CUB 12019
TRANSLATION
IN THE MATTER OF THE UNEMPLOYMENT INSURANCE ACT, 1971
- AND -
IN THE MATTER OF a claim for benefit by
Daniel LAFOREST
- AND -
IN THE MATTER OF an appeal to an Umpire by the claimant
from the unanimous decision of a Board of Referees given
at Joliette, Quebec, on July 9, 1985.
DECISION
J. DENAULT, UMPIRE
The claimant is appealing from a two-part decision rendered by the board of referees. In both cases, the Commission's position was confirmed by the board of referees.
The first part of the decision deals with the claimant's unemployment status between March 20 and April 9, 1983. On the basis of the claimant's statement, the Commission was of the opinion that he had worked forty hours a week in setting up a business and declared him ineligible for benefits during this period of time. The board of referees confirmed this decision and the claimant did not cite any ground in support of his appeal. The appeal is therefore dismissed with regard to this part of the decision.
The other part deserves a closer look. Let us briefly review the facts. An employee of Marine Industries for several years, the claimant was unemployed for a time in 1983. He then set up a ladies' wear boutique and, by his own admission, he became the sole and only owner of a company known under the firm name of "Boutique Daniel Laforest Inc" as of April 7, 1983. He took out a loan to set up this business which he did not look after personally all the time. Some employees helped him and he was there at opening and closing time and he did the ordering, which took about an hour and a half a day. The Commission recognized, moreover, (exhibit 4-b) that on May 10, 1983, operating a business was not his principal means of earnings a livelihood. However, the situation changed completely when the Commission obtained an affidavit signed by the claimant on June 18, 1984 (exhibit 6) in which he stated as follows:
I Daniel Laforest do solemnly declare that I live at X in X. * Since April 7, 1983, I have been the sole and only owner of a ladies' wear boutique at X * which was incorporated under the firm name of Boutique Daniel Laforest Inc during the weeks commencing March 20, 27 and April 3, 1983. I cannot say which since the premises had to be prepared (painting, decorating, and installing fixtures). I devoted about forty hours a week to this work. Later, starting on April 7, 1983, the date on which the business was opened, until April 30, 1983, I devoted only about twenty hours to my business. Furthermore, from May 1, 1983 to the present, I have devoted between ten and thirteen hours a week. You will realize that since it was a ladies' wear boutique, the work I did there was not selling but rather buying, tagging and various other jobs. After May 1983, I always had part-time employees.
The business's accounting was done by Jean-Paul Perreault of Joliette. However, my balance sheet for 1983 has still not been done. I have been working for Marine Industries for seven years. Consequently at the time I received benefits, I did not look for other employment because I was sure to be eventually rehired by Marine.
I maintain that I was always available and ready to return to work at Marine at any time while I was drawing benefits. In April 1983, I went to the CEC office in Berthier and I informed it that I had this business but that I was still available for work and that at the time, my business was in the red.
The Commission later obtained the financial statements (exhibit 7(a) to 7(f)) from the claimant whose statement of income and retained earnings for the period from April 7, 1983 to March 31, 1984 showed pre-tax profits of $22,476.00. The Commission considered this to be income that ought to have been deducted from his earnings, and in accordance with ss 57 and 58 of the Unemployment Insurance Regulations it was allocated retroactively from April 7, 1983 to June 9, 1984 at the rate of $440.71 a week. The evidence revealed, moreover, that for the period subsequent to March 31, 1984, the profits realized were the same as those of the preceding year (Exhibit #8).
The claimant appealed from this decision to the board of referees, which concluded as follows:
DECISION:
After studying the record and discussions with the parties, and referring to s 57(1)(b) of the Regulations and to the Digest of Benefit Entitlement Principles where it is stated that to determine the value of remuneration, the test is whether the claimant's participation in a business is more in the nature of work normally performed for remuneration than a natural concern resulting from an investment (5.10.0).
Despite the claimant's statement that he devoted so little time that he could hold other employment, the members of the board of referees are of the view that the claimant stayed very close to his business and his investment, and not being able to ignore the regulations the board of referees unanimously dismisses the appeal.
In support of his appeal, the claimant relied on s 95(c) of the Act, namely that the board of referees based its decision or order on an erroneous finding of fact that it made in a perverse and capricious manner or without regard for the material before it. The argument put forward by counsel for the claimant was stated in a few words: the corporate veil cannot be lifted and the retained earnings of a company cannot constitute remuneration for the claimant; a direct cause and effect relationship must be established between the claimant's activities and his business, which the evidence did not demonstrate.
Tempting as this argument may seem, it does not stand up to serious analysis. It is true that shortly after being set up, his business was in the red, and the Commission did not have reason to think that the claimant could not "normally follow this employment as a principal means of livelihood" (s 43(2) of the Unemployment Insurance Regulation), and he was not deemed to have worked in this employment for a full week. Section 26(2) of the Act provides that:
26(2). If a claimant has earnings in respect of any time that falls in a week of unemployment, that is not in his waiting period, the amount of such earnings that is in excess of an amount equal to twenty-five per cent of the claimant's weekly benefit rate shall be deducted from the benefit payable to the claimant in that week.
Section 57 of the Unemployment Insurance Regulations deals with the determination of earnings for benefit purposes and s. 58 with the allocation of such earnings. It is noted in particular in s. 57(6)(c) that earnings include, in the case of a claimant who is self-employed, "the amount remaining from his gross returns from that employment after deducting the operating expenses, other than capital expenditures incurred therein". The activity that the claimant was engaged in must therefore be examined, and it is immaterial whether his business was registered or incorporated. It is true that normally earnings are drawn from a company either in the form of salary if one works there, or in the form of a dividend in the case of an investment, which the company has decided to pay to the shareholders. In this regard, retained earnings belong to the company and not to the shareholder, not even a single shareholder. However, the scope of s 57(6)(c) mentioned above cannot be restricted by considerations having to do with the corporate structure. With regard to this single shareholder, the Commission was therefore justified in considering the retained earnings as income and allocating it according to the provisions of s. 58, especially since the board of referees, as it was empowered to do, was of the opinion in its decision that "the claimant stayed very close to his business and his investment". By so doing, the board of referees assessed the facts and was of the opinion that the setting up of this business did not constitute a simple investment, like buying shares in a public company, but rather an activity in which the claimant participated.
Accordingly, the appeal is dismissed.
Pierre Denault
UMPIRE
Ottawa
April 16, 1986