CUB 65951

A. Gobeil, Umpire

The Commission is appealing from a decision of a Board of Referees rescinding the Commission's March 30, 2005 decision stating as follows: "[Translation] This is with respect to your net income from your business, Les Gestions Perronloge Inc. The allocation of total earnings before deductions has been adjusted as follows as a result of information you provided. Please note that the amount of earnings has been rounded upward ..." A list followed of all the weeks from the week of September 5, 2004 to the week of December 26, 2004, inclusive, with the actual earnings considered by the Commission for each of those weeks when the claimant had not declared earnings for those weeks.

The relevant facts in the case have been correctly determined by the Commission in the document filed in the docket in support of its appeal. I will repeat the facts here, reproducing the evidence material to a proper understanding of the case before us. After checking the documents in the docket, it appears to me that they correspond on all points to the facts brought to the attention of the members of the Board of Referees.

° The claimant had an initial benefit period established from April 11, 2004. That claim ended in February 2005 (Exhibit 2).

° She and her spouse incorporated the company "Les Gestions Perronloge" on September 10, 2004. She holds 80% of the company's shares and her spouse holds 20% (Exhibit 6).

° On January 25, 2005, she explained that it is a building maintenance company and her spouse handled the maintenance of housing units. From the date of incorporation in September 2004 to mid-January 2005, she worked very little for the company. From January 17, 2005, she worked approximately six and a half hours per week doing office work (Exhibit 8).

° She provided various documents to the Commission showing income and expenses in the months from September to December 2004 (Exhibit 10-1 to 17-2).

° On March 30, 2005, according to those documents, the Commission determined the monthly income from the business and allocated 80% of the business income for each week of benefits paid from September 5 to December 26, 2004. ...

° That allocation resulted in an overpayment of $6,127 (Exhibit 20-1 and 20-2).

° On April 8, 2005, through her representative, the claimant appealed to the Board of Referees from the decision to allocate her earnings (Exhibit 19).

° At the first hearing before the Board of Referees, on October 19, 2005, the claimant submitted the monthly income statements for the business for the months of September to December 2004 (Exhibit 24-1, 24-6, 24-13 and 24-15).*

° The claimant filed the pay records for her spouse and herself for the periods from December 26, 2004 to March 5, 2005 (Exhibit 29-1 to 29-5).

° After reviewing those documents, the Board of Referees returned the docket to the Commission for consideration of operating expenses and depreciation (Exhibit 27).

It appears that the Commission proceeded with a review, as ordered by the Board of Referees, resulting in a reduction of the overpayment from $6,127 to $4,438, and the docket was returned to the Board of Referees on December 22, 2005. However, in the document entitled "[Translation] Review by the Commission" (ordered by the Board of Referees), we read:

[Translation]

With respect to the operating costs for salary, we consider all the invoices, work sheets and other notes submitted to our attention evidence of the number of hours spent on various repair jobs, and not acceptable evidence that the salary was paid to Christian Perron from September to December 2004 by Gestions Perronloge Inc.

As a result of that decision from the Commission, the Board of Referees recommenced its proceedings on the appeal brought before it by the claimant. In its decision, under the heading "ANALYSIS," the Board states:

The Digest of Benefit Entitlement Principles, in chapter 5, page 19, clearly specifies that:

"Job-specific operating expenses are costs such as, additional wages or salary for employees hired for that work, travel expenses, and materials. Job-specific operating expenses are applied to the period in which the work is performed. In the weeks where work is performed, there may be a deduction for on-going operating expenses as well as the job-specific operating expenses related to that period."

The Commission's decision did not respect that rule when it allocated the salary costs to the period during which they were paid in January 2005 for work done from September to December 2004 (Exhibit 28).

Counsel for the Commission argues that the part of the Board's decision previously cited is the issue under appeal.

In this case, it has been admitted by both parties that the claimant must be considered a self-employed worker in a sector other than farming. It is necessary to look at how her income for allocation is determined.

Section 35(1)(b) defines the term "employment" as: "any self-employment, whether on the claimant's own account or in partnership or co-adventure." As the Commission contends in its written arguments to the Board of Referees, "[Translation] ... the income of claimants who are self-employed in a sector other than farming is only made up of the balance of the gross income from that employment after deduction of the operating expenses incurred, other than capital costs."

It is uncontested here that salaries are an operating expense. The Commission refuses, however, to deduct them from the gross income from the work done from September to December 2004 for the reasons referred to above, essentially that "... acceptable evidence has not been established that the salaries were paid to Christian Perron from September to December 2004 by Gestions Perronloge Inc."

Since the decision in Caron Bernier (A-136-96), it appears to me that three material factors have emerged when the income drawn from a business by a self-employed worker and its allocation have to be determined: 1) the legal status of the business is irrelevant; 2) the time spent on the business by the self-employed worker is irrelevant; 3) actually receiving income from the business is unnecessary, as the mere right to receive such income is sufficient.

The documentary evidence establishes the operating expenses for the months of September, October, November and December 2004 and includes expenses for salaries for each of those months. It was not necessary to prove that those salaries were paid to Christian Perron in particular. Given the decision referred to in the previous paragraph, it is not necessary to prove that the work done from September to December 2004 was paid for in that period. In the docket is documentary evidence of the work done in each of the months involved here, including a "salary" item.

To determine the claimant's income for allocation, during the months of September, October, November and December 2004, the operating expenses, including salaries, must be deducted from the gross income from the work done in those months and the net income, after that deduction, allocated to the weeks the work was done or the services rendered, in accordance with the terms of section 36(6) of the Employment Insurance Regulations.

In that context, the Commission proceeded correctly in deciding it was necessary to allocate the claimant's income to all the weeks from the week of September 5 to the week of December 26, 2004, inclusive. It was on the calculation of the income to be allocated that the Commission made a decision that does not comply with the provisions of the Act, by refusing to deduct the salaries that had to be paid for each of those months from the gross income from the work done during those months, in determining net income.

CONSEQUENTLY, the Commission's appeal is dismissed on the calculation of the income to be allocated, given that, to establish the income to be allocated to each of the weeks indicated in its March 30, 2005 decision, the Commission will have to deduct from gross income the cost of the salaries that appear for each of the months involved (September, October, November and December 2004) because those salaries are operating expenses.

Albert Gobeil

Umpire

Montreal, Quebec
May 24, 2006