The Appeal CommissionThe Workers Compensation Act of Manitoba

Preamble

This appeal deals with registration requirements under The Workers Compensation Act (the “Act”).

On January 18, 2006, the Assessment Committee issued a decision requiring an employer to register under the Act. The employer appealed this decision to the Appeal Commission and a file review was held on August 10, 2006.

Issue

Whether or not the employer is required to register as a compulsory business under the Act.

Decision

That the employer is not required to register as a compulsory business under the Act solely on the basis they are associated with other registered corporations.

Decision: Unanimous

Background

Reasons

Background:

In June 2005, the WCB audited a WCB registered corporation and found out that its payroll was outsourced to the employer. The employer, which was incorporated in 1998, has never been registered as a compulsory business. Upon further investigation, the auditor determined that:

The auditor therefore felt that the employer should be registered with the WCB. This position was communicated to the employer on October 11, 2005.

This decision was appealed to the Assessment Committee that upheld it in a decision dated January 18, 2006 on the grounds that the earnings of the employer “are incidental to the associated firms and their industry sub-groups, which are being served in an exclusive sense”. It is this decision that the employer appealed to the Appeal Commission.

Employer’s Position

The employer takes the position that it is not required to be registered as a compulsory business under the Act as it is not associated to the corporations to which it provides services. Rather, it is a distinct separate legal entity.

In support of its appeal, the employer relies on several facts which are in dispute:

• The workers of the employer do not have the same supervisors. Of the initial 17 support staff employed by the two corporations, only 3 are employed by the employer. With the exception of these 3, the total staff complement including supervisory staff has changed;
• The employer leases space from the owner of the premises. It occupies a separate office space for which it pays rent;
• Job descriptions have changed in that all employees work for the employer and are accountable to a different supervisor (the employer);
• Company benefits and vacations entitlements have not remained the same. The employer has its own group plan; and
• All employees from the registered corporation who went to work for the employer were terminated and issued records of employment.

The employer also says that since its inception in January 1998, it was informed by WCB employer services division that it was involved in non-compulsory activities and did not need to be registered.

Analysis

To accept the employer’s appeal, we must find that the employer is not an associated corporation. We are able to make that finding.

In rendering its decision, the Assessment Committee appears to have focused on the incidental nature of payroll services to these (and in theory to any) corporations, as part of its decision framework. It is our view that this is the incorrect test; any service can be outsourced to a distinct and separate legal entity, without that second entity being assimilated into the outsourcing company. The tests that we are required to apply as set out in WCB policy, focus on the legal and administrative relationships between the parties, as opposed to the nature of the specific activity.

WCB Policy 35.20.10 Finance, Assessments & Administration – Assessments, Classification of Employers into Sub-Groups clarifies when an employer must be registered in cases similar to the one at hand.

As we read Policy 35.20.10., two different scenarios might apply:

i) A corporation has a separately administered non-compulsory department (for example, payroll). In this case, WCB registration is not required. This is not the case if the department is not separately administered. Separately administered means having a separate management, supervisory and administrative operational structure with no significant exchange of management personnel with other departments of the employer, or,

ii) A corporation is associated with another corporation. In this case, the associated corporations are classified as one employer for the purpose of assigning sub-groups. An associated employer is defined as follows:

“Two or more employers will be considered "associated" in any of the following circumstances:

a) one employer owns controlling interest (more than 50%) in the other employer; or

b) the employers are controlled by the same person or group of persons; or

c) the employers are controlled by individuals who are members of a family as defined under the Workers Compensation Act; or

d) the employers are controlled by groups of people that are members of the same family as defined under the Workers Compensation Act.”

In reviewing the evidence, we find that the employer is a separate legal entity that provides payroll and administrative services to a group of corporations (with the exception of one) that are, themselves, associated.

We therefore find that the employer is not simply a “department” of the audited corporation. Scenario one does not therefore apply.

We also find that the employer is not “associated” with the corporations to which it provides services, within the definition provided by Policy 35.20.10 as there is a lack of evidence that:

a) the principal of the employer is related to the individuals who control the corporations; and

b) the employer is controlled by the other corporations or the persons that control these corporations.

Therefore, as the employer is a separate legal entity and is not associated with the corporations it provides its services to, we find that there is no requirement for the employer to register with the WCB solely on this basis. This decision does not deal with any requirement that the employer register on its own as we have not determined if the employer is carrying on business in a compulsory industry.

Accordingly, the employer’s appeal is granted.

Panel Members

L. Martin, Presiding Officer
A. Finkel, Commissioner
M. Day, Commissioner

Recording Secretary, B. Kosc

L. Martin - Presiding Officer
(on behalf of the panel)

Signed at Winnipeg this 3rd day of October, 2006