Digest of Benefit Entitlement Principles
Chapter 4 - Section 6
Chapter 4 — Week of unemployment
4.6.0 Independant workers working a full working week
Employment Insurance is insurance for those persons employed by someone under a contract of service. As a result self-employed persons generally are not covered under the Employment Insurance schemeFootnote 1. The legislation is designed to provide temporary benefits to those who are unemployed and actively seeking work. It cannot be used to subsidize persons who are self-employed or engaged in the operation of a business unless under an employment activityFootnote 2 or under the Employment Insurance Fishing RegulationsFootnote 3.
Self-employed persons may acquire hours of insurable employment from other employment and qualify for benefits or a claimant may commence self-employment activities while on claim.
In order for self-employed persons to be entitled to benefits, they must demonstrate that they are unemployed for each week claimed. A person is unemployed if he or she does not work a full working week. Generally, a self-employed person is regarded as working a full working week, and therefore is not unemployedFootnote 4. However, when the self-employment activity is so minor in extent that a person would not normally rely upon it as a principal means of livelihood, the claimant can be regarded as not working a full working weekFootnote 5. When this test is met and provided all entitlement conditions for the type of benefits claimed are met, he or she would be entitled to EI benefits as any other claimant. Any earnings from the self-employment activities are consideredFootnote 6.
Because of the uniqueness of farming, special considerations apply when determining the application of a disentitlement for working a full working week during the period that begins with the week in which October 1 falls and ends with the week in which the following March 31 fallsFootnote 7. However, farming is a business and must be examined using the same circumstances as would apply to the businessFootnote 8.
4.6.1 Clientele concerned
There is a regulatory provision that addresses specific types of workers who are considered to work a full working weekFootnote 9 and therefore are not considered unemployed. This includes:
- self-employed persons also known as independent workers;
- persons engaged in the operation of a business on their own account;
- persons engaged in the operation of a business in a partnership;
- persons engaged in the operation of a business as co-adventurers; and
- persons employed in any other employment in which they control their own working hours.
The consistent factor in these types of workers is that they can determine when they will perform the work and even whether they will work on a given day. In the case of "the persons employed in any other employment in which they control their own working hours,"they are unique in that they are in an employer-employee relationship, however, they too determine if and when they work.
All of these five types of workers are in a position to satisfy the primary condition of entitlement, namely the condition of being unemployedFootnote 10, when they can establish that the exception, "to overcome the presumption of a full working week,"Footnote 11 applies to their case.
4.6.2 Unemployment status and availability: two distinct requirements
To be entitled to benefits, the first basic condition is to be unemployedFootnote 12; the second essential condition is to prove capability and availability for workFootnote 13. The fact that a claimant is available for work is not decisive, for it does not allow one to conclude that the claimant is not working a full working week. Consequently, claimants who claim to be available while working a full working week meet only one of the two required conditions. Even when such claimants prove they are prepared to accept a job and are making efforts in that direction, they do not prove they are unemployed.
The point to be examined is the extent of the person's participation in the business, not his or her availability to accept other employment. When it is decided that the claimant is not unemployed for a given period, because he or she is regarded as having worked a full working week, that decision cannot be overturned on the pretext that the claimant had sought employment during that period. The mere fact of having worked a full working week disentitles the claimant to benefits.
4.6.3 Determination of engagement or investment
The claimant's "level of participation" is essential to determine whether he or she is engaged in the operation of a businessFootnote 14 or is only an investor in the business. Some persons own a business as an investment and do not participate in its operation. The level of participation will determine whether the claimant is engaged in the operation of the business or is only an investor in the business.
It is essential to make the difference between "engagement"Footnote 15 and "investment"Footnote 16. When the person simply demonstrates a natural concern for an investment, as an investor in the business, the person is not working in the business and therefore does not fall under the full working week provisionFootnote 17.
Where some activities are performed, assessment must be made as to whether the activities are those of a person operating a business or those of a person showing a natural concern for an investment. The key is the level of participation or involvement in the operation of the business. The time involved as well as the nature of the activities performed are essential elements to look at in order to determine whether that claimant is engaged in the operation of a business. Once it has been determined that the claimant is engaged in the operation of a business, the six circumstances included in the regulatory provisionFootnote 18 then determine the extent of that engagement.
22.214.171.124 Engagement in a business
Self-employment means being engaged in work or labour on one's own behalf, in a partnership or as a co-adventurerFootnote 19 rather than being employed by someone else under a contract of serviceFootnote 20; and involves some work or labour in the business by the claimant.
Self-employment involves working and striving to achieve those results desired for the business. The efforts of the self-employed person are part of what makes the business run. Investment involves contributing money and capital and as a result benefiting from the business operation through no work or effort on the investor's part in achieving those results.
Mere ownership of a business enterprise is not sufficient to warrant a finding that the claimant is self-employed. Something more than the status of shareholder or owner of a business is required to make a finding that the claimant is self-employed, since ownership is not mentioned as a disentitling factor in the legislative provisions. The issue is whether or not the claimant participates in the running of the business. For self-employment to exist, there must be involvement in activities necessary to the operation of the business, such as those designed to generate business income or involvement in the managing of people attempting to generate that income.
126.96.36.199 A natural concern for an investment
Investors usually hold an investment and derive income from the ownership of that investment or asset, not because of their labour or work. People who are not engaged in self-employment, but have only invested in a business, expect profits through the efforts of the people who are running the business, such as, a business operator, promoter or a third party who is acting on the owner's behalf. Generally, those not engaged in self-employment benefit from the results of the business operation through ownership and not through labour, work or effort on their part in achieving those results. Without a personal engagement or involvement in the operation of a business, the business is simply an investmentFootnote 21 and the full working week provision is not applicableFootnote 22.
A natural concern for an investment may include:
- Activities that demonstrate care for the proper administration of the investment, that is, concern with whether or not the persons running the business are protecting the assets, managing and reporting the results of the business accurately. It does not include supervision of the persons actually running the business or involvement in the administration of the business;
- Activities that examine the return on the moneys invested in a business, which is reviewing the financial statements to determine how much money is being made from the investment. It does not include directing the persons running the business in how to obtain a greater profit;
- Activities that involve some actual participation in the business itself. However, that participation should be very negligible or extraordinary. Participation in the business should be unusual, occasional and exceptional and of little consequence compared to the overall of the operation of the business. A natural concern for an investment does not include activities that are performed on a regular basis even if these activities are only for an hour each week because those activities cannot be considered to be unusual, occasional, and for an exceptional purpose. For example, one is not considered to be engaged in the operation of a business if the individual participates in the yearly stockholder meetings to determine the future projections of the company or the direction that the company may take. These are activities of someone showing a natural concern for an investment rather than someone engaging in the operation of a business.
A natural concern for an investment should not be confused with a person who is operating a business to a minor extentFootnote 23, for example, a person who limits their business activities to a few hours per week. The fact that the extent of the person's involvement is only a few hours per week cannot be used to establish that the business is an investment because he or she is performing the very work that the business requires. This person is engaged in the operation of the business and is not just showing a natural concern for an investment; however, that involvement may be minor in extent.
When a claimant is not engaged in the operation of a business but is just showing a natural concern for an investment, there is no disentitlement for not being unemployedFootnote 24. Any income arising from that business is not earnings for benefit purposesFootnote 25.
When the agent considers that the claimant is self-employed or engaged in the operation of a business, the next step is to determine if the claimant is working a full working week or if the claimant is engaged to a minor extentFootnote 26.
4.6.4 Exception to overcome the presumption of a full working week
There is a clear and specific exception to overcome the presumption of a full working week. The legislationFootnote 27 allows self-employed workers, persons engaged in the operation of a business and persons employed in any other employment in which they control their working hoursFootnote 28 to show that their work, during the period for which they are claiming benefits, is performed to such a minor extent that a person would not normally rely on that employment or engagement as a principal means of livelihood. If that is the case, claimants are able to overcome the presumption that they work a full working week.
To determine whether these claimants' employment-related activities are minor in extent, their employment is compared with others in similar employment who normally rely on that employment as their principal means of livelihood. The onus of proofFootnote 29 is on claimants to demonstrate that their own employment is of a lesser extent and that they devote less time and effort to it. When their employment-related activities are similar to those who follow the same occupation as a principal means of livelihood, they do not establish the requisite proof.
This exception must be explored every time a claimant's not unemployed status is examined. To this end, the circumstances listed in the regulatory provisionFootnote 30 must be an integral part of the fact-finding and the decision-making process. An evaluation of these circumstances can determine the extent to which the self-employment or the other employment impacts on the claimant's unemployed status.
This exception also applies to claimants who are self-employed in farming or engaged in the operation of a farming business, except for the period that begins with the week in which October 1 falls and ends with the week in which the following March 31 fallsFootnote 31.
188.8.131.52 Circumstances determining whether a claimant's involvement is minor in extent
The six circumstances to be considered in determining whether the claimant is employed or engaged in the operation of a business to such a minor extent that a person would not rely on that employment or engagement as a principal means of livelihood are the:
- time spent;
- nature and amount of the capital and resources invested;
- financial success or failure of the employment or business;
- continuity of the employment or business;
- nature of the employment or business;
- claimant's intention and willingness to seek and immediately accept alternate employment.
These six circumstances are stated in the text of the EI RegulationsFootnote 32. This regulatory provision specifies that the extent of claimants' participation in self-employment, in the operation of a business or in any other employment in which they control their working hours, should be judged in light of numerous circumstances rather than solely on time spent on that activityFootnote 33. Jurisprudence stressing consideration of all six circumstances should be used to support decisions under the present regulationFootnote 34.
All of these circumstances must be considered in order to obtain an overview of the situation, assess the claimant's credibility with regard to the hours alleged to be spent on the employment or business, define his or her role and responsibilities with regard to participation in that employment or engagement, and determine whether the relieving conditions set forth in the Regulation have been metFootnote 35. If the claimant's employment-related activities are minor in extent, the claimant is considered not to have worked a full working week and therefore is unemployed. If the claimant's employment-related activities are more than minor in extent, the claimant is disentitled from benefits because he or she is working a full working week.
Financial statements can provide information on the extent of the claimant's involvement in the business. In practical terms, if a quick check of the Income Statement reveals no salaries, this may mean the claimant is operating the business on his or her own, without assistance. If there are automobile, gasoline and travel expenses, this may indicate the claimant travels for the business. High rent, heat, and hydro expenses may indicate occupancy of a store or office, presupposing a considerable financial expenditure and the claimant's intention to work on his or her own account. Financial Statements can give information about the circumstances to be considered under the RegulationFootnote 36. The Balance Sheet can show the moneys invested: the equipment owned by the business and its value, owners' equity, and debt-load as well as continuity of the business: assets and liabilities. The Income Statement can show financial success or failure in that it sets out profit or loss in a specific period. These types of indicators can assist in fact-finding.
The question of unemployment must be considered on an individual basis, since each person's situation is different and must be examined in light of these differences. Each of the six circumstances must be taken into account. Examination of the six circumstances may reveal that some of them do not necessarily apply in all cases, since some are more relevant than others are in different situations. Nonetheless, the result of the examination of the six circumstances must be reflected in the documentation in order to support the Commission's decision.
184.108.40.206 Time spent
The time spent is an important consideration, but it is not the only one applied to determine whether or not the claimant's activity is minor in extent. All types of efforts made by claimants to set up or continue their business or their other employment in which they control their working hours must be examined. The time of the day or week that claimants devote to their business or their other employment is also an important element to consider. Of course, the more time a person spends on this activity, the greater the likelihood that the person will be considered to be engaged to more than a minor extent.
The fact that a claimant spends an amount of time on the activity which approximates the duration of a regular working week, particularly if the person is obliged to keep to a relatively strict schedule, contributes to demonstrating that the activity is probably not minor in extentFootnote 37. The less time spent and the more flexible the hours, weekends and evenings, for example, the greater possibility the activity is minor in extent. When the number of hours devoted to the activity is less than the number spent by someone following a similar activity as a principal means of livelihood, the conclusion that the claimant's engagement is more in the nature of a sideline may be supported.
Normal labour market conditions with respect to the self-employment activity or the other employment in which claimants control their working hours must be considered. Whether the claimant works at it during the day, in the evenings or at night is irrelevant if it is an activity which people normally carry out at any time as a principal means of livelihood. The claimant's time spent must be compared against those following that type of employment as a principal means of livelihood.
Slow periods or seasonal fluctuations do not automatically make the self-employment activity or the other employment in which claimants control their working hours minor in extent. A person's intentions during the period in question are often a good indicator of the claimant's unemployed status. The fact-finding should determine if the claimant is merely going through a slow period and if the activity is now a sideline or is still a principal means of livelihood. Numerous businesses are seasonal in nature, so that the activities required of them cease during part of the year or the tasks to be performed become substantially less. A claimant who pursues a seasonal activity may establish that he or she is working full working weeks during the on-season and is unemployed during the period in which the business ceases its activitiesFootnote 38.
220.127.116.11 Nature and amount of the capital and resources invested
The larger the financial commitment to an enterprise, the more likely it is that the business is intended to be or become the claimant's principal means of livelihood. Claimants who put practically everything they have into the endeavour reflect their intention at that time to make it a permanent, viable businessFootnote 39.
The capital and resources invested, materiel or equipment purchased, conversion of premises when the business is set up, signing of a personal lease for the premises where the business is locatedFootnote 40; debt-load and line of credit, or moneys or salary from the business reinvested to ensure its continuity are important indicators, since they reflect whether or not claimants intend to make the endeavour a principal means of livelihood. It must determined whether the moneys and securities involved are those which are normally invested to make such an endeavour profitable to the extent that it will become a person's principal means of livelihood, or alternatively whether they are normally expended for an occupation which is clearly secondary in nature.
The person's contribution will not always be in the form of a monetary contribution. When persons enter into a business, the contribution of each of the participants may or may not constitute a capital outlay. Such contributions can be very different: real or personal property, credit or money, skill, experience, contracts, reputation or work.
When the business experiences a major decline or finds itself in financial difficulties, claimants may indicate that they no longer intend to operate the business as a principal means of livelihood. The financial commitment and the efforts made to save the business can test the credibility of claimants' allegations regarding a change in intentions. For example, substantial amounts invested to revive the business may diminish the credibility of such allegations.
18.104.22.168 Financial success or failure of the employment or business
The consequences to the claimant of the financial success or failure of the business or the other employment in which he or she controls his or her working hours must be examined. The success of the business or the other employment is certainly a factor that strengthens the presumption that the claimant devoted the necessary time and effort to the endeavour. Conversely, failure to derive a return from the business or the other employment does not necessarily mean the claimant's activities are minor in extent. Nor can it be said that because profits are not satisfactory to the claimant, the business or the other employment is not the claimant's principal means of livelihood.
The gross income derived from the business or the other employment may constitute an important factor when it is accompanied by a significant number of hours worked and when it accurately reflects the size of the endeavour. It may serve to indicate whether or not the claimant's activities are minor in extent.
Some claimants may reinvest all or most of their returns in the business to strengthen it instead of drawing a salary and claim their involvement to be a simple investment because the business is not yet generating sufficient returns to pay their salaryFootnote 41. The lack of financial success of the claimants' endeavours does not prove that they are engaged in self-employment activities to a minor extent. Low profit levels are a fact of life for a new business.
Financial return is not a decisive factor, and has not the slightest importance when claimants are engaged full time in setting up or ensuring the continuit y of their business or their other employment. When claimants intend to make the business or the other employment their sole occupation or their principal means of livelihood, the amount of money derived from those activities is not an essential factor to consider in determining whether claimants are engaged in their employment to a minor extentFootnote 42.
Fluctuating sales levels are also not sufficient to establish the right to benefits. If the conditions of the business change leading to a sufficiently large drop in sales or to the prospect of the business being forced into bankruptcy, the claimant's intentions may change as well. Facing a bankruptcy may cause the claimant to either devote more time to the business or to devote much less time to running the business and more to actively looking for other employment. Such facts might lead the claimant to request a reconsideration of his or her situation. The agent will take into account the claimant's new intentions in conjunction with the circumstances mentioned in the RegulationFootnote 43, to decide whether the claimant is still working a full working week in operating the business.
22.214.171.124 Continuity of the employment or business
The continuity of the business or of other employment in which claimants control their own working hours, is relevant insofar as it demonstrates the intentions and the real nature of the claimants' participation in these employment-related activities. The fact that the business continues to operate, for the period claimants are claiming benefits, is a relevant consideration because it may indicate that the business is serious enough to require more than mere minor interest on the part of the claimant.
The business' level of activity is important to consider: has it increased, decreased, or remained constant?
- An increase could mean the business is no longer a sideline or secondary occupation but a principal means of livelihood. It could also mean the claimant is simply spending a few more hours in the self-employment activities but these hours still remain less than those spent by someone following it as a principal means of livelihood.
- A decrease could be because of a temporary decline in business, common at that particular time of year, or that the claimant has hired someone to do his or her work, or that the business activities have been permanently scaled back.
- Remaining constant could mean it has always been the claimant's principal means of livelihood, or may be a sign of minor in extent participation, for example, the claimant held a full-time job while running a business to which he or she devoted little time, and the time spent has not substantially changed following the termination of the full-time employmentFootnote 44.
Claimants may hold another job at the same time as they are self-employed or engaged in the operation of their business. That other job may constitute their principal means of livelihood. The issue is to decide whether their activity within the business, for the period they are claiming benefits, was carried out to such a minor extent that a person devoting the same time and effort would not normally rely on that activity as a principal means of livelihood.
Continuity of the business can be used to substantiate that claimants are self-employed to a minor extent when they have operated a business for many years while holding full-time job elsewhere, and when participation in the business is minimal and there has been no significant change in the participation in the business following separation from the full time jobFootnote 45. However, the continuity of the business may not be relevant when claimants use the period that they are unemployed from their full-time job to spend more time in self-employment activities.
There are many endeavours of a seasonal nature where there is an established pattern of shutdown and no activity for the business during the summer or winter period, according to the type of business. In such a situation, a person may be considered to work a full working week during the active season and to be unemployed during the period in which the business ceases its activities. However, should the person undertake activities necessary to the operation of that business during the seasonal closure, such as, marketing the services of the companyFootnote 46, a determination as to whether or not these activities are minor in extent must be made.
126.96.36.199 Nature of the employment or business
This circumstance is the determination as to whether the nature of the business or any other employment in which the claimant controls his or her working hours corresponds to the claimant's usual line of employment. When it does, the claimant probably intends to make this activity his or her principal means of livelihood and devote to it all his or her time and effortFootnote 47.
The occupation practiced may tend to confirm or to refute the claimant's allegations that the business is a sideline, as opposed to a principal means of livelihood.
The claimant's real intentions and time devoted must be considered. When the business or the other employment relates to or depends upon the claimant's skill or experience, then his or her participation becomes essential, and it is reasonable to assume that participation will be intensive. Consideration must be given to the fact that claimants in this situation are likely to become competitors of any employer who hires them, making it difficult for them to pursue their own trade anywhere but in their business. In this case, claimants may have made a principal means of livelihood out of the activity being set up rather than relying on the remote possibility of securing work with a competitor.
When the work performed falls outside the claimants' skill or experience, this may indicate that their participation is of only secondary importance unless of course, substantial time is devoted to the activity or the claimants intend to make this work their principal means of livelihood.
188.8.131.52 Claimant's intention and willingness to seek and immediately accept alternate employment
The claimants' availability serves to enhance or diminish the weight to be given to their statements as to whether or not they are primarily engaged in the operation of a business or in any other employment in which they control their working hours.
This circumstance makes it possible to verify claimants' willingness to accept another job and the genuineness of their job search effortsFootnote 48. The proof of availability required of such claimants is no different from that required of claimants in other circumstancesFootnote 49. They must be prepared to accept immediately any suitable employment they are capable of performing, they must not set conditions which unduly limit their employment opportunities, and, finally, they must behave in a manner which demonstrates their real desire to work. In the absence of a precise definition in the Act, availability is verified by analysis of these three elementsFootnote 50.
An intensive job search may be an indication that the claimants are operating a business or are employed in any other employment in which they control their working hours to such a minor extent that a person would not rely on it as a principal means of livelihood; whereas the absence of efforts to find other work or restrictions made on availability, tend to suggest the opposite.
Where the claimants' employment-related activities may appear to cause a restriction on availability, evidence that someone can take over if the claimants find employment elsewhere may support the claimants' statements that they can accept employment without any restrictions.
On the other hand, claimants may restrict their availability because of their business or their other employment in which they control their working hours or may impose certain requirements with respect to acceptance of a job. For example, they may impose undue conditions upon acceptance of a job because of work to be done in the business, by restricting their availability to a few days a week or by making no effort to find a job. When this happens, there is reason to believe that the activity is not minor in extent.
Claimants engaged in their business or in their other employment in which they control their working hours to a minor extent can receive benefits provided they look for work on their own behalf, rather than on behalf of the business. Seeking employment and seeking contracts to work on one's own account are different. Seeking contracts for the business is not a job search within the meaning of the Act. Also client follow-up, marketing for their business' products or services or searching for new clients for their business are not regarded as active job search activities under the Act. The same applies during the farming period defined by RegulationFootnote 51 or during a seasonal closure.
Claimants may take advantage of the fact that they are unemployed to devote more time to their business but that may affect their unemployed statusFootnote 52 as well as their availabilityFootnote 53.
4.6.5 Engaged in the operation of a farming business
Farm operators are non-salaried individuals whose occupational activity consists of working a farmFootnote 54. They may look after all operations, such as the production, distributing and marketing of farm products, with a view to realizing a profit from them. Activity may extend to maintenance of buildings, equipment and fences.
Persons engaged in operating a farm are subject to the same regulatory provisions as those who operate any other business, whether as self-employed individuals or as partners or co-adventurersFootnote 55.
In order for claimants to demonstrate that they are unemployed and not considered to be working a full working week, they must prove, for the period for which they are claiming benefits, that their employment-related activities in farming are performed to such a minor extent that a person would not normally rely on that employment as a principal means of livelihoodFootnote 56. The agent must therefore examine the six circumstances provided for by RegulationFootnote 57 to determine whether or not the claimants worked a full working week for the period in respect of which benefits are claimed.
Once it has been found that a person is engaged in farming as a principal means of livelihood, that person is regarded as working full working weeks and therefore not unemployedFootnote 58. However, that person may still prove entitlement to benefits during the period that begins with the week in which October 1st falls and ends with the week in which the following March 31 falls if that person proves that during that period, he or she did not work or he or she was employed to such a minor extent that it would not have prevented him or her from accepting full-time employmentFootnote 59.
A farm is an agricultural enterprise that combines capital and elementary production factors such as plant and animal products and buildings in a single economic and accounting unit in order to draw from them a farm product destined for sale with a view to realizing a profitFootnote 60.
Farming includes activities such asFootnote 61:
- Cultivation of the soil and, in general, all work aimed at utilizing and transforming the natural environment for the production of field-grown crops, cultivated and uncultivated, and animals useful to mankind;
- horticulture: cultivation of gardens; arboricultural, floriculture; field cultivation of vegetables and early fruits, and cultivation of kitchen vegetables: herbaceous plants used as human food; forced horticulture: in greenhouses;
- apiculture: the raising and caring for bees with a view to obtaining honey and wax; honey production; sale of breeding stock;
- poultry farming: the raising and breeding of birds and poultry, or egg production;
- maple production: the production of maple sap, maple syrup and maple sugar when carried out on a farm for the benefit of any person who is a farmer;
- aquaculture: raising of marine species with a view to marketing them;
- pisciculture: fish culture;
- wood from farm woodlots;
- the raising of fur-bearing animals or of animals that can be used as human food; or activities related to the breeding of animals for use as human food;
- dairy farming and the preparation of the milk, butter or cheese derived from this type of agricultural enterprise;
- tobacco production; and
- production of wool and of fibre and fodder plants.
It is not compulsory that the farmer have farming as his or her principal occupation in order to be eligible for a farm loan from the Farm Credit CorporationFootnote 62. Since 1992 that agency has been authorized to grant or guarantee loans to full-time or part-time farmers. Consequently, the fact that a claimant has obtained a farm loan does not in itself prove that he or she is operating an agricultural enterprise on a full-time basis. However, obtaining such a loan does become an indicator for exploring the role the claimant plays in the agricultural enterprise.
184.108.40.206 Period defined in regulation 30(4)– Farming
Persons engaged in farming are subject to the same regulatory provisions as persons engaged in the operation of any other business on their own account or in a partnership or co-adventureFootnote 63. Once it has been found that a person is engaged in farming as a principal means of livelihood, that person is regarded as working full working weeks and therefore not unemployedFootnote 64.
However, farming, because of the uniqueness of the business, has been given special considerations when determining the application of a disentitlement during the period that begins with the week in which October 1 falls and ends with the week in which the following March 31 fallsFootnote 65. This period is so defined in a regulatory provision and is not subject to any modification, regardless on the climatic conditions from one province to another.
Unlike other types of business, a person engaged in farming as a principal means of livelihood may prove entitlement to benefits during the period that begins with the week in which October 1 falls and ends with the week in which the following March 31 falls. In order to determine entitlement for this period, the person must prove that, at any time during the period beginning on October 1 and ending on the following March 31, the person will not work in farming, or will be employed to such a minor extent in farming that it would not have prevented the person from accepting full-time employmentFootnote 66. It is the entire period, taken as a whole that must be considered. The decision remains unchanged for the entire period, unless of course the claimant's situation changes for example, the farm is sold or expanded. However, it must be remembered, that this provision defined in Regulation 30(4) is considered only if the person does not meet the relieving provisions of "minor extent" under ss. 30(2) of the Regulations.
The nature of the operation, seasonal activities for that type of operation, and the size of the farm are determining factors in deciding on the extent of the work in farming during the period defined in Regulation 30(4). The claimant's occupational history is an important indicator for determining whether or not the claimant is able or has been able in the past to accept full-time employment elsewhere during that period provided for in Regulation 30(4).
If the facts on file show that the off-season related to the claimant's employment in farming does not coincide with that period provided for in the Regulation 30(4), that regulatory period cannot be modified or extended to meet the local farming conditions of individual farmerFootnote 67. In such a case, the claimant is subject to the same rules as any other person engaged in the operation of a business who claims employment insurance benefitsFootnote 68 outside the period set out in Regulation 30(4).
4.6.6 Period preliminary to the opening of the business
The period preliminary to the opening of the business is the beginning of the period where a person's unemployment status is at issue. When the claimant is actively involved in the preliminary stages of opening a business, that is, while the business is not yet completely set up, the agent will review this period from the perspective of unemployment status. The claimant is considered as already in business similar to someone engaged in a newly opened business.
However, the claimant may demonstrate that the work he or she performs during the preparatory period to the opening of the business is so minor in extent that a person would not normally rely on that activity as a principal means of livelihoodFootnote 69. If that is the case, the claimant is able to overcome the presumption that he or she works a full working week. The six circumstances also apply to the preparatory periodFootnote 70.
A disentitlement for being "not unemployed" cannot be imposed for a part week because it is based on the finding that the claimant is considered to be working a full working week. The decision of "not unemployed" is based on full weeks onlyFootnote 71. The decision is whether or not each of the weeks under review constitutes a week of unemployment. However, the claimant may be found to be not available for the part of the weekFootnote 72 he or she commenced the self-employment activities and receive benefits for the days he or she is not considered to be self-employed. This principle is also applicable for the part of the week in which the self-employment activities end.
4.6.7 Form of business organization
When claimants act as self-employed workers or are engaged in the operation of a business either on their own account, in a partnership or as a co-adventurer, their role, responsibilities and actual status within the business must be examined to determine whether they are truly unemployed. This is not always obvious, because the role, responsibilities and actual status and the level of liability differs according to the form of the business in which the claimant is engaged.
Self-employment may take different forms:
- self-employed worker,
- sole proprietorship,
- partnership: general partnership or limited partnership,
- corporation or limited company.
220.127.116.11 Self-employed worker
The self-employed worker or independent worker is engaged in an occupation on his or her own account. Occupation means any regular activity, or trade carried out to earn a living. Self-employed workers may not own a business as such. They offer their services to companies or individuals according to certain terms and conditions fixed in advance by contract. When these persons are party to a contract of service, they are regarded as an "employee"Footnote 73. When such persons are party to a contract for services, they are regarded as "self-employed workers"Footnote 74.
Self-employment exists even when the payment of the contract for services is deferred until completion of the contract. The timing of the payment has no relevance to whether or not the claimant is workingFootnote 75.
Self-employed workers may demonstrate that, during the period for which they are claiming benefits, their engagement is to such a minor extent that a person would not normally rely on that activity as a principal means of livelihoodFootnote 76 thus overcome the presumption of working a full working week.
18.104.22.168 Sole proprietorship
The unincorporated proprietorship is composed of a single owner who directs all of the enterprise's activities. Such persons assume all authorities and obligations, and are personally liable for the business's debts. The sole proprietorship may hire someone to run the business.
The sole proprietorship is extremely simple to create and meets the needs of small entrepreneurs who wish to operate a business without bothering with the legal worries involved in an incorporated businessFootnote 77.
Business people who operate as a sole proprietorship are increasingly forming business corporations for its distinct business advantages. Federal and provincial legislation governing business corporations may permit the creation of companies with a single shareholder and administrator.
When considering the unemployment status of a sole proprietorship it is important to establish the exact nature of the claimant's status in the business, this is whether the claimant is engaged in the operation of his or her business or whether the claimant has engaged someone to run the business.
22.214.171.124 Partnership: general or limited
A partnership is an organization that brings together two or more people for the purpose of carrying on a business in common with a view to profit. There are two principal forms of partnership: a general partnership and a limited partnership. Both are based on a contract between two or more persons who pool their property, money and or skills to operate an unincorporated business and to distribute profit from it to each partner. A partnership agreement may be written or verbal. A written contract sets out the responsibilities, the capital contributions and the time and energy that each partner will devote to the firm's business as well as the respective shares of profits and losses that each partner will takeFootnote 78.
Theoretically, each partner participates in the administration of the partnership, signs contracts, and makes commitments on its behalf. However, the control and responsibility held by each partner varies depending whether the partnership is general or limited.
In a general partnership, every partner may take part in the management of the partnership business. All partners are administrators, unless otherwise designated, and are jointly liable for the partnership's obligations, and personally liable for its debts. This form of business is preferred by persons engaged in a professional activity (accountants, lawyers, doctors, architects, engineers, etc.) and by certain commercial concerns.
A limited partnership (or société en commandite in Quebec) may be established by some claimants. This is a form of commercial enterprise that is composed of two kinds of partners: general partners and limited partners.
The important factor to remember is that general partners are those who set up, manage, administer and work in the business, while limited partners are those who contribute capital or property in the business but are prohibited from taking an active role in its administration.
When considering the unemployment status of a partner it is important to establish the exact nature of the claimant's status in the partnership, this is whether the claimant is a general or a limited partner. By definition, a limited partner cannot be involved in the administration of the business, however if the claimant is a general partner, the nature and extent of his or her participation in its business activities must be determined.
Claimants are engaged as a co-adventurer in a business when, regardless of the legal form of the business, they have an interest in it with others and they involve themselves personally in the activities deemed necessary for its operationFootnote 79. It makes no difference whether the business is registered or incorporatedFootnote 80.
As long as the claimants have in interest in the business and are engaged in its operation, the question of who actually owns the business is not a decisive factor for determining whether the claimants are acting as a co-adventurer.
The Federal Court deemed two claimants, contributing without pay, to various tasks to a corporation in which their wives were the sole shareholders to be co-adventurers, even though they had no legal relationship with itFootnote 81.
A claimant's interest in a business can take many forms from money given or invested to assist the owner of the business to the expectation of gaining from the profits or success of the business.
To determine if the claimant is a co-adventurer in the business, the agent must examine the real extent of the claimant's interest in the business, and the activity in which he or she is engagedFootnote 82. In the framework of this activity, the agent must ensure that the claimant controls his or her own hours of workFootnote 83 and is not bound by a contract of service or arrangements similar to a contract of serviceFootnote 84. The agent must have an overview of the business: the owners, the shareholders, and the claimant's relationship with the owners, details about the job performed and, finally, the claimant's employment history.
The agent must bring out the elements that demonstrate the claimant's interest in the affairs of the company, for that is the element, which distinguishes between "co-adventurer" status and "volunteering assistance to a business enterprise"Footnote 85 status. In some cases, claimants may assert that they are merely giving the company a hand, but analysis of the facts in the file may demonstrate that the opposite is true. Claimants alleging "volunteer work" must prove that the assistance is provided free of charge, in a disinterested manner, and without obligation.
When a claimant has been found to be acting as a person engaged in a co-adventure, the six circumstances provided for by RegulationFootnote 86 must be considered to determine if the claimant worked a full working weekFootnote 87.
126.96.36.199 Corporation or limited company
A business corporation is a type of enterprise usually referred to as a limited company or corporation. Ownership is divided into shares. Its legal name ends with Limited (Ltd.), Incorporated (Inc.) or Company (Co.). Throughout this chapter, rather than using the full term "corporation or limited company", "corporation" alone will be used.
A corporation is an artificial being, invisible, intangible and existing only in the eyes of the lawFootnote 88. This definition has led legal experts to affirm that a corporation is a legal entity separate and distinct from those who own it, the shareholders. This characteristic confers upon the corporation, which can be called an "artificial person," all the rights and responsibilities of a person. One of the significant differences between the sole proprietorship, the partnership and a corporation is that a corporation has a separate legal existence in law and it can own property, make contracts and be responsible for debts just like any individual. One of the advantages of the corporate structure form of business organization is that the shareholders are able to invest and receive a regular return, without taking any additional risk beyond the sum invested or having to take an active part in management of the corporation's business affairs, if they do not want do so.
Although shareholders are the true owners of the corporation in which they hold shares, a corporation is managed by a board of directors which sees to its proper operation, appoints the employees it deems necessary, and determines their functions and remuneration. The board is elected by the shareholders who, in that respect, have some control over who will manage the corporation. However, the board is responsible for managing the corporation.
Some corporations have a few shareholders, or, even only one. In these types of situations, there may be no real distinction between the owners and managers and between the shareholders and the board of directors. The shareholders would likely be the people who manage the corporation. However, it is possible that not all shareholders participate in the running of the corporation.
When considering the unemployment status of a shareholder it is important to determine the exact nature of the claimant's status in the corporationFootnote 89.
4.6.8 Piercing the corporate veil
The expression "piercing the corporate veil" means to ignore the separate existence of a corporationFootnote 90 and look behind the "corporate veil", which shields the individuals controlling the corporation; thereby enabling the Commission to consider the reality of the claimant's situationFootnote 91. It will be necessary to pierce the corporate veil in cases where claimants participate in the operation of the corporation other than as a paid employee.
Piercing the corporate veil enables the Commission to:
- determine the claimant's true relationship with the corporation;
- eliminate the technicalities of corporate law that give a company a separate legal personality from that of its shareholders; and
- consider any earnings from the self-employment activities of a claimant who is engaged in the operation of the corporationFootnote 92.
Some persons allege that the business' activities in which they are engaged are on behalf of the corporation not on their own account and that they are not self-employed. However, the legal status of the operation or business in which the self-employed personFootnote 93 works is irrelevantFootnote 94. It is the claimant's activities in the operation of the corporation that are relevant. This is true no matter what percentage of shares a person may own.
Just because the employment of a corporate shareholder was insurable does not mean the claimant cannot be considered self-employed when in fact he or she is engaged in the operation of the corporation. It is not the intention of the Act or Regulations to consider that a person working on is own behalf, or as co-adventurer avoid being considered as self-employedFootnote 95 by simply forming a corporation and be in insurable employmentFootnote 96.
When the fact-finding shows that the person essentially is engaged in operation of a corporation or is its directing mind, it is reasonable to conclude that the individual is engaged in the operation of that businessFootnote 97. It is not equitable to pay EI benefits to one claimant and not the other when the only difference between the two is the fact that one business is incorporated and the other is notFootnote 98.
188.8.131.52 Claimants who are corporate shareholders
Claimants may hold shares in a corporation where they work as employees; they may also participate in its operation. The agent must identify the claimant's role in the corporation. The fact of being a shareholder in a corporation does not mean that the person is participating in the running of the businessFootnote 99. When considering a matter relating to the "unemployed status" of claimants who are declared shareholders in a corporation, it is particularly important to establish the position they hold in the corporate structure and its related responsibilities, in order to determine whether or not they have a role in the operation of the business. The claimant could be acting as an investorFootnote 100, as an employee subject to a work scheduleFootnote 101, as a person engaged in operating that corporation as a business on his or her account or in a co-adventureFootnote 102, or a combination of these positions.
Some claimants may be both a paid employee of the corporation and perform functions for which salary or wages are not paid.
When Canada Revenue Agency rules that the claimant's employment is insurable, it can be concluded that, for the working hours ruled insurable, the claimant acted as an employee subject to the work schedule of the corporation and may receive EI benefits. However, the decision of Canada Revenue Agency related to the insurability of the claimant's employment does not bind the Commission when determining the entitlement to EI benefits related to the unemployed statusFootnote 103. The fact that the employment is insurable does not in itself mean that the claimant cannot be considered "not unemployed" if in addition to working as an employee, he or she is participating in the running of the business.
When the claimant continues to participate in the operation of the corporation, after making application for benefit, he or she will be considered to have worked a full working week unless the "minor in extent" exception is provenFootnote 104. The fact that the claimant worked in insurable employment is not relevant to the claimant's unemployed status in the period for which benefits are claimed; it is no longer a determining factor. As well, the fact that the self-employment under review is the same employment as the one used to qualify the claimant in insurable employment is an irrelevant considerationFootnote 105. It is the total number of hours a claimant spends in pursuing the business that must be considered and it includes both hours worked as an employee as well as those hours worked in the operation of the corporation. Consequently, when the claimant continues to participate in the operation of the corporation, the decision is made under the "not unemployed" provisions for self-employed workersFootnote 106, taking into account the number of hours worked as an employee as well as those hours worked in the operation of the corporation.
There are certain documents that can assist in determining whether the person is involved in the running of the enterprise. The corporation maintains its articles, regulations, charter, list of directors, and minutes of meetings, and is required to produce and archive an annual report that contains an immense amount of useful information about its activities.
When a shareholder-employee of a corporation can lay him or herself off, it raises the question of voluntary lay-offFootnote 107. That issue must be resolved giving full consideration to any circumstances that may prove "just cause".
4.6.9 Volunteering assistance to a business enterprise
Claimants may lend a hand in a business owned by someone they know. Lending a hand in a business means different things to different people. The agent must consider all the facts surrounding such assistance and establish the real situation between the parties to verify whether or not something is received in return for that assistance. This consideration is necessary to determine if the claimant is a truly volunteer or acting as an employee or as a co-adventurer in the businessFootnote 108.
Claimants are truly volunteers when:
- they receive no pay for their work;
- they neither derive nor hope to derive any benefit, profit, financial or economic advantage from the work;
- the assistance is provided in a disinterested way without obligation; and
- they are not bound by a contract of service or arrangements similar to a contract of serviceFootnote 109.
When a claimant receives or expects to receive something in return for his or her assistance, it can no longer be said that it is volunteer "work"Footnote 110. In fact, claimants do not truly volunteer when they offer their services for the purpose of receiving, in the short or medium term:
- a monetary or material benefitFootnote 111,
- a promise of a eventual positionFootnote 112;
- accommodation and mealsFootnote 113;
- company sharesFootnote 114; or
- a gain due to the success of their relative's companyFootnote 115.
It is up to claimants to prove that they receive no economic advantage from their assistanceFootnote 116.
When a claimant provides assistance to another, it is not considered an employmentFootnote 117 if it is determined that the claimant is not acting as a co-adventurerFootnote 118, there is no contract of service, the assistance is provided in disinterested way without obligation and the claimant will not receive any benefit from itFootnote 119. In such a situation, it cannot be said that the claimant is engaged in the operation of a business or he or she is working under a contract of service because of the assistance given, even if, in certain circumstances, the assistance is provided on a regular basisFootnote 120. Therefore, the claimant will have proven that he or she is unemployed. This applies regardless of any relationship between the individuals (i.e. friend, relative or spouse).
When it is determined that the person is truly a volunteer, and therefore is unemployed, the agent must rule immediately on the question of "availability". Volunteering assumes that the person provides assistance solely to fill up free time, while remaining available and looking for workFootnote 121. It is not the fact that the claimant is lending a hand that makes him or her not available, rather it is the absence of efforts to find work or restrictions made on their availability because of the assistance in the business.
4.6.10 Claim for special benefits
Persons who are self-employed, who operate a business on their own account or as partners or co-adventurers, or who have any other employment in which they control their own working hours are considered to have worked a full working weekFootnote 122 and therefore are not considered unemployed.
Despite this, such persons may qualify for sicknessFootnote 123, maternityFootnote 124, parentalFootnote 125, compassionate careFootnote 126 benefits and parents of critically ill children benefitsFootnote 127 when they meet the eligibility requirements applicable to these benefits and have accumulated sufficient insurable hours to establish a benefit periodFootnote 128. However, payment of such benefits is considered only in respect of a week of unemployment, in other words only for those weeks during which the claimant did not work a full working weekFootnote 129.
Claimants demonstrate that they are unemployed and not working a full working week, when they prove, during the period for which they are claiming benefits, that their employment-related activities in the business are performed to such a minor extent that a person would not normally rely on that employment as a principal means of livelihoodFootnote 130. The agent must examine the six circumstances provided for by RegulationFootnote 131 to determine whether or not the claimant works a full working week for the period in respect of which special benefits are being claimed.
When claimants do not meet the minor in extent exception, they are regarded as having worked a full working week. Consequently, no sickness, maternity, parental, compassionate care or parents of critically ill children benefit is payable in respect of such weeks.
When a claimant engaged in the operation of business also works as an employee and is insurableFootnote 132, it is particularly important to establish the position and the related responsibilities that the claimant holds in the corporate structure in order to determine whether or not the claimant has a role in the operation of the business. The fact that the employment is insurable does not in and of itself mean that the claimant cannot be considered "not unemployed" if in addition to working as an employee, he or she is participating in the running of the business.
When the claimant continues to participate in the operation of the corporation, for the period in respect of which special benefits are being claimed, he or she will be considered to have worked a full working week unless the "minor in extent" exception is provenFootnote 133.
The earnings are only allocated when the claimant's involvement or engagement in self-employment is minor in extentFootnote 134.
Consequently, when persons claiming and satisfying the conditions to receive maternity, parental, compassionate care and/or parents of critically ill children benefits meet the minor in extent exception, such benefits are payable to them for each week of unemployment included in the period of leave.
There is an additional provision that applies to persons claiming sickness benefits. These claimants must also prove that, had it not been for their incapacity, they would have been otherwise available for workFootnote 135. This second condition provided for by the Act is aimed at limiting the payment of sickness benefits solely to persons who would have been eligible for regular benefits had it not been for their incapacity for workFootnote 136. Sickness benefits are payable for each week of unemployment in that period when claimants meet the first entitlement condition, that they are unemployed, and the second condition, that they would have been otherwise available for work.
[ October 2013 ]
[ October 2006 ]
4.6.11 Issue of earnings
The entire income of a claimant arising out of any employment is earnings for benefit purposesFootnote 137. Self-employment is included in the meaning of employment. Income arising from a claimant's self-employmentFootnote 138 is considered earnings. For practical purposes, when a claimant is found to be not unemployed or self-employed, and disentitled from receiving benefits, the earnings are not allocated; the earnings are only allocated when the claimant's involvement or engagement in self-employment is minor in extent, even though income from all self-employment activities is earningsFootnote 139. Earnings from self-employment are separated into those derived from self-employment in farming and those derived from self-employment in employment other than farmingFootnote 140.
When the claimant does not participate in the running of a business, that is, there is no finding of self-employment, minor or otherwise, any income arising from the ownership of the business is not income arising out of employmentFootnote 141.
4.6.12 Employment activity known as self-employment
The Commission may establish employment benefits to enable insured participants to obtain employment, including benefits to help them start businesses or become self-employedFootnote 144. In this connection, when a person takes part in the employment activity called Self-Employment covered by the employment benefits, that person is regarded as unemployed, capable of and available for workFootnote 145.
Persons who are not accepted under this employment activity and who decide to commence a business without being referred by an authority delegated are required to prove that they meet all the entitlement conditions, for the type of benefits claimed, as is required for any other claimant. A decision by an authorized official about the referral of a claimant to this program is not subject to appealFootnote 146.
While efforts made by claimants to create employment by starting their own business are commendable, this activity places them outside the purview of the Employment Insurance scheme. The Act is designed to provide temporary benefits to those who are unemployed and actively seeking other work. It cannot be used to subsidize entrepreneurs who are starting their own businessesFootnote 147 unless under an employment activity.
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