Date: 19990225
Docket: 97-1901-UI; 97-1902-UI
BETWEEN:
CHRISTIAN LAVERDIÈRE, RENÉE BLAIS,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
Reasons for judgment
Tardif, J.T.C.C.
[1] These are appeals concerning the insurability of work performed by the appellant Christian Laverdière from January 5 to December 26, 1992, January 3 to December 25, 1993, January 2 to December 24, 1994, January 1 to December 23, 1995, December 31, 1995, to October 12, 1996, and October 13, 1996, to January 17, 1997, and by the appellant Renée Blais from April 13 to October 23, 1992, February 15 to May 7, 1993, and May 31 to December 3, 1993.
[2] The work at issue was performed for École de conduite Salbi Inc. (“the driving school”).
[3] The appeals were heard on common evidence.
[4] The evidence showed that the payer ran two driving schools. The company’s head office was in Montmagny, as was its main driving school. The second school was in St-Pamphile (“the school”), and it was established because of an administrative obligation that there be a permanent driving school in that regional county municipality (“RCM”), which until then had been served by just a satellite office.
[5] When the decision was made to set up a permanent school there, the appellants were put in charge. The entire basement of their home was fitted out for that purpose, and in doing the work the requirements for public buildings were complied with. The premises were thus divided into a classroom, an office and a washroom. A ramp was installed for disabled persons, and there was a separate entry for the school premises.
[6] École de conduite Salbi Inc. paid the appellants $500 a month rent pursuant to a five-year lease providing for adjustments for increases in the cost of living, in taxes and in insurance costs (Exhibit A-1).
[7] The appellants testified that things were busiest from May to October and that the winter was rather quiet.
[8] The appellants were responsible for all activities in St-Pamphile except administrative work involving accounting, preparing the payroll, etc; however, they did have to handle the signing of contracts and see to it that the money owing thereunder was collected. The school in St-Pamphile had a business telephone line that the appellants made use of for personal purposes.
[9] Although an outside sign indicated that business hours were 8:00 a.m. to 5:00 p.m., the appellants, who lived on the ground floor above the school, had to deal with clients outside the period shown on the sign.
[10] The vast majority of the courses given by the school were for individuals trying to obtain their first driver’s licence from the Société d’assurance automobile du Québec (“the SAAQ”). The school also gave special courses, refresher courses on driving on ice, etc.
[11] Generally speaking, the courses had two components: practical and theoretical. During the years at issue, only the practical classes were mandatory in order to obtain a driver’s licence. Since the prices for the courses included both components, most of the students also took the theoretical classes. The appellants did not keep any record of student attendance at the theoretical classes, since these were not mandatory for the test to obtain a driver’s licence. However, such a record did exist for the practical classes, since the school had to provide proof that they had all been taken.
[12] Only the appellant Renée Blais was qualified to teach theory; she was also qualified to give the practical classes, as was her spouse, Christian Laverdière.
[13] The appellants shared responsibility for the practical classes, but the appellant Christian Laverdière taught more of them since he was not involved in the students’ theoretical training. In addition, Mr. Laverdière alone took care of the maintenance of the school’s premises and the car. Both appellants provided information on driving, and they came up with all kinds of initiatives to attract new clients and took various refresher courses themselves so that they could keep their knowledge up to date and provide their clients with training that met the highest possible standard. The driving school run by the appellants was accredited by the Quebec Automobile Club (“CAA”).
[14] As part of their work, the appellants often had to travel and make long trips, including those required for their students to take their SAAQ tests; they also provided services at various other places and rented out their vehicle at their students’ request.
[15] For their work, they were paid an hourly rate ranging from $8 to $10, which, according to the testimony, was determined on the basis of their experience and seniority with the company. However, the hours they worked were not recorded as they were for third parties working for the Montmagny school, who were paid essentially on the basis of hours worked and recorded.
[16] The appellants actually received two kinds of remuneration, that is, they were sometimes paid for weeks of 40 or 44 hours and, at other times, for weeks of fewer than 10 hours. This can be seen from the copy of the payroll record filed as Exhibit I-3. The payroll was prepared in Montmagny.
[17] Francine Blais, Renée Blais's mother, contacted the school run by the appellants two or three times a week to check whether everything was going well, especially as regards debt collection.
[18] To prove the insurability of their employment, the appellants submitted to the respondent tables providing a breakdown of the hours they worked during the relevant periods of time. Since the respondent considered those tables to be of decisive importance, the appellants put great emphasis on the fact that the tables were incomplete since they showed only part of the work done. They explained that the tables had been prepared using the forms provided by the SAAQ for monitoring hours of practical instruction; consequently the many hours that Renée Blais spent teaching theory and that Christian Laverdière devoted to his other responsibilities, such as maintenance of the premises and the car and the time he had to spend at the licence office. Both of them stated very firmly that they worked more than 40 hours a week during the periods between mid-April or the beginning of May and the end of September, thus completely contradicting the findings made by the respondent that served as the basis for certain allegations in the Replies to the Notices of Appeal. For example, the following is alleged with respect to appeal No. 97-1901(UI):
[TRANSLATION]
(l) the payer’s payroll journal is not an accurate reflection of the hours actually worked by the appellant;
(m) for 1992, the payroll journal shows that the appellant’s total income was $9,781, whereas it should have been $4,329 based on the student forms;
(n) for 1993, the payroll journal shows that the appellant’s total income was $11,545, whereas it should have been $6,630 based on the student forms;
(o) for 1994, the payroll journal shows that the appellant’s total income was $12,551, whereas it should have been $6,469 based on the student forms;
(p) for 1995, the payroll journal shows that the appellant’s total income was $14,814, whereas it should have been $6,910 based on the student forms;
(q) for 1996, the payroll journal shows that the appellant’s total income was $15,275, whereas it should have been $6,649 based on the student forms.
The following is alleged concerning appeal No. 97-1902(UI):
[TRANSLATION]
(j) the payer’s payroll journal shows that the appellant worked weeks of 4 hours, 5 hours or 40 hours;
. . .
(m) for 1992, the payroll journal shows that the appellant’s total income was $8,541, whereas it should have been $2,533 based on the student forms;
(n) for 1993, the payroll journal shows that the appellant’s total income was $19,855, whereas it should have been $4,563 based on the student forms;
(o) the appellant was paid for more than the hours she actually worked.
[19] Bruno Arguin, a Revenue Canada appeals officer who was responsible for the appellants’ file, testified that he had worked on the file following an investigation into École de conduite Salbi Inc.’s practice of accumulating hours for unrelated workers employed by it.
[20] As a result of its initial analysis in conjunction with counsel for the Blais family, the Department of National Revenue agreed to count the hours again on the basis of the hours worked during the proper periods. For that purpose, it was agreed that descriptive tables would be prepared showing the days and weeks on which work was performed.
[21] The tables for the employees at arm’s length were prepared first. A check showed that the content of the tables was accurate and above all consistent with the payroll record. On that basis, it was determined that the workers in question held insurable employment during the periods of time involved.
[22] Tables for the work performed by the appellants were then prepared as well. However, this time a check showed that the data were not at all consistent with the paycheques and the payroll record. This made the person in charge of the investigation suspicious.
[23] The weight of the evidence did show that the tables relating to the appellants were prepared on the basis of student records and took into account only the hours spent on practical instruction. In other words, the tables did not indicate the time spent on theory, special classes, clerical work, various trips, maintenance and so on. According to the appellants, the failure to count the time they spent on all their work other than the practical classes explained and justified the difference found by Mr. Arguin.
[24] Moreover, Mr. Arguin admitted that the evidence adduced by the appellants at the hearing went far beyond the information shown in the tables. He also admitted that the tables were the determining factor in his recommendations.
[25] The work performed by the appellants was excepted from insurable employment under paragraph 3(2)(c) of the Unemployment Insurance Act (“the Act”). The exception could not be invoked against Mr. Laverdière for 1992, so the respondent tried to get around this by arguing that a de facto non-arm’s-length relationship had existed that year.
[26] When a determination results from the discretion provided for in that paragraph, the Tax Court of Canada’s jurisdiction is limited to judicial review; thus the Court must begin by determining the lawfulness of the decision. When the weight of the evidence does not show that the Minister made a fundamental error, this Court cannot interfere, which has the effect of confirming the decision.
[27] The Court can therefore interfere only if it is shown that there was a serious deficiency in the exercise of the discretion provided for in paragraph 3(2)(c) of the Act.
[28] The parametersof this limited jurisdiction were clearly defined and explained by the Federal Court of Appeal in the following cases:
Attorney General of Canada v. Jencan Ltd., A-599-96;
Attorney General of Canada v. Jolyn Sport Inc., A-96-96;
Her Majesty the Queen v. Bayside Drive-In Ltd., A-627-96;
Ferme Émile Richard & Fils Inc. v. Minister of National Revenue, A-172-94;
Tignish Auto Parts Inc. v. Minister of National Revenue, A-555-93.
[29] In the case at bar, it has been shown that the Minister of National Revenue attached unwarranted and inordinate importance to the very incomplete tables, which moreover represented only part of the work performed. It has also been demonstrated that Mr. Arguin based his analysis on the various findings made in the other files involving the same employer; he thus wrongly assumed that the same method was applicable. These complaints provide in themselves a more than sufficient basis for concluding that the use of the discretion was so improper that the entire exercise must be discredited. The work done by Mr. Arguin was certainly significant, but he used basic data that were incomplete, and it was also skewed by the previous investigation. To avoid any doubt as to the nature of the assessment and to comply to the letter with the judgment in Attorney General of Canada v. Christian Thibault, A-278-97 (F.C.A.), I conclude that the determination was unlawful for the reasons referred to above.
[30] The failure to consider all the hours worked was a major oversight. Who was responsible for providing the missing information? The appellants, who at the time were represented by counsel, must assume part of that responsibility; however, Mr. Arguin’s testimony suggests that he probably thought he had everything he needed to finish his investigation, since similar tables had made it possible to dispose of the other files to everyone’s satisfaction. He obviously did not see fit to ask the appellants whether they had further information to add, especially since, as he said, he had also obtained the payroll records, the paycheques and a document concerning the recording of hours (Exhibit I-4).
[31] Among the documents submitted, the handwritten record of the hours worked in 1993 was an indication that should have led to a more thorough investigation. Yet Mr. Arguin said that he did not take account of that document, which contains invaluable information on the division of hours; that appendix concerning hours worked showed quite clearly that the tables were very incomplete.
[32] In light of the evidence, the Court must therefore intervene and analyze the appellants’ case from the standpoint of a trial de novo.
[33] Paragraph 3(2)(c) reads 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
(ii) where the employer is, within the meaning of that Act, related to the employee, they shall be deemed to deal with each other at arm’s length if the Minister of National Revenue is satisfied that, 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 reasonable to conclude that they would have entered into a substantially similar contract of employment if they had been dealing with each other at arm’s length.
[34] Were the contracts of employment similar to those that unrelated persons would have entered into in comparable circumstances?
[35] The appellants, who bore the burden of proving this on the balance of evidence, have not discharged that burden. It has certainly been shown that all the company’s employees, including the appellants, were paid solely on the basis of their experience and qualifications.
[36] Francine Blais said that she often supplemented the remuneration paid to Renée Blais and her spouse to make up for the secretarial work done by them. No such evidence was adduced with respect to the unrelated workers. Moreover, it was necessary to show that the other aspects, including the terms and conditions, the duration and the nature and importance of the work performed, were comparable.
[37] The appellants had a special status that may make comparisons difficult. They had that status because they were solely responsible for the efficient operation of the school in St-Pamphile. They may have deserved special treatment or extra money to make up for the many inconveniences of running a service business in a rural environment, where clients are especially demanding and are not used to the discipline required by the same kind of business in urban centres. Once again, the evidence failed to establish a minimum of facts that could make it possible to analyze these matters.
[38] The appellants no doubt believed that they could win their case simply by showing that the person in charge of the investigation was not thorough enough in dealing with their respective files. They have certainly shown that the respondent left very important elements out of his review and analysis, thus opening the door to this Court’s intervention to assess all of the evidence.
[39] As a result of the effort and energy they devoted to showing that the determinations did not take into account all the time the appellants spent on their work, a number of questions were raised about the data entered in the payroll record; the uniform number of hours worked as set out in that record and the drastic changes from one period to another called for explanations that were never provided.
[40] Now, as I noted above, the appellants had to show on the balance of evidence that their records of employment for the periods at issue corresponded to and were consistent with both the work performed and the hourly wage indicated.
[41] Instead, it was brought out at the hearing that the records of employment issued on the basis of the payroll records were shaped by a variety of considerations, such as unemployment insurance benefits, compensation for the remoteness and isolation of the driving school in St-Pamphile and also incentive bonuses taking into account responsibility for the office. The payroll record did not reflect the mathematical precision that ought to result from basically adding up the hours actually worked at the agreed hourly wage.
[42] Accordingly, the contracts of employment were not substantially similar to those that would have existed if the parties had been dealing with each other at arm’s length, since they were greatly influenced by an accommodating attitude and generosity that were not extended to any third party, at least according to the evidence adduced.
[43] The appeals must therefore, on the basis of the exception set out in paragraph 3(2)(c) of the Act, be dismissed for all the periods, except the one at issue for 1992, in respect of which the respondent basically argued that Mr. Laverdière was in a de facto non-arm’s-length relationship.
[44] A de facto non-arm’s-length relationship cannot be presumed but must be proved. No evidence of such a relationship has been adduced; the exception set out in paragraph 3(2)(c) of the Act therefore cannot be invoked against Mr. Laverdière for that period in 1992.
[45] I nonetheless believe that the work done by Mr. Laverdière during the said period in 1992 was not performed under a genuine contract of service, inter alia for the following reasons. First of all, only a genuine contract of employment can meet the requirements for being characterized as a contract of service; a genuine contract of service must have certain essential components, including the performance of work; that performance must come under the authority of the person paying the remuneration, which remuneration must be based on the quantity and quality of the work done.
[46] Any agreement or arrangement setting out terms for the payment of remuneration based not on the time or the period during which the paid work is performed but on other objectives, such as taking advantage of the Act’s provisions, is not in the nature of a contract of service.
[47] 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.
[48] Of course, a contract of employment may be lawful and legitimate even if it sets out all kinds of other conditions, including remuneration much higher or lower than the value of the work performed; some contracts may even involve work performed gratuitously. Work may be performed on a volunteer basis. All kinds of assumptions and scenarios can be imagined.
[49] 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.
[50] 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.
[51] 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.
[52] In the case at bar, I drew attention a few times during the hearing to the inconsistencies in the evidence on the recording of hours worked.
[53] One thing I pointed out was that Mr. Laverdière, who was not qualified to teach theory, gave practical classes over long periods of time, which suggests that the students received only practical classes during those periods. The explanation that the students were given their theoretical training either in advance or afterwards is not very plausible.
[54] I also noted that Renée Blais received small amounts of remuneration without, as she herself testified, having performed any work whatsoever.
[55] In an attempt to remedy certain deficiencies in the evidence, Renée Blais was called upon to provide some explanation; she thereupon changed her story and, in order to justify the remuneration referred to in the payroll record, maintained that she had worked when she had travelled to her parents' home in Montmagny. She had initially testified that she had not worked during those stays with her parents.
[56] It has also been clearly shown that the appellants’ remuneration was often supplemented to take into account their responsibilities. As chance would have it, however, in the vast majority of cases the amount in question was lower than the amount that might result in the lowering of their unemployment insurance benefits.
[57] While it was stated a number of times that the appellants were paid not by the week but by the hour, it is quite surprising to note how little variation there was in the total hours worked. The consistency of their wages is all the more astonishing given that all the witnesses said that the business was one whose economic activities were subject to ups and downs that regularly required adjustments.
[58] Moreover, the testimony of Francine Blais that the company had implemented a policy of accumulating hours to benefit the third parties employed by it clearly confirms that it did not have a steady level of business.
[59] When asked directly whether the policy of accumulating hours had also been applied to the appellants, Francine Blais gave an answer that was not very convincing, saying that she did not remember but did not think so.
[60] The evidence is consistent in all respects with the content of the statutory declaration provided by Renée Blais. Although the declaration was not written by her, I believe that it represents and confirms the weight of the facts revealed by the evidence:
[TRANSLATION]
I have worked for École de conduite Salbi of Montmagny for about 12 years. I have been running the St-Pamphile branch with my spouse, Christian Laverdière, for about 10 years. The school is in my home and the school’s telephone number is the same as mine. I have been an instructor/trainer for five years. Before that I was just a trainer, so I could not give theoretical classes. In addition to teaching classes, I do secretarial work, I administer make-up tests and I look after the school’s premises; I do not wash the cars. I admit that there have been times when I have not declared my work on my benefit cards: my mother and I had agreed on an average wage. Our system worked as follows: at the beginning of winter or when it was quieter, my mother, Francine Blais, gave me a record of employment and I then applied for benefits. During the two-week waiting period, I did not receive any wages or declare any work on my cards. After the two-week waiting period, my mother paid me wages corresponding to about a quarter of my unemployment rate, that is, the amount I was entitled to earn without being cut off unemployment. Since October 6, 1991, the only effort I have made to find employment is leaving my name at the Montmagny bowling alley for a job as a barmaid on weekends. I also left my name at the St-Pamphile credit union—I do not remember whether that was one, two or three years ago. I devoted all my energy to furthering the development of the driving school in St-Pamphile. I did not calculate the time I put in and in fact I do not have a time log recording the hours I worked. I was always the one who filled out my unemployment cards, and I recognize my signature on the application I filed on October 26, 1992. As regards my statement at the beginning of this page that my mother paid me what I was entitled to earn without being cut off unemployment, I would like to make it clear that this was not calculated; it just happened that way.
[61] The separate records of the hours worked by the appellants appended to the 1993 payroll record also reveals a great deal about the total lack of consistency between the payroll record and the performance of the work.
[62] That inconsistency can also be seen from the tables prepared by the appellants, which illustrate only the work done for the practical component, compiled using student files provided by the SAAQ.
[63] It is clear from those tables that the St-Pamphile branch operated year-round; Christian Laverdière was not authorized to teach theoretical classes, which meant that Renée Blais had to assume the responsibility of teaching theory.
[64] Moreover, if practical classes were being offered to students, there is reason to believe that theoretical classes were also available, that the office was open and that the telephone was operational.
[65] How can all of those facts be reconciled with the payroll record showing that Renée Blais was paid for just four hours of work a week in January, February and March to mid-April and for just five hours a week in November and December?
[66] The information gathered from the payroll records confirms the many suspicions raised by both the documentary and the testimonial evidence, namely that the remuneration paid to the appellants was not related to the hours and weeks they worked.
[67] This finding is in itself sufficient to characterize the contract between the parties as an arrangement. It thus departed from the fundamental terms of a contract of service, which does not allow for such flexibility.
[68] An employee under a genuine contract of service where a real relationship of subordination exists and where the performance of the work is subject to the payer’s power to control must be paid solely on the basis of the work performed at the agreed rate; there is no room for other considerations such as generosity or accommodation. I have often said that unemployment insurance is a social initiative to assist those who truly lose their jobs and not a program of grants to help businesses or to benefit recipients who distort or modify the structure and terms of payment of the remuneration they are owed for the work they perform.
[69] Any agreement or arrangement involving the accumulation or spreading out of hours has the effect of invalidating the contract of service, especially since it creates a contractual relationship that is hardly or not at all conducive to the existence of a relationship of subordination, which is an essential component of a contract of service.
[70] For all these reasons, the appeals are dismissed.
Signed at Ottawa, Canada, this 25th day of February 1999.
“Alain Tardif”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 12th day of November 1999.
Erich Klein, Revisor