Date: 19980814
Docket: 97-1126-UI
BETWEEN:
SUSAN TINIANOV,
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for Judgment
Watson, D.J.T.C.C.
[1] This appeal was heard at Toronto, Ontario, on August 5, 1998.
[2] The Appellant appeals from the Minister of National Revenue's (the "Minister") decision, dated March 25, 1997 that the employment held with Fine Decor International Inc., the Payor, during the period at issue from April 1 to August 30, 1996, is excepted from insurable employment within the meaning of the Unemployment Insurance Act and Employment Insurance Act since the parties were not dealing at arm's length.
[3] The applicable law is found in subsection 3(2) of the Unemployment Insurance Act and subsection 5(2) of the Employment Insurance Act and section 251 of the Income Tax Act which read as follows:
"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
...
5(2) Insurable employment does not include:
...
(i) employment if the employer and employee are not delaing with each other at arm's length.
SECTION 251 : Arm's length.
(1) For the purposes of this Act,
(a) related persons shall be deemed not to deal with each other at arm's length; and
(b) it is a question of fact whether persons not related to each other were at a particular time dealing with each other at arm's length.
..."
[4] The Minister relied on the following allegations of fact in rendering his decision:
"(a) the Payor was incorporated on January 1, 1995;
(b) the Payor's shareholders are as follows:
Michael Tinianov 50% (Appellant's spouse)
Lyle Libenstein 50%
(c) the Payor's nature of business is full service to the design trade, commercial and residential;
(d) Skyline Interiors Corporation who operates at the same location, has the same shareholders and deals directly with the public;
(e) the Appellant was hired as an Office Manager;
(f) the Appellant was looking after both, the Payor and Skyline, but was paid by the Payor;
(g) before the period in question, the Appellant was working for both companies (2-3 days per week) on a freelance basis;
(h) the Appellant was hired by the Payor 20 weeks prior to giving birth to a child;
(i) for the period in question, the Appellant's rate of pay was $43,855.24 per year which gave her $21.09 per hour which is less than the $25.00 per hour she received while she was working for the Payor on a freelance basis;
(j) the Appellant was paid by cheque every two weeks however, the cheques were not cashed on a timely basis;
(k) the Appellant was the only worker of the Payor;
(l) the sales figures did not justify the hiring of the Appellant on a full-time basis;
(m) the Appellant's last day of work per the "Record of Earnings" was August 30, 1997 but her last pay cheque was dated August 23, 1996;
(n) the Appellant worked exactly 20 insurable weeks for the Payor which was the minimum amount of weeks required to be eligible to qualify for unemployment insurance benefits and/or employment insurance benefits;
(o) the Payor's decision to change the Appellant's working status from part-time freelancing to full-time employment 20 weeks prior to her taking a maternity leave is inconsistent with an arm's length contract of service;
(p) the Appellant is related to one of the Payor's shareholder within the meaning of the Income Tax Act;
(q) the Appellant is not related to the Payor but, in fact, the Appellant was not dealing with the Payor at arm's length;
(r) the Appellant is not dealing with the Payor at arm's length;
(s) 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 not reasonable to conclude that the Appellant and the Payor would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length."
[5] At the hearing counsel for the Appellant admitted the facts alleged in subparagraphs (a) to (c), (e), (f) and (p) and denied the facts alleged in subparagraphs (g), (h), (k) to (o) and (q) to (s) of paragraph 7 of the Reply to the Notice of Appeal; he has no knowledge of subparagraphs (d), (i) and (j).
[6] The burden of proof is on the Appellant; she must establish on a balance of probabilities that the Minister was ill-founded in fact and in law in his decision of March 25, 1997. Each case stands on its own merits.
[7] The Appellant and her spouse, Michael Tinianov, were the only witnesses at the hearing of the appeal; Mr Lyle Libenstein the co-owner of the Payor and the person with whom the Appellant dealt with when she was hired by the Payor, was not called to testify. Michael Tinianov relied on his poor memory for the details concerning the period of the Appellant's employment and events subsequent to the period at issue.
[8] The Appellant had done the bookkeeping for both the Payor and Skyline Interiors Corporation (Skyline) prior to April 1, 1996 as an independent self-employed contractor and billed both companies for the time worked, approximately 2 to 3 days per week each at $25.00 per hour. On April 1, 1996, she started work full time for both companies, taking on the additional responsabilities of Manager; she was paid only by the Payor at a rate of approximately $21.00 per hour. When she started work full time, the Appellant was already pregnant. When the expected baby arrived, approximately five weeks early, she ceased work. The Appellant prepared the work record and it was signed by her spouse. The Record of Employment dated September 3, 1996 indicates 20 weeks of work between April 1, 1996 and August 30, 1996; she was only paid for 20 weeks of work out of the 22 week period.
[9] The Appellant looked after all of the Payor's activities (as well as those of Skyline) except for sales which was done by the two co-proprietors. There was no indication as to who was her superior to whom she had to report; she appeared to work on her own, motivated by the desire to assure success of the two companies co-owned by her spouse. She was paid at the yearly rate of approximately $43,000 for the 20 weeks out of the 22 weeks worked because of the confidence the two owners had in her abilities. Before the Appellant worked full time, the Payor had another person doing the work of Manager, but the services rendered were not satisfactory to the two co-proprietors. When the Appellant ceased work on August 30, 1996, her spouse took over the managerial responsibilities and the co-proprietor took over the bookkeeping work for both companies. Later on a new person was hired by the Payor, however, there were no details of when it started, the number of hours worked, the duties performed or the rate of pay.
[10] The Appellant occasionally waited for her bi-weekly cheque or negotiated it when the Payor had minor financial cash flow difficulties. Would a stranger doing the Appellant's work have so accommodated the Payor; would a stranger have completed her own record of employment and pay cheques?
[11] The Appellant had the onus of establishing on a balance of probabilities that the Minister's decision that the parties were not in fact dealing at arm's length was ill-founded in fact and in law. Taking into consideration all of the circumstances of this appeal, including the testimony of the witnesses, the admissions and the documentary evidence in the light of the case law provided to me by counsel, I am satisfied that the Appellant has failed in this onus; in my opinion, only the fact that the parties were not dealing at arm's length reasonably explains the Appellant's working conditions and remuneration during the period in issue.
[12] The employment of the Appellant during the period in issue is excepted from insurable employment pursuant to paragraph 3(2)(c) of the Unemployment Insurance Act and subsection 5(2) of the Employment Insurance Act.
[13] The appeal is accordingly dismissed and the Minister's decision dated March 25, 1997 is confirmed.
Signed at Ottawa, Canada, this 14th day of August 1998.
"D.R. Watson"
D.J.T.C.C.