Decision #52/12 - Type: Workers Compensation

Preamble

This appeal deals with a decision made by the Assessment Committee of the Workers Compensation Board ("WCB") which determined that ("A") was a worker and that her earnings for 2008, 2009 and 2010 should be included in the appellant's payroll for assessment purposes. A file review was held on April 11, 2012 to consider the matter.

Issue

Whether or not the director of an associated firm should be categorized as a worker of the appellant firm and have her earnings assessed for 2008, 2009 and 2010.

Decision

That the director of an associated firm should be categorized as a worker of the appellant firm and have her earnings assessed for 2008, 2009 and 2010.

Decision: Unanimous

Background

In November 2011, a payroll audit was performed on the appellant firm by a WCB auditor for the years 2008, 2009 and 2010.

On November 14, 2011, the auditor concluded that the appellant under-reported its assessable payroll for the years 2008, 2009 and 2010 as it did not report the earnings of A who was considered to be a worker and not a director of the appellant firm.

On January 16, 2012, an advocate for the appellant appealed the decision to categorize A as a worker and assess her earnings for 2008, 2009 and 2010. The advocate stated:

"We are of the position that [the appellant] and an associated firm [the parent firm] are associated under the definition outlined in WCB policy 35.20.15. This policy reads in part that:

"The Workers Compensation Board (WCB) will associate two or more employers when their businesses are ancillary to each other and similarly owned. Businesses are ancillary when the business activities of one employer are essential and dependent on those of another employer."

The WCB applies two criteria to determine if one or more employers are associated. These include:

1. Business relationship. Whether the business of one employer is ancillary to the principal business activity of another employer; and

2. Business ownership. One employer has at least 50% ownership in the business of another employer or when one or more persons who are members of the same family as defined under the Workers Compensation Act have 50% or more ownership in the business of another employer.

[The parent firm] is a company jointly owned by [B] and [A]. [A] is Secretary of [the parent firm] and is listed as a director on the Corporations Act Certificate. [The parent firm] is a property development company … and owns [the appellant firm], a building construction company. Each company directly supports the business activities of the other. Specifically, both companies share the same premises, staff and equipment. [The parent firm] purchases land, prepares a development, sells the project and hires [the appellant firm] to construct. Although A is not a Director of [the appellant firm] she is an owner and Director of [the parent firm] which in turn owns 100% of [the appellant firm]. We are of the view that this scenario meets both the Business relationship and Business ownership criteria outlined in the policy and as such the companies should be considered associated for WCB purposes.

If the WCB determines that the companies are associated, we argue that as owner of [the parent firm] [A] is not required to have WCB coverage and as such the decision to assess her earnings as outlined in your November 14, 2011 letter should be reversed…"

On February 2, 2012, the Assessment Committee determined that A was a worker under The Workers Compensation Act, and as such, her earnings are assessable. The Assessment Committee acknowledged that the parent firm and the appellant firm were associated. They stated:

"As far as excluding a director's earnings are concerned, the Workers Compensation Act states the following:

Restriction on 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;

This section of the Act only refers to a director of a corporation not a director of an associated corporation. Consequently, there is no exclusion under this section of the Act related to [A's] earnings.

…

Policy 35.20.15 "Associated Employers" indicates that the association of firms is for classification and rate setting purposes. There is no reference to the exclusion of earnings of an individual that is a director of an associated firm.

Although [the parent firm] and [the appellant firm] appear associated, [A] is only a director of [the parent firm]. However, [the appellant firm] is the firm that paid [A]. As the Workers Compensation Act and Policy 35.20.15 "Associated Employers" do not specifically allow for the exclusion of the earnings of an individual that is a director of an associated firm, the earnings paid to a non-director of a payee firm are assessable."

On February 28, 2012, the appellant's advocate appealed the Assessment Committee's decision to the Appeal Commission and a file review was arranged.

Reasons

Applicable Legislation

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

The appellant is appealing a decision to include the earnings of A in its payroll for assessment purposes.

Subsection 1(1) of the Act defines what the term "worker" includes. Subsection 1(3) deals with restrictions on the definition of worker. It provides in part that:

"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."

Employer's Position

In a letter dated April 1, 2012, the employer's representative submitted that:

"The sole owner of [the appellant firm] is [the parent firm] which is owned by [A and B ]. As owner and Director of [the parent firm] which in turn owns 100% of [the appellant firm], it is our position that [A] is an owner of both companies, not a worker as the WCB has found.

It is our position that based on the facts, [A] is an owner of both companies and is not required to have WCB coverage. "

In support of this position, the representative noted WCB Policy 35.20.15, Associated Employers. She submitted that if the WCB determines that the companies are associated, that as an owner of the appellant's firm, A is not required to have WCB coverage.

Analysis

The issue before the panel is whether A's earnings should be included in calculating the appellant's assessment for the years 2008, 2009, and 2010. For the appellant's appeal to be successful, the panel must find that A is not a worker of the appellant. We are not able to make this finding. We find that A's earnings are appropriately included in the calculation of the appellant's annual assessment for the years 2008, 2009, and 2010.

The relevant facts are not in dispute:

· A is the spouse of B

· A and B are the owners and directors of the parent firm

· The parent firm is the sole owner of the appellant firm

· A is paid by the appellant firm, and appears on the payroll

· A is not a director of the appellant firm in the assessment years under consideration in this appeal

The firm's representative argued that the parent firm and the appellant firm are associated under WCB Policy 35.20.15, Associated Employers. The representative acknowledges that A is not a director of the appellant firm but submits that if the WCB determines that the companies are associated, that as an owner of the appellant firm, A is not required to have WCB coverage.

We are not able to agree with the employer's submission. We find that WCB Policy 35.20.15 is limited to the purpose of associating employers for classification and rate setting. The policy does not deal with the status of individuals as workers nor does it provide for the exclusion of earnings of an individual who is a director or owner of an associated firm.

The Act deals with exclusions from the definition of worker. With respect to a director of employer corporations, the Act provides that a director of a corporation is excluded from the definition of worker, it does not provide that the director of an associated corporation is excluded. The panel notes as well that the parent firm and the appellant firm are two distinct legal entities, as are A and B as individuals, and there is no basis to impute that A is a director of the appellant firm when that relationship does not legally exist.

Although not germane to our decision, we note that A did provide services for the appellant firm, as evidenced by her signature as "Administrator" on various forms in the employer's file, including the appellant's 2011 Quarterly Reconciliation which was date stamped on February 13, 2012.

In conclusion, we find that A is paid by the appellant firm, is not a director of the appellant's firm, is not excluded from the definition of worker, and is accordingly a worker of the appellant's firm. We find her earnings should be included in the appellant firm's payroll for the purpose of assessment.

The employer's appeal is dismissed.

Panel Members

A. Scramstad, Presiding Officer
A. Finkel, Commissioner
P. Walker, Commissioner

Recording Secretary, B. Kosc

A. Scramstad - Presiding Officer

Signed at Winnipeg this 16th day of April, 2012

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