The Appeal CommissionThe Workers Compensation Act of Manitoba

Preamble

The firm is appealing two decisions made by the Workers Compensation Board ("WCB") in relation to the issues outlined below. A file review was held on September 9, 2013 to consider these matters.

Issue

Whether or not the earnings paid to the firm's accountant are assessable by the WCB; and

Whether or not payments made by the firm to the numbered company for contract management services are assessable.

Decision

That the earnings paid to the firm's accountant are assessable by the WCB; and

That payments made by the firm to the numbered company for contract management services are assessable.

Decision: Unanimous

Background

On January 2, 2013, the WCB issued a letter to the firm which outlined the results of an audit that was conducted for the years 2010 and 2011.

On March 14, 2013, the firm's chairperson disagreed with several determinations that were made by the WCB's auditor as outlined on January 2, 2013. In particular, the firm was of the view that their accountant was exempt from coverage under The Workers Compensation Act (the "Act") and therefore it was not a requirement for them to report the accountant's T-4 earnings to the WCB. The firm also disagreed that they were required to report payments made to a numbered company for contract management services. The firm's position was outlined as follows:

"[Company C] - This corporation is a single shareholder corporation. [Name] is the initial incorporator and sole shareholder. The fact that the corporation has not filed annual returns does not change the fact that it is a single shareholder corporation and as such it is exempt. [name] wages were transferred intercompany to [Company B] of which he is a shareholder and director."

By letter dated March 21, 2013, the WCB's auditor advised the firm that he was unable to adjust his audit findings on the assessment earnings of the accountant and he could not adjust his audit findings based on the intercompany transfer.

On April 16, 2013, the WCB's Assessment Committee met to consider the firm's appeal and the following determinations were made:

1. That the accountant was the worker of the firm and her earnings were assessable by the WCB. The Assessment Committee indicated that accounting was only exempt under MR 169/2008 "Excluded Workers, Employers and Industries Regulation" as a specific industry and not as an occupation or duty performed. The accountant was paid and T4-'d for an accounting duty performed.
2. That firm A paid Company C for contract management services and procurement services that are incidental to the primary business activity of the firm. The Assessment Committee noted that [name] was not a director of firm A. A person who is not a director of the corporation or registered with the board as an employer or a labour contractor, who is paid by the employer, is considered to be the employer's worker whose earnings are assessable by the WCB.

On May 23, 2013, the firm appealed the Assessment Committee's April 16, 2013 decisions 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 firm is appealing the inclusion of payments made by the firm to certain individuals or firms in its assessment.

The Act provides the WCB with broad authority to deal with assessment matters. Subsection 60(2) provides that the board has exclusive jurisdiction to determine whether an employer's undertaking is in an industry within the scope of the Act and whether a worker is employed in an industry within the scope of the Act. Subsection 60(2.1) provides the board with the authority to deem that a person who performs work for another person is a worker and the other is an employer and to include the worker's earnings in the assessment of the employer.

Pursuant to its authority under the Act the Board of Directors of the WCB established policies to assist with determining the status and relationship of parties under the Act. The Board established WCB Policy 35.10.50 "Status of Workers, Independent Contractors and Employers" which explains how the WCB determines the status of a party under the Act. It also established WCB Policy 35.20.15 "Associated Employers" which established criteria for determining when two or more firms will be associated and to clarify how being associated will influence their assessment and industry classification.

Firm's Position

The chairperson of the firm's board of directors provided a written submission dated August 28, 2013.

With respect to the first issue, the chairperson submitted that the Assessment Committee erred in relying on the issuance of a T4 slip as proof of an employment relationship rather than "considering the working arrangement" that the accountant had with the firm. The chairperson advised that:

• the accountant had other clients.
• the accountant had control of when she would come into the firm's premises or would work from home.
• the firm had no direct control over the accountant's daily activities.
• the accountant worked independently within a defined framework of what the firm needed.
• the accountant had no one overseeing her.

The chairperson submitted that if the accountant is found not to be a worker, she would fall under the excluded industry regulation.

The chairperson indicated that the second issue was more complicated. He explained that in 2010 he and his son, S, decided to incorporate Company B. Inasmuch as firm A was already in a related industry he felt that his son's expertise in sales would create a mutually beneficial arrangement. Company B was incorporated in the summer of 2010 but "there was not a lot of activity during that first year." In 2011 Company B started to generate business. His son, S, incorporated his own Company C in 2010 for the purpose of providing consulting, sales and management services to Company B. Due to negative cash flows Company B was not able to pay his son's Company C so firm A made payments to Company C on behalf of Company B. The chairperson noted that "Unfortunately in order to expedite payment to the consultant my bookkeeper made the cheques from [firm A] payable directly to [Company C], rather then (sic) to [Company B] first and then have [Company B] issue the cheques to [Company C]."

The chairperson submitted that at no time did his son's Company C provide any consulting services person to firm A. Its sole purpose was to provide consulting services to Company B. He noted that his son is a shareholder of both C and B.

The chairperson advised that the payments were treated as loans from the firm A to Company B. He submitted that if the WCB Assessment Committee had examined the true nature of the payments and the relationship between the parties, they would not have found the payments to Company C as being assessable.

Analysis

The firm has appealed two issues related to its assessment by the WCB. Both involve a determination of whether a person was a worker or independent contractor.

The panel has considered and applied WCB Policy 35.10.50, Status of Workers, Independent Contractors and Employers, in this appeal. The policy provides, in part, that:

"3. Determining Status as an Employer, Worker or Independent Contractor

General

When a person is in a traditional employment relationship (i.e., works set hours for one person and receives T4 income), it is easy to determine that the person is a worker. However, in some cases it is not obvious whether a person is a worker or an independent contractor because of the manner in which the relationship between the service provider and the principal is structured. The WCB will consider the details of the relationship between the service provider and the principal in order to determine whether the service provider is a worker or an independent contractor. The status of the principal (i.e., whether or not he or she is an employer) will be determined by the status of the service provider.

Specific considerations

In making the determination, the WCB will look at all of the facts. The manner in which the parties characterize the relationship will be considered by the WCB but will not determine the matter. The factors that the WCB will consider in making this determination include:

· Is the service provider paid T4 income or business income? A person receiving T4 income is likely a worker. Business income suggests independent contractor status.

· Does the service provider work under the supervision and control of the principal? In other words, does the principal dictate specific hours of work or how a particular task is to be performed, or is the service provider free to determine those matters on his or her own? The more control that is exercised by the principal, the more likely it is that the service provider is a worker.

· Does the service provider perform work that is an integral part of the business of the principal? The more integral to the business the work performed is, the more likely that a service provider is a worker.

· Does the service provider have significant financial investment in and responsibility over the vehicles, tools and major pieces of equipment that he or she requires to perform the work? Financial investment in, and responsibility over, vehicles, tools and equipment suggests independent contractor status.

· Does the service provider take financial risk or have the possibility of increasing his or her profit by, for example, performing the work in a shorter period of time? Significant risk and the possibility of reward suggest independent contractor status.

· Is the service provider hired for specific jobs or is the working relationship between the service provider and the principal continuous and ongoing? Being hired for a specific job suggests independent contractor status; having a continuous, ongoing relationship is more indicative of a worker.

· Is the working relationship exclusive or does the service provider perform the same or similar work for a number of different people or entities? Provision of service to one person suggests that the service provider is a worker.

· Is the service provider responsible to pay all business expenses and remit his or her own income tax, GST, etc? Responsibility for business expenses and taxes suggests independent contractor status.

No one factor is determinative of the matter. The relationship as a whole will be considered."

The panel also considered WCB Policy, 35.20.15, Associated Employers in addressing this appeal.

Issue 1: Whether or not the earnings paid to the firm's accountant are assessable by the WCB.

For the firm's appeal to be successful, the panel must determine that the accountant was an independent contractor and not a worker of the firm. The panel was not able to make this finding. The panel finds that the accountant's earnings are assessable.

In reaching this decision, the panel has considered the relationship between the firm and the accountant as a whole and notes the following:

• a memo from the WCB auditor dated February 8, 2012 notes that "I spoked (sic) to [president] today to explain the audit process and he concurred with my request. He did confirm that he wants [Company B's ] file closed, no workers in 2011 and currently. He confirmed that he is keeping [firm A] open until his year end is completed, then he will be laying off his only employee." This memo confirms that the firm was employing the accountant as a worker and then "laying off" the accountant.

• a review of the firm's books establishes the firm issued a T4 to the accountant for her earnings and also made contributions to the Canadian Pension Plan and Employment Insurance on behalf of the accountant. These actions support the finding that the accountant is a worker of the firm.

• the evidence supports a finding that the accountant was an integral part of the firm's business as she was responsible for the accounts and books of the employer. The panel also finds the accountant provided services on a continuous and ongoing basis.

• while the accountant was able to work from her home, the panel finds that she was provided a work space at the firm's premises.

Although the chairperson advised the panel that the accountant had provided services to other clients, there was no evidence provided in support of this assertion. In any case, the evidence noted above, on a balance of probabilities, establishes that the accountant was a worker and not an independent contractor.

The chairperson advanced the position that the accountant was in an excluded industry under WCB regulations. Given the panel's finding that the accountant was a worker for the purpose of the firm's assessment, she is not excluded under the regulations. The panel notes that salaried accountants employed by firms are not excluded by regulation.

The firm's appeal of this issue is dismissed.

Issue 2: Whether or not payments made by the firm to the numbered company for contract management services are assessable.

According to the chairperson, firm A is in the business of constructing new homes and renovating existing buildings, while Company B is in the business of selling construction materials to the general public and Company C is in the business of providing consulting, sales and management services to Company B. He said that Company C did not provide service to firm A and its services should not be assessable to firm A. Rather, he says that Company C provided services to Company B and that the principal of Company C is a director of Company B and therefore his services are not assessable to Company B.

For firm A's appeal to be successful the panel must find that Company C did not provide services to firm A. The panel is not able to make this finding.

The panel finds that for the period of the audit:

• firm A issued payment to Company C on 5 occasions in 2011 for services rendered.
• the principal of Company C is not a director of firm A and neither Company C nor its principal are registered as an employer or labour contractor.
• the payments made by firm A to Company C for management services are assessable.

The panel notes the chairperson of firm A submitted that the payments by firm A to Company C were, in effect, a loan to Company B. The panel notes that no loan documentation other than ledger entries were provided to support this position.

The panel does not find that the subsequent inter-company financial transfers between Company B and firm A adequately address the status of payments made by firm A to Company C.

The firm's appeal of this matter 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 12th day of September, 2013