The Appeal CommissionThe Workers Compensation Act of Manitoba

Preamble

The worker is appealing the decision made by the Workers Compensation Board ("WCB") regarding the calculation of his net average earnings, specifically, in relation to the deduction of Canada Pension Plan ("CPP") contributions. A hearing was held on September 24, 2013 to consider the matter.

Issue

Whether or not the worker's net average earnings have been correctly established.

Decision

That the worker's net average earnings have not been correctly established.

Decision: Unanimous

Background

The worker's claim was previously the subject of an Appeal Commission hearing held on June 28, 2011. One of the issues decided by the appeal panel was "Whether or not the worker's gross average earnings have been correctly calculated." Under Appeal Commission Decision No. 118/11 dated August 26, 2011, it held that the worker's gross average earnings had been correctly calculated at $1,126.65 per week. The appeal panel found that the worker was appropriately deemed a worker of his employer under WCB policy, the 65% labour rate was correct and his 2007 income best reflected his actual loss of earnings.

In January 2012, the worker disagreed with the method used by the WCB to calculate his net average earnings. In particular, the worker expressed disagreement with having CPP deductions taken off his gross average earnings. The worker noted that he began collecting CPP benefits in January 2011.

On January 26, 2012, a WCB senior case manager determined that the worker should not have been deducted CPP benefits starting May 1, 2011 as this would have been the first day of the month following the anniversary of his accident.

By e-mail correspondence dated January 30, 2012, the worker requested that all CPP deductions from 2011 should be reimbursed. The worker stated: "This is unfair and I would think in violation of the Canada Pension Plan Act as deductions are not required once you are receiving CPP as I have been since January 2011. It would be unfair for the WCB to receive a financial benefit from this. The CPP figure used is from the June 2008 wage loss calculations."

On January 31, 2012, a WCB review officer spoke with the worker to clarify what he was appealing. The worker stated that the Appeal Commission classified him as an independent contractor, yet the WCB were deducting benefits as though he were a regular employer. The worker noted that his 2006 and 2007 income tax returns reported 11% income tax deduction but the WCB was taking off 35%.

In a decision dated March 14, 2012, Review Office determined that CPP and income tax deductions had been correctly calculated. Review Office indicated that net average earnings are average earnings less probable deductions such as income tax. Direction in determining net average earnings was provided by subsection 40(3) and 40(4) of The Workers Compensation Act (the "Act") and WCB Policy 44.80.10.40, Net Average Earnings (the "Net Average Earnings Policy"). Review Office noted that probable deductions were based on the worker's average earnings, and consideration was not given to what the worker actually paid in income tax prior to his accident.

With respect to the deduction of CPP contributions, Review Office noted that the worker argued that the deduction should never have been made, as when he was working, he paid both parts (employer and worker) of the contribution. The worker also wrote that since the WCB did not forward the deduction to the government on his behalf, he received no benefit from this deduction and therefore it should not be deducted.

Review Office indicated that the worker began to collect CPP retirement benefits as of January 2011. The WCB recognized this by not making a probable deduction for CPP contributions effective May 1, 2011. The May 1, 2011 date was chosen because the worker's accident was in April 2008. Doing so was based on the Net Average Earnings Policy. Review Office concluded that the adjustment for a probable deduction for CPP should not have been made until May 1, 2011. On March 26, 2012 the worker appealed Review Office's decision to the Appeal Commission and a hearing was arranged.

Reasons

Chairperson Choy and Commissioner Finkel:

Applicable Legislation and Policy:

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

The provisions set out in section 40 of the Act provide guidance on determining loss of earning capacity.

Subsection 40(2) of the Act addresses adjustment and indexing of monthly payments and reads as follows:

Monthly payments adjusted and indexed

40(2) The worker's average earnings before the accident calculated in accordance with section 45 shall be adjusted as of the first day of the month following the second anniversary of the accident and annually thereafter by applying the indexing factor determined under section 47.

Subsection 40(3) of the Act addresses the calculation of net average earnings and reads as follows:

Calculation of net average earnings

40(3) For the purpose of this Act, the net average earnings of a worker are his or her average earnings calculated in accordance with section 45, less the probable deductions for the following:

(a) income tax payable by the worker, calculated by using the worker’s income from employment and Employment Insurance benefits as income, and the worker’s basic personal tax credits or exemptions, and tax credits or exemptions for a person who is a dependant of the worker, under the Income Tax Act (Canada), as at the date of the accident or an annual review under subsection (2), as deductions;

(b) Canada Pension Plan premiums or Quebec Pension Plan premiums payable by the worker;

(c) Employment Insurance premiums payable by the worker; and

(d) such other deductions as the board may establish by regulation.

The Net Average Earnings Policy describes how a worker’s net average earnings are calculated. Section A(ii) of the Policy addresses probable deductions and reads as follows:

(ii) Probable Deductions from Average Earnings

1. Probable deductions for CPP contributions and EI premiums are based on requirements of the Canada Pension Plan Act and the Employment Insurance Act.

2. When determining probable amounts, the WCB considers the contribution levels required under those Acts. Workers who are not required to pay CPP contributions or EI premiums do not have these probable contributions or premiums deducted.

3. Probable deductions for income tax are based on the worker's average earnings and the tax credits and deductions that the WCB allows. Workers who are not required to pay income tax do not have probable income tax deducted.

4. The worker may claim the following tax credits: basic personal amount, spouse or common-law partner amount, amount for an eligible dependant, amounts for dependent children who are under 18 at any time in the year, and infirm dependants age 18 or older. For the purpose of determining the probable deduction for income tax, the WCB will reduce the worker's average earnings by the following tax deductions: child care expenses and support payments. Probable income tax will then be applied to reduced average earnings.

5. The WCB will only allow the tax credits and deductions outlined above if the worker qualifies to claim them under the federal and provincial Income Tax Acts.

The WCB does not use the spouse or common-law partner tax credit to determine the worker's probable income tax payable when the injured worker indicates to the WCB that his or her spouse or partner is employed.

6. Tax credits and deductions that a worker may claim are initially established at the date of accident. These credits and deductions will be adjusted on the first day of the month following the second anniversary of the accident and annually thereafter.

Subject to paragraph 6, the federal tax credit for dependent children who are under 18 at any time in the year may be claimed by workers with accidents on or after January 1, 2001. However, this tax credit may only be claimed on or after July 1, 2007.

Worker’s submission:

The worker was self-represented at the hearing. The worker's position was that the WCB erred when calculating his net average earnings for the period January 2011 to May 2011 in that the WCB continued to deduct his CPP premiums even though he was not required to pay CPP premiums during that time. The worker indicated that he started collecting his CPP in January 2011. Under the provisions of the Canada Pension Plan Act (the "CPP Act") in place at that time, pension contributions were not to be deducted once CPP was paid to an individual. The worker questioned how the WCB was able to ignore the provisions of the CPP Act and continue to deduct CPP premiums when calculating his net earnings.

The worker addressed subsection 40(2) of the Act, but submitted that the requirement to make an adjustment on the second anniversary of the accident and annually thereafter only applied to the calculation of average earnings. He submitted that net average earnings should be addressed under subsections 40(3) and 40(4) of the Act.

The worker's position was that in January 2011, the WCB should have immediately stopped taking off CPP deductions. In fact, they did not. The WCB waited until May of 2011 before it stopped. The worker felt that the WCB did not have the legislative authority to supersede the provisions of the CPP Act.

Employer’s submission:

The employer was represented by legal counsel at the hearing. Counsel provided the panel with a written submission prior to the hearing. The submission addressed the issues which were considered and decided under Appeal Commission decision 118/2011 and submitted that the scope of the matters in the present appeal were very narrow, i.e. were limited to the basis of the calculation of net average earnings. Legal counsel indicated that the material was filed to provide the panel with a starting point and acknowledged that it had no applicability to the matter before the panel in this appeal. The employer took no position with respect to the worker's challenge of the methodology used by the WCB to calculate the net average earning amounts.

Analysis:

In order to decide this appeal, the panel must consider the provisions of the Act and WCB policies to determine whether the CPP contributions deducted from the worker's average earnings should have ceased immediately upon the cessation of his obligation to make such contributions pursuant to the CPP Act, or whether the adjustment to cease the deductions could only be made on a mandated review date of the worker's accident. The panel's interpretation of the Act and the Net Average Earnings Policy leads us to conclude that the deduction should have ceased immediately and the adjustment did not have to wait until the next mandated review date.

On reviewing the provisions of the Act, we agree with the worker's submission that subsection 40(2) applies only to average earnings. Subsection 40(2) mandates a review date for adjustment and indexing, but only refers to adjustment to the average earnings figure. It does not specifically address net average earnings. The mandated review date is to be the first day of the month following the second anniversary of the accident and annually thereafter (the "Review Date").

Subsection 40(3) directs how net average earnings are to be calculated and lists the specific deductions to be made from the average earnings figure. Subparagraph (a) addresses income tax, subparagraph (b) addresses CPP/Quebec Pension Plan premiums and subparagraph (c) addresses Employment Insurance ("EI") premiums. Subparagraph (d) allows for other deductions to be established by the WCB. We are not aware of any such deductions.

At the hearing, the worker highlighted the fact that subparagraph (a) specifically sets out a review date for adjustment on account of income tax payable only (tied to the date provided for in subsection 40(2), i.e. the Review Date), but made no such provision for CPP and EI in subparagraphs (b) and (c). We agree with the worker that the absence of any specific direction as to the date of adjustment for CPP and EI suggests that there is no restriction in the Act on when a CPP adjustment may be done and there is no requirement in the Act that the adjustment be done on the Review Date.

The panel notes that at the hearing, the worker referred to subsection 40(4) as being applicable to this case, but we disagree. Subsection 40(4) identifies a specific date for the establishment of a schedule or procedure for determining deductions to assist in adjudicating all WCB loss of earning capacity claims. It does not create a review date for any particular individual claim. It has no specific application to this appeal.

The panel then considered the provisions of the Net Average Earnings Policy to determine whether there is any restriction or requirement in the policy which would dictate that the CPP adjustment could only be done on the Review Date. We find that there is not.

We considered paragraph A(i)(2) of the Net Average Earnings Policy which states: "2. Net average earnings are recalculated whenever the worker's average earnings change." The panel's interpretation of paragraph A(i)(2) is that it creates a requirement that the all aspects of the net average earnings figure be recalculated upon a change in average earnings. It does not, however, create a restriction which limits the adjustment to that time only.

The other provision in the New Average Earnings Policy which addresses the issue of review dates is paragraph A(ii)(6) which provides that tax credits and deductions will be adjusted on the first day of the month following the second anniversary of the accident and annually thereafter.

This wording mirrors the wording in subsection 40(2) of the Act for the Review Date. The panel's interpretation of paragraph A(ii)(6) is that it is meant to refer only to credits and deductions related to income tax. We do not read the terminology "tax credits and deductions" as including either CPP contributions or EI premiums. We view paragraphs A(ii)(3) to A(ii)(6) inclusive as providing guidance on probable deductions for income tax only.

The crux of our decision is based on paragraphs A(ii)(1) and A(ii)(2) of the Net Average Earnings Policy. We interpret these paragraphs to mean that the probable deductions for CPP contributions and EI premiums are to be based on the requirements of their respective governing legislation, and workers who are not required to pay CPP contributions or EI premiums under that legislation are not to have these probable contributions or premiums deducted. In the panel's opinion, the intent of the policy wording is very clear. If a worker is not required to pay the contribution/premium, it ought not to be deducted from his or her average earnings amount.

The disagreement in this case arose from the WCB's insistence on tying the adjustment to the Review Date set out in subsection 40(2) of the Act. We do not agree that either the Act or WCB policy mandates that the adjustment of the CPP deduction be limited to a Review Date. As outlined earlier, the panel finds that the Review Date set out in the Act does not directly apply to CPP contributions. Paragraph A(i)(2) of the Net Average Earnings Policy does direct a time for recalculation of net average earnings, but we do not view this as being exclusive. Paragraph A(ii)6 does not apply to CPP.

Given the multitude of tax credit and deduction options available, the panel acknowledges that administratively, it makes sense to restrict any income tax adjustments to a set review date. With respect to CPP and EI, however, we feel that the same considerations do not apply. Typically, an individual will only opt in to receive CPP pension benefits once in a lifetime. We do not feel it would be administratively onerous to make the change in deductions effective the date it occurs. We see no reason why the change in deductions should be delayed to an artificial date for review.

With respect to the question of whether the income tax deductions were properly calculated, the worker was invited at the hearing to make a submission in this regard, but he declined, despite being reminded that the Appeal Commission represents the final level of appeal. In the absence of any submission as to why the income tax deductions were in error, we find that the income tax deductions have been correctly calculated.

The majority has read Commissioner Walker's separate concurring reasons but we limit the scope of our decision to the question of whether the worker's CPP and Income Tax deductions were correctly calculated for the time period up to May 2011. We feel our jurisdiction does not extend to consideration of the proper deductions to be taken effective January 2012 as the issue concerning the effect of any changes to the CPP Act was not previously considered by the WCB.

In our opinion, it remains available to the WCB to adjudicate this matter, and the worker retains his full right of appeal to the Appeal Commission should he disagree with the WCB's determination in that regard.

The majority therefore finds that the worker's net average earnings have not been correctly established. The deductions from the worker's average earnings for CPP contributions should have been discontinued in January 2011 when the worker's obligation under the CPP Act to make such contributions ceased. The worker's appeal is allowed.

Panel Members

L. Choy, Presiding Officer
A. Finkel, Commissioner
P. Walker, Commissioner

Recording Secretary, B. Kosc

L. Choy - Presiding Officer

Signed at Winnipeg this 14th day of November, 2013