Modern Pest Control v. R. - TCC: Work by operator’s brother insurable

Modern Pest Control v. R. - TCC:  Work by operator’s brother insurable

Modern Pest Control Services Western Ltd. v. M.N.R. (October 13, 2015 – 2015 TCC 241, C. Miller J. ).

Précis:   This case dealt with work performed by Jonathan Flynn for a company operated by his brother and owned by his uncle.  CRA contended that the terms were not similar to arm’s length employment and, accordingly, that Mr. Flynn was not engaged in insurable employment.

The Tax Court held that, on balance, Mr. Flynn’s terms of employment were similar to arm’s length and allowed the appeal.

Decision:   The facts of this case were not complex:

[1]             As its name implies, Modern Pest Control Services Western Ltd. (“Modern Pest Control”) was in the pest control business, operating in the western part of Newfoundland. It was a small company operated, but not owned, by Mr. Todd Flynn. The company was owned by Mr. Flynn’s uncle, Mr. Don Carter and Mr. Carter’s wife. Modern Pest Control hired Mr. Jonathan Flynn, Todd Flynn’s brother, who worked during the period in question from November 2012 to December 2013. The issue is whether Mr. Jonathan Flynn was in insurable or excluded employment for that period under the provisions of the Employment Insurance Act (the Act).

The Crown’s case essentially turned on two aspects of the relationship of Jonathan Flynn with Modern Pest Control:  an in house account he had with the company and an interest-free loan he obtained from it.  The Court weighed both these factors but found them insufficient to deprive him of employment status:

[15]        Just as the fact of Mr. Jonathan Flynn’s relationship as brother of the operator, though not owner, of Modern Pest Control was not raised by either side as factoring into the employment non-arm’s length issue, so too the fact of a personal family project being funded through Modern Pest Control is not a factor in the determination of whether the employment relationship is a non-arm’s length relationship. The personal project simply has nothing to do with the employment relationship. Whether or not Mr. Jonathan Flynn was an employee of Modern Pest Control, I conclude Modern Pest Control was simply the financing vehicle for both the brothers’ project. That does not support a finding that Mr. Jonathan Flynn and Modern Pest Control were not dealing at arm’s length in their employment relationship.

[16]        In summary, I assess the situation as Mr. Jonathan Flynn, a certified pest control technician, taking on employment with Modern Pest Control to provide those technical services and, given his brother’s absence from Newfoundland, also serving not only as the salesperson for the small business, but also the on‑site supervisor attending to supply purchases and some administrative chores. His working arrangement on the technical side was not different from Mr. Lilly, the only other employee in this small business. I find only two elements of the arrangement, the use of an internal account for the payments to and fro between Mr. Jonathan Flynn and Modern Pest Control and the interest free loan from Modern Pest Control to Mr. Jonathan Flynn for the personal housing project, raise the spectre of a non-arm’s length dealing. I dismiss the latter as it pertains not to the employment relationship but to a personal project between the brothers who simply used Modern Pest Control as a financing source. With respect to the use of the account, while it can be viewed as indicative on a non‑arm’s length dealing, I conclude, on balance, that is not sufficient to override all other elements of the employment relationship that satisfy me there was not an arm’s length dealing. I therefore allow the Appeal and return the matter to the Minister on the basis Mr. Jonathan Flynn was not in excluded employment but was in insurable employment.

As a result the matter was referred back to the Minister on the basis that Jonathan Flynn was an employee.