The Appeal CommissionThe Workers Compensation Act of Manitoba

Applicable Legislation and Policy

Section 79 of The Workers Compensation Act authorizes the WCB to assign an employer to an appropriate industry sector or sub-group for assessment purposes. It provides that:

79 The board shall assign each employer in an industry within the scope of this Part to an appropriate class, sub-class, group or sub-group, as determined by the board, and where an employer's undertaking includes departments that are assignable to different classes, sub-classes, groups or sub-groups, the board may

(a) assign the employer to the class, sub-class, group or sub-group of the principal department of the undertaking; or

(b) assign each department to the appropriate class, sub-class, group or sub-group.

Section 60(2)(i) of the Act sets out the jurisdiction to determine matters such as employer classification:

Without hereby limiting the generality of subsection (1), it is declared that the exclusive jurisdiction of the board extends to determining

…

(i) Whether or not an employer’s undertaking, or any part, branch or department of an employer’s undertaking is in an industry within the scope of this Part, and the class, sub-class, group or sub-group to which an employer’s undertaking or any part, branch or department thereof should be assigned.

WCB Policy 35.20.10 Classification of an Employer into Industry Sectors and Sub-Groups (the "Classification" policy) addresses the manner in which employer assignments are to be made. It provides that:

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

This policy clarifies the principles of employer classification and establishes the criteria for when an employer will be classified under one sub-group or under more than one sub-group. It also establishes criteria on how the WCB will classify an employer whose business includes a noncompulsory component.

The Classification policy contains the following definitions:

INDUSTRY SECTOR: Sub-set of the economy in which business activities share similar characteristics.

SUB-GROUP: The specific industrial classification used in establishing the employer's assessment rate. This sub-group is identified by a five digit code assigned to the employer.

DEPARTMENT: Any part, branch, or division of an employer's business which operates in a separate industry that is not merely incidental to the employer's main industry.

SEPARATELY ADMINISTERED: Having a separate management, supervisory and administrative operational structure with no significant exchange of management personnel with other departments of the employer.

The Classification policy sets forth the principles governing employer classification. It provides that:

The classification of employers into sub-groups is consistent with and upholds the principle of collective liability. The purpose of grouping together employers with similar industrial activities and similar levels of risk is to assist in setting fair and equitable assessment rates that best reflect the collective liability of that group.

Employer classification is based on the presumption that an employer will be assigned to one sub-group unless the employer qualifies for more than one sub-group in accordance with the criteria established in this policy. As a general rule an employer will be assigned a sub-group based on the employer’s principal industrial undertaking. All of the following criteria will apply:

Employer Status

All employers in all industries not excluded by the Excluded Industries, Employers and Workers Regulation (the Regulation) (compulsory employers) will be classified into industry sectors and placed in industry sub-groups. Employers excluded by the Regulation (non-compulsory employers) but with WCB coverage will also be classified using the same principles.

Business Description

On registration an employer is required to provide a description of his or her business. The business description will be used to determine the employer’s classification into an industry sector and industry sub-group.

Industry Sector

As a general rule employers are classified into an industry sector based on the principal nature of their business activity.

Sub-Group

Within each industry sector, an employer's sub-group is also determined by the employer's principal business operation. It is not affected by the legal structure of the business or the various occupations within the employer's operation. The assignment into a sub-group within the WCB’s classification system follows a comparative process which takes into account the similarity (or differences) in all of the following factors:

The employer’s industrial activity,

Operational and production processes;

Use of similar equipment;

End products or services;

Customer base; and

Competitors.

When the WCB determines that two or more employers have mutually dependent business activities (as defined in Policy 35.20.15, Associated Employers) but share no common ownership, they may be assigned an industry classification based on the combined business activities of the group.

Sub-Group Fit

When there is no clear fit or similar sub-group classification, the WCB will use its judgment to classify the employer into the sub-group that has the best fit. In doing so, it may review the occupations of workers in the business, business locations or other information to get a better understanding of the employer’s business activities in order to make a judicious and fair decision. When there is a requirement to use judgment, the WCB will give consideration to the fair treatment of other employers in the same industry.

The WCB may form additional sub-groups when an employer’s industrial activities do not fall into any one of the existing sub-groups in the classification system. In deciding if a new sub-group is needed the WCB will take into consideration whether the size of the group is large enough to be statistically significant and if the size of the group lends itself to reliable statistical analysis.

More than One Industrial Activity but Not Multi-Class

When an employer is operating in more than one industrial activity but does not qualify for multiple classification in accordance with this policy, the assignment into a sub-group will be determined based on the predominant business operation. If there is more than one predominant operation the sub-group will be assigned based on the principal sources of revenue, lines of production and any other measure that best represents that employer’s business operations.

The “Classification Descriptions” for the various sub-groups have been developed internally by the WCB and are used to (i) classify employers and (ii) to develop assessment rates having regard to the overall claims experience for each sub-group.

Employer’s Position

The employer’s appeal of October 12, 2011 contended that the employer had been improperly classified as code 70106 Sector 7 Service Industries (Restaurant and Catering). It stated that the employer “is a franchisor that provides business support to the franchise owners who operate the restaurants. We should be in Professional/Business Offices.”

On November 29, 2011, the employer submitted a letter that stated, in part:

Currently, [the employer] provides the following: Audits the franchises for standards, provides franchisee training, purchasing support and marketing support. [The employer] ensures that each location is provided with support when needed, including financial reporting and financial planning. Our employees do not serve customers food or drinks nor do they provide any support with regards to food or drink industry. According to the reference guide WCB assigns industry classification that best fits our business operations and the “Professional/Business Offices” which is code 90313 Sector 9 Voluntary, best fits [the employer]. (emphasis theirs)

Analysis

In order for the appeal to succeed, the panel must find that the WCB improperly classified the employer in “Restaurant and Catering”. We are unable to make this finding for the reasons that follow.

In June of 2011, the employer initiated a request for coverage for a newly created position. The worker is the employer’s sole employee in Manitoba.

The “Business Description” set forth on the WCB Registration Summary read as follows:

Worker is paid from head office in BC. The head office sells franchises for [the employer]. This worker is a Manitoba resident that works out of a home address and visits the Manitoba restaurant locations for [the employer]. She does training and development, helps set up the new franchises and showe (sic) them how to make more money but does not sell franchises to new owners or promote to new owners.

Worker would also visit with and contact franchises in Manitoba to make them aware of new procedures or products and promotions through the franchise agreements and ensure the franchises comply with the franchise agreements. Discussed with supervisor, [name]. Make incidental to 70106 compulsory as this person is not selling the franchises here and they have no base out of which they sell the franchises.

Set up as 70106 and [the employer] will send in more detail (sic) description to appeal classification. They would most likely want coverage here if optional due to nature of work that means visits to various sites may take place.

On July 23, 2011, the employer left a telephone message with the WCB stating that it did not have a restaurant and that it should be classified “under 90313”. This message was treated as an appeal, and the employer was advised that the Assessment Committee would meet on August 17, 2011 to consider the employer’s request for a review of its classification.

The Assessment Committee Minutes of August 16, 2011 denied the employer’s appeal. It noted that the Classification Policy states that “As a general rule employers are classified into an industry sector based on the principal nature of their business activity.” It further stated:

The activities of the worker are related to the restaurant industry. As this worker is providing support to the various restaurants in Manitoba and is not selling the franchise operations, the Committee feels these activities are incidental to the restaurant industry and is therefore classified correctly.

The employer was advised of the denial by letter dated September 12, 2011. On October 12, the employer appealed the Assessment Committee’s decision to the Appeal Commission.

The employer contends that its operation should have been classified in Sub-Group 903-13 Professional/Business Offices. That classification enumerates 31 different categories, similar in nature, such as: provision of accounting services; operation of a community or cultural association; provision of banking, investment and financial planning services; provision of business consulting services; operation of a business office that is incidental to an excluded industry, provision of business services; operation of a business centre or a charitable foundation; and others.

The employer’s operation has been determined by WCB to fall within Sub-Group 701-06 Restaurant, Catering Industry Sector: 7 Service Industries.

The following Classification policy related principles are relevant to this determination. They provide that:

· The purpose of grouping together employers with similar industrial activities and similar levels of risk is to assist in setting fair and equitable assessment rates that best reflect the collective liability of that group.

· As a general rule an employer will be assigned a sub-group based on the employer’s principal industrial undertaking.

· The assignment into a sub-group within the WCB’s classification system follows a comparative process which takes into account the similarity (or differences) in all of the following factors:

The employer’s industrial activity,

Operational and production processes;

Use of similar equipment;

End products or services;

Customer base; and

Competitors.

· When there is no clear fit or similar sub-group classification, the WCB will use its judgment to classify the employer into the sub-group that has the best fit. In doing so, it may review the occupations of workers in the business, business locations or other information to get a better understanding of the employer’s business activities in order to make a judicious and fair decision. When there is a requirement to use judgment, the WCB will give consideration to the fair treatment of other employers in the same industry.

The Classification Descriptions developed by the WCB serve as benchmarks to be used in classifying the employer’s primary business activity. The descriptions set forth the type of activities that are included, while at the same time describing similar activities that are included under other classifications.

The panel finds that the primary activity of the employer in Manitoba is best characterized as falling within the restaurant rather than the professional/business offices sector. The employer’s sole employee in Manitoba does not sell franchises and is not engaged in the provision of business services. Rather, the employee's responsibilities are primarily focused on enhancing local restaurant sales, service, and operations which are similar requirements in any successful restaurant, whether it is a franchise or a standalone operation. The panel further finds that the employee conducts compliance audits to ensure franchise standards are adhered to and that the policies of the employer are followed.

The panel also finds that the employee provides her services strictly and exclusively for the employer and does not provide any form of support service to other employers/restaurants in the food and drink industry as a consultant, and is essentially a captive employee engaged with the employer's Manitoba-based restaurants. The panel notes there has been no suggestion that the employer’s classification is at variance with the classification assigned to any of its competitors. The panel finds that the category that the board has assigned represents the better of the two “fits” that have been considered.