Decision #18/07 - Type: Workers Compensation

Preamble

This appeal deals with whether the employer is liable for assessment premiums and interest charges in relation to contractors who provided services to the employer.

The employer was audited by the Workers Compensation Board (WCB). The audit reported that the employer failed to include in its payroll the payments it made to certain contractors who were not registered with the WCB. The WCB found that the employer was responsible to pay additional assessment charges and over/under interest charges relating to the use of certain contractors. The employer appealed to the WCB’s Review Office which upheld the WCB’s decision. The employer then appealed to the Appeal Commission.

An appeal panel hearing was held on December 7, 2006, at the employer’s request. At the conclusion of the hearing, the panel met and rendered its final decision.

Issue

Whether or not the employer is responsible to pay additional assessment charges and over/under interest charges due to contract labour not reported to the WCB.

Decision

The employer is responsible to pay additional assessment charges and over/under interest charges due to contract labour not reported to the WCB.

Decision: Unanimous

Background

In June 2006, the employer was audited for the years 2001, 2002, 2003, 2004 and 2005. Based on the audit results, the employer was charged an additional assessment amount along with over/under interest charges on July 12, 2006.

The decision letter dated July 12, 2006 confirmed the audit results and noted that the employer used contract individuals or firms to provide labour in its construction operations. Some contractors were registered with the WCB as either employers or labour contractors. However, some contractors were found to be workers of the employer because they were not registered with the WCB or were registered with the WCB as independent contractors. When an independent contractor works for a firm in the construction industry, they are considered to be workers of the firm.

The decision letter also dealt with the status of a contractor referred to in this decision as ZS. This contractor was considered to be a worker of the employer, as it was engaged in the sale of products exclusively for the employer, did not maintain an inventory of products and received the majority of its sales leads from the employer. The letter noted that this information led the WCB to believe that ZS was not acting as an independent business while selling product for the employer.

The above decision was appealed by the employer on July 20, 2006. It stated, in part:

“This is a notice of appeal. We find this ruling to be totally one-sided and totally unfair. We have provided that [ZS] is an individual company and is registered and taxed as such. The other companies, which we are being charged for, were found through the yellow pages of the phone book, and [the firm] should not be held responsible for these companies. It should be WCB’s job to ensure that companies listed in the yellow pages are registered with them…”

On August 6, 2006, the Assessment Committee denied the employer’s appeal. It found that the audit was thorough and fair and that the employer had many opportunities to report or question contract labour when reporting annual earnings to the WCB. It stated that the annual reports, completion guides and amended estimate forms were sent to employers to provide payroll information to the WCB and provides an explanation on reporting or questioning contract labour. On August 31, 2006, the employer appealed this decision and a hearing was held at the Appeal Commission on December 7, 2006.

Reasons

Applicable Legislation and Policy

Section 60(2.1) of The Workers Compensation Act (the Act) provides as follows:

60(2.1) - Deemed worker and employer

Notwithstanding the other provisions of this Act, where a person who is not a worker under this Part performs work for the benefit of another person, the board may deem the first person to be a worker, and the second person to be the employer of the first person, within the meaning of this Act; and the board may determine an amount that shall be deemed to be the earnings of the first person, for the purpose of this Part.

WCB Policy 35.10.50, Independent Contractors, provides as follows:

Deemed Workers and Deemed Employers

1. If a person performing work or services in a compulsory industry is not an employer, an independent contractor with personal coverage or a labour contractor with personal coverage, then the person, and any workers hired by the person, are for the purposes of the Act, deemed to be workers in the employ of the principal for whom the work was performed, and the principal is deemed to be the employer of those persons.

Section 3 of this policy provides that the principal will be responsible for payment of assessments based on the assessable earnings of the worker.

Section 80(6.1) of the Act provide for interest charges where an employer under-estimates workers earnings.

Employer’s Position

The employer was represented by its owner who made a submission and answered questions posed by the panel. The representative advised that although the audit dealt with 13 contractors, the employer was only contesting the WCB decision as it related to three contractors: specifically:

1. a firm which provided sales service for the employer, referred to as ZS
2. a firm which provided electrical services, referred to as ME
3. a firm which provided geothermal installations, referred to as WG

The representative stated that it was his understanding that a company that is solely owned does not have to pay for WCB coverage on behalf of the company. He advised that the three contractors are companies with individual ownership. He also advised that it was his understanding that the companies have no employees, nor any obligation to register or pay for compensation.

He noted that the federal government uses different criteria in determining the relationship between parties and urged the WCB to use the same criteria as the federal government.

The representative reviewed the status of and relationship of each of the contractors to the employer.

ZS

Regarding ZS, the representative provided information regarding the status and business activity of ZS . The information included:

  • ZS was a firm which specialized in selling goods and was operated by two individuals, R and B. R acted as the employer’s only salesperson.
  • R was provided with business cards by the employer bearing the employer’s name, address and phone number. The business cards also included R’s name and the title “consultant”.
  • R represented the employer at promotional shows.
  • the employer provided training to R.
  • B did not go out on sales calls but was involved in selling annual service contracts on behalf of the employer. B contacted the employer’s clients by telephone.
  • ZS was responsible for 40 to 45% of the employer’s sales, with the balance of sales by office staff and the owner.
  • ZS sells other products independent of the employer, such as, specialty tools.
  • B is not considered as an employee of the employer for the purposes of Employment Insurance legislation and Canada Pension Plan. The representative provide a copy of a letter from Canada Revenue Agency (CRA) dated September 12, 2006 which advised that CRA ruled that for the period January 1, 2006 to August 31, 2006, B was not considered an employee of the employer and that her services were not insurable and not pensionable.
  • ZS has a business license
  • R and B run ZS from their home
  • ZS does not hold inventory for the sale of products for the employer.
  • ZS does not provide services to the employer’s competitors.
  • ZS pays its own expenses including travel costs.

In response to a question, the representative advised that “We try to make [R] look as part of [employer’s name]. I mean, without question, its in our best interest.” The representative commented further that “So in actual fact, I mean, as far as what it looks like, is he looks like an employee of [employer’s name], without question.”

The representative acknowledged that the sales function performed by R was an important part of the employer’s business.

ME

The representative provided a letter from ME dated November 30, 2006 and advised that:

  • the employer contacted ME through the Yellow pages.
  • ME is a registered company and its services are provided by its owner, it has no employees.
  • ME does electrical work.
  • ME’s costs are included in the contract price paid by the employer’s customers.
  • ME does electrical work in Manitoba and Ontario.

WG

The representative provided a letter from WG dated November 30, 2006 and advised that:

  • when the employer used the services of WG, it had no employees, and the services were provided by its owners.
  • WG is an incorporated firm.
  • WG is now registered with the WCB as it now employs workers.

Analysis

The issue before the panel was whether the employer is responsible to pay additional assessment charges and over/under interest charges due to contract labour not reported to the WCB. For the appeal to be successful the panel must find that the contractors who provide services to the employer should not be deemed as workers of the firm. The panel was not able to make this determination.

The panel finds that ZS has been properly assessed by the WCB. In arriving at this decision the panel has considered ZS’s relationship to the employer and finds that ZS is an integral part of the employer’s business and is appropriately deemed a worker of the employer. The panel notes that ZS is an unincorporated business run by R and B. R provides the majority of services to the employer on behalf of ZS. R is the employer’s only sales consultant. The employer provides R with a business card with the employer’s address and phone number and identifies R as a consultant. R represents the employer at promotional shows. At the hearing the employer’s representative acknowledged that the employer tries to make R look like part of the employer’s business. File information indicates that ZS is not registered with the Companies Branch and does not advertise their sales services to the public. As well, ZS does not provide sales services to the employer’s competitors. The panel finds that R is an integral part of the employer’s business, functioning as a commission salesperson but not as an individual business.

The panel also finds that ME and WG have been properly deemed as workers of the employer in accordance with Section 1 of WCB policy 35.10.50. The employer argued that both were individual companies and that it should not be liable for assessment on their services, and that WCB’s rules regarding the contractural relationship should not differ from those used for by the federal government programs. The panel notes, however, that it is not uncommon for different legislation drafted, for different purposes, to define relationship in different ways. In this case, the primary objective of the Act and Policy 35.10.50, is to ensure appropriate injury coverage of workers exposed to workplace hazards (such as in the construction industry in the case at hand). The Policy places the obligation on the primary contractor to ensure that the workers are either covered by the contractors (which can be determined by contacting the WCB) or in the alternative, to assume responsibility for those individuals.

In this particular case, the panel notes that both firms operated within a compulsory industry, construction, without WCB coverage at the time that services were provided to the employer. We find that the evidence of their incorporation does not relieve the principal from responsibility for assessment charges. The employer is therefore required to pay the additional assessment charges and over/under interest charges for contract labour not reported to the WCB.

The employer’s appeal is declined.

Panel Members

A. Scramstad, Presiding Officer
A. Finkel, Commissioner
M. Day, Commissioner

Recording Secretary, B. Kosc

A. Scramstad - Presiding Officer

Signed at Winnipeg this 1st day of February, 2007

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