Date: 19971222
Dockets: 96-767-UI; 96-768-UI
BETWEEN:
SUZIE LATOURELLE, RAYMOND LATOURELLE,
Appellants,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent,.
Reasons for Judgment
Lamarre Proulx J.T.C.C.
[1] These appeals were heard on common evidence.
[2] For the appellant Suzie Latourelle, the question is whether her employment from July 29, 1991 to January 17, 1992 and from September 10, 1992 to January 29, 1993 was insurable within the meaning of s. 3(1)(a) and (2)(c) of the Unemployment Insurance Act ("the Act").
[3] For the appellant Raymond Latourelle, the question is whether his employment was insurable within the meaning of the same provisions of the Act for the periods from February 17 to September 11, 1992, August 9 to December 10, 1993 and August 1, 1994 to March 10, 1995.
[4] In arriving at his decision in the case of the appellant Suzie Latourelle, the Minister of National Revenue ("the Minister") took into account the facts set out in paragraph 6 of the Reply to the Notice of Appeal ("Reply No. 1"):
[TRANSLATION]
(a) the payer has operated a plumbing business since 1988;
(b) the business began as a partnership between Lucien Bédard and the appellant, each having 50 percent of the business;
(c) subsequently, in August 1991, Raymond Latourelle became a partner in the payer's business and the partners' shares were as follows:
Percentage of shares
Lucien Bédard 52%
Raymond Latourelle 24%
the appellant 24%
(d) Raymond Latourelle is the appellant's brother ("the brother");
(e) Lucien Bédard is the appellant's husband ("the husband");
(f) the appellant was a partner in the business and so could not be her own employee;
(g) from the start the appellant has always handled the administration of the payer's business;
(h) before and after the periods at issue the appellant performed services for the payer without pay;
(i) it is alleged that the appellant was paid a fixed amount weekly regardless of the hours she worked for the payer;
(j) the payer operates 12 months a year;
(k) the appellant signed a $50,000 credit line with the bank for the payer;
(l) the appellant has authority to sign the payer's cheques;
(m) the appellant and the payer are related persons within the meaning of the Income Tax Act;
(n) the appellant and the payer are not dealing with each other at arm's length;
(o) having regard to all the circumstances, 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 payer would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.
[5] In making his determination in the case of the appellant Raymond Latourelle, the Minister relied on the facts set out in paragraph 6 of the Reply to the Notice of Appeal ("Reply No. 2"), which are as follows:
[TRANSLATION]
(a) the payer has operated a plumbing business since 1988;
(b) the business began as a partnership between Lucien Bédard and his wife Suzie Latourelle, each having 50 percent of the business;
(c) subsequently, in August 1991, the appellant became a partner in the payer's business and the partners' shares were as follows:
Percentage of shares
Lucien Bédard 52%
Suzie Latourelle 24%
the appellant 24%
(d) on February 11, 1994 the payer was incorporated and the distribution of shares on incorporation remained the same as shown in paragraph (c);
(e) Suzie Latourelle is the appellant's sister ("the sister");
(f) Lucien Bédard is the appellant's brother-in-law ("the brother-in-law");
(g) during the periods from February 17 to September 11, 1992 and August 29 to December 10, 1993 the appellant was a partner in the business and so could not be his own employee;
(h) the appellant signed a $50,000 credit line with the bank for the payer;
(i) the appellant has authority to sign the payer's cheques;
(j) the appellant performed services for the payer in certain periods of the year in which the payer was not as busy;
(k) although the payer states that there was a shortage of work, it hired the appellant so he could obtain his apprentice plumber cards;
(l) on his application for unemployment insurance benefits the appellant stated that he was self-employed;
(m) the appellant and the payer are related persons within the meaning of the Income Tax Act;
(n) the appellant and the payer are not dealing with each other at arm's length;
(o) having regard to all the circumstances, 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 payer would have entered into a substantially similar contract of employment if they had been dealing with each other at arm's length.
[6] The arguments made by the appellant Suzie Latourelle in support of her appeals are set out in paragraphs 8 to 13 of her Notice of Appeal:
[TRANSLATION]
8. The appellant, for the periods from July 28, 1991 to January 17, 1992 and September 10, 1992 to January 29, 1993:
(a) Lucien Bédard is my husband and this is known to the respondent and the Buckingham Employment Centre;
(b) I began in 1988 when we started the business at home and I only did bookkeeping without pay, since for the Régie des Entreprises I had to be a partner with my husband, as he has no knowledge of administration, as set out in the trade name in Appendix 4;
(c) in August 1991 we leased premises at 52 Rue Boucher because the business was expanding, and with the arrival of Raymond Latourelle as assistant we obtained contracts from contractors, as set out in the trade name filed as Appendix 5;
(d) as of that date I began working with pay full time;
(e) my duties now were secretarial, bookkeeping, administration, reception, answering the telephone and looking after bills;
(f) the working hours were 8:00 a.m. to 4:00 p.m. Monday to Friday;
(g) her salary was not higher than others since when we needed a replacement or even an assistant for a busy period she was paid the same salary;
(h) because of fluctuations in the market I had to be laid off for the aforementioned periods;
9. A general partnership was incorporated on April 1, 1994 including the appellant (Raymond Latourelle) as a partner, with 24 percent of the voting and participating shares, simply for tax purposes, as set out in the incorporation filed as Appendix 6;
10. The appellant continued to be employed, receiving the same fixed salary and being subject to the same orders from Lucien Bédard and to the same hours as any employee performing the same duties;
11. The appellant invested no money and had no right of oversight in running the business;
12. The majority shareholder is Lucien Bédard, as set out in a copy of the history of the company 9001-4390 Québec Inc., filed herewith to be an integral part of the record as Appendix 7;
13. At no time during this employment did the appellant receive or allegedly receive different or more advantageous benefits, bonuses or salary because she was not dealing at arm's length or was a partner in the business;
[7] The arguments of the appellant Raymond Latourelle are contained in paragraphs 10 to 15 of his Notice of Appeal:
[TRANSLATION]
10. For the periods from February 17 to September 11, 1992 and August 9 to December 10, 1993 the appellant alleges:
(a) the appellant was regarded as an employee with the Commission de la construction du Québec, and had a competency certificate issued by the Commission;
(b) a competency certificate is not issued for a partner;
(c) as an employee the appellant was subject to the orders of Lucien Bédard, a master plumber, in that:
(1) he had to help him with repairs and construction, under Lucien Bédard's orders;
(2) he had fixed working hours and was even on call in the evenings and on weekends, when Lucien Bédard needed him;
(3) the appellant's salary was set by the Commission de la construction du Québec, and this salary was the same as all employees at the same level;
(4) when he was not on call with Lucien Bédard the appellant went to the office to store parts and prepare the materials needed for contracts in the next few days;
(5) the appellant was subject to market fluctuations and was laid off for the aforementioned periods:
for the period from August 1, 1994 to March 10, 1995;
11. A general partnership was incorporated on April 1, 1994 including the appellant as a partner, with 24 percent of the voting and participating shares, as set out in a copy of the said incorporation filed as Appendix 5;
12. The appellant has continued to be employed, receiving the same salary set by the C.C.Q., and being subject to the same orders from Lucien Bédard and the same hours as any employee performing the same duties; the incorporation was only for tax purposes;
13. The appellant invested no money and had no right of oversight in running the business;
14. The majority shareholder is Lucien Bédard, as set out in a copy of the history of the company 9001-4390 Québec Inc., filed herewith to be an integral part of the record as Appendix 6;
15. At no time during this employment did the appellant receive or allegedly receive different or more advantageous benefits, bonuses or salary because he was not dealing at arm's length or was a partner in the business;
[8] Suzie Latourelle, Christian Gratton (the accountant for the business since 1994), Raymond Latourelle and Lucien Bédard testified at the request of counsel for the appellants.
[9] Subparagraph 6(a) of Reply No. 1 was denied. As we will see below in the description of Lucien Bédard's testimony, Mr. Bédard came to Ripon in 1988. However, he obtained a licence as a plumbing contractor in 1989.
[10] Subparagraphs 6(b) to (e) and paragraph 6(l) of Reply No. 1 were admitted.
[11] Subparagraph 6(g) of Reply No. 1 was denied, and qualified with the adverb [TRANSLATION] "periodically". As we shall see in the description of the evidence, the allegation in that subparagraph proved to be true. Similarly, subparagraph 6(h) of Reply No. 1 was denied, and it was contended that the appellant Suzie Latourelle helped in the evenings for an hour at most, and not full time in the day as she did during the periods of employment. Subparagraph 6(i) of Reply No. 1 was denied.
[12] Subparagraph 6(j) of Reply No. 1 was neither admitted nor denied. The evidence showed that it was correct except that certain months might be busier than others, depending on the demand for work, and that this varied from year to year.
[13] Subparagraph 5(k) of Reply No. 1 was denied as to the amount, which according to the appellant Suzie Latourelle should be $25,000, not $50,000.
[14] As regards Reply No. 2, relating to the appellant Raymond Latourelle, subparagraphs 6(a) to (c) of that Reply are identical to that of the appellant Suzie Latourelle, and so the admissions or denials were the same as for her. Subparagraphs 6(d) to (e) of Reply No. 2 were admitted. On subparagraphs 6(h) and (i) of Reply No. 2, the appellant argued that although he might have signed papers committing himself personally, he never regarded himself as being personally committed or authorized to sign cheques for the business.
[15] Subparagraph 6(j) of Reply No. 2 was denied because there were no regular periods when the business was not as busy. It varied from year to year depending on whether large or small contracts were obtained. Subparagraph 6(l) of Reply No. 2 was denied.
[16] Lucien Bédard worked for Robinson plumbing contractors in the Gatineau area for 21 years. In 1988 he decided to go into business for himself. He came to his father's place in Ripon. He explained that for a plumbing business to obtain a licence as a plumbing contractor it had to obtain, in addition to the plumber's certificate, a certificate in administration. He was unable to obtain such a certificate. His wife Suzie Latourelle studied and obtained it, as attested by Exhibit A-1. Accordingly, in 1989 the business "Plomberie Lucien Bédard Enr." officially started up.
[17] On August 9, 1991 a trade name declaration was made by Lucien Bédard, Suzie Latourelle and Raymond Latourelle. They stated that they were the owners of a plumbing business and wished to operate it under the trade name "Plomberie Lucien Bédard Enr." This declaration cancelled the one made in 1989 by the two spouses as partners. In 1991 the spouses had acquired a property on Rue Boucher which consisted of their residence and a workshop-warehouse near the residence.
[18] In their testimony Mr. Bédard and Ms. Latourelle stated that the reason they were partners in the business was because of their marriage contract, which provided for community of property, but in fact it was Mr. Bédard's business because he was solely responsible for running it and would pay its debts, if required.
[19] According to the witnesses, Raymond Latourelle could not have obtained an apprentice plumber's card if he had not been part owner of the business, but in fact he was not an owner but an employee.
[20] According to what is stated in a small pamphlet published by the Commission de la construction du Québec, filed as Exhibit A-24, it may be that it was easier for Raymond Latourelle to obtain an apprentice competency certificate if he put himself forward as a potential employer. In that case, he had to be a designated representative of an employer who was either a partnership or a corporation. The representative had to be either a member of the partnership or a director or shareholder with voting rights in the corporation.
[21] The financial statements show that the three partners shared in the profits and losses of the plumbing business. However, Lucien Bédard stated that all profits were reinvested in the business, that he ran it by himself and guaranteed its liabilities and that it was he who in fact controlled it.
[22] The appellant Suzie Latourelle's duties were bookkeeping, making up payrolls, preparing and sending out accounts receivable and paying suppliers, making out and signing cheques, filling out documents required by governments, answering the telephone and arranging appointments.
[23] When the appellant Suzie Latourelle was not working, that is outside the periods at issue, Mr. Bédard allegedly did the work and in the evenings took her the work which she allegedly then did in an hour. Mr. Bédard asserted that this was the mutual assistance expected between spouses. However, the evidence was that the work was largely computerized and the computer was in the workshop, not the residence. Suzie Latourelle continued signing cheques for the business during the periods when she was not supposed to be working: Exhibits I-14 and I-15.
[24] The appellant Raymond Latourelle maintained that during the periods of employment he worked full time. If there was no plumbing work to do, which did not often happen, or when the plumbing work did not take up his entire day, he did repairs in the workshop-warehouse. His working hours were from 8:00 a.m. to 4:00 p.m. Before Raymond joined his brother-in-law's business, he was a mechanic. He brought his tools with him.
[25] Mr. Bédard explained that the appellant Raymond Latourelle could not work by himself. He explained at one point in the hearing that he himself was also not supposed to work alone and always had to have someone with him, either for safety reasons or for insurance purposes. He subsequently corrected himself to say that as long as there was someone on work sites who belonged to another trade organization on the site this was sufficient.
[26] Mr. Bédard could not explain why the appellants had taken turns working and never worked during the same periods.
[27] Exhibit I-17 is a table of the periods worked by the various employees of the plumbing business, drawn up by counsel for the respondent. It showed that Suzie Latourelle and Raymond Latourelle worked at different time periods. Nicole Deschênes Latourelle, Raymond Latourelle's wife, worked for two months in 1991 concurrently with Suzie Latourelle. At that time she was paid $315 and Suzie Latourelle was paid $235. It should be noted that in 1991 Raymond Latourelle allegedly did not work. Nicole Deschênes Latourelle worked for six months in 1994, from January to June, when no one else was working. According to Exhibit I-3, her weekly salary in 1994 was $499. The salary of her husband, who began working in August of that year, was $480. Exhibit A-6 is a work sheet from the Commission scolaire Seigneurie for part-time staff. It indicates that Suzie Latourelle worked there for 13 days in June and July 1993 at an hourly rate of $12.15. This exhibit was filed to show that her salary was reasonable.
[28] On March 26, 1992 Suzie Latourelle received a letter from an insurance officer at Employment and Immigration Canada. That letter was filed as Exhibit A-25. The first paragraph of the letter said:
[TRANSLATION]
This is to inform you that your employment with Plomberie Lucien Bédard Enr. was insurable during the following period: July 28, 1991 to January 17, 1992, because you meet the requirements of s. 3(2)(c) of the Unemployment Insurance Act.
[29] The grounds for review were prepared by the accountant for the business, Christian Gratton, and sent to the Minister with other documents in response to the decision which has been appealed, which together comprise Exhibit A-15. In those grounds emphasis is placed on the application of the statement quoted above and the reliance the appellants placed on that statement.
[30] In her Notice of Appeal the appellant Suzie Latourelle explained her layoffs by market fluctuations. The income and expenditure statements showed, however, that the affairs of the business were relatively stable throughout the year (Exhibit I-19).
Arguments and conclusions
[31] In support of the statements in subparagraph 4(f) of Reply No. 1, and subparagraph 6(g) of Reply No. 2, which were as follows:
4 (f) the appellant was a partner in the business and so could not be her own employee;
6 (g) during the periods from February 17 to September 11, 1992 and August 29 to December 10, 1993 the appellant was a partner in the business and so could not be his own employee;
the respondent's agent referred to the judgment of the Quebec Court of Appeal in Ville de Québec v. La Cie d'immeubles Allard Ltée et le Régistrateur de la division d'enregistrement de Québec, [1996] R.J.Q. 1566, which held that although a partnership might appear to possess certain attributes of legal personality it does not have such personality and so cannot enjoy ownership of a separate patrimony. Relying on this judgment, the appellant's agent maintained that a partnership is not a person and so has no power to contract.
[32] As the judgment does not say that a partnership has no power to contract in Quebec law, I shall not rely on that aspect in making my decision, especially as it seems to me that this statement runs directly counter to the actual wording of art. 2221 of the Civil Code of Quebec, which reads as follows:
In respect of third persons, the partners are jointly liable for the obligations contracted by the partnership but they are solidarily liable if the obligations have been contracted for the service or operation of an enterprise of the partnership.
Before instituting proceedings for payment against a partner, the creditors shall first discuss the property of the partnership; if proceedings are instituted, the property of a partner is not applied to the payment of creditors of the partnership until after his own creditors are paid.
[33] The respondent's agent also referred to two decisions of this Court, of which one, Alain Carpentier v. M.N.R., dated May 14, 1996, takes the approach that there cannot be a contract of employment between a partnership and a member of that partnership, and the other, Louise Brady-Charette v. M.N.R., dated December 6, 1990, takes the opposite view.
[34] As to the impossibility of a contract of employment between a partner and a partnership of which he is a member, the respondent's agent did not refer the Court to any Quebec precedent or commentary in support of his argument. I shall therefore also not base my decision on this legal argument.
[35] Counsel for the appellants dwelt at length on the fact that the appellant Suzie Latourelle had received confirmation that her employment was insurable in the letter of March 26, 1992, Exhibit A-25, and that there has been no appeal from the Commission's decision. He stated that all the facts were before the Commission at that time and that for the period in question the Commission was not entitled to put the question to the Minister again in order to obtain a determination from him. This point has already been considered by the Federal Court of Appeal, in Breault v. M.N.R., 117 N.R. 318, at 320, and I quote:
In our opinion, both the initial decision in 1994 and the contrary decision in 1987 amounted simply to positions which were adopted through necessity in order to administer the Act, and which subsection 61(3) refers to as "decisions of the Commission" (regardless, in this respect, by the way, of the actual layout of the form on which decisions of this nature are recorded for communication to the parties). This is not an exercise by the Minister of the power to make determinations conferred on her under subsection 61(6) of the Act. How could it be considered that any such decision could make the Minister functus officio and relieve her of her power to make determinations?
[36] Accordingly, under s. 61(6) of the Act the Minister retained the power to make the subject determination in respect of the period mentioned in the Commission's letter of confirmation dated March 26, 1992.
[37] Counsel for the appellants also emphasized the need for the appellants to be partners: for the appellant Suzie Latourelle because of her marriage contract and for the appellant Raymond Latourelle because of the requirements of the legislation dealing with construction. As I have come to the following conclusions based solely on the factual circumstances and the appellants' working conditions, I do not have to determine whether this argument is valid.
[38] We may now return to the law regarding the application of s. 3(2)(c) of the Act, which 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;
[39] According to the Federal Court of Appeal's judgment in Canada v. Jencan Ltd., June 24, 1997, this Court's function in respect of the discretion exercised by the Minister is to review the legality of the decision, and that review must be conducted with the requisite judicial restraint. I quote, at pp. 18 and 25 of the English original:
The Tax Court is justified in interfering with the Minister's determination under subparagraph 3(2)(c)(ii) - by proceeding to review the merits of the Minister's determination - where it is established that the Minister: (i) acted in bad faith or for an improper purpose or motive; (ii) failed to take into account all of the relevant circumstances, as expressly required by paragraph 3(2)(c)(ii); or (iii) took into account an irrelevant factor.
. . .
In other words, it is only where the Minister's determination lacks a reasonable evidentiary foundation that the Tax Court's intervention is warranted. An assumption of fact that is disproved at trial may, but does not necessarily, constitute a defect which renders a determination by the Minister contrary to law. The Tax Court must, therefore, go one step further and ask itself whether, without the assumptions of fact which have been disproved, there is sufficient evidence remaining to support the determination made by the Minister. If that question is answered in the affirmative, the inquiry ends. But, if answered in the negative, the determination is contrary to law, and only then is the Tax Court justified in engaging in its own assessment of the balance of probabilities. Hugessen J.A. made this point most recently in Jolyn Sports, supra. At page 4 of his reasons for judgment, he stated:
In every appeal under section 70 the Minister's findings of fact, or "assumptions", will be set out in detail in the reply to the Notice of Appeal. If the Tax Court judge, who, unlike the Minister, is in a privileged position to assess the credibility of the witnesses she has seen and heard, comes to the conclusion that some or all of those assumptions of fact were wrong, she will then be required to determine whether the Minister could legally have concluded as he did on the facts that have been proven. That is clearly what happened here and we are quite unable to say that either the judge's findings of fact or the conclusion that the Minister's determination was not supportable were wrong. [Italics in original.]
[40] Section 3(2)(c) of the Act, relating to situations involving contractual agreements between related persons, leads to consideration of the workers' work situation and determination of whether this is employment that would ordinarily be found in the marketplace.
[41] In the instant appeals it is not plausible that the workers did not work at the same work periods. The appellant Suzie Latourelle was the person who set up the computerized system and knew how to use it. Accordingly, she must have used it on an on-going basis. The evidence further showed that the plumbing contracts in the years at issue were spread throughout each of those years and not over a few months. There was no evidence of the market fluctuations referred to in the Notice of Appeal. The appellant Raymond Latourelle therefore worked throughout those years, not just during the periods at issue.
[42] I also consider that the evidence showed that the Minister's assumptions of fact were not incorrect, and that in view of the terms and conditions of the appellants' work, including the remuneration paid and the duration of each person's work in relation to the actual requirements of the business, the Minister exercised the discretion that falls to him under s. 3(2)(c) of the Act judiciously in determining that the parties would not have entered into similar contracts of employment if they had not been related.
[43] The appeals are accordingly dismissed.
Signed at Ottawa, Canada, January 5, 1998.
Louise Lamarre Proulx
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]