If your kids do chores on the ranch without being paid, are they becoming entitled either to compensation - or a share in the ranch?
In the case of McDonald v. McDonald Estate (cite 2015 BCSC 951) the Supreme Court of British Columbia said "yes". But the British Columbia Court of Appeal (cite 2017 BCCA 255) said "no" and the Supreme Court of Canada refused to hear the appeal, signifying that it agreed with the outcome at the Court of Appeal level.
Samuel McDonald started the McDonald family farm at McDonald's Landing near Mission, BC, in 1865.
One hundred years later the farm was 100 acres in size. Samuel McDonald's grandson, also named Samuel, and his wife Sylvia, operated the farm as a dairy. Samuel and Sylvia worked hard and added land to the operation, and in 1983, incorporated McDonald Landing Farms Ltd., putting all the farm assets into the company except for a 15% interest in the original 100 acre parcel, which they kept in their personal names.
In return for putting the farm assets into the company, Samuel and Sylvia received common shares, and preference (fixed value) shares worth $907,000, and a shareholder loan due from the company to them of about $300,000.
Samuel and Sylvia had four children, Julie, Robert, Brian, and Dean. All of the children did farm activities from an early age, as is normal for farm children. As they grew older, they gained in skill and became more capable of performing farm tasks.
While in school, the children were not paid for doing farm tasks. When they left school, to the extent that they stayed on the farm, they were paid a wage and received housing and other benefits so that their compensation was comparable with that of a non-family farm hand.
As time went on, Robert and Brian were the children who continued to work on the farm. Julie and Dean worked occasionally at the farm but generally had off-farm work, Julie leaving in 1978 and Dean leaving in 1994. Both Julie and Dean returned to the farm occasionally for short periods and were mostly paid or otherwise compensated for their efforts.
In 1989, Brian suffered a catastrophic farm accident. His recovery was long and difficult, leaving him permanently disabled and in receipt of both federal and provincial disability payments. He helped with farm work to the extent he could but could not accept salary as it would have affected his pensions. Eventually, he was awarded a dairy quota, and started farming himself with the help of his wife and child, and also the help of his brother, Robert, and the farm company by way of use of equipment and some financial support.
As the owners of a Century Farm, Samuel and Sylvia were concerned about leaving the farm in the most capable hands. They decided that Robert was the steadiest and the child most interested in the farm.
In 2000, their accountant learned of the provisions of the (then) Wills Variation Act which allowed a spouse or child to apply to court to vary the terms of a will. Upon realizing the risk that the three non-farm children could challenge the terms of their wills, Samuel and Sylvia gifted their common shares and shareholder loan account to Robert, and revised their wills so that the preferred shares went first to the survivor of Samuel and Sylvia, and on the death of both, equally among the three other children. The 15% interest that they held personally in the main farm parcel, was in joint ownership with right of survivorship, between Samuel and Sylvia. Samuel and Sylvia did express the non-binding wish to Robert that he continue to provide a home for Brian at no cost to Brian, for Brian's life.
Samuel and Sylvia did not tell their children about this transaction and instructed their accountant and Robert to keep the transaction confidential.
Samuel died in 2005, and Sylvia became the sole owner of the 15% interest in the farm parcel, and the preferred shares. In 2006, she transferred her interest in the farm parcel to herself and Robert as joint tenants, so that Robert would become the owner of the 15% interest if he survived Sylvia, and the 15% interest would not pass by way of her will.
In 2009, Julie, Brian, and Dean became aware of the gift of common shares and shareholder loan to Robert. At that point, the fat was in the fire and the fight was on.
Each of the non-farm children separately sued Sylvia, Samuel's estate, and the farm company, claiming an ownership interest in the farm company or its assets arising from their uncompensated work on the farm as children and teenagers, and incidental work as adults. The children relied on statements that Samuel had allegedly made to them as children, "if you work hard, someday this will be yours", which the children took to mean that they would receive some part of the farm's value as an inheritance.
The basis of their respective claims was unjust enrichment - that their parents and the farm company had been unjustly enriched by their uncompensated farm work - and also that the transfer of shares from Sam to Robert was a fraudulent conveyance under the Fraudulent Conveyance Act.
The parties spent 20 days in trial, and the trial decision runs for 92 pages. Justice Harvey went into great detail about the contributions of the children over time.
From my reading of the description of their responsibilities, the children performed normal tasks that children on any commercial dairy farm would learn how to do and would do as part of their normal day. There was never a suggestion that these children were exploited in any way by the work they performed or that their ability to engage in recreational or social pursuits was affected. These children simply learned how to farm by working with their parents and became more competent at farm tasks with age and experience.
The judge then analysed each child's circumstances but ended up with the same answer for each child, which is that there were some seven years for each child, from junior high through high school, when their farm work was valuable and relieved the parents of the need to hire a farm hand.
To be successful, an unjust enrichment claimant has to prove three elements:
Justice Harvey found that all three elements existed. He then assessed the entitlement of each of Julie, Brian, and Dean as $350,000, less any value for any of the preference shares received by each of them. He left the fraudulent conveyance claim open for the parties to return to court.
A three-judge bench of the Court of Appeal heard the appeal over two days in May, 2017, and overturned both the finding that an unjust enrichment had occurred, and the calculation of the value of any unjust enrichment.
The parties accepted the trial judge's findings that the farm work performed by the plaintiffs during their teenage years conferred a benefit on the defendants, and that the work constituted a corresponding deprivation to the plaintiffs.
The issue on appeal was whether there was an absence of any juristic (lawful) reason for the enrichment. The defendants argued that as a matter of public policy, work done by a teenager for a family enterprise should not be accorded a remedy in unjust enrichment absent extraordinary circumstances.
The judge quoted from the defendants' factum:
Virtually all children, particularly as they get older, are expected to contribute to the family enterprise in one fashion or another, whether it is doing chores inside the house, painting a fence, mowing the lawn or helping in the family business. It seems likely that much of the work done by teenagers will provide some economic benefit to their parents.
In exchange, however, their parents provide them with the necessities of life such as food and shelter and provide them with the opportunity to learn life skills which they can take with them into adulthood. To afford teenagers the right to sue their parents for work done as teenagers simply because it is of benefit to the parents sets a dangerous precedent and ignores the substantial benefits which teenagers receive from their parents at that age.
The appeal judge said "In general, we see the performance of chores by children in a family as positive. Such work fosters a sense of responsibility and of family. Ideally, in doing chores, children gain valuable work experience in an environment that is not overly competitive or taxing. They can learn and experience the importance of doing tasks for others without expecting monetary compensation.
These public policy considerations mean that the performance of unpaid chores by children in a family setting will not usually raise issues of unjust enrichment."
The appeal judge cited the finding of the trial judge, that the work assigned to Julie, Brian, and Dean was not so extraordinary in the context of a farming household where the social norm is that all family members pitch in and perform chores for which strangers would have expected compensation. The unjust enrichment claim was dismissed, as was the fraudulent conveyance claim.
The appeal judge was aware of the potential of an appeal to the Supreme Court of Canada, so went on to review how the trial judge had assessed damages, in case the Supreme Court of Canada found that an unjust enrichment claim was warranted.
The trial judge had assessed damages based on the inheritance that Julie, Brian and Dean were to receive from their parents, approximately $300,000 each, which the judge then bumped up to $350,000 each, because Robert had received his inheritance earlier.
The appeal judge rejected that approach to calculating damages, and said, at best, that the work of the children replaced the cost of a farm worker at a (then) salary of $750 a month, for seven years, or $63,000. That amount was approximately 5.25% of the value of the farm assets in 1983, or 1.3% each of the value of the farm. With a value for farm assets at trial of $12 million minus debt of $1 million, the appeal judge came up with $145,000 per child, rather than $350,000 per child, as compensation for the foregone wages.
The appeal judge said that what the children were to receive as an inheritance had nothing to do with the value of their contributed labour.
The result in the case can provide ranchers with some reassurance that farm work done by children during their school years will generally not support an award of compensation to them, absent a situation where the economic benefits to the parents that are grossly disproportionate to the benefits that the children have as members of the family, or where work by the children is manifestly detrimental to their health and well-being.
There are also some lessons to be learned from this case about participation in litigation. Anyone can sue anyone else for anything at any time. That doesn't mean the claimant will be successful. It just means that anyone can be unexpectedly dragged into incredibly costly litigation, which would be ruinous to most farmers. Twenty days of trial plus appeal…I can't even speculate about the cost.
In this case, the work that resulted in an award at trial in 2015, was performed roughly 40 years earlier, although the plaintiffs alleged more recent uncompensated work. That's a very long look back. One of the main participants, Samuel, had died, and Sylvia was very ill at trial and could not give evidence, so the long delay meant that evidence from important witnesses had been lost. Good records, not just a good memory, can be vital.