Date: 20000414
Docket: 98-584-UI
BETWEEN:
CLAUDETTE LORANGER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Tardif, J.T.C.C.
[1] This is an appeal from a determination made on February 18, 1998, whereby work performed by the appellant for the periods from January 1 to May 5, 1995, from January 8 to July 12, 1996, and from January 6 to September 26, 1997, for Ébénisterie Loranger Inc. was excluded from insurable employment because of the non-arm's-length relationship existing at the time between the appellant and the payer.
[2] In support of the determination, the respondent relied on the following assumptions of fact:
[TRANSLATION]
(a) the payer, which was incorporated on January 20, 1992, operates a business specializing in the production of household kitchen cabinets, custom-built furniture and counters;
(b) Pierre Loranger, the appellant's spouse, holds 65% of the shares of the payer, and the appellant holds the other 35%;
(c) the appellant used a $14,000 investment to guarantee a $20,000 loan taken out by the payer for the purchase of a truck;
(d) the payer has a $20,000 line of credit guaranteed by the 2 shareholders on a pro rata basis according to their percentage holdings of the payer's shares;
(e) until June 1997, the couple's residence was located next to the building housing the payer's workshop and office;
(f) the payer's administrative decisions are made jointly by the appellant and her spouse;
(g) the appellant had duties to perform both at the office and in the shop;
(h) at the office, the appellant took care of purchasing materials, preparing a part of the bids, issuing invoices, preparing and signing cheques, including pay cheques, keeping the accounts and answering the telephone;
(i) in the shop, the appellant helped the workers by doing sanding, gluing and drilling and by performing maintenance and cleaning of the shop and the furniture;
(j) she received a fixed weekly salary of $400, based on 40 hours' work;
(k) the appellant often worked more than 40 hours because some clients met with them in the evening and on weekends;
(l) she worked unpaid overtime;
(m) when she was receiving employment insurance benefits, the appellant continued to perform her office work without pay;
(n) the appellant's alleged work periods did not always coincide with the company's periods of activity;
(o) in 1998, the appellant's hourly wage was reduced from $10.00 to $8.00 because, according to the appellant, the payer was having financial difficulties, while, according to Pierre Loranger, it was because he wanted to increase his own salary.
[3] Only the appellant testified in support of her appeal. Her testimony basically repeated the facts that had been considered in making the determination.
[4] While she qualified some of the facts or fleshed them out with additional details, in general, no new facts were adduced in evidence.
[5] The appellant was very open and straightforward in her testimony. The respondent may have presented some of the facts in an imprecise or incomplete manner, but the basic elements were all correctly assessed, and the determination resulted from an analysis in which no relevant fact was disregarded.
[6] The appellant performed two separate functions for the company.
[7] First, she performed a shop worker's functions, carrying out a number of duties, including in particular sanding furniture, preparing the glue, gluing and drilling; she also took care of shop and furniture maintenance and cleaning. She arrived early in the morning to turn on the various pieces of equipment required to manufacture the cabinets and some special-order furniture. For this work, she received a fixed salary of $400, based on 40 hours' work.
[8] Second, the appellant performed an entirely different kind of work, just as important for the smooth operation of the company: she handled all the administrative work.
[9] She took care of purchasing materials, preparing a part of the bids, issuing invoices, preparing and signing the pay cheques, doing the bookkeeping, answering the telephone and making remittances. The appellant also met with one or two clients per evening, and generally three on Saturdays.
[10] According to her, meetings with potential clients took between an hour and an hour and a half per client. For the second component of her duties, that is, her clerical, administrative and sales work, she received no compensation and performed this work voluntarily, so she testified, to help out her spouse.
[11] The respondent's assessment of the situation, namely that the appellant spent equal time and energy on each of the two components of her work, annoyed counsel for the appellant, who maintained that on the respondent's assessment, the appellant would have worked 80 hours a week on average, which, in his opinion, was inordinate, superhuman and impossible.
[12] The respondent's interpretation was not, however, taken out of thin air; it was taken from a declaration by the appellant dated January 15, 1998. The appellant, on that date, signed the said declaration, which was preceded by the following statement: "I have read the declaration and I agree with its contents and have received a copy of it." The declaration reads as follows:
[TRANSLATION]
(Exhibit I-1)
INTERVIEW REPORT
Name of interviewer BPC-DPP CEC SIN-NAS
Diane Deslauriers 1058 2438 214 562 548
Address where interview was held
55 rue des Forges
T-Rivières, Que G9A 6A8
Date: JANUARY 15, 1998 Identification: Claudette Loranger
RELEVANT INFORMATION:
Identified by her health card MARC 4753 0315.
The claimant works with her spouse Pierre Loranger in a cabinet-making business, "Ébénisterie Loranger inc.". The business is located behind their residence, and the business and the house share the same telephone.
The business has existed since 1974. It was a registered business in the beginning but was incorporated around 1991. The claimant owns 35% of the shares and her spouse 65%. At first, she received no salary for her work, but since about 1977 she has been on the payroll.
She handles the pay. There are 3 workers employed in the shop. She answers the telephone and does office work; she is not familiar with the computer so she does all the bookkeeping manually in the ledger and the accountant takes care of the remittances at the end of the month. The claimant calculates the rates for the bids using their own rate scales. She takes care of shop and office maintenance. She also works in the shop, sanding, gluing bands and/or wood, and operating the scroll saw; she does not touch the big tools.
She states that 50% of her time is spent in the shop and the other 50% is spent on office work.
She can work from 07:30 a.m. to 6:00 p.m. and occasionally in the evening; she does not keep track of her time; she is paid for 40 hours a week by a cheque for $400.
When she works in the shop she receives compensation for her work but when she does only office work she does not take any pay, the reason being that the business is not profitable enough to pay her a salary.
She does not want to look for work while the company is operating because she can be called upon to work at any time. She knows that she cannot look for work in her own field because she is in competition with other businesses of the same kind. She has experience in household maintenance, which is what she did before working with her spouse.
. . .
I have read this declaration, I agree with its contents and I have received a copy of it.
Signature: Claudette Loranger Date: 15-01-98
(Emphasis added.)
[13] In the light of the evidence, my view is that the respondent exercised his discretion correctly. The only criticism that could be directed at the respondent is in respect of the following allegations:
. . .
(c) the appellant used a $14,000 investment to guarantee a $20,000 loan taken out by the payer for the purchase of a truck;
(d) the payer has a $20,000 line of credit guaranteed by the 2 shareholders on a pro rata basis according to their percentage holdings of the payer's shares;
. . .
(f) the payer's administrative decisions are made jointly by the appellant and her spouse;
. . .
[14] This criticism does not appear to be key to me, nor is it decisive with respect to the factors that guided the process leading to the determination. Indeed, I think the fact that the appellant was involved in financing the business was immaterial and should not have been taken into consideration, since, as a shareholder, it was quite normal that she would be called on to help with financing the family business.
[15] It is just as normal and reasonable that a shareholder would collaborate and participate in making the decisions relating to the affairs of the company in which that shareholder has an interest.
[16] In this respect, the appellant wore a separate hat, that of shareholder. Her status as a shareholder could justify or explain her performance of certain duties whose purpose was the sound management and smooth development of the company. She could perform some unpaid work without thereby affecting her status as a worker or employee of the company.
[17] Such duties or involvement should not however have taken up her time to the point of themselves constituting a real workload. On the other hand, it is equally normal that a spouse would collaborate with and support her financial partner, especially if he is running a small family business.
[18] In this case, much more than that was involved. The unpaid work performed by the appellant represented a real workload. In addition, that unpaid work was the bread and butter of the business. Indeed the duties performed were absolutely essential for the day-to-day operation of the business. In other words, the business could not have functioned without the appellant's unpaid work.
[19] Reception of and sales to customers were an essential component of the operation of the business. The same is true of all the administrative work, which went far beyond the minimum level of co-operation that would be explainable by the appellant's status as a shareholder and spouse.
[20] The appellant was the one who took care of the accounting with respect to pay, remittances, payment of accounts, orders, etc. Moreover, I understood from her testimony that this work took priority over her duties as a shop worker. She stated in fact that she had had to be away from the shop on occasion to perform her "administrative" work.
[21] This explanation qualifies and puts in its proper perspective the appellant's own assessment that she spent 50 percent of her time as a worker and 50 percent on her other administrative and sales functions, since I understand that the appellant devoted perhaps some thirty hours to her duties as a worker for the company and an equal amount of time to sales and administration.
[22] During the periods in issue, the appellant performed very important work that generally required putting in more than sixty hours a week. This work, consisting of two separate components, was required, necessary and essential for the smooth operation of the business.
[23] However, for one of these components, she received remuneration and for the other she received no salary. The component for which she received no remuneration was just as, if not more, important than the one for which she did receive a salary.
[24] Moreover, the unpaid work was performed throughout the year while the paid work was required only during a certain period of the year. This is all shown on the records of employment referring to the periods in issue.
[25] A final very important point that could by itself suffice to establish the validity and accuracy of the respondent's analysis is the following allegation:
(o) in 1998, the appellant's hourly wage was reduced from $10.00 to $8.00 because, according to the appellant, the payer was having financial difficulties, while, according to Pierre Loranger, it was because he wanted to increase his own salary.
[26] On this question, the appellant explained that the change took place when her spouse wanted to buy a vehicle. To make the purchase, he had to obtain a loan from a financial institution, and in order to get the credit he needed, it was important to submit a file showing his income to be higher. The appellant and her spouse therefore decided to raise the income of one to the detriment of the other.
[27] Specifically, the appellant agreed that her salary would be reduced by 20 percent to allow her spouse to obtain a loan.
[28] The evidence unequivocally showed that the appellant had been a generous collaborator who gave her utmost to the business which she owned jointly with her spouse. For this substantial involvement, she drew a reasonable salary for a small part of the time she worked and even then only for part of the year. And what is more, she agreed at once to a significant salary cut to enable her spouse to improve his credit file.
[29] Would an unrelated person have agreed to do so much in return for so little? Could a person dealing at arm's length have been as willing, generous and helpful?
[30] There is no doubt that no third party would have agreed to give so much to a business with which he was dealing at arm's length. In point of fact, the employment insurance benefits were used to pay for the essential services of a person who was indispensable to the smooth operation of the business. In other words, the appellant worked all year long and did not lose her job; she merely selectively reduced one component of her workload.
[31] In the circumstances, the respondent judiciously exercised his discretion. Moreover, there is no doubt that, if the exercise of discretion had been wrongful, this Court would have had to dismiss the appeal after reanalysis. The respondent made no significant error, and the determination resulted from a reasonable and appropriate appraisal of the facts.
[32] For these reasons, the appeal must be dismissed.
Signed at Ottawa, Canada, this 14th day of April 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 28th day of February 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
98-584(UI)
BETWEEN:
CLAUDETTE LORANGER,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Appeal heard on March 17, 2000, at Trois-Rivières, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant: Bernard Vézina
Counsel for the Respondent: Alain Gareau
JUDGMENT
The appeal is dismissed and the Minister's decision confirmed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 14th day of April 2000.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 28th day of February 2001.
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]