1, 2001, to April 18, 2002, was not insurable employment within the meaning of the Employment Insurance Act (the "Act") because work performed by a person with a non-arm's length relationship with the employer is not insurable employment. [8] The Respondent reached this conclusion after examining and analyzing the facts deemed relevant to assessing whether the work at issue had been performed under terms and conditions comparable to those that would have existed had the Payer and Appellant had an arm's length relationship. [9] After exercising its discretion, the Respondent concluded that the work the Appellant performed had been tailored to or influenced by the non-arm's length relationship between the Appellant and her spouse. [10] The Respondent also felt that the work performed by the Appellant was not insurable employment as of March 14, 2002, when she became her spouse's curator further to a Superior Court order. [11] From the outset, the Respondent recognized that the Appellant had in fact worked and that her work had been worthwhile, necessary and even essential to the smooth running of the businesses controlled and run by her spouse. [12] The Respondent questioned whether the salary was reasonable and pointed out numerous inconsistencies in payroll entries, the absence of a paycheque and delays in cashing them. The Respondent also mentioned the lack of control and finally said that as of March 14, 2002, the Appellant had become responsible for more than 40% of the corporation's voting shares. [13] For her part, the Appellant stated that she had worked with and for her spouse without pay in the early 1980s. During an audit, the then accountant and the Department of National Revenue recommended that the accounting reflect the reality, hence the reason from that point on for the Appellant being paid a salary in consideration for the work she performed; the agreed upon remuneration was henceforth charged to the various business activities in which her spouse was involved. In other words, the salary the Appellant was paid was divided among the various economic activities managed by her spouse. [14] There is no doubt that the Appellant performed important work. She was paid for the work. The work was performed on a continuous, non-stop basis over a period of many years. The Appellant's duties are clearly described in subparagraphs 5(f) and 5(g) of each docket. They read as follows: docket 2003-2687(EI): f) the Appellant's duties involved preparing orders, issuing paycheques, paying bills, doing the accounting on the computer, making deposits and carrying out the end-of-month reconciliation; g) based on the Payer's payroll register, the Appellant worked 40 hours a week, and during the period at issue, the Appellant was also entered as working 40 hours a week in the payroll register for Les Placements Jude Audet Inc.; docket 2003-2688(EI): f) the Appellant worked for the Payer as an office clerk; g) the Appellant's duties involved preparing orders, issuing paycheques, paying bills, doing the accounting on the computer, making deposits and carrying out the end-of-month reconciliation; [15] The Appellant never therefore had a chance to have the insurability of her employment assessed by the Respondent because she never claimed nor received employment insurance benefits over the many years preceding the period at issue. [16] A whole series of very unfortunate events occurred at the end of the period at issue and they clearly had a number of impacts on the way the work had up until that point been performed, as well as on the accounting. [17] The Appellant's spouse in fact suffered such a serious stroke that he was unable to manage his person or his affairs. The appellant was appointed curator on March 14, 2002. [18] At the same time, both businesses for which the Appellant had worked for a number of years were in serious trouble and they were declared bankrupt. [19] During this period when everything was going wrong, the Appellant had to make many adjustments, make difficult decisions; she simply had to adjust to living in a new context where she no longer had any control. [20] During this period of total collapse, the Appellant clearly wanted to shelter her personal patrimony as much as possible from the damaging consequences, it having nothing to do with the insurability of her employment. [21] The Respondent carefully analyzed all the steps and actions taken by the Appellant and concluded that a third party would never have acted the way she did, done as many things for her employer and in the end accepted all of it. [22] In justifying its determination and concluding that the employment was not insurable employment, the Respondent did not distinguish between the steps and actions taken by a person who worked for his or her spouse and those taken in his or her capacity as the Payer's spouse within the context of a serious stroke which left the Appellant's spouse a complete invalid and facing financial collapse. [23] The Appellant's spouse was a land surveyor by training; the Appellant looked after the administrative and clerical side of her spouse's professional practice. She also ensured that both businesses, the service station and the pool hall, ran smoothly, in addition to carrying out secretarial work for a firm of land surveyors. [24] Everything started going downhill in 2001 when the businesses started going to the dogs. At the same time, the Appellant's spouse's health also deteriorated to the point where he was totally incapacitated. The Appellant then became the curator and the transfer of property added to her already enormous problems. [25] During this period, the Appellant worked and looked after everything as circumstances dictated; she became the captain. There are many facts from this period that could justify excluding the Appellant's employment from insurable employment, particularly if the facts in question were analyzed out of their very specific context. [26] In a recent decision in Louis-Paul Bélanger v. M.N.R. (Minister of National Revenue), [2003] F.C.J. No. 455, (Q.L.), the Honourable Justice Létourneau of the Federal Court of Appeal wrote: 4. At paragraph 20 of his decision, the judge recognized that he had the right to examine the facts that were before the Minister in order to "decide if these facts are proven to be correct". But he did not carry out this assessment. He merely stated that "[i]n view of all the circumstances, I am convinced that the appellant did not succeed in establishing, on a preponderance of the evidence, that the Minister acted in a wilful or arbitrary manner". Clearly, he relied on the case law before Pérusse and Légaré, earlier cases which he in fact cited: see paragraph 17 of the decision. [27] This shift in jurisprudence was explained very well in the following recent decisions: a) Légaré v. Canada (Minister of National Revenue - M.N.R.), [1999] F.C.J. No. 878, (Q.L.); A-392-98 and A-393-98: 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." 12. [...] And the purpose of the 1990 exception was simply to reduce the impact of the presumption of fact by permitting an exception from the penalty (which is only just) in cases in which the fear of abuse is no longer justified. From this perspective, after identifying the true nature of the employment, the importance of the duties and the reasonableness of the compensation, it is difficult in our view to attach the importance the Minister did to the facts he relied on to exclude the application of the exception. It is the essential elements of the employment contract that must be examined to confirm that the fact the contracting parties were not dealing with each other at arm's length did not have undue influence on the determination of the terms and conditions of employment. b) Pérusse v. Canada (Minister of National Revenue- M.N.R.), [2000] F.C.J. No. 310, (Q.L.); A-722-97: 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 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. c) Massignani v. Canada (Minister of National Revenue - M.N.R.), [2003] F.C.J. No. 542, (Q.L.); A-458-01: 2. First, the deputy judge failed to consider and fulfill his role under the Unemployment Insurance Act, S.C. 1970-71-72. c. 48 (the "Act"), paragraph 3(2)( c ), a role that this Court described in Légaré v. Canada (1999), 246 N.R. 176 and Pérusse v. Canada (2000), 261 N.R. 150, which were followed in Valente v. Minister of National Revenue , 2003 FCA 132 . This role does not allow the judge to substitute his discretion for that of the Minister, but it does encompass the duty to "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, ... decide whether the conclusion with which the Minister was 'satisfied' still seems reasonable": see Légaré, supra, at page 179, Pérusse, supra, at page 162. d) Louis-Paul Bélanger, supra: 3. This role does not allow the judge to substitute his discretion for that of the Minister, but it does encompass the duty to "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, ... decide whether the conclusion with which the Minister was 'satisfied' still seems reasonable." e) Francine Denis v. M.N.R. (Minister of National Revenue), [2004] F.C.J. No 26. (Q.L.): 5. The function of the Tax Court of Canada judge in an appeal from a determination by the Minister on the exclusion provisions contained in subsections 5(2) and (3) of the Act is to inquire into all the facts with the parties and the witnesses called for the first time to testify under oath, and to consider whether the Minister's conclusion still seems reasonable. However, the judge should not substitute his or her own opinion for that of the Minister when there are no new facts and there is no basis for thinking that the facts were misunderstood (see Pérusse v. Canada (Minister of National Revenue - M.N.R.)... [28] In the case at hand, the Respondent in fact compiled the normally relevant facts with a view to making a rational determination concerning the insurability of the employment at issue. [29] Despite the work carried out in this regard, I feel that the Respondent's conclusion is totally unreasonable for the following reasons. First, it presumes that the Appellant was not paid for the weeks for which she did not receive a cheque. Second, it completely ignores the explanation to the effect that the pay she was owed was applied against a debt incurred to acquire shares. [30] Not having a cheque is not proof that remuneration was not paid; a salary can be paid in cash, take the form of an IOU, or, as in the case at hand, be used to pay off part or all of a debt. [31] The Respondent did not take into any account whatsoever, facts identified during the investigation, that is, a T-4 issued in the Appellant's name for the period at issue and on which the amounts were exactly the same as those in the payroll register and in the Appellant's claims. [32] This was, of course, secondary evidence, but it was nonetheless relevant and applicable in support of the Appellant's claims. The Respondent left this information completely out of its analysis and gave instrumental importance to a fact stemming not from evidence, but from an interpretation, that is, that the Appellant had not been paid for and during certain periods. [33] On the important issue of control, the Respondent wrote the following in its report on Page 9 in Exhibit I-7: [...] Control: During the period at issue, the worker controlled her time and efforts by concentrating on one of the Payers. As of November 19, 2001, as a result of Jude Audet's illness, she was responsible for running the Jude Audet service station and the pool hall run by Les Placements Jude Audet Inc. [...] [34] This assessment of the concept of control is completely inappropriate. The Respondent indicated initially that the Appellant had the expertise and knowledge to carry out the work. Then, it wrote the following under the heading of "Nature and Importance of the Work": [...] The Appellant's accounting work was essential to the smooth running of both payers. [...] [35] The fact that an individual knows the work he or she must carry out perfectly, even better than his or her employer, does not, however, mean that he or she is not subject to some type of control. [36] The Respondent concluded that the Appellant's work was not controlled in any way; there is no confirmation or support for this conclusion. [37] The evidence basically showed that the Appellant worked, was competent and knew a great deal about the work she had to perform. Nothing in the facts leads to the conclusion that the Appellant's spouse had ceased to exercise or surrendered his authority to control. The Appellant's autonomy stemmed from her expertise and know-how. [38] The lack of remuneration, the instrumental factor in the conclusions reached, was not a fact, but stemmed from an interpretation of certain facts. The Respondent made various extrapolations based on this false premise which is contradicted by the T-4 slip. [39] The employer's and the Appellant's method of remuneration was obviously not the best, and I admit that it was possible to draw certain conclusions from the various facts, particularly further to a fact-by-fact analysis rather than an overall approach taking the very special context into account. [40] The Appellant's explanations are credible and completely realistic within the context and under the particular circumstances of the period during which the events occurred. [41] The fact that the Appellant knew a great deal about the nature of the work to be done and that she performed it in her own way in no way proves that the employer had abandoned his authority to control her actions or had relinquished his authority over her. [42] The Respondent seems to have completely omitted from its analysis the extremely specific circumstances of the portion of the period at issue when the Appellant's spouse was experiencing extremely serious health problems. [43] Again, counsel for the Respondent took into account a number of facts that she took out of context. She then grouped them together to draw conclusions that were totally out of context. [44] The conclusions drawn are completely unreasonable in that they do not take into account the specific context of the situation that prevailed when this information was gathered. [45] In making the provisions in paragraph 5(2)(c) of the Act, the legislator clearly wanted to avoid abuses while not penalizing anyone because of their family or business ties. [46] Research and analysis conducted with a view to discovering a work relationship between individuals dealing at non-arm's length cannot completely remove the context and certain extremely special circumstances from the analysis. [47] In other words, I do not think that the legislator's intent was to force an individual who is working with an individual with whom he or she has a non-arm's length relationship to completely ignore or cut all ties and act as if they did not exist. [48] Special circumstances and a context can explain and justify certain behaviour so that the series of facts to be considered as part of a determination of the insurability of an employment are not prejudiced. [49] In the case at hand, as in any case of this nature, it is important to take a step back to avoid not seeing the forest for the trees. [50] In the beginning, the Appellant cooperated and worked to ensure that her spouse's business activities ran smoothly. On the accountant's advice, it was agreed that it would be a good idea for her to be remunerated. The remuneration was divided among the various business activities. She knew the work to be done well and performed it in everyone's best interest. She put a great deal into the work and everything seemed to run smoothly for a number of years. At some point in time, business started dropping off and, since it never rains but it pours, her spouse suffered an extremely serious stroke. [51] The Appellant, the Payer's spouse, probably tried to salvage the situation, but she was clearly unsuccessful because bankruptcy was declared. During this time, the health status of her spouse did not improve and the Appellant was appointed her spouse's curator on March 14, 2002. [52] I feel that a clear distinction must be made between the work the Appellant performed in her role as an employee responsible for performing managerial duties and her role as the spouse of a person who became suddenly and completely incapacitated within the context of financial ruin. [53] I, however, agree with the Respondent's argument to the effect that as of March 14, 2002, when the Appellant became the curator of her spouse's property, she could no longer be subject to her spouse's authority to control. [54] For all of these reasons, the appeals are allowed, that is, the work the Appellant performed for the Payer, Jude Audet, and for Les Placements Jude Audet Inc., from January 1, 2001, to March 14, 2002, constituted insurable employment. Signed at Ottawa, Canada, this 17th day of March, 2004. "Alain Tardif" Tardif, J. Certified true translation Colette Beaulne