Promark Construction Ltd. v. R. – TCC: Two adult sons of corporation’s owners were engaged in insurable employment

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Promark Construction Ltd. v. M.N.R. (February 26, 2015 – 2015 TCC 50, D’Arcy J.).

Précis: The workers, Brett and Brian Alcorn, were the adult children of Bill and Barbara Alcorn, the controlling shareholders of Promark Construction Ltd. (“Promark”) through a holding company. The Minister determined that they were employees of Promark for EI purposes. Promark and the workers appealed. The Tax Court found that they carried out their functions and were remunerated in essentially the same fashion as Promark’s other employees. Promark argued that when dealing with workers who do not deal at arm’s length with the payor the Employment Insurance Act (the “Act”) should be interpreted to treat them as employees only where they wish to be so treated and the Minister then concludes that they actually function as employees, i.e., where they do not wish to be treated as employees the Minister has no jurisdiction to treat them as such. The Court rejected this argument. The appeal was dismissed, without costs.

Decision: This decision dealt with whether two workers, Brett and Brian Alcorn, were employees for EI purposes:

[1] The Appellant is appealing a decision of the Minister of National Revenue (the “Minister”) that it employed Brett and Brian Alcorn in insurable employment during the period from January 1, 2010 to April 26, 2013 (the “Relevant Period”).

[2] Brett and Brian Alcorn are two of the adult children of William (“Bill”) and Barbara Alcorn. Bill and Barbara Alcorn own, through a holding company, all of the shares of the Appellant.

The brothers functioned much like the other employees of Promark:

[5] Brian Alcorn started working for the Appellant part-time in 2005, while he was attending university. He became a full-time employee in 2009. Brett Alcorn joined the Appellant in 2007 on a full-time basis. Brian and Brett Alcorn apprenticed with the Appellant and graduated from the apprenticeship program in 2010 as carpenters.

[6] During the Relevant Period, the Appellant had at least two other employees, who were not related to the company.

[7] Bill Alcorn is the controlling mind of the Appellant. Brian and Brett Alcorn do not own shares of the Appellant, are not officers or directors of the Appellant and do not have signing authority over the Appellant’s bank account. Bill Alcorn testified that he hopes that at some point in the future his two sons will take over the business carried on by the Appellant.

[8] During the Relevant Period, Brian and Brett Alcorn physically performed work at the Appellant’s various work sites, including framing homes, drywalling homes, and carpentry work. In addition, they supervised the other employees and the subtrades, ensured that the work was completed in a timely fashion, picked up any required supplies and materials, accepted delivery of supplies and materials ordered by the Appellant from third parties, and ran the business when Bill Alcorn was on holidays.

Bill Alcorn’s testimony was badly shaken on cross-examination:

[24] During his testimony, Bill Alcorn focused on four other areas that he felt reflected facts that either were not taken into consideration by the Minister or were inconsistent with the Minister’s conclusion. These areas related to the assignment of work, the provision of tools, the provision of vehicles, and the requirement to work overtime. Bill Alcorn’s testimony in chief with respect to these four areas seriously damaged his credibility. As I will discuss, on cross-examination he either changed his story or qualified his previous testimony.

The Court concluded that on the evidence the two sons were employees of Promark:

[31] Bill Alcorn’s testimony on cross-examination with respect to hand tools, the trucks and overtime supports the Minister’s conclusion.

[32] After considering the facts relied upon by the Minister and the additional facts presented at trial, I have concluded that the Minister’s decision was reasonable.

The argument next turned to paragraph 5(3)(b) of the Act which permits related workers to be treated as employees for the purposes of the Act if they are treated in essentially the same manner as other employees:

(b) if the employer is, within the meaning of that Act, related to the employee, they are 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.

Promark argued that this provision only applied where the related workers opted to be treated as employees:

[34] Counsel for the Appellant argued, relying upon obiter comments of this court in C&B Woodcraft Ltd. v. Minister of National Revenue (“C&B Woodcraft Ltd.”) that, as a result of the Federal Court of Appeal’s decision in Druken, Parliament changed the law such that related individuals were no longer insurable. However, Parliament provided an exemption for persons who wished to be insurable.

[35] He submitted that if a person related to the employer wishes to be insurable, then the Minister must make an assessment under the relevant provisions of the Act as to whether that person should be made insurable. It is the Appellant’s position that the Minister can only make such a determination if the related employee wishes to be considered an insurable person under the Act. The Minister cannot make the determination if the related employee does not wish to be considered an insurable person under the Act.

[36] Counsel for the Appellant argued that this is consistent with the scheme of the Act and would not result in employees abusing the system since only employees who pay premiums can collect benefits.

[Footnotes omitted]

The Court was not receptive to this line of argument:

[42] The Appellant is asking me to find that Parliament intended a related employee to have the option of opting into the employment insurance program.

[43] Such discretion is not provided in the words of the legislation. As counsel for the Respondent noted, the Minister’s role is to make a determination under paragraph 5(3)(b) once a request for a ruling is made by an employer, an employee or the Commission under paragraph 90(1)(a).

[44] Further, paragraph 5(3)(b) provides the Minister with the ability to limit abuses of the employment insurance program. The program is self-funding. Where related employers and employees contract with one another, one of the abuses that may arise is short-term work aimed at collecting insurance benefits.

[45] For example, if the Minister was only entitled to apply paragraph 5(3)(b) if a related employee made a request under paragraph 90(1)(a), then the related employee could chose not to pay premiums when the business in question is doing well. The employee could then elect into the program (by requesting a ruling) when it appeared the business might be forced to shut down due to financial difficulties. This could result in the employee paying premiums for a short period and then collecting benefits under the self-funding program. In my view, this is the very type of abuse that paragraph 5(3)(b) is intended to stop.

The appeal was dismissed, without costs.