The Appeal CommissionThe Workers Compensation Act of Manitoba

Preamble

An Appeal Panel review was held on October 21, 1999, at the request of the employer.

Issue

Whether or not the effective date of the reclassification should remain as January 1, 1998.

Decision

That the effective date of the reclassification should remain as January 1, 1998.

Background

On November 30, 1998, an auditor with the Workers Compensation Board wrote to the employer indicating that effective January 1, 1998, the firm was reclassified for assessment purposes from 607-02 "Lumber Yards" to industry code 601-05, "Department Store". This reclassification was done in conjunction with an audit of the firm which was carried out on August 14, 1998.

On January 15th and March 26, 1999, an advocate for the employer appealed the effective date of the firm's new rate classification as being January 1, 1998. The advocate stated that the employer made a request for a classification review in 1997, however this review did not take place until 1998 due to a staff member leaving his position as the Director of Assessments. Since the initial request for reclassification was made in 1997, the advocate was of the view that the reclassification date should be retroactive to January 1, 1997 as opposed to January 1, 1998. In support of her position, the advocate referred to Policy 35.30 on Audits and Investigations and quoted the following excerpt: "...where an investigation results in a reclassification that would develop a refund of assessment premiums to an employer, the reclassification is limited in retroactivity to the earlier of a) January 1 of the current year, or b) the year of the investigation, or the year in which the employer notified the WCB of a change to its operation and requested that the classification be reviewed, up to a maximum of five years."

In a decision dated June 30, 1999, the Assessment Committee confirmed that the effective date of the reclassification should remain as January 1, 1998. Assessment Committee's rationale for this decision was as follows:

"The results of the industry investigation in 1998 indicated the firm was correctly classified. The Audits & Investigations Policy 35.30 allows retroactivity to, 'the year of the investigation, or the year in which the employer notified the WCB of a change to its operation'... .

The year of the investigation was used as the employer did not experience a change in operations. The employer's re-classification was as a result of an internal review of our classification system. Had this maintenance not been undertaken, the employer's classification would have stayed the same."

In August 1999, the advocate appealed the Assessment Committee's decision and a non-oral file review was arranged for October 21, 1999.

Reasons

Chairperson MacNeil and Commission Frisken:

The employer approached the WCB in October of 1997 requesting a review of the firm’s classification believing that it might possibly qualify for a second classification for the sale of hardware products and garden supplies. According to an internal assessment department memo, dated October 9^th, 1997, a supervisor was asked, “Can we send out an auditor to determine if firm should get multi class?” Several months later an auditor was sent out and an audit was eventually completed on August 14^th, 1998.

In a letter, dated November 12^th, 1998, a WCB auditor advised the employer as follows: “At the present time, your firm is correctly classified under industry code 607-02, ‘Lumber Yards’. This includes all hardware products. Industry code 607-02, ‘Lumber Yards’ will be reviewed by our Classification and Analysis Unit. We will advise you if the Classification and Analysis Unit determines that your firm qualifies for a second classification for your hardware products. Any re-classification to your firm will be effective January 1, 1998.” (Emphasis ours) It is important to note that as part of the audit undertaken for fiscal years 1996 and 1997 the employer’s classification was also investigated.

An advocate, acting on behalf of the employer, wrote a letter to the Director of the WCB’s Assessment Branch, dated November 16^th, 1998, in response to the recent audit. The advocate advanced the following case:

“The [employer] stores are home improvement centers involved in the sale of home hardware items, building materials, electrical and heating products, plumbing supplies, paint and home décor products, flooring, and seasonal items such as lawn and gardening supplies and equipment. The Lumber component of the home improvement centers does not in any way dominate the activities of the business. In fact, approximately 80% of the [location] store activities are devoted to the sales and handling of products other than lumber.

While we acknowledge your decision to review the entire category, we respectfully request that you deal with the issue of [the employer’s] specific request for a classification expediently as they initially made the request for the review several months ago. There is no doubt in our mind that [the employer’s] (sic) is currently inappropriately classified and as such, we request that you deal with this in a fair and prompt manner.”

There is on file an internal memorandum prepared by a WCB assessment analyst, dated November 20^th, 1998, which states in part as follows: “Because of internal concerns regarding activity crossover, we have recently reviewed the entire industry code 607-02, ‘Builders Supplies/Lumber Yards.’ Based on our review, we have eliminated this industry code. However, this change does not take effect until January 1, 1999.” The employer was advised on November 30^th, 1998, that effective January 1^st, 1998, the firm had been reclassified for assessment purposes from industry code 607-02, “Lumber Yards” to 601-05, “Department Store.”

In response to this letter, the advocate then wrote to the WCB’s Director of Employer Services on January 15, 1999, and said:

“I have been advised by the employer that a request to review the firm’s classification was initially made to [name of individual], when he was Director of Assessments. They were advised that [name of individual] was leaving his position and the request would be forwarded to another party. They never heard from anyone and eventually made the request again. It is my recollection that Mr. [name of individual] left the WCB in the spring of 1997. Given that it is the WCB’s policy to adjust rates retroactive to January 1 of the year that the reclassification is requested, we request that the effective date of this classification be January 1, 1997 rather than January 1, 1998.”

Section 79 of the Workers Compensation Act (the Act) provides the WCB with the discretion to assign an employer in an industry to a different class. In conjunction with this section, the Board of Directors has enacted policy section 35.20.10 which deals with the classification of employers into sub-groups. The preamble to this policy reads:

“When the WCB sets an employer’s assessment rate, it first assigns each employer to the appropriate class, sub-class, group or sub-group based on the industry of the employer. Where an employer’s business includes a number of different departments engaged in a variety of industrial activities, the WCB may classify the entire operation based on the principal activity, or may classify each department separately.” (Emphasis ours)

The general section of this policy provides that “any reclassification initiated by the WCB will be effective January 1 of the year in which it was initiated” and that “ appeals will be considered as they apply to current year classifications only with no retroactive adjustments.”

The Director of Assessment Services responded to the advocate’s request in a letter, dated February 15^th, 1999, by saying that the decision to make January 1, 1998, the effective date for the firm’s reclassification was fair and reasonable. The advocate then appealed this finding to the WCB’s Assessment Committee. In her March 26^th, 1999, letter of appeal, the advocate relied upon the following part of WCB policy 35.30 in support of her argument that the firm’s reclassification should be retroactive to January 1, 1997: “Where an investigation results in a reclassification that would develop a refund of assessment premiums to an employer, the reclassification is limited in retroactivity to the earlier of a) January of the current year, or b) the year of the investigation, or the year in which the employer notified the WCB of a change to its operation and requested that the classification be reviewed, up to a maximum of five years.”

It should be pointed out, however, that this same policy also states:

“The WCB may conduct investigations of some or all employers in a similar industry or rate group with the objective of determining the appropriateness of the rate classification(s) assigned to each employer. Where an investigation results in an employer being re-classified for assessment purposes, such re-classification will normally be effective on January 1 in the year in which the investigation occurs, however, the WCB may re-classify an employer effective on the date which, in the opinion of the WCB, best represents the date to which the revised classification applies.” (Emphasis ours)

The Assessment Committee determined that the employer’s classification was changed pursuant to ongoing classification system maintenance and not because the employer requested an industry investigation of its firm in 1997. The reason that the employer’s rate change was made effective January 1^st, 1998, and not January 1^st, 1999, was because of the large adjustments which had been charged to the employer as a result of the audit.

While the audit process was being carried out, the WCB was conducting an industry wide review of the employer’s particular classification. As pointed out by the Assessment Committee, “The result of this review determined that there was ‘industry crossover’ in the classification and all employers in the group would have their classifications changed. The effective date for the rate change was January 1^st, 1999.” However, it was decided that the employer’s reclassification date would remain effective as of January 1, 1998.

We find as a fact that the employer did request the WCB in 1997 to reclassify its industry rate code. We find as a further fact that the WCB did investigate the firm’s classification during its audit conducted in 1998 and that the auditor found the firm to be correctly classified for the year 1997. We do not consider the portion of WCB policy 35.30 being relied upon by the employer’s advocate is applicable in the present case, because the investigation carried out by the auditor did not result in a reclassification of the employer’s rate code.

Section 79 of the Act and WCB policies 35.20.10 and 35.20 furnish the WCB with the discretion of when to conduct a reclassification investigation and the date on which a revised classification should become effective. Accordingly, we find no reason to alter the effective date of the employer’s reclassification. Therefore, the date remains as January 1, 1998 and the employer’s appeal is hereby dismissed.

Panel Members

R. W. MacNeil, Presiding Officer  R. Frisken, Commissioner

Recording Secretary, B. Miller
R. W. MacNeil,

R. W. MacNeil - Presiding Officer
(on behalf of the panel)

Signed at Winnipeg this 15th day of November, 1999

Commissioner's Dissent

Commissioner Finkel’s dissent:

The issue under appeal is whether the effective date for the reclassification of the employer’s industry classification code was correctly determined to be January 1, 1998, or, as argued by the employer’s representative, whether it should be replaced with a January 1, 1997 effective date.

The evidence on the file indicate that the employer first sought an audit of their industry classification in October 1997, seeking a multi-class status based on their current business operation. The employer advised that a significant portion of their business had changed from a heavy industrial classification to a retail operation (hardware and garden supplies) some years before.

The WCB audit was delayed into 1998 by agreement of the employer and the assessment representative. A WCB staff memo dated November 29, 1997 states that “I advised [employer] that I have not started the audit and it is unlikely that I will before Christmas. I advised him that if the firm is entitled to a reclassification, we will consider the audit request date, regardless of when the audit is done.”

An audit occurred in 1998, and following a meeting at the employer’s place of business on October 29, 1998, a decision letter of November 12, 1998 was set out, which stated, in part:

“At the present time, your firm is correctly classified under industry code 607-02, “Lumber Yards.” This includes all hardware products. Industry code 607-02 “Lumber Yards” will be reviewed by our Classification and Analysis Unit. We will advise you if the Classification and Analysis Unit determines that your firm qualifies for a second classification for your hardware products. Any re-classification to your firm will be effective January 1, 1998.”

Coincidental to this decision letter, a representative for the employer sent a letter to the WCB dated November 16, 1998 regarding the meeting held on October 19, 1998, stating “Further to the meeting, I would like to advise you that it is our position that [employer] is inappropriately classified under the “Lumber Yard” subgroup and accordingly we request a reclassification to a retail category.” Later in that letter, the representative states,

“While we acknowledge your decision to review the entire category, we respectfully request that you deal with the issue of [employer’s] specific request for a reclassification as they initially made this request for this review several months ago. There is no doubt in our mind that [employer] is currently inappropriately classified and as such, we request that you deal with this matter in a fair and prompt manner."

Shortly thereafter, the industry – and the employer – were reclassified as a “department store,” in a decision letter of November 30, 1998. Subsequent to that date, the employer was advised that the industry reclassification was a separate matter from the employer’s specific assessment, and was not part of the original audit request made by the employer. On that basis, the WCB applied a retroactive recalculation to January 1, 1998, rather than 1997.

In reviewing the file in its entirety, I find that the evidence supports on a balance of probabilities the conclusion that the eventual change in the employer’s industry classification was directly related to the employer’s original audit request in 1997, and that the employer is thus entitled to an effective date of January 1, 1997 for the reclassification of the employer’s industry classification code. In support of these findings, I note the following evidence:

• The WCB’s decision letter of November 12, 1998 states that the employer was correctly classified, but then fails to set out any appeal procedures for the employer to follow in respect of that decision. Instead of outlining an appeal procedure, the letter indicates that an industry-wide audit was being undertaken...and that should the industry be given a favourable reclassification, the WCB would institute a retroactive date for refund of assessments, of January 1, 1998.
• I find that the failure to provide appeal procedures in the letter of November 12, 1998, suggests that the decision contained in that letter was treated by the WCB as an “interim decision” related to the investigation triggered by the employer in 1997. In that letter, it appears that the WCB was fully aware of the limitations of or the defensibility of that decision, given that they acknowledged in writing that they were continuing with an industry-wide audit, and outlined in that same letter the potential scenario of a reclassification and a retroactive date for a refund.
• The industry audit, as communicated in a decision letter of November 30, 1998, did in fact result in a change of the employer’s industry classification to a retail operation. I find that this decision, for all intents and purposes, replaced an interim decision of the Committee with a final decision. This decision thus “completed” the investigation that the WCB undertook on the request of the employer.

In reviewing the provisions of WCB Policy 35.30, I find that the WCB’s investigation was instigated by a request made by the employer in October 1997, and that the investigation did indeed result in an industry reclassification which entitled the employer to a refund of assessments. Policy 35.30 addresses limits the retroactivity of such payments, and in this case would result in payments retroactive to January 1^st of the year in which an investigation was sought by the employer. In this case, the employer’s request for an audit in October 1997 would result in a reassessment date of January 1, 1997, and the minority would thus grant the employer’s appeal and set the reassessment date for the employer’s new industry classification at January 1, 1997.

A. Finkel, Appeal Commissioner