Decision #40/01 - Type: Workers Compensation
Preamble
An Appeal Panel hearing was held between September 11-15, 2000, at the request of legal counsel, acting on behalf of the applicant (appellant). The Panel discussed this appeal on several occasions, the last one being January 25, 2001.
Issue
Whether or not the claimant’s right of action is removed pursuant to Section 68(4) of the Act.
Decision
That the claimant’s right of action is not removed pursuant to Section 68(4) of the Act.
Background
In December 1995, an application for compensation benefits was filed by the claimant’s family for a work related incident that occurred on December 19, 1995. The claim for compensation was accepted by the Workers Compensation Board (WCB) and various benefits commenced.
On September 11th, 12 and 14, 2000, an Appeal Panel hearing was held to determine whether or not the claimant’s right of action was removed pursuant to Section 68(4) of the Workers Compensation Act (the Act).
Following completion of the hearing portion of this matter, the Appeal Panel met on several occasions to discuss the case. On October 23, 2000, the Panel requested additional information be obtained from the WCB’s Employer Services branch prior to rendering a decision. On January 4, 2001, all parties were provided with copies of the information received from Employer Services and were asked to submit any comments to the Panel.
On January 25, 2001, the Panel met again to discuss the case. The Panel reviewed all file information together with submissions submitted from legal counsel acting on behalf of both the applicant and the WCB/claimant dated January 17, 2001, January 18, 2001, and January 25, 2001.
Reasons
Chairperson MacNeil and Commissioner Leake:
Workers compensation was first introduced into Manitoba in 1916 as a disability scheme, which was designed to compensate workers who were injured as a result of workplace accidents. The Workers Compensation Act (the Act) establishes a social contract of insurance whereby workers have relinquished their right to sue in exchange for reasonable compensation regardless of fault and on the other side of the equation, whereby employers have received immunity from suit in exchange for their funding the costs of the scheme. The contractual entitlement to compensation in lieu of other rights is set out in section 13(1) of the Act:
“The right to compensation provided by this Part is in lieu of all rights and rights of action, statutory or otherwise, to which a worker, or his legal representative, or his dependents, are or may be entitled against the employer, for or by reason of personal injury to, or the death of, the worker occasioned by any accident which happens to him arising out of, and in the course of, his employment; and no action in any court of law against the employer in respect thereof thereafter lies.”
The contractual entitlement to immunity from suit is set out in section 9(7) of the Act:
“In any case within subsection (1), the worker, his or her legal personal representative and dependents, and the employer of the worker have no right of action in respect of the accident against an employer in an industry, or against a worker of such an employer, where the accident happens within the conduct of the operations usual in, or incidental to, the industry carried on by the employer.”
According to section 9(1) of the Act a worker, who is injured in the course of his employment and who is entitled to compensation as a consequence thereof, has the right to claim compensation or to bring an action against some person other than his employer should the circumstances so warrant. However, as previously pointed out, section 9(7) restricts or limits this right as follows: a worker has “no right of action in respect of the accident against an employer in an industry, or against a worker of such an employer, where the accident happens within the conduct of the operations usual in, or incidental to, the industry carried on by the employer.”
It should be noted, as well, that once an injured worker makes an application for compensation and the claim is approved by the Workers Compensation Board (the WCB), then according to section 9(5) of the Act, immediately on approval of the claim by the WCB any right of action for or in respect of a personal injury to that injured worker becomes vested in the WCB. In the present case, the WCB pursuant to this section commenced an action in its name and that of the injured worker (plaintiffs) against the defendant for or in respect of the personal injuries suffered by the worker.
As the background notes indicate, this case involves an application by the defendant (applicant), named in Court of Queen’s Bench Suit No. CI 97-[numbers], requesting that the Appeal Commission determine, pursuant to section 68(4) of the Act, whether or not the plaintiffs’ right of action against him has been removed by the provisions of the Act. Section 68(4) states as follows:
“Where an action in respect of an injury is brought against an employer or a worker of an employer by a worker or the legal personal representative or a dependant of the worker, the board has jurisdiction, on the application of a party to the action, to adjudicate and determine whether the right of action is removed by this Act; and the adjudication and determination is final and conclusive, and if the board determines that the right of action is removed by this Act, the action shall be forever stayed.”
The exclusive jurisdiction to make such a determination has been specifically conferred on the Appeal Commission by virtue of section 60.8(1)(b) of the Act. It is also significant to note that the Appeal Commission’s decision and ruling with respect to such matters in question is final and conclusive. In addition, once it has been determined that the right of action has been removed by the Act, then the action or suit shall be forever stopped from going forward.
The facts giving rise to this application are, by and large, not in dispute. According to the statement of claim filed by the plaintiffs, a workplace accident took place in December of 1995, at which time the plaintiff (worker) sustained significant personal injuries as a result of his being exposed to and inhaling a toxic chemical compound known as methyl bromide, which he was using as a fumigant. Following this tragic accident, the injured worker made application to the WCB claiming compensation for his injuries. Ultimately, the claim was approved by the WCB and benefits were paid to the worker.
The defendant against whom the court action has been brought just so happens to be the sole director, shareholder and president of the corporate employer (Accident Corporation) for whom the injured worker labored. The initial question before the Appeal Panel now becomes one of having to determine whether or not this particular defendant is either an employer or a worker within the meaning of the Act. As defined in section 1, an employer includes, amongst other things, “a person who has in service under a contract for hiring or apprenticeship, written or oral, expressed or implied, a person engaged in work in or about an industry.” A worker includes amongst other things: “a person, whether or not under the age of 18 years, who enters into or works under a contract of service or apprenticeship, written or oral, expressed or implied, whether by way of manual labour or otherwise; an employer who is admitted by the board as being within the scope of Part I under subsection 74(3); and a director of a corporation who is admitted by the board as being within the scope of Part I under subsection 74(3)”. It is important to note that the definition of ‘worker’ is restricted by the wording in section 1(3), which amongst other things specifically excludes “a director of a corporation, unless an application to have the executive officer brought within the scope of Part I is received and approved by the board.”
The evidence confirms that for several years prior to and subsequent to the worker’s 1995 compensable accident, the defendant did apply for and did receive approval from the WCB for what the parties to this application have referred to as “special coverage” or “director’s coverage”. This coverage is made available to directors under section 74(3) of the Act, which provides as follows:
“Any employer or director of a corporation in an industry within the scope of this Part may be admitted by the board as being entitled for himself or herself, and his or her dependents, to the same compensation as if the employer or director were a worker within the scope of this Part.”
There is no dispute that in 1995 the defendant did not make application to the WCB for director’s coverage, because in November of 1994 he specifically requested the WCB to delete this coverage.
Counsel for the defendant (applicant) advanced three principal arguments as to why the plaintiffs’ right of action should be removed by the Act. Firstly, he proposed that the Appeal Panel should exercise its discretion and find the defendant was in fact a worker, on the basis that the special coverage, which he had historically maintained, had been deleted in the year of the compensable accident (1995) because of “incomplete and inaccurate information negligently provided” to him by the WCB. The ramifications of deleting the special coverage as it pertained to immunity or protection from suit did not come to the defendant’s attention until June 1998. Counsel contended that there was a definite onus or duty on the part of the WCB “to distribute accurate, full and relevant information”, which disclosed that failure to maintain special coverage would result in the loss of immunity from suit. He suggested that the circumstances surrounding the deletion of the defendant’s special coverage must be considered as part of the “real merits and justice” of this case.
With all due respect, we are incapable of making such a finding. The Appeal Commission is not a Superior Court, which commands inherent jurisdiction to dispense equitable relief. Clearly, the authority to deal with the issue of the alleged negligence rests with the Civil Courts. In this regard, after reviewing the pleadings filed with the Court of Queen’s Bench, we note that the question of negligence on the part of the WCB is the subject of a counterclaim being advanced by the defendant.
The applicant’s second argument involved the contention that the defendant “should be considered a worker within the meaning of Part I of the Act and in particular sections 1 and 9.” In support of this position, Counsel made reference to several legal cases as well as administrative tribunal decisions, which dealt in part with a fundamental premise of statutory interpretation. The fundamental premise being that “The rules of statutory interpretation generally require the words of the statute to be given their plain and literal meaning unless there is an ambiguity or the construction is capable of sustaining different interpretations.” Counsel contended that an ambiguity existed in the Act, which resulted in an interpretation that was inconsistent with the legislative intent.
In other words, it would be totally inconsistent, given the overall philosophical purpose of the Act, that the Legislature would have intended a situation where directors could face the possibility of a lawsuit simply by their not applying for personal coverage under section 74(3). Counsel suggested that it was open to the Appeal Panel to deem the defendant a worker by simply reading words into the specific provision of the Act (i.e. section 1(3), which placed a limitation on the definition of ‘worker’ by excluding a director. The substantive effect of inserting such words would be to limit the exclusion of a director from the definition of ‘worker’, only with respect to the entitlement to compensation benefits as referred to in section 74 and not the immunity from lawsuit. Authority for adding words to a statute can be found in a passage from Lord Reid’s decision in Federal Steam Navigation Company Ltd. v. Department of Trade and Industry [1974] 2 ALL E.R. 97, at page 10:
“Cases where it has properly been held that a word can be struck out of a deed or statute and another substituted can as far as I am aware be grouped under three heads: where without such substitution the provision is unintelligible or absurd or totally unreasonable; where it is unworkable; and where it is totally irreconcilable with plain intention shown by the rest of the deed or statute.”
Again with respect, we do not believe that the express wording employed in section 1(3) creates any ambiguity, which would come under any one of the three heads outlined by Lord Reid. We find that the language used in section 1(3) is clear, concise and unequivocal in its meaning. The wording explicitly excludes a director of a corporation from being considered a worker unless special coverage has been arranged with the WCB. The fact still remains that the defendant, for whatever reason, cancelled his director’s coverage for the year in which the compensable accident occurred (1995). Therefore, he cannot be regarded as a worker by virtue of this section. In addition, we also find that the defendant does not as well come within the broad definition of a worker set out in section 1.
The third argument propounded by the applicant’s counsel was that the defendant, as the sole shareholder and director of the Accident Corporation, “should be considered as an ‘employer’ within the meaning of Part I of the Act and in particular Section 9 thereof.” Counsel stated that inasmuch as the defendant was the sole shareholder and director, he was, in effect, the alter ego of the Accident Corporation and should, for all intents and purposes, be treated as though he were the employer and accordingly entitled to the protections afforded under the Act. He emphasized that it would be patently unfair to distinguish between the Accident Corporation as the employer and the defendant as the sole shareholder/director of this corporation. Counsel suggested that the present application would be an appropriate occasion for the Appeal Panel to pierce the corporate veil and thereby disregard the separation, which normally exists at law, between the corporation and the person who owns or controls that corporation.
Counsel argued that in order to find the defendant as an employer under the Act and therefore protected from civil suit, it would be necessary to for us to pierce the corporate veil of the Accident Corporation. A number of cases were cited in support. He encouraged the Appeal Panel to “ hold that the interests of Mr. [the defendant] as the individual shareholder [were] indistinguishable from [the Accident Corporation], thereby allowing us to pierce the corporate veil and establish that the right of action against Mr. [the defendant] [had been] removed by the Act, all in accordance with the ‘real merits and justice of the case.’ ” Given the particular circumstances of this case, Counsel strenuously advocated that it was incumbent upon the Appeal Panel to “pierce the corporate veil.”
The notion of ‘corporate veil’ historically finds its roots in the case of Salomon v. Salomon & Co. Ltd., [1897] A.C. 22 (H.L.). This case stands for the corporate law axiom that a corporation is a legal entity separate and apart from its shareholders. Incorporation is a legal fiction, which was developed to limit the personal liability of those that held shares in and operated a company. Modern corporate law has evolved over time to allow the creation of a company with only one shareholder, whereas formerly, a minimum of three shareholders was required. The legal effect of incorporating a company is to restrict a shareholder’s potential liability whether criminal, civil or contractual to that of the company’s. As a consequence, the concept of piercing the corporate veil arose out of a need for fairness and equity. In time, the courts would ignore or circumvent the shield of limited liability in those exceptional circumstances where it would be just and equitable to do so.
Counsel for the plaintiffs, on the other hand, argued that the corporate veil was only to be pierced when equity or the real merits and justice of the case required it. “For example, the corporate veil may be pierced in cases in which the corporate structure is used to subvert contractual relationships, either by fraud or bad faith.” In support of his argument, Counsel cited Kosmopoulos v. Constitution Insurance Co. (1987), 34 D.L.R. (4th) 208 (S.C.C.), which case he asserted was the leading authority on lifting the corporate veil. In this decision, Madam Justice Wilson summarized the law as follows:
“As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co., Ltd., [1897] A.C. 22 (H.L.). The law on when a court may disregard this principle by ‘lifting the corporate veil’ and regarding the company as a mere ‘agent’ or ‘puppet’ of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the ‘separate entities’ principle is not enforced when it would yield a result ‘too flagrantly opposed to justice, convenience or the interests of the Revenue’: L.C.B. Gower, Modern Company Law, 4th ed. (1979), at p. 112. I have no doubt that theoretically the veil could be lifted in this case to do justice, as was done in American Indemnity Co. v. Southern Missionary College, supra, cited by the Court of Appeal of Ontario. But a number of factors lead me to think it would be unwise to do so.
There is a persuasive argument that ‘those who have chosen the benefits of incorporation must bear the corresponding burdens, so that if the veil is to be lifted at all that should only be done in the interests of third parties who would otherwise suffer as a result of that choice’: Gower, supra, at p. 138. Mr. Kosmopoulos was advised by a competent solicitor to incorporate his business in order to protect his personal assets and there is nothing in the evidence to indicate that his decision to secure the benefits of incorporation was not a genuine one. Having chosen to receive the benefits of incorporation, he should not be allowed to escape its burdens. He should not be permitted to ‘blow hot and cold’ at the same time.
If the corporate veil were to be lifted in this case, then a very arbitrary and, in my view, indefensible distinction might emerge between companies with more than one shareholder and companies with only one shareholder…
For all these reasons, I would not lift the corporate veil in this case. The company was a legal entity distinct from Mr. Kosmopoulos.”
Plaintiffs’ counsel strongly urged that the present case was not an appropriate one in which to pierce the corporate veil because at all material times:
(a) The Accident Corporation was a separate corporate entity;
(b) The Accident Corporation was a registered employer under the Act;
(c) The injured worker was employed by the Accident Corporation, and not employed by the defendant personally;
(d) The defendant would have received all the benefits of the incorporation of the Accident Corporation including tax advantages, not being personally liable for contracts made on behalf of the Accident Corporation, and not being personally liable for breach of employment contracts;
(e) The business belonged to the Accident Corporation, not the defendant.
“It is the position of the plaintiffs that there is nothing in the operation of [the Accident Corporation] that would justify piercing the corporate veil so as to find that [the defendant] was an employer. This is not a case where it is an arm’s length third party who is asking that the corporate veil be pierced. Rather, the person asking for the piercing of the veil is the very one who chose to maintain the existence of the corporation. The corporation is not a sham. As noted by the Supreme Court of Canada in the Kosmopoulos decision, ‘having chosen to receive the benefits of incorporation, [[the defendant]] should not be allowed to escape its burdens. He should not be permitted to ‘blow hot and cold’ at the same time.”
Counsel for both the plaintiffs and the defendant have referenced several cases dealing with the concept of piercing or lifting the corporate veil. This body of case law consistently states that the courts will only pierce the corporate veil on limited grounds. Reference has also been made, throughout these proceedings, as well as in the materials submitted by the parties, to the ‘historical trade-off’ between employers and employees that resulted in the no-fault compensation scheme to which employers contribute, on the proviso that any legal actions against them by employees would be barred. We do not hold to the suggestion that by declining to lift or pierce the corporate veil in the present case we would, in effect, be frustrating this historical trade-off.
The Act prescribes that an Appeal Panel should decide each case before it in accordance with the ‘real merits and justice of the case’ and that it ‘is not bound to follow strict legal precedent’. We do not, however, interpret this provision to mean that we can literally dispense equity and/or completely abandon or ignore what has become settled law. We certainly do, as a matter of course, examine the cases to which we have been referred from time to time, for guidance and direction. It is clear following a review of the jurisprudence on ‘piercing the corporate veil’ that the courts are reluctant to do so except in limited circumstances. We are of the view that to pierce the corporate veil in this particular case would be somewhat illogical, as such an exercise would contradict the clear and unambiguous meaning of ‘employer’ as defined in section 1(1) of the Act, the definition of ‘worker’ as defined in sections 1(1) and 1(3) of the Act and the optional coverage afforded to directors of a corporation under section 74(3) of the Act.
After a thorough review of the parties’ materials and arguments, we believe that the following conclusions can be drawn. Firstly, we find that at all material times the defendant was and continues to be the sole beneficial shareholder, sole director and president of the Accident Corporation. Secondly, we find that the defendant did not maintain “special or director’s coverage” in the year of the compensable injury. Thirdly, we find that the defendant as the sole director of the Accident Corporation was unequivocally excluded from the definition of ‘worker’ by virtue of section 1(3) of the Act. Fourthly, we find that the defendant was not an employer for purposes of the Act. The plaintiff’s (injured worker’s) contract of service was between the Accident Corporation and himself and not with the defendant. Finally, we find that the plaintiffs’ right of action against the defendant has not been removed by the provisions of the Act. On the contrary, the clear and express wording of the Act appears to contemplate that just such an action may be brought.
With all due respect to Counsel for the defendant, we prefer to accept Counsel for the plaintiffs’ argument that the combined effect of sections 9(1) and 9(7) of the Act together with the definitions of ‘worker’ and ‘employer’ as set out in section 1(1) and the restriction on definition of ‘worker’ as set out in section 1(3) of the Act is “to bar actions for injuries sustained by a worker in respect of an accident against employers and other workers, but not to bar such actions as against directors.”
Panel Members
R. W. MacNeil, Presiding Officer
A. Finkel, Commissioner
B. Leake, Commissioner
Recording Secretary, B. Miller
R. W. MacNeil - Presiding Officer
(on behalf of the panel)
Signed at Winnipeg this 21st day of March, 2001
Commissioner's Dissent
Commissioner Leake’s additional comments:
I have read Commissioner MacNeil’s decision and I concur with his findings, except for the following statement:
“Reference has also been made, throughout these proceedings, as well as in the materials submitted by the parties, to the ‘historical trade-off’ between employers and employees that resulted in the no-fault compensation scheme to which employers contribute, on the proviso that any legal actions against them by employees would be barred.”
I disagree with his conclusion:
“We do not hold to the suggestion that by declining to lift or pierce the corporate veil in the present case we would, in effect, be frustrating this historical trade-off.”
- Are workers’ rights being properly served by this action?
- Will this put workers against workers and employers against workers?
I believe that by the action taken that we would be changing this historical trade-off.
B. Leake, Commissioner
Commissioner Finkel’s Dissent:
The issue at hand deals with whether or not the Workers Compensation Board (“WCB” or “Board”) and the claimant have a right of action against the individual defendant (“the director”), who is the sole director, sole shareholder, and president of an incorporated business.
A Statement of Claim was filed by the WCB and claimant against the director of a company in respect of work-related injuries suffered by the claimant while working for the company. The director has exercised his rights under Section 68(4) of the Workers Compensation Act (the Act) to have the Appeal Commission determine whether the worker’s right to sue him and WCB’s right to sue on the worker’s behalf, have been taken away under Section 9 of the Act.
The Issue
At issue is whether the director, as the sole director of the employer corporation is afforded the immunity granted by Section 9(7), namely is the director a true third party and thus subject to an action by an injured worker, or is the director either a worker or an employer as contemplated by the Act, and thus immune from suit by the injured worker?
In order for the director to be successful in his application, I must find, on a balance of probabilities, that he is either a worker or employer as defined by the Act. If so, then the director would be afforded the protection from suit, and the statement of claim would fail.
The Director as a Worker
I will deal at the outset with the issue of whether the director is a worker. I have reviewed all the evidence on file and presented at the hearing, and I agree with my panel colleagues that the evidence supports a finding, on a balance of probabilities, that the director is not a worker under the Act. I find that the activities of the director did not meet the criteria established in the common law, from Canadian decisions cited by both counsel, to have redefined his responsibilities from that of a director to that of a worker.
Counsel for the claimant argued that the director could be sued because he did not have special coverage under subsection 74(3) of the Act that would have deemed him to be a worker under the Act. Counsel argues that the special coverage would also include immunity from suit. For reasons discussed later, I find this point moot, because of my findings that the director is protected as an employer. If there is no right to sue a director, then there can be no offer of immunity to a director.
Counsel for the director also asked the panel to provide an equitable remedy by interpreting the Act in a manner that would deem the director as having special coverage as a deemed worker, because of the unique circumstances of the case. Counsel argued that the director had given up his special coverage the year prior to the accident because of negligent misstatement by the Board, and should be given the benefit of that coverage at the time of the workplace injury. I agree with my colleagues that we are an inferior tribunal bound by the Act, regulations, and policies as passed by the Board of Directors from time to time. We do not have the legal capacity to adjudicate on the issue of negligent misstatement or to provide the equitable remedy sought in this regard.
The Director as an Employer
As to the issue of whether the director is an employer, I find that all directors in Manitoba are generally covered by the term “employer” under the Act, and accordingly, the director in this instance is afforded the protection from suit by the injured worker that is provided under the Workers Compensation Act. My reasons follow.
Findings of Fact
I have reviewed the considerable evidence in the file, and as provided at the hearing through direct evidence and through the submissions made by counsel for both parties in respect of the status of the parties. There was considerable common ground as to these issues, and I find that the preponderance of evidence supports the following findings of fact:
a. The claimant was a worker, and was employed by the director’s business at the time of his injuries.
b. The business was registered with the WCB as a covered employer under Part I of The Workers Compensation Act at the time of the claimant’s workplace accident in 1995.
c. The employer had been paying its employer assessments to the WCB based on its payroll, and this assessment included the claimant as part of its coverage.
d. The claimant suffered serious injuries while in the course of his employment. The WCB accepted his claim, and the WCB has been proactive in assuring that the claimant has had full access to the benefits provided under the Act, including wage loss benefits, permanent impairment awards, medical aid, and vocational rehabilitation services.
e. The director was the sole beneficial director, shareholder, and president of the business at all material times. The business is fairly substantial in size, and includes locations in Manitoba, Saskatchewan, and Alberta.
f. The director did work directly in the business, and was routinely involved in management and supervisory roles when he was at the business. The director and the injured worker both worked at the Winnipeg location of the business, and knew each other. The director was directly involved in the delegation of the work assignment to the claimant which ultimately led to his injury at a customer’s site.
g. The employer continued as a covered employer under Part I of the Act after the date of the claimant’s workplace injury. It continues to pay assessments to the Board.
h. Based on the “experience rating” system used by the Board, the employer’s assessment rates (and payments to the WCB) increased after 1995 as a consequence of the significant claims costs attributed to this particular workplace injury.
i. The WCB has offered “special coverage” to defined categories of individuals – directors, and family members-- under the Act for a considerable period of time prior to the date of the workplace injury in 1995. Under this process, directors can fill out an application for special coverage including a deemed wage, and on acceptance by the Board, be entitled to compensation benefits as if they were workers.
j. The director had “special coverage” as allowed under subsection 74(3) of the Act, for a number of years preceding the accident, until November 1993. This special coverage “deemed” the director to be a worker under the Act. This coverage was terminated in November 1993 and was not in place at the time of the workplace accident in 1995. The director later resumed this special coverage in 1998.
k. The WCB Board of Directors does not have a policy regarding third party claims in general or regarding the issue of directors’ liability for workplace injuries to their workers.
l. The WCB had never filed a statement of claim on behalf of an injured worker against a director of a covered employer until 1997.
m. In October 1997, the WCB first communicated to the general employer community an expanded interpretation of special coverage for directors as also providing immunity to suit. In their search of organizational records, there was no prior communication of this expanded definition to the general employer community, or specifically to the employer or director involved in this action.
n. Even at that time, the communication about liability for suit was not provided directly to all employers. From 1997 to 1999, the Employer Guide referred to an optional fact sheet on special coverage that employers directors could request if they were interested in special coverage for their directors. This fact sheet provided the details regarding directors’ immunity from suit. Directors who were already covered as deemed workers would not have received this information.
o. The first inclusion in the general Employers Guide directly, of the immunity to suit issue for directors, was for the year 2000.
Relevant Legislation
The Workers Compensation Act (the Act) provides for benefits to workers who are injured on the job when they are working for a covered employer. These benefits are defined under the Act, and are paid for by the employers through a premium assessment process.
The term “employer” is defined in Subsection 1(1) (a) of the Act as:
(a) a person
(i) who has in service under a contract or hiring or apprenticeship, written or oral, express or implied, a person engaged in work in or about an industry, or…
Section 9 of the Act sets out the circumstances under which workers (or the WCB on their behalf) can initiate actions for recovery against third parties, and also sets out limitations against the exercise of that right. The relevant subsections are:
Right of action against person other than employer
9(1) Where an action happens to a worker in the course of his employment under such circumstances as entitle him or his dependants to an action against some person other than his employer, the worker or his dependants, if entitled to compensation under this Part, may claim the compensation or may bring such an action.
Limitation of right of action
9(7) In any case within subsection (1), the worker, his or her legal personal representative and dependents, and the employer of the worker have no right of action in respect of the accident against an employer in an industry or against a worker of such an employer, where the accident happens within the conduct of the operations usual in, or incidental to, the industry carried on by the employer.
Beyond the statutory provisions noted above, there are no other regulations or Board policies regarding the definition of “employer” or of the phrase “person other than the employer” as stated in Section 9. The Panel would be bound by such policies if they existed. As such, this matter will turn on interpretation of these statutory provisions, and applying the findings of fact to that interpretation.
Arguments
As indicated earlier, the salient question turns on the interpretation of the term “employer.” Briefly, the claimant argues that:
· The term “employer” should be defined strictly under the Act;
· The corporate employer hired the worker, and not the director;
· There is no basis to pierce the corporate veil and include the director within the definition of the employer and thus within the ambit of the Act;
· The Act gives directors the right to access benefits and a bar to suit by purchasing special coverage under the Act, thus implying that the legislators contemplated that “employers” and “directors” are separate under the Act;
· This is an action “against some person other than the employer” and is not barred by the limitation set out in subsection 9(7) of the Act; and
· The Act should be strictly interpreted. If it results in an inequitable situation, it is then open to the legislature to repair the statute.
The director argues that:
· The term employer should be interpreted broadly;
· The spirit and intent of the legislation encourages a broad interpretation that protects directors as part of the term “employers”;
· A director is not a true third party as contemplated in the Act against whom an action for recovery is appropriately taken; and
· Historical practice by the Board reflects this interpretation; there is no history of the Board having interpreted the term “employer” in this way prior to 1998, and no action had ever been taken by a worker or the Board against a director in Manitoba until 1998.
Review of Relevant Law
The WCB has not passed any policy regarding the definition of an employer. This also appears to be the first case in Manitoba where consideration has been given to whether an injured worker can sue a director of a covered employer. While we are required to consider each case on its merits (subsection 60.4 of the Act), it is helpful to review decisions in other Canadian jurisdictions, for guidance in respect of:
a. The judicial standards used for piercing the corporate veil.
b. The judicial standards regarding statutory interpretation of The Workers Compensation Act.
c. Reported cases in other jurisdictions on the specific issue at hand, namely whether directors are immune from suit by workers for the consequences of a workplace injury.
A. The judicial standards used for piercing the corporate veil
In reviewing the history of corporate law in Canada, all federal and provincial acts dealing with incorporation have, in general terms, developed the “legal fiction” of a corporate entity which is separate and apart from the individuals who own or manage those corporations. They provide a general protection (or “corporate veil”) which limits the legal liability of shareholders, directors, and officers for the debts or actions of the corporation. Until the late 1970s, both the federal and Manitoba acts dealing with corporations mandated a requirement of a minimum of three directors; both Acts were amended at that time to allow for “single director” companies to be incorporated.
In recent years, there has been a tendency in public policy to examine the nature of the degree of legal separation between companies and their directors, officers, and shareholders of companies, and to “pierce the corporate veil” in limited circumstances. In many circumstances, this is achieved by the passage of specific statutory exceptions. For example, in Manitoba, The Vacations with Pay Act requires company directors to cover unpaid vacation pay where the company is unable to do so. Similarly, the Workplace Health and Safety Act provides circumstances in which directors can be charged for corporate violations of that Act, and The Workers Compensation Act itself has provisions that allow for directors to be personally assessed for unpaid assessments of covered employers.
Beyond these specific statutory exceptions, Canadian common law does not consider the corporate veil as absolute, and does provide cues as to where the corporate veil might be pierced. The Supreme Court of Canada addressed this point specifically in 1987. In Kosmopoulos v. Constitution Insurance, Wilson J., in an insurance matter regarding individual and corporate ownership of a lease, comments as follows regarding the circumstances in which the corporate veil might be pierced:
“As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & C. Ltd. [1897] A.C. 22 (H.L.). The law on when a court may disregard this principle by “lifting the corporate veil” and regarding the company as a mere “agent” or “puppet” of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the “separate entities” principle is not enforced when it would yield a result “too flagrantly opposed to justice, convenience or the interests of the Revenue: L.C.B. Gower, Modern Company Law, 4th ed. (1979), at p.112.” [emphasis added]
The Court at page 214 reviewed the case before it. After reviewing the circumstances of the claimant’s incorporation the Court stated “for all these reasons, I would not lift the corporate veil in this case.” [Emphasis added]
B. Judicial standards regarding statutory interpretation of The Workers Compensation Act
The Kosmopoulos decision acknowledges that there are circumstances under which the corporate veil may be pierced. These may be case-specific, but also may occur on a broader level where a statute addresses the replacement or removal of common law rights.
The Workers Compensation Act certainly deals with a substantial reworking of common law entitlements and defences that would otherwise be available to workers and employers both against each other and amongst each other. It is therefore of considerable importance to understand how the courts have viewed this type of legislation, as a precursor to any decision regarding the inclusive or exclusionary, or strict or broad interpretations to be applied to the provisions of Manitoba’s Act.
In reviewing the origins of workers compensation legislation in Canada, I note that the principle of immunity from legal action was one of the founding tenets of workers compensation legislative schemes that were enacted across Canada in the 1910s and 1920s. The original legislation replaced common law rights of actions and defences between workers and employers for workplace injuries with statutorily defined access to compensation.
The first such legislation was passed in Ontario and it became the model for legislation that was later passed across Canada; The Ontario Act was substantially shaped by an Ontario commission that was in turn influenced by Sir William Meredith’s government-commissioned study. He articulated what has become known across Canada as “the Meredith principles,” which are commonly cited as the founding principles of workers compensation legislation in Canada.
In broad terms, his vision and the resulting legislation removed from workers the right to sue their employers for workplace injuries, in exchange for guaranteed access to a range of financial benefits and services that were set out by provincial and federal legislation. These services were to be delivered by independent Workers Compensation Boards in each province funded by assessments charged against covered employers. In this environment, workers gained quick and ready access to an array of pre-defined benefits. Employers agreed to fully fund those benefits and the administrative system that delivered those services, and gained legislative protection from legal action for workplace injuries suffered by their workers.
The spirit and intent of the workers compensation legislation as described above was acknowledged by the Supreme Court of Canada in 1997, in Pasiechnyk v. Saskatchewan (W.C.B.). Sopinka J. provides the following overview of the history and purpose of workers compensation:
“Workers’ compensation is a system of compulsory no-fault mutual insurance administered by the state…
In Canada, the history of workers’ compensation begins with the report of the Honourable Sir William Ralph Meredith, one-time Chief Justice of Ontario, who in 1910 was appointed to study systems of workers’ compensation around the world and recommend a scheme for Ontario. He proposed compensating injured workers through an accident fund collected from industry and under the management of the state. His proposal was adopted in 1914. The other provinces soon followed suit…
“Sir William Meredith also proposed what has since become known as the “historic trade off” by which workers lost their cause of action against their employers but gained compensation that depends neither on the fault of the employer nor its ability to pay. Similarly, employers were forced to contribute to a mandatory insurance scheme but gained freedom from potentially crippling liability. …” [emphasis added]
Sopinka J. accepts the conclusions of the Newfoundland Court of Appeal in a 1983 decision in Reference re: Workers’ Compensation Act, regarding the historical tradeoff within the legislation. He concurs with Chief Justice Goodridge who in that case concluded “while there may be those who would receive less under the Act than otherwise, when the structure is viewed in total, this is but a negative feature of an otherwise positive plan and does not warrant the condemnation of the legislation that makes it possible.” Mr. Justice Sopinka then states:
“I would add that this so-called negative feature is a necessary feature. The bar to actions against employers is central to the workers’ compensation scheme as Meredith conceived of it. It would be unfair to allow actions to proceed against employers where there was a chance of the injured worker’s obtaining greater compensation, and yet still force employers to contribute to a no-fault insurance scheme.” [emphasis added]
Regarding the bar to actions, Sopinka J. comments, “The bar to actions is not ancillary to this scheme but central to it. If there were no bar, then the integrity of the system would be compromised as employers sought to have their industries exempted from the requirement of paying premiums toward an insurance system that did not, in fact provide them with any insurance.”
It is clear that the Supreme Court of Canada treats workers compensation legislation as societally beneficial in spirit and intent, rather than restrictive. It was and is considered to be socially progressive legislation that provides a positive environment for the quick resolution of otherwise litigious claims, and fast access to benefits. It also ensures that the economic environment of a business (and the impact of a crippling liability on both the company and the workers) is afforded a necessary degree of protection. It is clear as well that the negative implications of the legislation to workers, such as caps on compensation, are specifically contemplated by the court, but are given little weight in comparison to the gains associated with the trade-off.
C. Judicial Interpretation of Directors’ Liability within the Act
(i) Arguments
Counsel for the claimant argues that the injured worker had an employment contract with the incorporated employer, and thus it is the company, and not the Director that is the “person” that qualifies as an “employer” under Section 1(1) of the Act.
Counsel for the claimant further argues that their action is against the director personally, and he is not the “employer” in this case. They argue that the immunity from suit provided in Section 9(7) of the Act applies only to “workers” and “employers” and this does not preclude an action against a director of the company, inasmuch as there is no statutory immunity provided to “directors” under that section.
Counsel for the claimant further argues that since directors are specifically given the right to access benefits as deemed workers under Section 74(3) of the Act, the Act implicitly or explicitly acknowledges that directors are to be treated separately under the Act, as they are neither workers nor employers.
On the other hand, counsel for the director argues that the director is a sole director of the company, is the “controlling mind” of the enterprise, and that the interests of the director, as sole director and sole beneficial shareholder cannot be separated from the incorporated business. Counsel argues that the director is thus covered under the definition of “employer” and as such, there is no right of action against him personally.
(ii) Review of Canadian cases
There have been no Manitoba decisions on this point, either by this Appeal Commission or in the courts. This matter has been considered in only two other provinces. In this regard, counsel for both parties referred to a series of Ontario cases in the 1980s, as proving or disproving our ability to pierce the corporate veil, and to a 1995 Saskatchewan Court of Queen’s Bench decision in which a sole director and shareholder was found to be an employer, and thus immune from suit by a worker.
The first case to deal substantively with immunity to suit for “executive officers” occurred in Ontario in 1983, nearly 70 years after the Ontario legislature introduced its Act in 1914. The Ontario Workers Compensation Act had provisions similar in nature to Manitoba’s current legislation, and both counsel acknowledge that the difference between executive officers and directors is not significant in respect of the issues at hand.
Briefly, in Berger v. Willowdale A.M.C. the Ontario Court of Appeal found that a worker who had already received benefits under the Act also had the right to sue the president of a company individually for negligence, for injuries she sustained in a fall on a sidewalk.
In examining the court’s reasons, it is noteworthy that the Court of Appeal did not address the issue of the corporate veil. Instead, the Court noted that the definition of “worker” specifically excluded executive officers. Since the Ontario Act, like Manitoba’s, only allowed suits against persons other than workers and employers, the Court therefore concluded that the legislators’ intent had been to encourage executive officers to consider the safety of their employees, and could be sued for failing to do so.
The Berger decision immediately triggered a flood of workers compensation appeals and litigation in Ontario in which workers sought compensation additional to what was set out in their Act.
In December 1983, a Report of the Standing Committee on Resources Development in Ontario reviewed the Berger decision and noted that,
“In light of the above comment by the Court of Appeal, a majority of Committee members feel that legislative policy in this area should be clarified by amendment to the Act so as to eliminate the cause of action established by the Berger decision. The majority believes that this decision serves to undermine the concept of the compensation system as a replacement to the pursuing of a remedy in the courts.” [emphasis added]
The Ontario legislative passed amendments to their Act in 1985 that specifically stated that executive officers and directors were immune to suit. This legislation was not made retroactive, and subsequent Ontario WCAT decisions continued to grant rights to sue for pre-1985 workplace accidents.
It is clear that the Ontario legislature, and indeed the employer and worker communities clearly saw the judicial interpretation in Berger to be flawed, and not consistent with the spirit and intent of the Act. The effect of the amendment as noted in the Standing Committee report, was to restore, in Ontario, what the legislature had assumed to be the case since the Act was first passed in 1910 -- that executive officers and directors of covered companies were always considered to be immune from suit, and should be immune from suit in the future. It also clearly contemplated from the wording of the amendment that all executive officers and directors of covered employers were intended to be within the definitional ambit of the employer, and entitled to the “no fault” environment contemplated by the Act. The quick legislative amendment reiterated this point, as a clear and direct reaction to the Berger decision.
From later Ontario decisions that were presented to the panel, I note that the legislative amendment itself caused problems. The amendment was interpreted by the Ontario WCAT (the Ontario equivalent to our Appeal Commission) as granting immunity to directors and executive directors. However, WCAT then applied a strict interpretation to the amendment and concluded that the amendment also granted to those same directors and executive officers the right to sue their own workers and their own companies for injuries at the workplace. The rationale was that since directors and executive officers were specifically mentioned in the Act as being immune from suit, the legislature must have meant they were neither “workers” or “employers” under the Ontario Act; while the Act precluded them from being sued, they could still sue a worker or employer, since they themselves were neither.
In a most bizarre turn, it appears that the Ontario legislature attempted to reassert the “no fault” and non-litigious nature of its workers compensation scheme, that is, to return to a “pre-Berger” state, but that its clarification introduced even more litigation within its system. I can only conclude that this is something far beyond and outside the original intent of the Act, particularly in light of the comments of Sopinka J. in the later Pasiechnyk decision.
In examining the timing of the Berger decision, it should be noted that the reasons were framed in the context of what would now fall under the ambit of workplace health and safety legislation. The Berger decision did not in any way address the issue of whether the executive officer was an employer, and did not address the issue of the corporate veil, as we must, in the case at hand.
The Berger decision preceded the Kosmopoulos decision of the Supreme Court of Canada in 1985 regarding the corporate veil. It also preceded the Pasiechnyk decision of the Supreme Court in 1997, which clearly outlined the social and economic implications of workers compensation legislation, and which explored at some length the constraints facing both workers and employers, in terms of the benefits provided and the rights to take action.
In light of the legal principles enunciated in those later decisions, I conclude that it would be difficult for a court today with the same facts as the Berger case to have reached the same decision as was reached by that court.
A Saskatchewan case did in fact deal with whether individuals behind a company could be sued by a worker, after these two Supreme Court of Canada cases. In Mantei v. Morris, a decision of the Saskatchewan Workers Compensation Board was upheld by the Saskatchewan Court of Queen’s Bench (1997) and ultimately by the Saskatchewan Court of Appeal (1998). In this case, an action was taken by the estate of a deceased worker against two individuals who were each the president and sole shareholder of two incorporated employers. As in the case at hand, neither of the individuals had obtained special coverage under their Act (similar to the Manitoba Act). The Saskatchewan Board ruled that the individual “proprietors “ of “one person companies” could not be sued by the worker. The rationale of the Saskatchewan WCB appeal body is quoted in the lower court’s decision, as follows:
“The Board recognizes that at law a corporation is treated as a separate entity from its shareholders. However, in the case of a one person company, it is difficult to make any practical distinction. The interests of the individual shareholder and the company are indistinguishable and thus, the policy considerations reflected in sections 44 and 168 apply equally to both. The sole shareholder, in effect, bears the financial burden of the payment of workers’ compensation assessments and of the payment of wages and typically makes all management decisions….
The Board has long been of the view that proprietors of one person companies are entitled to the protection of the statutory bar …[previous decisions cited]. In effect, the Board is prepared to pierce the corporate veil in cases such as this. The Board is aware that the courts will pierce the corporate veil on limited grounds. However, under Section 25 of the Act, the mandate of the Board is to decide each case before it in accordance with the real merits and justice of the case, and the Board is not bound by precedent. Considering the policy reflected in sections 44 and 168, the Board is of the view that individuals such as Mr. Morris and Mr. Walker fall within the scope of the Act as employers. “[emphasis added]
The Saskatchewan Court of Queen’s Bench found that this decision or interpretation by Saskatchewan WCB was “not patently unreasonable,” and this decision was later upheld by the Saskatchewan Court of Appeal.
The Mantei decision indicates that in Saskatchewan, “proprietors” of one person companies are viewed by the WCB as being immune from suit, and it provides a graphic illustration of how it views and interprets the term “employer” differently from the classic definition of the legal fiction of a corporation. I note that in a one person corporation, there is an incorporated person (the company) and, as well, a single individual who would be vested in a number of legally defined roles, as an executive officer, a shareholder, and a director, and in many circumstances as a worker as well.
In practical terms, how does one deal with a workplace accident that arose from a single negligent act, without destroying the intent of workers compensation legislation? How does one separate or allocate responsibility for that act by “the employer?” Is it the corporation, or the executive officer, or the shareholder, or the director who is responsible? Is it reasonable to go after one title when all are held by one person? This is in fact, the position taken by counsel for the claimant in the case at hand – that in a one-person company, the employer and the executive officer are protected, but the director can be sued, even though all roles are held by that same individual.
This type of reasoning was specifically addressed in the Mantei decision. Neither the Saskatchewan WCB nor the Saskatchewan courts were prepared to support the legal fiction of a corporate veil as a basis for allowing legal access by a worker to that single individual for the purposes of additional compensation beyond that allowed under the Act. Simply stated, the actions of that individual, irrespective of the title, were the actions of the employer, and fall within the ambit of the Act.
(iii) Does Manitoba’s Act establish directors as a separate class because they can apply to be deemed as workers?
Counsel for the claimant argues that in Manitoba, the right to sue directors has always been present in Manitoba, because directors are named separately in the Act. They refer to the provisions of the Act that give the directors the opportunity to apply for and be deemed as workers under the Act. They further argue that a director’s application under Section 74(3) deems them as “workers” which then brings them within the ambit of Section 9(7) of the Act and by being deemed as workers they cannot be sued. The corollary is that those directors who do not apply for coverage are not deemed workers, and thus can be sued.
With due respect, I do not concur with these arguments for several reasons.
Firstly, the cases cited above do not support this reasoning. The Berger decision noted the separate reference to executive officers in their Act and the court imposed what it thought was the legislature’s intent, and inferred from the separate listing the right to sue. However, as noted, a standing committee of the Ontario legislature immediately flagged this interpretation as incorrect, and implemented a legislative amendment to ensure that such actions did not and could not proceed. If the Berger decision had not been made, the then-decades-long practice of immunity from suit for directors and executive directors in Ontario may well have continued to this date.
The more recent Mantei decision in Saskatchewan had no difficulty -- with a similar statute, with separate listings of executive officers and directors, and where director’s special coverage was available as here -- in extending the definition of employer to a director/executive officer and not reading into the Act a separate class of party who could be sued.
Secondly, it is worth examining closely exactly why directors are given the opportunity to seek special coverage under the Act, and why they are thus specifically mentioned in the Act.
As noted earlier, “workers” who qualify under the Act are entitled to an array of benefits that include wage loss, medical aid and impairment awards for injuries sustained by them in the workplace. These provisions are not available to anyone but a covered worker.
Section 1(3) of the Act places a restriction on who a worker is. It states in part:
Restriction on a definition of “worker”
1(3) The definition of “worker” in subsection (1) does not include
(a) a director of a corporation, unless an application to have the director brought within the scope of Part I is received and approved by the board…
(b) a member of the family of an employer or director of a corporation who
(i) is employed by the employer or the corporation, and
(ii) lives with the employer or director as a member of his or her household
unless an application by the employer or corporation is approved by the board under subsection 74(4).
Subsections 74(3) deals with the applications by directors as contemplated in section 1(3)(a) above, while 74(4) sets out similar provisions for family members. Subsection 74(3) states:
Employer may be admitted to compensation
74(3) Any employer or director of a corporation in an industry within the scope of this Part may be admitted by the board as being entitled for himself, and his or her dependants, to the same compensation as if the employer or director were a worker within the scope of this Part. [emphasis added]
On plain reading, these sections address a very common workplace situation particularly in small businesses, where directors may be active in their businesses, recognize they have a risk of injury at the workplace, and wish to be insured. A similar situation commonly arises where employers/owners wish to have their family members work in the business and are similarly exposed to the potential risk of injury in the workplace.
In these cases, wages may or not be paid; there may not be normal “contracts of employment;” there is an apparent non-arm’s length relationship of directors and family members to the covered employer. There is also Canadian common law that provides legal tests to distinguish between “directors” and “workers” for WCB assessment purposes. For any or all of these reasons, it is certainly appropriate for the WCB to ensure that the integrity of the Act and its benefits are not impugned, by asking for an application from those individuals interested in coverage, prior to granting the compensation benefits that is referred to in the headings of Subsections 74(3) and 74(4).
WCB’s application forms for this coverage are in the file. The form requires applicants to deem a wage level in instances where a salary is not paid. (The current minimum deemed wage is in excess of $15,000 per annum.) This would be necessary, in the event a director or family member is hurt on the job, for calculation of appropriate wage loss benefits, and for the assessment of an appropriate premium relative to the potential wage loss exposure.
Counsel for the claimant and Board argues that in deeming a director to be a worker, a director can gain the immunity to suit normally afforded to a worker under subsection 9(7) of the Act, even if the director is in no way involved in the daily operations of the business. They assert that the deeming of a wage level in the application is simply a way to set an insurance premium for the immunity being purchased.
I have considerable difficulty in accepting these arguments.
Firstly, the evidence suggests that this is a very late and a very novel interpretation of section 74, that first surfaced in 1997. The Panel asked the WCB to undertake a search of its historical records to determine when the issue of directors’ liability or special coverage in that regard was first communicated to the employer community. In a memo to the Appeal Commission dated December 28, 2000, a WCB staff person states:
“As indicated above, information on special coverage was provided to employers in 1997. The Employer Update, Volume VIII, Issue III was sent out to all registered employers in October 1997. Albeit this update did not provide details regarding the director’s immunity from suit, it did reference the Fact Sheet on Special Coverage. The Fact Sheet itself provided details relating to the director’s immunity from suit.
From 1997 to 1999, inclusive, the Fact Sheet on Special Coverage was provided to employers only when they have advised WCB representatives they are interested in special coverage or have applied for special coverage.
In 2000, the Fact Sheet has been included with the Employer Guide, which is sent out to all registered employers.” [emphasis added]
I am troubled that it is the Board that has instituted this interpretation regarding directors‘ liability at an administrative level, particularly since it is charged with the responsibility under the Act to act within the spirit and intent of the founding principles of the Act. Manitoba’s WCB currently deals with over 40,000 claims per year, and I would estimate it has dealt with one to two million claims since the Act was passed in 1917. I can surmise that perhaps tens of thousands of those claims have involved smaller incorporated employers where owners/directors have breached some duty of care that resulted in a workplace accident. These breaches would undoubtedly have been the basis for legal action by the injured worker and successful recovery, in the absence of workers compensation legislation. For those accidents, the employers have paid premiums and the injured workers have received benefits, and under newer assessment models used by WCB, those firms with high costs and high accident rates would have seen their premiums rise. This is exactly what the legislation intended to cover.
This case is the first such legal action taken in Manitoba against a director. It was filed some 81 years after the Act was first introduced, some 15 years after the Berger decision exposed the potential right to sue, and some 13 years after the Ontario amendments to repair that decision. It was also taken against the director in this case some three years after the workplace accident, and before there was general communication to the employer community of the very existence of this asserted exposure to liability.
Counsel for the claimant and WCB argues that all directors are potentially liable to be sued by a covered worker and should purchase this special coverage from the WCB or arrange their own privately. This process suggests that true and complete coverage of “employers,” as contemplated by the Meredith principles, would only transpire if all Manitoba employers paid their premiums, plus all directors of incorporated covered employers took out additional insurance coverage, either privately or through WCB to protect against potential suit. For those directors who do not have such coverage, workers could sue either through their vested rights with WCB or on their own behalf, for compensation greater than that allowed under legislation.
After reviewing this entire matter of special coverage, I find that this line of argument is spurious. I can only conclude -- after a plain reading of subsection 74(3) of the Act, its heading “application for compensation”, the historical practice of the Board in allowing directors to seek coverage for decades, before the issue of immunity was discussed , and the very process used by WCB in its application form for directors seeking coverage – of deeming a wage level where a salary is not paid – that this is all more in line with the premise of wage loss and compensation benefits than with an annual premium for purchase of immunity from suit.
The “deem” that is intended by this section is that these individuals who would not normally be found to be a worker can be treated as workers in a limited capacity, because they are workers who wish to be covered in the event of injury.
Accordingly, I find that Section 74 of the Act is not designed as a primary vehicle in the Act for adjuncts of employers (directors and family members) to seek immunity from potential action. Rather, its purpose is to offer individuals who do not have a prima facie classification as a worker the opportunity, because of their work circumstances, to access the benefits of the Act and to allow the employer to appropriately include those individuals as part of their payment of assessments to the WCB. It was not the intent of the legislature to create new classes of “non-employer” legal persons, who can be sued, when this section was written.
(iv) The rules for interpreting the breadth of the term “employer” in Manitoba
The recent Mantei decision in Saskatchewan, with statutory wording similar to the Act in Manitoba, clearly contemplates that workers compensation legislation can readily be interpreted to pierce the corporate veil in order to ensure meaningful interpretation and application of the Act.
I find that the reasons in Mantei are consistent with the earlier analysis provided on the Kosmopoulos and the Pasiechnyk cases, and is highly instructive on the statutory interpretation that should generally apply to the issue of directors’ liability in Manitoba.
I note that the idea of broader interpretations of the terms “worker” and employer” is already apparent in Manitoba’s Workers Compensation Act and in the manner in which the WCB has interpreted the Act, through its policies. The WCB routinely includes individuals or firms within those definitions that would never be considered as such under normal circumstances.
For example, independent contractors who meet The Income Tax Act’s very stringent tests to qualify as independent contractors rather than employees can nonetheless be found to be “workers” under WCB Policy 35.10.50. WCB’s criteria regarding independent contractors as workers are much more inclusive, in favour of including within the Act, and do so with little consideration of the legal tests used outside The Workers Compensation Act.
Similarly, Board policy is generous in respect of the term “employers.” Section 17 of the Act deals with the issue of workers providing notice to employers within 30 days of an accident. Subsection 17(5) of the Act extends the usual process of notification to an employer (written notice to an officer or agent of the employer) to include situations where “the employer or his superintendent or agent in charge of the work where the accident happened had knowledge of the injury.” [emphasis added]
These provisions again are generous in their interpretation, and both demonstrate a measure of inclusiveness of the terms “worker” and “employer” that does not get caught up in legalistic niceties found in other Acts, and work to ensure that the original intent of the Act be met, by ensuring that workers and employers, in a broad sense, are given full opportunity to be engaged in the entire process – including the historic tradeoff – involved in the workers compensation legislation.
There is nothing to suggest, then, that this matter should turn on thin legal arguments as to the consequences of an employer being incorporated, rather than a sole proprietorship or a partnership. To the contrary, if the Act – as contemplated by the cases referred to earlier and the general application of the Act in Manitoba – is generally inclusive, it should not at the same time be interpreted as exclusive.
(v) Is this interpretation within the spirit and intent of the Act?
My analysis of Canadian law regarding the corporate veil and the general spirit and intent of workers compensation legislation has pointed to favourable treatment of the premise that directors of covered employers should be immune from suit. Counsel for the claimant has argued that we must be strict constructionists of the statute and that is the role of the legislature to repair the statute. It is worthwhile to examine the consequences of allowing a right of action against a director as suggested by counsel, in order to assess the merit of the argument:
a. Allowing this claim to proceed gives the claimant access to greater benefits because he worked for a one person company with an “exposed” director, than if he had worked for a sole proprietorship, for the same negligent act. These additional benefits include full wage loss, and general and punitive damages. This interpretation creates different classes of workers with different levels of entitlement. I note that this exact scenario was considered by Sopinka J. in Pasiechnyk and found to be inappropriate in his vision of the spirit and intent of workers compensation legislation.
b. This employer, and by inference, all incorporated employers in Manitoba who are already charged appropriate assessments by the WCB will have to pay additional assessments on behalf of all their directors. There is effectively a double billing for which there is no tangible benefit.
c. These additional assessments to WCB serve only to provide immunity from suit and do not confer any additional benefits to injured workers. Indeed, the promotion of this assessment to the employer community may actually work to the detriment of workers by removing their access to additional compensation against those exposed individuals.
d. The same negligent act, in an incorporated employers, might be covered by the WCB (and thus limited to the benefits in the Act) or might be in the courts, depending on what titles the negligent individual has, whether he/she has or doesn’t have special coverage, or knew of the need for such coverage. It becomes unclear why exactly the employers are paying their assessments in what is intended to be a predictable no-fault system.
e. The concept of fault is re-introduced into a no-fault system; where an action is launched against an exposed director, liability and damages will be based on a full examination and dissection of the workplace, the accident, the relationships between the parties, standards and duties of care, and the nature and degree of damage suffered. This is not consistent with the Meredith principles.
f. The strict interpretation and reintroduction of rights of action as in the present case reintroduces the ill will associated with litigation amongst ongoing participants at the workplace. It ignores the potential economic and social impacts on co-workers (job security and morale) if the employers’ financial stability is perceived to be ultimately threatened by a successful action against a director.
g. It incentivizes workers (and their solicitors) to elect in favour of direct claim against exposed individuals, rather than seek workers compensation benefits.
h. It publicly defines a new class of defendant within the Act, and thus the opportunity (as in Ontario) to introduce an unexpected and undesired level of litigation in what was intended from the outset to be a non-litigious field.
i. Where a claim is vested in the WCB, and in the absence of WCB policy on this point, it introduces considerable uncertainty on whether and when the WCB will or should seek to refill its coffers for the costs incurred in management of claims, and/or seek additional surplus compensation for an injured worker.
j. It ignores the real and practical difficulty in separating the impact of a successful action against a director or major shareholder from the employer. Instead of the certainty and known costs provided to employers through the assessment process, a successful suit affords every opportunity to destroy an employer because of the financial demands of any judgement made.
k. It seriously undermines the Meredith premise that employers pay their assessments for access to a “no fault” system.
I find these consequences to be untenable, and are a clear indication why other jurisdictions have shied away from a strict and narrow interpretation of the term “employer” in favour of a broader and more inclusive interpretation. In this regard, I note the Pasiechnyk decision, the Mantei decision in Saskatchewan, and in particular the Standing Committee’s intervention after the Berger decision which resulted in a clarification that all directors and executive officers were considered immune from suit by a worker.
“Employers” in Meredith’s time and at the time of the passage of the original Workers Compensation Acts, were much as they are today: sole proprietors, partnerships, companies, and crown corporations. While common law and statutes have evolved in respect of the limited liability of corporations and the rights and responsibilities of directors, it is clear that the spirit and intent of the Workers Compensation Act in Manitoba, as elsewhere, can be simply stated: guarantee that injured workers have fast access to defined compensation benefits, and make the law suits stop.
Corporations have always been part of workers compensation schemes, and I find that the overriding social policy considerations behind the enactment and actual implementation of the Act provides a compelling argument for a liberal interpretation of the right to pierce the corporate veil in defining “employers” under the Act. For a worker employed with a sole proprietor or a partnership, the bar to lawsuit is absolute. There is no public policy basis for not continuing the historic practice whereby the same provisions were extended to cover the individuals involved with incorporated employers. It is worth noting that Ontario’s Act was the first passed in the country, and in the most populous province with presumably the most claims, there had never been a claim filed against a director or executive officer in the nearly 70 years preceding the Berger case. Similarly, this first case was filed in Manitoba by the WCB on behalf of the claimant some 81 years after the Act was first passed in Manitoba. There was one such action taken recently (and unsuccessfully) in Saskatchewan. Seven other provinces have yet to see such an action commence against a director.
The absence of any communication and the lack of earlier action by workers in Manitoba or the Board against a director prior to 1997 leads me to conclude that directors were simply not considered as true third parties (persons other than workers or employers) as contemplated by the Act. This is not a legislative oversight, which it is argued has been recently discovered and is correctable by amendment only, but a real and substantial interpretation of the Act which is in full accordance with the spirit and intent of the legislation.
The Meredith principles and Manitoba’s WCA clearly intended that the ill will between workers and employers be eliminated through enacted legislation. It was brave legislation in its time, introducing a true “no fault” system to govern the relationship between workers and employers. Both give up much to be part of this system. The Ontario experience demonstrates that standing on strict interpretation leads to exactly the degree of acrimony, conflict, and litigation that was the express reason for developing a workers compensation system in Canada. Echoing the comments of the Supreme Court in Pasiechnyk, the Act needs to be interpreted in such a way to make legal actions by workers against employers to be “non-starters.” The Supreme Court’s comments are generous in the restriction of the right to sue, and strict in the suppression of the right to access additional benefits.
Conclusion
Section 9 of the Act allows a worker to claim compensation where an accident is triggered by a third party’s actions or breach of duty of care. The Act firstly ensures that the worker receives benefits, and then sets up a process whereby the employer gets relief and the accident fund can be replenished, by allowing the WCB to take legal action against that third party, with excess recoveries going to the worker.
These are usually “true” third parties – the driver of another vehicle colliding with a worker’s vehicle, or an action against a building owner under occupier’s liability for injuries to a worker, for example. This has in fact been the type of suit taken by the Workers Compensation Board for injured claimants since the Act was first passed in Manitoba in 1917. Historically, this has been a tool for external recoveries. This case tests the boundaries regarding who a third party really is.
I find that the Manitoba’s Workers Compensation Act is a social compact between workers and employers, and is intended to diminish the acrimony, the uncertainty, and delays that would ensue in the absence of such an Act. It does so by enshrining guaranteed access to benefits and by removing consideration for fault from the equation. Issues of negligence, strict liability, and contributory negligence are simply not intended to be part of the process.
Ultimately, workers compensation legislation is acknowledged by the Supreme Court of Canada in Pasiechnyk as an important piece of social legislation, preferring to be protective of the stable relations afforded by the Act to the relations between workers and employers. It is no surprise that there is a paucity of actions by Boards or claimants against directors in the rest of the country outside the cases cited, nor in Manitoba prior to 1997. At its simplest, the term “employers” has been interpreted broadly, and no compelling reason exists, within the Meredith principles and the Manitoba legislation, for designating directors otherwise.
I find that in the context of Subsection 9(7) of the Act, all directors of a covered employer in Manito