Ventilex Inc. v. M.N.R.

Ventilex Inc. v. M.N.R. Court (s) Database Tax Court of Canada Judgments Date 2005-05-31 Neutral citation 2005 TCC 350 File numbers 2004-1205(EI) Judges and Taxing Officers François M. Angers Subjects Employment Insurance Act Decision Content Docket: 2004-1205(EI) BETWEEN: VENTILEX INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and YVES ROUSSEAU, GABRIEL RAGOT, Interveners. [OFFICIAL ENGLISH TRANSLATION] ____________________________________________________________________ Appeal heard on April 13, 2005, at Montréal, Quebec Before: The Honourable Justice François Angers Appearances: Counsel for the Appellant: Mathias Rancourt Counsel for the Respondent: Counsel for the Interveners: Simon Petit Mathias Rancourt ____________________________________________________________________ JUDGMENT The appeal is dismissed, and the decision by the Minister of National Revenue is confirmed, in accordance with the attached Reasons for Judgment. Signed at Ottawa, Canada, this 31st day of May 2005. "François Angers" Angers J. Translation certified true on this 15th day of February, 2006. Garth McLeod, Translator Citation: 2005TCC350 Date: 20050531 Docket: 2004-1205(EI) BETWEEN: VENTILEX INC., Appellant, and THE MINISTER OF NATIONAL REVENUE, Respondent, and YVES ROUSSEAU, GABRIEL RAGOT, Interveners. [OFFICIAL ENGLISH TRANSLATION] REASONS FOR JUDGMENT Angers J. [1] This is an appeal from decisions rendered by the Minister of National Revenue (the "Minister") on December 10, 2003, to the effect that the Interveners, Yves Rousseau and Gabriel Ragot (the "Interveners"), held insurable employment within the meaning of the Employment Insurance Act (the "Act") with Ventilex Inc. (the "Appellant") during the period from January 1 to December 31, 2002. [2] The Appellant was incorporated on May 9, 1988. It operates a heating and air conditioning systems installation business. Its sole shareholder is 3141781 Canada Inc. During the period in question, of the voting shares of 3141781 Canada Inc., 40 percent were held by each of the two Interveners, 10 percent by Hugues Vallée, the nephew of Gabriel Ragot, and 10 percent by the Fonds régional de solidarité (the "Fonds"), which held shares as a result of the financing it provided. As a result of the Fonds' interest prior to the period in issue, it held as much as 45 percent of the voting shares of the capital stock. Under the agreement entered into by the Fonds and the other shareholders, the Interveners gradually redeemed shares over time, such that it is provided that, by late 2005 or early 2006, all the shares of the Fonds will have been redeemed. The Fonds was authorized to delegate someone as a director to attend meetings of the Appellant's board of directors to ensure that the Appellant maintained an acceptable performance. [3] The Appellant is a large operation doing a significant amount of business. It has been in business since 1975. During the year in issue, it had nearly 75 employees. Gabriel Ragot has been a shareholder since 1980 and is the president of the corporation. The Intervener Yves Rousseau is the Vice-president and has been working for the corporation since 1985. Each directs the Appellant based on his respective area of expertise. Although they hold the respective titles of development manager and construction manager, they consider themselves the bosses of the business, each shouldering his share of responsibility for its day-to-day operation. They receive the same salary for approximately 50 hours of work a week. That salary could be reduced as a result of the Appellant's performance. They are not related to each other. [4] The Intervener Gabriel Ragot is a sheet metal worker by trade and holds credits in building technology. His responsibilities with the Appellant were to assist the employees of all departments by teaching them what he knew. He still deals with customers and suppliers, but described his activities as those of a future retiree. In 2002, he dealt with construction workers, supervised construction, budgets and performance, and worked with project managers. His work schedule varied from 20 to 60 hours a week, depending on the work to be done. He described himself as a self-employed worker. He was free to take vacation and did not need to seek permission for his actions. When he sat on the board of directors, the decisions made there concerned the budget, finances and planning. In his capacity as a shareholder, he guaranteed the Appellant's line of credit and also backed the Appellant's performance guarantees. [5] Gabriel Ragot also considers himself the mentor of his nephew Hugues Vallée. He sees Mr. Vallée as his successor and stated that the two had always voted in the same way. [6] For his part, the Intervener Yves Rousseau testified that he had no problem with the fact that Hugues Vallée supported his uncle when he exercised his right to vote. He described the Appellant as an SME in which no power games were played. The decisions were always made unanimously. [7] Yves Rousseau is a building technologist and his duties with the Appellant were to ensure that the corporation's order book was always full. He solved the problems that arose on construction sites, managed account collections and was involved in all the corporation's activities. He testified that his schedule was based on the results that were to be achieved for the good of the business. He worked approximately 50 hours a week without any specific schedule. His hours were not recorded. He occasionally took leave or vacation. Mr. Rousseau had a desire to succeed and to protect the jobs created by the Appellant. [8] As a director, he attended meetings, of which there were approximately 10 a year. More board meetings were held during the year in issue as a result of declining revenues. [9] The Appellant provided all the equipment and supplies for him to perform his duties. Intervener Rousseau occasionally used his personal property, such as, for example, a generator to help out on a construction site, for the needs of the Appellant. [10] Hugues Vallée, who has held 10 percent of the shares since 2001, acted as the Appellant's general manager. He has been with the company since 1996 and is an administration technician. He was mainly involved in management as a result of his training. He feels he acted as a buffer between the two Interveners because they had much more technical training. He stated that he had voted in the same way as his uncle. As to the Fonds régional de solidarité, a representative was present at board meetings, but he never became involved as long as the corporation maintained a good performance. The Fonds held its shares as a guarantee of the financial support it provided to the Appellant. It also guaranteed the Appellant's debts jointly with the two Interveners, but to a limited extent. [11] Hugues Vallée described the schedules of the two Interveners as being dictated by their moods and the needs of the Appellant. They took their vacations whenever they wanted, and no one at the Appellant had anything to say on the subject. In the performance of their duties, they shared everything, were involved in everything and left it to the one with the most expertise to handle the problems that arose. Decisions were made on a day-to-day basis, with the exception of those that could be made at board meetings, which, Mr. Vallée said, were held two or three times a year. [12] The point for determination is whether the two Interveners held employment under a contract of service within the meaning of paragraph 5(1)(a) of the Act; that is to say, whether they held insurable employment during the period in question. [13] In order to answer this question, it is important to refer to the established case law tests found in Wiebe Door Services Ltd. v. The Minister of National Revenue, [1986] 3 F.C. 55, and restated by the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983. The state of the law is summed up as follows at paragraphs 47 and 48: Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks. It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case. [14] Létourneau J.A. reiterated these principles in paragraph 18 of his decision in Le Livreur Plus Inc. v. Canada, [2004] F.C.J. No. 267, as follows: In these circumstances, the tests mentioned in Wiebe Door Services Ltd. v. M.N.R., 87 D.T.C. 5025, namely the degree of control, ownership of the work tools, the chance of profit and risk of loss, and finally integration, are only points of reference: Charbonneau v. Canada(Minister of National Revenue - M.N.R.) (1996), 207 N.R. 299, paragraph 3. Where a real contract exists, the Court must determine whether there is between the parties a relationship of subordination which is characteristic of a contract of employment, or whether there is instead a degree of independence which indicates a contract of enterprise: ibid. [15] Articles 2085, 2098 and 2099 of the Civil Code of Quebec define a contract of employment and a contract of enterprise or for services as follows: 2085. A contract of employment is a contract by which a person, the employee, undertakes for a limited period to do work for remuneration, according to the instructions and under the direction or control of another person, the employer. 2098. A contract of enterprise or for services is a contract by which a person, the contractor or the provider of services, as the case may be, undertakes to carry out physical or intellectual work for another person, the client or to provide a service, for a price which the client binds himself to pay. 2099. The contractor or the provider of services is free to choose the means of performing the contract and no relationship of subordination exists between the contractor or the provider of services and the client in respect of such performance. [16] The agent for the Appellant and the Interveners contends that there was no relationship of subordination between the Appellant and the Interveners in the instant case. He argues that, in the context of an SME, it was possible for the Interveners to take part in all decisions to such a degree that the Appellant exercised virtually no control over them. They were not considered workers. They had a risk of loss as guarantors for the financial commitments of the Appellant. In the alternative, the agent contends that the Interveners in fact controlled more than 40 percent of the voting shares, which rendered their employment not insurable under paragraph 5(2)(b) of the Act, which provides that the employment of a person by a corporation is not insurable employment if the person controls more than 40 percent of the voting shares of that corporation. [17] Even though the sole shareholder of the Appellant was a numbered company, the shareholders of that numbered company controlled the Appellant based on the percentage of shares they held. In the instant case, the two Interveners held 40 percent of the voting shares, and Hugues Vallée and the Fonds 10 percent each. The two Interveners were both shareholders and directors of the numbered company and directors of the Appellant. It is therefore appropriate to note that the two Interveners were not shareholders of the Appellant. [18] Did the fact that the Interveners were directors of the Appellant prevent them from performing duties under its control, to the point where there would not have been a relationship of subordination between them? There can be no doubt in the instant case that the Interveners enjoyed a remarkable degree of freedom in the performance of their respective duties. Each assumed his responsibilities based on his expertise. If necessary, the Interveners could divide certain duties between them in order to ensure the Appellant's success. The Interveners did not have to account to anyone for their comings and goings. They were absent as they wished, taking care to ensure that the timing was appropriate. They received the same remuneration, and they worked toward the same end, which was to ensure the success of their business. Thus, the Interveners worked for the account and benefit of the Appellant in consideration of a salary. Consequently, this was genuine employment performed on behalf of the Appellant's. [19] Despite the fact that the Interveners were free to manage the Appellant as they saw fit, and there was a consensus as regards decision-making, both on a day-to-day basis and on the board of directors, the Appellant nevertheless always had the right to intervene with respect to the work performed by the Interveners. Although all the testimony suggested that there was a consensus and that all the shareholders voted with the best interests of the Appellant at heart, and although that can be explained by the fact that the Fonds never intervened or that Hugues Vallée always voted with his uncle, it is nevertheless true that all the shareholders had the right to vote as they wished and that nothing in law could prevent them from doing so. The Appellant thus always had the power to intervene. I cite the remarks of Tardif J. in Roxboro Excavation Inc. v. Canada, [1999] T.C.J. No. 32, whose decision was confirmed on appeal by the Federal Court of Appeal, [2000] F.C.J. No. 799, and concerned a situation similar to this one. The fact that the company did not exercise that power to control and that those who performed the work did not think they were subject to such a power or feel they were subordinate in performing their work does not have the effect of eliminating, reducing or limiting the power to influence their work. [20] Tardif J. added, at paragraph 31 of the same reasons: In the case at bar, the fact that authority did not seem to be exercisable against the Théorêt brothers and that decisions concerning the company were made by consensus and collegially does not mean that the company was deprived of its authority over the work done by the Interveners. The evidence did not show that the company had waived its power to influence their work or that its right to do so was reduced, limited or revoked. [21] In Fournier v. Canada, [1996] T.C.J. No. 526, Garon J. summed up this question as follows, at paragraph 21: [...] the fact that a person is both the guiding spirit of a corporation and an employee of that same corporation does not nullify the subordinate relationship that exists between the employer company and the employee. [22] See also Acier Inoxydable Fafard Inc. v. Canada, 2002 FCA 214, and Groupe Desmarais Pinsonneault & Avard Inc. v. Canada, 2002 FCA 144. [23] In the instant case, I am satisfied that the Appellant was always able to exercise control over the Interveners, even though they did not feel they were subject to that control. There was thus a genuine contract of service within the meaning of the Act between the Interveners and the Appellant. [24] Nor am I satisfied that the Interveners' employment was excluded under paragraph 5(2)(b) of the Act. Although the evidence shows that the Interveners always exercised their right to vote together in the interests of the Appellant or of the numbered corporation, that Hugues Vallée always voted with his uncle and that the Fonds never intervened, none of the shareholders ever officially or legally assigned his right to vote to another. In my view, this was more a situation in which there was a consensus regarding the management of the Appellant's activities. On that matter, I cite Hugessen J. in Sexton v. M.N.R., [1991] F.C.J. No. 417, at page 2: The Appellants are the ones who continued to be the mainstays and who, de facto, controlled the new company. (Record, page 150) In my view, the judge made an error of law in considering only the administrative or operational control of the company. What the regulatory provision speaks of is 40 per cent control of the voting shares of the company, which is not at all necessarily the same thing. [...] A person who has administrative or operational control of a company does not necessarily control its shares; in fact, it often happens in the modern business world that those responsible for managing a company have few of its shares or none at all. In the case at bar the Tax Court of Canada judge concluded that the applicants, who each held 17 per cent of the company's voting shares, actually controlled it. While this conclusion may be correct it in no way determines the control of voting rights to the 33 per cent of the shares held by each of the applicants' children. As the judge himself said, Michel and Charlène Sexton "were owners and held the de jure power to control the new company", and there is no basis in the evidence for concluding that they ever gave up their voting rights to the shares owned by them or in any way interfered with the free exercise of that right. [25] Not all the conditions of paragraph 5(2)(b) of the Act were met. The Interveners thus held insurable employment with the Appellant. The appeal is dismissed. Signed at Ottawa, Canada, this 31st day of May 2005. "François Angers" Angers J. Translation certified true on this 15th day of February 2006. Garth McLeod, Translator CITATION: 2005TCC350 DOCKET NO.: 2004-1205(EI) STYLE OF CAUSE: Ventilex Inc. and M.N.R. and Yves Rousseau and Gabriel Ragot PLACE OF HEARING: Montréal, Quebec DATE OF HEARING: April 13, 2005 REASONS FOR JUDGMENT BY: The Honourable Justice François Angers DATE OF JUDGMENT: May 31, 2005 APPEARANCES: Counsel for the Appellant: Mathias Rancourt Counsel for the Respondent: Counsel for the Interveners: Simon Petit Mathias Rancourt COUNSEL OF RECORD: For the Appellant: Name: Mathias Rancourt Firm: Deveau, Lavoie, Bourgeois, Lalande & Associés, S.E.N.C. Laval, Quebec For the Respondent: John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Ontario