Decision #125/12 - Type: Workers Compensation
Preamble
The firm is appealing the decision made by the Assessment Committee of the Workers Compensation Board ("WCB") which determined that the firm was required to report the labour portion amounts paid to their unregistered subcontractors. A file review was held on November 5, 2012 to consider the matter.Issue
Whether or not the firm is responsible for reporting the labour portion of any payments made to unregistered subcontractors.Decision
That the firm is responsible for reporting the labour portion of any payments made to unregistered subcontractors.Decision: Unanimous
Background
On January 10, 2012, a WCB auditor attended the firm's premises to conduct an audit of the firm's workers' earnings and to conduct an industry investigation. The auditor noted:
"…that the firm correctly reported their 2011 total assessable workers' earnings'. The firm under reported their 2010 total assessable workers' earnings by $135,308.00, resulting in a debit adjustment of $4,208.08. The difference refers to not reporting the T-4-d earnings of a spouse, who is not considered to be a director of the firm, and not reporting other contract workers' earnings.' Since the adjustment appears to be significant, I decided to audit prior years - ie 2009, 2008, and 2007.
The firm under reported their 2009 total assessable workers' earnings by $127,239.00, resulting in a debit adjustment of $3,918.96. The difference is similar to 2010.
The firm under reported their 2008 total assessable workers earnings by $164,287.00, resulting in a debit adjustment of $5,569.22. The difference is similar to 2010.
The firm under reported their 2007 total assessable workers earnings by $79,777.00, resulting in a debit adjustment of $3,262.88. The difference is similar to 2010."
…The firm employs causal workers, permanent workers and sub-contractors, which are all T-5018.
…I reviewed all sub-contractors used by the firm for 2009 and 2010, and explained the firm's responsibility regarding contract labour to [owner of firm]."
By letter dated March 16, 2012, the firm was provided with details of the audit investigation for the years 2011, 2010, 2009, 2008 and 2007. The auditor stated:
"My audit showed that your firm uses contract individuals or firms to provide labour in your operations. Some contractors were registered with the WCB as an employer or labour contractor as defined by the Status of Workers - Independent Contractors and Employers Policy and were therefore not considered your workers. The contractors who were not registered with the WCB as an employer or labour contractor were considered your workers. As workers, you must continue to report their earnings in future years. In this regard, I have enclosed our WCB Fact Sheet "Coverage for Contract Workers". Please use one of the WCB Clearance Request Systems listed below to determine your firm's current coverage and reporting responsibilities for any additional contract labour engaged."
On April 2, 2012, the firm's owner called the WCB to advise that he disputed much of the audit findings as he was not made aware of his obligation by the WCB to check the status on the subcontractors he had employed in the past. A formal written appeal was later submitted by the firm's office manager dated May 2012 to the WCB's Assessment Committee.
On May 29, 2012, the Assessment Committee determined that the firm was required to pay the additional assessment and resulting penalties as identified in the audit working papers. The years 2005 and 2006 would not be audited as it extended beyond the five year limit that was legislated for retroactive audits.
The Assessment Committee noted that a letter and questionnaire were sent to the firm on May 6, 2005 referencing correspondence that inquired if they were operating in a compulsory industry. The firm did home renovations and had approximately $50,000 in workers' earnings. Question 7 of the letter inquired if the firm contracts out any work, the contract information and type of work done by each subcontractor. The firm indicated in question 7 that: "In the works of setting up sub's." The completed sheet was received by the WCB on May 17, 2005 which resulted in the firm's registration on May 18, 2005. After the firm was registered with the WCB, the WCB sent the firm a letter dated June 29, 2005 that referred to the WCB's Clearance system if they were to engage the services of subcontractors. The firm was registered on the on-line Clearance system commencing in 2012.
The Assessment Committee referred to relevant sections of The Workers Compensation Act and WCB Policies. It stated that the firm was the principal contractor and it was responsible for ensuring that any subcontractors the principal engaged had WCB coverage. If the subcontractors do not have coverage, the principle was ultimately responsible for reporting the labour portion of any amounts paid to the subcontractors.
The Assessment Committee noted in their decision that the WCB provided the firm with information by mail on a number of occasions since 2005 regarding a principal's reporting responsibilities when using subcontractors. They were also provided with information on how to use the Clearance System to check the status of sub-contractors.
The Assessment Committee was of the opinion that the firm was provided with enough information regarding the use of subcontractors and had the firm provided the WCB with a list of their subcontractors as they documented in point 7 of their registration form back in May 2005 or read any of the information sent to them over the past few years, it was likely that the firm would have inquired about their reporting responsibilities when engaging subcontractors and/or used the Clearance System much earlier to check on the status of their subcontractors.
On July 24, 2012, the firm appealed the Assessment Committee's decision and a file review was held at the Appeal Commission.
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.
Section 60(2.1) of 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, Status of Workers, Independent Contractors and Employers, (the "Policy") explains how the WCB determines a person's status as a worker, employer or independent contractor for the purposes of the Act. It also describes the circumstances in which the WCB will deem one person to be the worker of another.
Firm's Position
In its application to appeal, the firm indicated that the Assessment Committee decision should be overturned for the following reason:
"Some of the companies that we subbed out work to met with a least 6-7 of 10 criteria for an independent business and we feel that the WCB should be going after these companies for past years."
In its written submission to the Appeal Commission, which was received on September 25, 2012, the firm noted that:
"We have people that we employ full-time, year round, whom we have claimed. We also use contractor's for what our people cannot do. We are their customer. Upon reading the WCB statement on page 2, these people fell under an independent business. Again, up until that audit, after seven (7) years in business, we were not aware of the website. It was the auditor who made us aware."
The firm advised that now that it is aware of the WCB's Clearance system website; it has tried tracking sub-trades on the website and that "it is very frustrating." The firm expressed concern about the accuracy of the WCB Clearance System and website. It noted that every week standings are different, often when it confronts a sub-trade regarding its status, the sub-trade has to call the WCB and have them correct information about its status on the Website.
The firm provided some examples of "discrepancies" it has found on the website.
The firm wrote that "…we do not believe that we should be held 100% accountable for the lack of knowledge in this situation." It suggested that "…the WCB should share in the fault as well as the penalty as it seemed that they were as lax in this situation as we were ignorant."
Analysis
The issue before the panel is whether the firm is responsible for reporting the labour portion of any payments made to unregistered subcontractors. For the firm's appeal to be successful, the panel must find that the firm is not responsible for reporting the labour portion of payments made to unregistered subcontractors. The panel was not able to make this finding. The panel finds that the firm is responsible for reporting the labour portion of any payments made to unregistered subcontractors.
The evidence as noted in the WCB auditor's report is that the unregistered subcontractors who provided services to the firm did not have WCB coverage at the time they provided services to the firm. There is no evidence to the contrary on the file.
The panel finds that WCB Policy 35.10.50 applies to the circumstances of this appeal and is binding on the panel.
The policy defines the terms employer, principal, service provider and worker:
Definitions
Employer: This term is defined in subsection 1(1) of the Act. For the purposes of this policy, the relevant part of the definition is contained in subclause (a)(i) and clause (c): “a person who has in service under a contract for hiring or apprenticeship…a person engaged in work…”; and “a person that the board has determined under subsection 60(2.1) to be an employer”.
Principal: In this policy, this term will be used to describe the person for whom work is performed before a determination is made as to whether that person is an employer.
Service provider: This term is used in this policy to describe a person who provides work or services for a principal before a determination has been made as to whether the person is a worker or an independent contractor.
Worker: This term is described in subsection 1(1) of the Act. For the purpose of this policy, the relevant definition is contained in clause (a): “a person…who enters into or works under a contract of service or apprenticeship” and (d): “a person deemed to be a worker under subsection 60(2.1).” Essentially, a worker under clause (a) is an employee.
Section 4 of the policy provides:
"In some cases, the relationship between the service provider and the principal exhibit some of the characteristics of a worker and some of the characteristics of an independent contractor. In those circumstances, if the service provider does not have voluntary coverage, the WCB will deem the service provider to be the worker of the principal and will deem the principal to be the employer. "
Applying the policy to the facts of this case, the firm is a principal, it received services from independent contractors, the independent contractors were not registered for coverage with the WCB at the time that the services were provided, and therefore the panel finds that the principal (the firm) is properly deemed the employer of the independent unregistered contractors.
The firm expressed concerns that it was not informed by the WCB about the WCB Clearance System, the need to determine whether subcontractors were registered with the WCB, and its obligation to pay assessment on the labour portion of contracts with unregistered subcontractors. The file information contradicts this assertion. The firm's file demonstrates that the WCB did provide the employer with information on all these topics. The file shows that from the time the firm was registered to the date of the audit, there were six Employer Updates mailed to the firm that addressed the Clearance System and/or an employer's responsibility when hiring subcontractors. The firm acknowledges receiving those updates but placing them in a drawer and did not read them again. The panel finds that the responsibility for insuring the parties had coverage rested with the firm and not with the WCB on the firm's behalf.
The firm's appeal is dismissed.
Panel Members
A. Scramstad, Presiding OfficerA. Finkel, Commissioner
P. Walker, Commissioner
Recording Secretary, B. Kosc
A. Scramstad - Presiding Officer
Signed at Winnipeg this 15th day of November, 2012