Decision #92/07 - Type: Workers Compensation

Preamble

This appeal deals with whether the appellant firm has been properly classified by the Workers Compensation Board (WCB). The appellant firm operates a drafting and design service. Its major client is classified as a “metal working plant” and the WCB has assigned the appellant firm to the same classification. The appellant firm appealed this classification decision to the WCB’s Assessment Committee which upheld the WCB’s decision. The appellant firm then appealed to the Appeal Commission and a hearing was held on June 5, 2007. Following the hearing, the panel met and rendered its final decision.

Issue

Whether or not the firm’s activities are correctly classified under industry sub-group 310-03 “Metal Working Plant”.

Decision

That the firm’s activities are not correctly classified under industry sub-group 310-03 “Metal Working Plant”.

Decision: Unanimous

Background

The appellant firm is physically located on the same premises as Company A and Company B. It employs drafting and design personnel and clerical workers. The two clerical workers provide services to the appellant, Company A and Company B. Ninety percent of the firm’s time and revenues are derived from work performed for Company A. It also provides services to 4 to 9 other unrelated firms. The normal clerical functions for all three firms, which are provided by the appellant firm, include answering phones, reception, payroll, accounts payable and receivable and other accounting functions. The firm also does photocopying, filing, and printing blueprints and drawings which are produced by the drafting and design staff and are forwarded to Company A.

On December 12, 2006, the appellant firm was advised by a WCB auditor that the WCB was changing its firm’s classification from 903-13 “Business Office” to 310-03 “Metal Working Plant” effective January 1, 2006. The rationale for the change was outlined as follows:

  • “Approximately 90% of [the appellant firm’s] revenue is derived from work performed for [Company A]. It is also our understanding 80-90% of the time spent by the design and drafting employees of [the appellant firm] is on [Company A] jobs. Thus the activities would be incidental to the metal working activity.

  • The administrative activities of Company A and Company B are carried out by individuals on [the appellant firm’s] payroll. It is our understanding approximately 50% of the administrative function is spent on [the appellant firm] and the remaining 50% is divided equally between [Company A] and [Company B].

  • The firms are physically located in the same building at [address].

  • Although the firms are not actually associated in an ownership sense, there is a degree of commonalty of the principals involved in the ownership and management of all 3 firms.”

The above decision was appealed by the appellant firm on January 10, 2007. The appellant stated, in part,

“…explain in detail why you have chosen to treat our company and it’s (sic) relationship with [Company A] differently than that of Company B and it’s (sic) relationship with [Company A]. Please also explain how a customer can affect the classification of the supplier. [Company A] is typical of its industry in that it relies on outside drafting companies for its supply and drawings.

…Most importantly, our company, one of the largest drafting operations in Manitoba is not exposed to the risks of a “Metal Working Plant”. Since its inception, not a single worker of our company has had a job related injury. The 8 employees work at desks (work stations) in an office with computers, copiers, paper and pencils. The firm’s classification as a “Business Office” is correct.

…Further, our company is a volunteer registrant. It is not appropriate to change its classification retroactively when the nature of business has not changed and its risks have likewise not changed.”

The WCB’s Assessment Committee, in its decisions dated February 22 and March 12, 2007, determined that the appellant firm’s activities were incidental to a compulsory industry and therefore was correctly classified under industry sub-group 310-03 “Metal Working Plant”. The Assessment Committee referred to Regulation 196/2005 “Excluded Industries, Employers and Workers Regulation” in its decision. It stated that the WCB did not establish an ownership relationship between the three business entities identified in the audit and as such, each was classified to an industry sub-group consistent with its business activities. The appellant firm’s business activities were incidental to a firm in a compulsory industry and therefore the WCB was required to classify the firm in the sub-group to which its business activities are incidental. The appellant firm disagreed with the decision and appealed to the Appeal Commission.

Reasons

Applicable Legislation and Policy

The Appeal Commission and its panels are bound by The Workers Compensation Act (the Act), regulations and policies of the Board of Directors.

Section 2 of the Act provides that Part I of the Act applies to all employers and all workers in all industries in Manitoba except for those excluded by regulation. Part I of the act establishes the compensation system and the rights of workers and employers under the system.

Manitoba Regulation 196/2005, Excluded Industries, Employers and Workers Regulation (the Regulation) provides that industries, employers and workers listed in Schedule A are excluded from Part I. Paragraph 41 of Schedule A includes the provision of drafting services.

The WCB’s Board of Directors made WCB Policy 35.20.10, Classification of Employers into Sub Groups, which provides criteria for determining when employers will be considered associated and whether they will be classified separately or together. It also provides criteria on how the WCB will classify an employer whose business includes a non compulsory component.

Appellant Firm’s Position

The appellant firm was represented by a chartered accountant who serves as an advisor to the firm. The representative advised that he also serves as treasurer of Company A. He made a submission on behalf of the appellant firm and answered questions from the panel.

The representative noted that Section 2 of the Act excludes certain industries. He said that the appellant firm is claiming an exemption under the Regulation. He noted that paragraph 41 of the Regulation refers to “provision of drafting services” and submitted that the appellant firm is “virtually exclusively” a drafting company and is excluded. He noted that the appellant firm has had voluntary coverage since its inception.

The representative also argued that there is not sufficient association between the appellant firm and Company A to classify drafting services as an in-house operation of Company A. He said in virtually all cases drafting is not provided in house although it is a necessary service.

In answer to questions, the representative provided information on the relationship between the appellant firm and Company A. He also provided information on the industry in which Company A operates. The representative acknowledged or advised as follows:

  • the appellant firm provides drafting services to Company A which fabricates steel for use in structural steel buildings.
  • the appellant firm has operated since 1996. Prior to this date the drafting function was contained within Company A.
  • when the appellant firm was formed the drafting staff from Company A were released and hired by the appellant firm.
  • the appellant firm is owned by individuals and is not owned by Company A.
  • the appellant firm charges Company A an hourly rate for its services and bills monthly for the services.
  • Company A gives the appellant firm direction on when it requires particular drafting services. This is to increase the efficiency of Company A. The appellant firm is free to schedule its work against those deadlines.
  • the appellant firm does not have a phone listing, and contact with the appellant firm is made through Company A’s phone lines.
  • the appellant firm provides administrative services, including reception and payroll services, to Company A and Company B, in exchange for office space, including all occupancy costs, in Company A’s premises. The services are provided by two staff employed by the appellant firm. The appellant firm employs eight staff who perform drafting functions. The representative explained that the value of the administrative services provided by the appellant firm are roughly equivalent to the value of premises provided by Company A.
  • the appellant firm provides drafting services for other companies who are not competitors of Company A. The appellant does not seek out other additional work as it is short- staffed.
  • Company A uses the services of other drafting firms when the appellant firm is unable to provide the services. It obtains less than ten percent of the drafting services it needs from other suppliers.
  • in the structural steel business, Company A has two to three main competitors. The competitors do not have in-house drafting departments.

Analysis

The issue before the panel is whether the firm’s activities are correctly classified under industry sub-group 310-03 “Metal Working Plant”. The panel was not able to make this finding.

The panel finds that the appellant firm’s business is the provision of drafting services and in accordance with Section 2 of the Act and paragraph 41 of Schedule A of the Regulation, is excluded from compulsory coverage under Part I of the Act.

The panel notes that the appellant’s main customer, Company A, operates in the “metal working plant” industry but finds there is no basis for assigning the appellant firm to this classification. The appellant is not owned by Company A and, as found by the WCB auditor, is not associated with Company A under WCB Policy 35.20.10.

While the appellant firm provides some administrative services to Company A, this does not alter the finding that the appellant firm is in the drafting business. According to information provided at the hearing and on the claim file, less than ten percent of the appellant firm’s assessable payroll can be tracked to the provision of these administrative services. The panel also notes that the provision of these services is in exchange for the provision of office premises.

The panel finds that while access to drafting services are essential for the operation of a structural steel fabricating firm, the industry practice, as reported by the firm’s representative, is that drafting services are not provided in house. This is the situation in this case. The appellant firm is independently owned and also provides drafting services to others.

The panel finds that the firm has not been correctly classified. The firm’s appeal is allowed.

Panel Members

A. Scramstad, Presiding Officer
A. Finkel, Commissioner
B. Malazdrewich, Commissioner

Recording Secretary, B. Kosc

A. Scramstad - Presiding Officer

Signed at Winnipeg this 11th day of July, 2007

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