Decision #53/14 - Type: Workers Compensation

Preamble

On January 6, 2014, the firm filed an appeal with the Appeal Commission regarding two decisions that were made by the Assessment Committee of the Workers Compensation Board ("WCB"). A hearing was held on April 30, 2014 to consider these matters.

Issue

  1. Whether or not the firm is responsible for reporting the labour portion paid to independent contractors who do not have WCB coverage; and

  1. Whether or not the labour percentages charged have been correctly established.

Decision

  1. That the firm is responsible for reporting the labour portion paid to independent contractors who do not have WCB coverage; and

  1. This issue was withdrawn by the firm at the hearing.

Decision: Unanimous

Background

As a result of an audit performed by the WCB on November 9, 2012, the firm was charged additional assessment charges for 2010 and 2011 as they did not include payroll information of individuals or firms considered workers and family members of directors.

Subsequently, the firm advised the WCB that it did not contest the additional assessment resulting from family members' earnings but felt that the subcontractors they engaged were independent businesses and therefore it should not be held liable for the labour portion of the payments made to them. Specifically, the firm stated:

"As stated in the Legislation, a worker receives a T4 slip every year which none of these companies receive from [the firm]. Also, along with issuing a T4, [the firm] would have had to subtract income tax, CPP and E.I. which we do not do.

[The firm] workers do not charge [the firm] which the above companies have done. [The firm] workers are also paid hours for overtime, stat holidays and vacation time which are required by law to be paid to a worker. We do not pay any of this to the companies we have listed in our appeal. As well each of these companies is an individual owner of the stated business and as such they are not required to purchase coverage from The Workers Compensation Board. It is still optional coverage."

On October 10, 2013, the directors of the firm attended an Assessment Committee meeting to provide their explanation for not having included independent contractors in their assessable payroll for the years 2010 and 2011.

On October 30, 2013, the Assessment Committee determined that the assessable payroll attributed to two employers were to be removed from the firm's audit results. With the exception of these two employers, the Assessment Committee confirmed the firm was responsible for including the labour portion of payments made to a number of unregistered subcontractors in their reported payroll for 2010 and 2011. The Assessment Committee stated that the firm was responsible for ensuring that any subcontractor engaged by the principal had WCB coverage. If the subcontractors do not have coverage, the principal was ultimately responsible for reporting the labour portion of any amounts paid to the subcontractors. It was the Assessment Committee's opinion that the firm had been provided with enough information regarding the use of subcontractors to understand their responsibilities in this regard.

The Assessment Committee also determined that labour percentages were to be adjusted and applied to the labour portion of the invoicing to various deemed workers.

On January 6, 2014, the firm filed an appeal with the Appeal Commission regarding the Assessment Committee decisions and a hearing was held at the Appeal Commission on April 30, 2014.

Reasons

Applicable Legislation and Policy

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

In this appeal, the firm disagrees with the WCB's decision that certain contractors be deemed workers of the firm and that it must pay for coverage of the deemed workers.

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.

Employer's Position

The firm (employer) was represented by its directors. The directors explained the firm's position and answered questions from the panel.

The directors provided general information on the firm and its operations. They also advised that:

    • the firm is a family business
    • it custom builds products for customers
    • it maintains stock of some of the materials required to build the product
    • usually the firm is not responsible for shipping the product but will at the customer's request, arrange for shipping
    • there are some services which the firm's workers cannot perform, for example drywall work and tile work, and as a result the firm uses the services of self-employed contractors. The firm has no control over these contractors who set their own schedules, work only part-time and on specific jobs. The firm does not issue T4 slips to the contractors and is charged GST by these contractors for their services.

The directors said their primary concern was that the WCB determined that the firm must report the labour portion of independent contractors who are employed by them and do not have coverage; in other words, the contractors become workers of the firm. The representatives said that it was unfair for the firm to have to pay for coverage for self-employed persons who had opted not to obtain coverage. They said they did not see the fairness in shifting these costs to employers. The representatives told the panel that some of the self-employed persons had WCB registration numbers but that their coverage had lapsed at the time when they were providing services to the firm.

The representatives answered questions about individual contractors and the services they provide to the firm.

Analysis

There were two issues before the panel.

Issue 1. Whether or not the firm is responsible for reporting the labour portion paid to independent contractors who do not have WCB coverage.

For the employer's appeal to be successful, the panel must find that under the Act and Policy the firm is not responsible for reporting the labour portion of payments made to independent contractors. 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 independent contractors who perform work for the firm and do not have their own WCB coverage.

The evidence as noted in the WCB auditor's report is that certain independent contractors who provided services to the employer did not have WCB coverage at the time they provided services to the employer. The firm's representatives confirmed this information. They advised that the contractors, noted in the audit report, were registered with the WCB but that their coverage was inactive because they did not have employees and decided not to keep up their personal coverage.

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, independent contractor, 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”.

Independent Contractor: This term is defined in subsection 75(3) of the Act as "self-employed person ...who does not employ workers."

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 part:

"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 panel finds that the firm is considered a principal, it received services from service providers (independent contractors), and the service providers (independent contractors) were not registered for coverage with the WCB at the time that the services were provided. Therefore the panel finds that the principal (the firm) is properly deemed the employer of the service providers (independent contractors).

The firm representatives expressed concerns that the independent contractors had the option of taking out personal coverage and elected not to take out personal coverage. The employer felt that it was unfair that the firm is required to pay for the coverage which the independent contractor had declined.

The panel notes the firm's concern; however it is the panel's understanding that the policy is intended to insure that all persons working at a work site are covered under the Act. It is considered in the best interests of both the workers and employers that all persons on a work site are protected. This is important to employers as it protects them from legal action for injuries sustained by contractors on their premises while the contractors are performing work on the employer's behalf.

The panel also acknowledges the firm's concern that the independent contractors did not meet the tests of "workers" under the Act and policy. They noted that the independent contractors were not issued T4 slips for their services and, in fact, charged the firm GST on their work, did work for others and that the firm had no control over the contractors scheduling. The panel acknowledges that these are all indicators of the relationship between the parties; however, the primary factor is that the independent contractors did work for the employer on the employer's premises and did not have WCB coverage. The panel considers that it is appropriate that the independent contractors be deemed workers of the firm in these circumstances and as defined in the policy.

The firm's appeal of this issue is dismissed.

2. Whether the labour percentages charged have been correctly established.

At the hearing the firm representative advised that they were not appealing or questioning the labour percentage assigned to the various deemed workers. They advised that their primary concern related to the first issue which resulted in the deemed workers and related assessment issue. The representatives confirmed that the employer is not proceeding with the appeal of this issue.

The appeal is withdrawn.

Panel Members

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

Recording Secretary, B. Kosc

A. Scramstad - Presiding Officer

Signed at Winnipeg this 7th day of May, 2014

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