CUB 43373
IN THE MATTER OF THE EMPLOYMENT INSURANCE ACT
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IN THE MATTER OF a claim for benefit by J. BAYNE SECORD
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IN THE MATTER of an appeal to an Umpire by the claimant from a decision by
the Board of Referees given at Saskatoon, Saskatchewan, on April 2, 1998.
D E C I S I O N
TEITELBAUM, J:
This is an appeal to an Umpire by the claimant, J. Bayne Secord, from a unanimous decision of a Board of Referees dated April 2, 1998 (Exhibit 32).
An appeal to an Umpire is made pursuant to section 115 of the Employment Insurance Act (Act).
115. (1) An appeal lies as of right to an umpire from a decision of a board of referees may be brought by
(a) the Commission;
(b) a claimant or other person who is the subject of a decision of the Commission;
(c) the employer of the claimant; or
(d) an association of which the claimant or employer is a member.
(2) The only grounds of appeal are that
(a) the board of referees failed to observe a principle of natural justice or otherwise acted beyond or refused to exercise its jurisdiction;
(b) the board of referees erred in law in making its decision or order, whether or not the error appears on the face of the record; or
(c) the board of referees based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it.
In the present instance, the claimant bases his appeal on paragraph 115(2)(b), the Board of Referees erred in law (Exhibit 33-2).
An appeal to an Umpire can be decided on an oral hearing or be decided by an Umpire "on the record", that is, the Umpire decides the claimant's appeal based on the documents found in the appeal dossier. In the present case, the claimant requests that his appeal be decided on the record (see Exhibit 33-6).
The claimant applied for Unemployment Insurance benefits on October 4, 1994 (Exhibit 2-3) and which claim became effective as of October 2, 1994. The claimant was employed by the Canadian Grain Commission (Agriculture Canada) as an assistant grain commissioner for Northern Saskatchewan. He had been employed from September 30, 1988 to September 30, 1994 (Exhibit 2-1). On Exhibit 2-3, the claimant states that he is not self-employed and that he does not operate a farm. Furthermore, he states that his employment ended because "end of term position".
In June 1997, the Commission received a notice that the claimant had shown $367, 489.00 for a gross farm income in the 1995 tax year, the net being $42, 135. (Exhibit 4).
As a result of the Commission receiving the above information, on August 21, 1997, the Commission wrote to the claimant as follows:
During 1995 you reported to Revenue Canada Taxation that you had Farming Gross Earnings amounting to $367, 489-00.
In order to confirm your entitlement to the Employment Insurance Benefits paid to you in 1995 it will be necessary that you provide copies of the following information:
1. Cash grain ticket receipts.
2. Canadian Wheat Board Payment receipts.
3. Copy of the first pages of both permit books
covering calendar year which describe acreage and
crops sown and all pages showing grain sales.
4. Livestock, swine or poultry sales receipts, if any.
5. Net income stabilization account (NISA).
6. Farm income sheet from the tax return.
7. All other documents which are included in total
farm earnings. The documentation sent must total
the amount as shown above.
8. Complete the attached FARM QUESTIONNAIRE
and advise why you did not state on your
application for benefits that you operated a farm.
This information is requested under authority of the Employment Insurance Act. Failure to comply with this request within 30 days of receipt of this letter could result in the establishment of an overpayment of Employment Insurance Benefits paid to you in 1995 along with any penalties that might be applicable Pursuant to Sub-Section 33 of the Employment Insurance Act.
(Exhibit 5)
In response to the August 21, 1997 letter, the claimant attended at the Commission's office on or about October 17, 1997 where the following information and decision was made.
Bayne came in to the office to discuss the request we have made to him for his 1995 farming information.
Bayne wished to advise why he did not state on his application that he operated a farm. He brought a Federal Government Conflict of Interest book with him. He states that in his position as Assistant Grain Commissioner for the province it was a conflict for him to be involved in the grain industry for the term of his appointment plus one year after. This meant he could not be involved in making farming decisions that may have been influenced by his knowledge gained in his position. His farming operation was a partnership with his son a 50-50 basis. He still worked on the farm running machinery but he could not make decisions such as what to seed and when to sell. He took vacation leave and compensatory time at seeding and harvest to help out at his farm.
Based on his statement, I advised Bayne that his farm income is earnings for the purposes of his claim. He operated a farm and he has farm income; we are not concerned to the extent he operates that farm, the fact remains that he does farm. I advised him I would require all his income receipts to account for the $367, 489.00 and we will then assess 15% of 50% of all the transactions as his income in the weeks in which the transactions occurred. Bayne then advised that he would have to obtain the information from the accountant. I advised him that would not be sufficient as they would not have the gross amount of sales and the dates may not be the dates I require. I advised him I required the actual grain tickets. He then advised that they had a fire in their house and his papers were destroyed. I advised him he could obtain the information from the Canadian Wheat Board and the companies that he sold to. If that was a problem for him, I advised him I could do it for him if he told me who he sold to. He stated he would contact them himself and get the information to me. I asked him to provide the information within one month as it was August that the initial request was made.
(Exhibit 6)
It is important to note that the claimant states that he operated a farm with his son on a 50% partnership, that he worked on the farm running machinery, seeding and harvesting but, because of his position, he could not make decisions such as what to seed and when to sell.
The above is confirmed in Exhibit 7 where the claimant states:
Because of conflict of interest & post-employment code for public office holders (in effect to Oct 1st/95) it is not possible for me to participate in the management of our farm, or to accept a job related to the grain industry. My involvement with our farm operation for the past 6 years has been to help with seeding & harvest (using holiday time). My personal farm income from Jan 1 to June of 1995 was $6, 000.00, which only covered my house mortgage payments for the balance of 95. My personal farm income was $16, 800.00.
It is also important to note that the claimant states he had personal farm income of $6, 000.00 for January 1 to June 1995 and $16, 800.00 for the balance of 1995 for a total of $22, 800.00.
Exhibit 8-4 is a copy of a Statement of CWB payments. It shows that a cheque, no. 3978254 was issued on 95/01/02 to James B. Secord for a net of $8, 743.53. Exhibit 8. 11 shows a cheque payable to the claimant on January 30, 1995 from AgPro Grain for $4, 828.47. Found in Exhibit 8 are a number of other documents that indicate payments, for grain, made to the claimant.
On the reporting cards sent to the Commission for benefit payments in 1995, the claimant appears not to have indicated any revenue from farm income (reporting cards are found in Exhibit 9).
On December 9, 1997, the Commission forwarded a letter to the claimant asking for clarification of the claimant's earnings as the claimant reported nil income, when, according to the Commission, from January 1, 1995 to April 23, 1995, the claimant did receive income (Exhibit 10-1).
The claimant disagreed with the Commission's determination as found in Exhibit 10-1. In his comments or explanation as to why he disagrees with the Commission's determination, the claimant states:
I attempted to provide detailed documentation of proceeds I received from Secord Farms in 1995, but was told it was unacceptable. I agree that your calculations of income for Secord Farms is accurate for the farm income during that period. However, I do not agree with the 15% formula as my records show my actual income was $6, 000.00, most of which was used to cover heavy mortgage payments. I was asked to take the position by the Government of Canada, and I gave them 6 years of my most productive work years at a substantial inconvenience and cost to me and my family. I fully appreciate the assistance that was provided by Unemployment Insurance at the time when I did not know if it was possible for me to return to the farm because of its uncertain future.
Because of the Conflict of Interest Guidelines, I was not permitted to be actively involved in the operation of the farm. As well, the Conflict of Interest and Post-Employment Code severely restricted future employment in the areas I was qualified for. During this time, I continually looked for suitable employment. In April, upon making the decision to return to the farm, I immediately notified Unemployment Insurance to discontinue assistance.
I am surprised and disappointed my integrity is being questioned in collecting the availability assistance to which I feel I was entitled. I feel strongly that if I was not eligible, it would only be right that I be refunded the substantial amount of contributions I made to the fund. I will continue to give my full co-operation in resolving this matter.
(Exhibits 10-3- and -4)
It is interesting to note that the claimant admits that his own records show his actual income was $6, 000.00 for the period January 1, 1995 to the week commencing April 23, 1995. He then states "most of which (the $6, 000.00) was used to cover heavy mortgage payments".
How this factor is a reason for not reporting this income in 1995 escapes me.
By letters dated January 16, 1995, the Commission forwarded to the claimant its decision regarding the claimant's farm income and its decision regarding the claimant's alleged "5 false or misleading statements" (Exhibits 12 and 13).
The Commission determined the claimant had received income for the periods January 1, 22 and 29, 1995, February 5 and 26, 1995, March 5, 12 and 19, 1995 and April 2 and 23, 1995 while declaring nil income (Exhibit 12-1). As well, the Commission, for 5 false or misleading statements, levied a penalty of $2, 145.00 (Exhibit 13-1).
The claimant appealed the Commission's decisions (Exhibit 14-1). His reasons for appealing are found in Exhibits 14-2 to -6.
Both the Commission and the claimant filed submissions with the Board of Referees (see Exhibits 16 and 17). The claimant also filed, as evidence, Exhibits 18 to 23 which are a number of letters sent to the claimant by representatives of the Government of Canada and Exhibit 24, a letter from Eric Hinke to the claimant's attorneys.
On April 2, 1998, the Board of Referees determined:
RULING:
1.The claimant's appeal on the matter of the allocation and
overpayment is dismissed, and the determination of the
overpayment confirmed, subject to the Commission ascertaining
that only 50% of the receipts in question are attributed to the
claimant, reflecting his half-interest in the farming operation.
2 The claimant's appeal on the matter of having made false or
misleading statements is allowed, and the penalty set aside.
(Exhibit 32-3)
The Board of Referees characterized the claimant's position in the following manner:
The claimant's position in appealing the rulings of the Commission is:
1. that as he had divested himself of all control of the farm, he
could not have been "self-employed in farming" at the time in
question, and accordingly the Commission had no legal basis on
which to allocate the farm receipts to him; and
2. regardless of the Board's ruling on the above, there was no
deliberate falsehood on his part in having omitted to report the
receipts, as he honestly believed that his lack of involvement in
the business of the farm left him with no obligation to report
the receipts.
(Exhibit 32-2)
The Board of Referees, rightly I believe, states the issues as:
ISSUE(S):
1. Did the Commission err in its determination to allocate income to the claimant in the manner set forth in Exhibits 1.1 and 1.2, and thus in its finding that there was an overpayment of benefits made to the claimant?
2. Did the Commission err in finding that the claimant had made 5 false or misleading statements within the meaning of Section 33(1) of the Act?!
(Exhibit 32-3)
I believe it important to state, fully, the Board's reasons for concluding as they did:
REASONS:
1. Allocation and Overpayment
The claimant impressed the Board as honest and sincere in his evidence, and it accepts all that he stated concerning divestment of his control in the farm to his son over the material times. In particular, we accept as fact that at the time his farming operation received the payments in question he had absolutely no knowledge or control whatsoever over the business aspects of the farm. We place no significance on the fact that he may have periodically contributed some labour to the operation as the demands of his Grain Commission job permitted.
The claimant explained that the equal partnership with his son actually began several years before he entered the contract with the Grain Commission. During these pre-Grain Commission times each partner drew roughly equally from the earnings of the operation, although drawings were based more on the financial needs of their respective families than on any requirement for equality in the arrangement. The claimant actively participated in the business of the operation during these times. After he took the job with the Grain Commission the claimant had another source of income. As well, these years were particularly difficult for the farming industry in Saskatchewan, and net revenues on the claimant's farming operation were down. As such, the claimant drew significantly less from the operation than his son did over these times. (See Exhibit 24). However, the basis on which he claimed his draws (i.e. being an equal partner) had not changed. He was still entitled to draw as he needed, subject to the availability of funds in the operation. He simply refrained from drawing excessively in recognition of his son's needs and the serious financial constraints on the farming operation. He apparently declared income for tax purpose at all times on an equal basis with his son.
The income in question is properly allocable to the claimant if at the time it was received the claimant was "self-employed in farming" within the meaning of Subsection 57(6)(b) of the Unemployment Act Regulations. "Employment" is defined in Subsection 57(1) of the Regulations as including " ...any self-employment whether on the claimant's own account or in partnership or co-adventure..." The existence of the partnership or co-adventure in this case is not disputed. The question is whether at the material time the claimant can be said to have been self-employed in it, given his detachment from the business.
This case is distinguishable from CUB 13429, cited by the Commission, which was based on the finding that the claimant continued to play a part in the management of the farm despite a disabling condition which kept him out of the physical aspects of the operation. Counsel for the claimant was unable to find any direct authority on the point either. We are thus left to determine the application of these regulations by reference to the meanings of the words and our understanding of the intent and purpose of the governing legislation.
The claimant's position is based on the idea that his interest in the farm over the material times is analogous to a pure investment rather than to "farm ownership" in the traditional sense. We should think of the situation as being the same as if he had sold the farm and invested the proceeds. According to the claimant, there is an inconsistency in the idea that one can be self employed when the employer (oneself) has absolutely no control over the operation.
There is logic to this approach. However, the fact remains that the claimant did not sell the farm, and that he reserved the opportunity to reassume his controlling position in it on conclusion of the Grain Commission contract. As such, he did not divest himself of his business interest in the farm, but merely entrusted the control aspects of it to another on a temporary basis in order to satisfy conflict of interest requirements of his term appointment, reserving the right to continue to receive the income from it. That he refrained from taking an equal share of the income does not change the legal basis of his interest. This situation is more analogous to the "blind trust" requirements on our elected representatives that it is to the 'investment" scenario advocated by the claimant. As such, the Board does not see that the claimant, by stepping out of control of the farm, had moved sufficiently away from the self-employed status he maintained before his Grain Commission appointment to allow us to conclude that he was not still self-employed in the operation, for the purposes of the Unemployment Insurance Act.
We therefore find that the farm receipts in question are properly allocable to the claimant. The Commission is directed to check the calculations to ensure that no more than the claimant's 50% share is applied in the calculation.
2. Penalty
The Commission is correct in its submission that the claimant need not be guilty of deliberate deception in order to attract the punitive sanctions in question. However, there must be an element of fault attributable to the claimant before it is appropriate to apply the penalty.
The evidence is clear that the claimant genuinely believed that he was not earning income from the farm because he had taken great care to remove himself from that business. Although we have found that the law attributes the income to him, it was nonetheless reasonable for him to believe otherwise.
As well, we find that the claimant's lack of involvement in the business left him in the position of being unable to know, at the time they occurred, that the transactions in question had even taken place. As such he cannot be faulted for not having reported them on his claim cards.
Accordingly the Board allows the claimant's appeal of the penalty.
(Exhibits 32-4, 5- and -6)
The Board of Referees' decision was appealed to an Umpire by the claimant (Exhibit 33 - 1) on the sole basis that the Board of Referees erred in law (Exhibit 33-2).
Exhibit 33-4 states the reasons given by the claimant for his appeal to the Umpire as follows:
Facts
1. The Board accepted as fact that the Claimant, at the relevant time, had "absolutely no knowledge or control whatsoever over the business aspects of the farm."
2. The existence of a partnership or co-adventure in this case is in fact disputed by the Claimant.
3. The only question asked by the Employment Insurance Commission on the application for benefits is: "Do you operate a farm?"
Argument
It is submitted that one cannot be self-employed if one has "absolutely no knowledge or control whatsoever over the business aspects of the farm" or other business that employs him. How can one tell oneself what work needs to be done in order that he may do it, and be thereby employed and performing some work? It is not possible.
In the cases referred to in earlier submissions, there was a finding that a person was "self-employed in farming" only when that person was responsible for, or managing the farm. No cases are indicated where the opposite was found, however the Board has decided that one who had no knowledge or control whatsoever over the business aspects of the farm was so employed. It is submitted that this is contrary to the case law.
The Board makes reference to Subsection 57(1) of the Unemployment Insurance Regulations, finding "employment" to include " ...any self-employment whether on the claimant's own account or in partnership or co-adventure…", and goes on to state that the "existence of the partnership or co-adventure in this case is not disputed. " We do in fact dispute this. What is not disputed is that the Claimant and his son were in partnership prior to his employment with the Grain Commission.
At that time he ceased to be an active partner, while leaving his capital in the partnership. The terms partnership and co-adventure, it is submitted, import an element of participation in the management of the venture, which is not present in this case.
It is further submitted that the employment commission's own interpretation of the regulations is self-evidently in agreement with the Claimant's. The only question on the application for benefits is: "Do you operate a farm?" Obviously one would conclude that if one does not operate a farm, as appears to be conceded here, one would be eligible for benefits.
We respectfully submit that the Board has erred in applying the law to the facts of this case. No case law has been brought forth where some management is not required before finding that a person was self-employed in farming. We request that the Umpire allow this appeal, and declare that the Claimant has not received any benefits to which he was not entitled.
DISCUSSION
The only issue before me in the present appeal is whether the Board of Referees erred in determining that the claimant's farm income be allocated pursuant to sections 57 and 58 of the Unemployment Insurance Regulations (see Exhibits 1-1- and -2).
Before the Board of Referees was also the issue of 5 false or misleading statements. As I have stated, the Board of Referees allowed the claimant's appeal on this issue.
This issue was not appealed by the Commission. I am satisfied from the facts of this case and the law on this issue that the Board of Referees erred in deciding this issue as it is evident that the claimant knew he was receiving income ($6, 000.00) from the farm operation and failed to so state on his reporting cards. As I have said, this issue is not now before me and the claimant made no submissions regarding this issue.
In Exhibit 6, an interview of the claimant by a representative of the Commission, the claimant is alleged to state that his farming operation was a partnership with his son on a 50-50 basis. He also states that "he still worked on the farm running machinery but he could not make decisions ...".
Clearly, the claimant thought that he was permitted to do the above work. For this, he received the $6, 000.00 in issue.
I am satisfied that one cannot conclude because one does not have control or make decisions in the operation of a business owned with a partner that the sum received is investment income when one operates machinery, plants seeds and helps in the harvest.
The claimant states, in the first paragraph under Argument, Exhibit 33-4, that "one cannot be self-employed if one has no knowledge or control ......
In the present case, the claimant admits to owning the farm, on a 50% basis with his son and it is the claimant's 50% partner who decides on how the farm is operated and the claimant benefited from this operation. As I have stated, Exhibits 8-4, 8-8, 8-9, 8-10, 8-11, 8-12 and others in Exhibit 8 show payments made to the claimant.
I am satisfied that one can be self-employed and not have control or knowledge of the business. In the facts of the present case, the claimant, being self-employed allowed his partner, his son, to control the operation of the business.
In conclusion, the income received by the claimant in 1995 from the farm operation is income pursuant to the Act and was properly calculated pursuant to Regulation 57 and 58 of the Unemployment Insurance Regulations.
The appeal is denied.
"Max M. Teitelbaum"
UMPIRE
OTTAWA, Ontario
September 17, 1998.