Les Fenêtres Enerco Inc. c. M.R.N.

Les Fenêtres Enerco Inc. c. M.R.N. Court (s) Database Tax Court of Canada Judgments Date 2004-06-10 Neutral citation 2004 TCC 394 File numbers 2003-2332(EI) Judges and Taxing Officers François M. Angers Subjects Employment Insurance Act Decision Content Docket: 2003-2332(EI) BETWEEN: LES FENÊTRES ENERCO INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and GERMAIN DESBIENS, Intervener. [OFFICIAL ENGLISH TRANSLATION] Appeal heard on March 24, 2004, at Chicoutimi, Quebec. Before: The Honourable Justice François Angers Appearances: Agent for the Appellant: Marlen Desbiens Counsel for the Respondent: Sylvain Ouimet Counsel for the Intervener: Pierre Parent ____________________________________________________________________ JUDGMENT The appeal is dismissed and the Minister of National Revenue's decision is confirmed in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 10th day of June 2004. "François Angers" Angers J. Translation certified true on this 19th day of October 2004. Gerald Woodard, Translator Citation: 2004TCC394 Date: 20040610 Docket: 2003-2332(EI) BETWEEN: LES FENÊTRES ENERCO INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and GERMAIN DESBIENS, Intervener. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Angers J. [1] The Appellant is appealing from a decision of the Minister of National Revenue (the "Minister") on June 17, 2003. The Minister advised the Appellant that the employment held by Germain Desbiens, Intervener, was not insurable for the periods from October 26, 1997 to September 26, 1998, from September 27 to November 7, 1998, from November 8, 1998 to September 25, 1999, from September 26 to November 13, 1999, from November 28, 1999 to November 4, 2000, from November 19, 2000 to October 20, 2001, from October 21 to October 27, 2001 and from November 4, 2001 to October 26, 2002, while in the employ of the Appellant. The reason given by the Minister is that the employment did not meet the requirements of a contract of service and that there was thus no employer-employee relationship. The Minister also determined that a similar contract of employment would not have been entered into had the Appellant and Intervener been dealing at arm's length during the periods at issue. The Minister relied on paragraphs 5(1)(a) and 5(2)(i) and subsections 5(3) and 91(3) of the Employment Insurance Act (the "Act") and sections 251 and 252 of the Income Tax Act. [2] In making his decision, the Minister relied on the following assumptions of fact, which were admitted or denied by the Appellant and Intervener. [translation] (a) Since 1988, the Appellant has operated a business specializing in the manufacture and installation of doors and windows; [admitted] (b) During the periods at issue, the shareholders in the Appellant were Ms. Marlen Desbiens, with 68% of shares, and the Worker, with 32% of shares; [admitted] (c) Marlen Desbiens is the Worker's spouse; [admitted] (d) The Appellant closes for five weeks in the winter, from mid-December to approximately January 20, and closes for two weeks in the summer during the construction holiday; [admitted] (e) Marlen Desbiens is responsible for the Appellant's accounting and administration; [admitted] (f) The Worker held the position of foreman in the manufacturing plant; [admitted] (g) Other than the Worker, the Appellant had two other employees at the manufacturing plant; [admitted] (h) From 1997 to 2002, the Worker was sometimes listed in the Appellant's payroll as full-time, and sometimes as part-time; [admitted] (i) The Appellant's remuneration was $815 per week when listed as full-time in the payroll and $122 per week when listed as part-time; [admitted] (j) On September 28, 1998, the Appellant issued a Record of Employment in the Worker's name for the period from October 26, 1997 to September 26, 1998, indicating 984 insurable hours and total insurable earnings of $18,439.40 for the previous 27 weeks; [admitted] (k) On November 17, 1998, the Appellant issued a Record of Employment in the Worker's name for the period from September 27, 1998 to November 7, 1998, indicating 36 insurable hours and total insurable earnings of $619.68; [admitted] (l) On September 27, 1999, the Appellant issued a Record of Employment in the Worker's name for the period from November 8, 1998 to September 25, 1999, indicating 978 insurable hours and total insurable earnings of $17,334.36 for the previous 27 weeks; [admitted] (m) On November 19, 1999, the Appellant issued a Record of Employment in the Worker's name for the period from September 26, 1999 to November 13, 1999, indicating 42 insurable hours and total insurable earnings of $720.23; [admitted] (n) On November 6, 2000, the Appellant issued a Record of Employment in the Worker's name for the period from November 28, 1999 to November 4, 2000, indicating 1,008 insurable hours and total insurable earnings of $20,538.00; [admitted] (o) On October 22, 2001, the Appellant issued a Record of Employment in the Worker's name for the period from November 19, 2000 to October 20, 2001, indicating 1,036 insurable hours and total insurable earnings of $18,135.13 for the previous 27 weeks; [admitted] (p) On October 31, 2001, the Appellant issued a Record of Employment in the Worker's name for the period from October 21, 2001 to October 27, 2001, indicating 6 insurable hours and total insurable earnings of $0.00; [admitted] (q) On October 30, 2002, the Appellant issued a Record of Employment in the Worker's name for the period from November 4, 2001 to October 26, 2002, indicating 1,190 insurable hours and total insurable earnings of $20,643.82 for the 27 previous weeks; [admitted] (r) The Records of Employment issued by the Appellant do not reflect the actual periods worked by the Worker; [denied] (s) The worker rendered service to the Appellant throughout the year, including between the periods covered by the Records of Employment, while receiving employment insurance benefits; [denied] (t) The Appellant and the Worker entered into an arrangement in order to enable the Appellant to receive employment insurance benefits to which he was not entitled; [denied] [3] All of the assumptions of fact on which the Minister relied were admitted, except the last three. To further explain the Appellant's operations, Marlen Desbiens testified for the Appellant. Ms. Desbiens became a shareholder in 1997 with her spouse, the Intervener, Germain Desbiens, according to the percentages indicated supra. Her duties consist of managing the business, setting the installation schedule and following up with clients. She explained that she is the majority shareholder because, prior to acquiring shares, she had been employed by the Appellant since 1992 and it was experiencing financial difficulties. She thus wanted to play a greater role in the decision-making. [4] Ms. Desbiens testified that, during the periods at issue, the Appellant had up to six employees, including herself. One employee who is able to cut and install windows is required, and another to solder. Her spouse, the Intervener, is skilled in everything, but cuts the material and acts mainly as foreman. He is the only employee to receive a weekly salary. The Appellant thus pays him no overtime. This remuneration is as indicated in the Reply to the Notice of Appeal and is almost double the salary of other employees and her own. The Intervener has received this salary since 1992. His father negotiated the rate when he was hired and it is based on the salary of a foreman in the construction sector. [5] According to Ms. Desbiens, the Intervener works full-time from April to late November, based on sales. During other periods, he works an average of six hours per week and is paid accordingly. This work is mainly snow removal, shovelling the roofs of the buildings and preparing material for work to begin in the spring. As foreman, he supervises work, verifies order dates and ensures that deadlines are met. He is responsible for the proper operation of the plant. He sometimes makes bids and participates in the Expo Habitat held each spring in the Chicoutimi region. According to Ms. Desbiens, it is hard to determine the proportion of his work as foreman and his work in the plant. [6] According to Ms. Desbiens, her spouse, the Intervener, has not participated in the Expo Habitat since 2001. She rented the kiosk and two other employees ran it during the Expo. Three rental contracts were filed in evidence by the Respondent. The contracts are signed for the Appellant by Ms. Desbiens, but the representative is identified as Germain Desbiens, the Intervener. Mr. Desbiens testified that he did not begin participating in the Expo Habitat until this year. In previous years, he only helped to install the kiosk. [7] The work period for employees is based on sales. Employees are recalled one after the other. The Intervener is usually the third to return to work. The first employee to return is the welder. Ms. Desbiens explained that, for the six hours per week that he worked, the Intervener prepared parts for the return of the workers. Ms. Desbiens admits that six hours per week is the maximum number of hours that the Intervener can work without affecting his Employment Insurance benefits. He is not paid if he works overtime. When the time comes for layoffs, it is also done one after the other. The Intervener is first, followed shortly after by the other employees. Ms. Desbiens states that she can finish production with the other employees without a foreman because she is there. [8] The Intervener states that his duties are to ensure that everything operates smoothly at the plant. He admits that he does not handle management, leaving that responsibility to his spouse. When he works full-time, he works between 40 and 50 hours per week with no overtime and, during his time off work, he works an average of six hours per week. His work period is often dictated by weather. He states that he places orders for materials in March, acquiring enough for one month of work. He also admitted that he placed orders throughout his time off work, but states that they were small orders for two, three or four windows and that this was done during the six hours per week that he worked. He finished his testimony by stating that he does not know the maximum number of benefit weeks to which he is entitled but that he had enquired. He states that he does not use them all and that everything depends on orders. [9] Eric Houde worked for the Appellant for five years, including three during the periods in question. His work consisted of gluing and assembling windows. In 1998, he began work on March 8 with Denis Tremblay and the Intervener. They were all working full-time at that time. According to Mr. Houde, the Intervener had already made preparations before he began work. The Intervener worked from 25 to 30 hours per week at the plant and the rest was spent with clients. His work continued into the fall and, when he left, the Intervener was still there. Sometimes, he was the first to be laid off, sometimes the second. According to Mr. Houde, the Intervener was always there when he worked. [10] Mr. Houde testified that he was asked to accumulate hours and that hours were accumulated for approximately two to three weeks. This accumulation of hours, commonly known as "banking," was done with another employee, Denis Tremblay. He cannot, however, say if this was done more than once. One thing is certain, according to Mr. Houde: this was not done when the Intervener's father was owner. He occasionally visited the plant during his time off work and he noted that the Intervener was working, leading him to state that the Intervener was working while unemployed. [11] Denise Gaudreau is an investigator with Human Resources Development Canada. During her investigation, she had access to Records of Employment and the Appellant's computer system. Using the information that she gathered, she prepared a table indicating the hours worked by the Intervener and other employees for all the periods at issue. Thus she found that, in 1998, witness Eric Houde began work the week of March 8, and the Intervener, the week of April 26. Eric Houde was laid off the week of November 29, and the Intervener during the week of September 27. Eric Houde thus worked 17 weeks more than the Intervener. During those 17 weeks, the Intervener received Employment Insurance benefits and a salary equal to six hours of work, i.e., amounts of $102 and $122 per week respectively in 1998. Ms. Gaudreau explained that, in 1998, the minimum salary to qualify for Employment Insurance benefits was approximately $700 per week to receive benefits of $413 per week. A salary of $102 per week corresponds to 25% of the Intervener's benefits. When he earned $122, the difference was deducted from his benefits. She also noted that, during the two-week waiting period, the weeks from November 8 and November 15, 1998, the Intervener received no salary. She explained that, had he received his salary of $122 per week for those two weeks, that amount would have been fully deducted from his benefits. [12] In 1999 and 2000, the same scenario was repeated. Eric Houde worked three weeks more in 1999 and 2000 and the Intervener was not paid for the two-week waiting period. In 2001, another employee, Denis Tremblay, worked ten weeks more than the Intervener and the latter was not paid for the waiting period. In 2002, Denis Tremblay worked two weeks more than the Intervener and the latter was not paid during the two-week waiting period. [13] For each of the years at issue, Ms. Gaudreau also indicated the benefits to which the Intervener was entitled, the number of hours of work to be entitled to benefits and the number of weeks for which he received benefits compared to that to which he was entitled. In 1998, the Intervener received 29 of 30 weeks, 29 of 30 in 1999, 26 of 26 in 2000, 25 of 30 in 2001 and 22 of 31 in 2002, but when the 2002 table had been prepared, the Intervener had returned to work. [14] In rebuttal, Ms. Desbiens denied that the appellant practised "banking," except for its salesperson, who is paid on commission with a base salary. The salesperson is given an amount each week to stabilize his salary. In terms of the Intervener's waiting period, she believed that he did not have the right to earn income during that period. [15] As indicated earlier, the Respondent claims that the Intervener did not hold insurable employment because there was not a true contract of service with the Appellant, as there was an agreement between the parties to enable the Intervener to qualify for Employment Insurance Benefits during the periods at issue. The Respondent also claims that the employment during the periods at issue was not insurable, as the Intervener and Appellant were not dealing at arm's length insofar as employment conditions would not have been similar had the Appellant and Intervener been dealing at arm's length. The burden is on the Appellant and Intervener to establish on a balance of probabilities that the employment was insurable and that the Minister's decision is wrong in fact and in law. [16] This Court has previously examined the matter of whether or not there is true employment between a claimant and an employer. In Laverdière v. Canada, [1999] T.C.J. No. 124, Tardif, J. stated the following at paragraph 47 and paragraphs 49-51: This assessment applies to all the periods at issue involving the two appellants. The terms and conditions of a genuine contract of service must centre on the work to be performed, on the existence of a mechanism for controlling the performance of the work and, finally, on the payment of remuneration that basically corresponds to the quality and quantity of the work done. . . . Any contract of employment that includes special terms can generally be set up only against the contracting parties and is not binding on third parties, including the respondent. This is the case with any agreement or arrangement whose purpose and object is to spread out or accumulate the remuneration owed or that will be owed so as to take advantage of the Act's provisions. There can be no contract of service where there is any planning or agreement that disguises or distorts the facts concerning remuneration in order to derive the greatest possible benefit from the Act. The Act insures only genuine contracts of service; a contract of employment under which remuneration is not based on the period during which work is performed cannot be defined as a genuine contract of service. It is an agreement or arrangement that is inconsistent with the existence of a genuine contract of service since it includes elements foreign to the contractual reality required by the Act. [17] In another decision prior to the decision above, Thibeault v. Canada, [1998] T.C.J. No. 690, Tardif J. explained this matter as follows at paragraphs 26 and 29: The unemployment insurance scheme is a social program whose aim is to support those who lose a real job. It is definitely not a scheme under which it suffices to pay premiums for a certain period of the year in order to have automatic entitlement to benefits. . . . Of course, it is neither illegal nor reprehensible to organize one's affairs so as to profit from the social program that is the unemployment insurance scheme, subject to the express condition that nothing be misrepresented, disguised or contrived and that the payment of benefits occur as a result of events over which the beneficiary has no control. Where the size of the salary bears no relation to the economic value of the services rendered, where the beginning and end of word [sic] periods coincide with the end and the beginning of the payment period and where the length of the work period also coincides with the number of weeks required to requalify, very serious doubts arise as to the legitimacy of the employment contract. Where the coincidences are numerous and improbable, there is a risk of giving rise to an inference that the parties agreed to an artificial arrangement to enable them to profit from the benefits. [18] The Federal Court of Appeal confirmed Tardif J. in this regard. In the case at bar, there are two aspects of the employment contract that raise questions that can provoke serious doubts regarding the legitimacy of the contract. First, there is the Intervener's salary of $815 per week. He has received the same salary since 1992 without any annual increase. The salary is enough to ensure him the highest possible Employment Insurance benefits. It is almost double that of any other employee working on production. According to witness Houde, he worked 25 to 30 hours per week at the plant and the rest was spent with clients and work outside the plant. The Appellant, however, employs a salesperson and Ms. Desbiens followed up with clients. The Intervener did everything in the construction of windows and, except for ensuring that deadlines were met, it would seem that he worked on construction more than anywhere else. If the Appellant's operations required a foreman, it must be asked why the Intervener was laid off first and recalled last or almost last during all the years at issue. [19] One must also question the income of $103 per week in 1998, which is the maximum that the Intervener could earn without being penalized. As for the income of $122 per week, it only resulted in a small penalty. What about the fact that, during almost all waiting periods, he did not receive the $122 per week? As a result, that amount was not deducted from his benefits. He nonetheless testified that he had worked six hours per week during the unemployed periods without indicating anything for the two-week waiting period. [20] The second aspect of the contract is related to the employment periods. The evidence revealed that the Intervener in this case used almost all benefit weeks to which he was entitled for all periods at issue. In 1998 and 1999, he used 29 of 30 weeks, 26 of 26 in 2000, 25 of 30 in 2001 and 22 of 31 in 2002 according to calculations made during the investigation. It can thus be concluded that the Intervener was recalled to work when he stopped receiving benefits. It must also be asked why the Intervener was laid off before the other employees and rehired after them. [21] I cannot ignore the testimony of Eric Houde. He claimed that, during the entire time that he worked for the Appellant, the Intervener was there and working full-time. The 1998, 1999 and 2000 work schedules show that Eric Houde worked 23 weeks when the Intervener should have been off work and working only six hours per week. If this occurred during those years, there was nothing in the evidence presented that could convince me that it did not continue during the other years at issue. I thus accept the testimony of Mr. Houde. [22] When I examine the overall facts, I find that there was, in the case at bar, an arrangement for all the years at issue to enable the parties to receive Employment Insurance benefits. I was not convinced by the testimony of the Intervener or his spouse, according to whom the Records of Employment for all the periods were accurate and the services rendered by the Intervener outside the employment periods were limited to six hours per week. The Intervener prepared orders and manufactured windows outside the employment periods and prepared the necessary material at the start of the season. He participated in Expo Habitat and was thus more involved that he suggests. [23] Because I have found that there was not a genuine contract of service, it is not necessary to examine the arm's length relationship. The appeal is thus dismissed and the Minister's decision is confirmed. Signed at Ottawa, Canada, this 10th day of June 2004. "François Angers" Angers J. Translation certified true on this 19th day of October 2004. Gerald Woodard, Translator