Anna Chiesa had always assumed she'd be eligible for Employment Insurance.

For 10 years, she'd worked alongside her husband at Century Laser Inc., a family-run business that remanufactures laser printer cartridges in Dorval, Que. She'd faithfully remitted her EI premiums for all those years. Her husband's company paid the employer's share too.

"I thought I'd be eligible for EI if anything happened," she says. "We knew my husband wouldn't be eligible because he owns the business. But I thought I would be treated like a regular employee."

It turns out she wasn't like a regular employee.

She got her first inkling of that a couple of years ago when she heard a radio ad from a company that specializes in helping family-run firms recover their EI premiums.

That company – Winnipeg-based Grants International – is the biggest of several firms engaged in what's become a booming business in Canada. It did the paperwork for Chiesa and secured her a refund of the EI premiums she and the company had paid for that year and the three previous years – close to $9,000 she says.

She also won a ruling that exempted her from paying future EI premiums.

How is it that Chiesa was allowed to contribute so long for a benefit she wasn't eligible for? Grants International president Darren Earn says the system is flawed.

"The only way to fix the system is to allow family businesses to opt out and not have to pay EI premiums, fully aware their family would not be allowed to claim benefits," Earn says. "Mind you, this will never happen because the government would lose billions of dollars in premiums."

Earn estimates that as much as $1 billion in premium income is pouring into the EI system each year from people at family-run firms. The majority of those people, he says, aren't eligible to make EI claims and shouldn't be making EI contributions. And most of those people, he says, have no idea they're paying premiums for something they'll never be able to access.

Why no access? It all goes back to a 1990 amendment to what was then called the Unemployment Insurance Act. In a bid to prevent abuse of the EI system by people using phony employment arrangements, the government said employment is not insurable if "the employers and employee are not dealing with each other at arm's length."

Basically, Ottawa decreed that unless the nature of the family member's employment is "substantially similar" to the kind of work that would be done by another employee who was not related to the business owner, then the family member's work is not insurable.

So if family members, for example, set their own work hours and salaries, work on what would normally be a day off with no extra pay, or decide to go without pay when the business is struggling through a lean period – the type of things regular employees wouldn't or couldn't do – then they aren't working at arm's length and can't claim EI.

The Canadian Federation of Independent Business is well aware of the problem.

"A lot of small business owners have no idea they're paying EI premiums needlessly if they have family members working with them," says Corinne Pohlmann, CFIB's vice-president of national affairs. "We do a lot of work trying to inform our membership."

CFIB members can talk to counsellors who can guide them through the process of applying for a ruling that would exempt many family members from paying EI premiums and clearing the way for a refund of premiums paid in the current calendar year and the three previous years.

While the CFIB doesn't charge its members additional fees for this, the organization stops short of actually completing and filing the paperwork. But Pohlmann says their counsellors "will point out what you need to do and go over the factors the government will use to make a ruling in your situation."

People are certainly free to try the refund application process on their own, without having to join the CFIB or pay fees that can be up to 50 per cent of the recovered refund to companies like Grants International. On the surface, the request for a ruling on whether a worker is EI eligible is not difficult to fill out, nor is the application for a refund of EI premiums.

The problem, the critics say, is that it's often not abundantly clear what the government is looking for or where to find the necessary information to make an informed decision. "What you need to do is not intuitive," says the CFIB's Pohlmann. "It's confusing."

Adding to that confusion is that two government departments are involved. Human Resources and Skills Development takes the application for EI, while it's the Canada Revenue Agency that rules on whether the employment is insurable and decides if a premium refund is warranted.

"Whenever you have more than one department, it may cause confusion," says accountant Marvin Khoshkhassal of Vancouver-based MK & Associates.

He also points out that two different pieces of legislation are at play — the Income Tax Act and the Employment Insurance Act.

Grants International's Darren Earn calls the whole process unfair, vague, and subjective.

"I can give the same story to two bureaucrats on the same day and get back two different answers," he says.

Over the years, Earn says his company has gone to bat for many clients who tried on their own but failed to win their cases with the Canada Revenue Agency, or who found out that their EI claim was disallowed even though they'd been paying into the system for years. Since the 1990s, Earn says his firm has won $75 million in refunds on behalf of 15,000 clients – figures that he says speak to the scope of the problem.

The Canada Revenue Agency disputes charges that its decisions on EI eligibility are capricious. "The employment of an individual who is dealing at non-arm's length with his/her employer is not insurable employment," the CRA says in an email. "The determination [of] whether they deal at non-arm's length is fact dependent."

The agency points people to a variety of articles on its website that go into more detail on how to obtain rulings on EI insurability and what "arm's length" actually means.

So don't look for a change in the current system any time soon. In the meantime, the key is to be aware that for many family-run enterprises, paying EI premiums may have nothing to do with being eligible to claim EI benefits.