The Appeal CommissionThe Workers Compensation Act of Manitoba

Preamble

The appellant is appealing the decision made by the Workers Compensation Board ("WCB")that his company was responsible for costs associated with a claim originatingwith the predecessor owner of the business assets.  A review was held on July 3, 2015 toconsider the matter.

Issue

Whether or not the employer is responsible for costsassociated with a claim originating with the predecessor owner of the businessassets.

Decision

That the employer is responsible for costs associated with aclaim originating with the predecessor owner of the business assets.

Decision: Unanimous

Background

On October 7, 2013, company A was purchased by the appellant firm. In accordance with WCB policy, the claims and cost experiences of company A were transferred to the appellant. This included the costs associated with an existing compensation claim for work-related injuries that had occurred on March 13, 2011. The assessment rate of company A was also transferred to the appellant.

In a letter to the appellant dated May 1, 2014, the WCB stated:

"Since you have taken over another business, we have transferred the previous owner's classification and rate of assessment to your registration. As well, we have transferred claims history for the last five years from the previous owner's account. Any costs associated with this history, along with current claims you may have, will be outlined in a Firm Experience Statement. The claim costs attached to your business will influence your future rate and assessment."

On January 24, 2015, the appellant advised the WCB that he was appealing his assessment rate and the linking of a WCB claim to his company for an incident that occurred prior to his operation of the business. The appellant requested consideration to the following:

• that the WCB remove the 2011 compensation claim from its record of health and safety; and
• that the rate of assessment levied was not an accurate reflection of his company's true and unblemished health and safety record.

After a review by the Assessment Accounts department and its supervisor, the appellant was advised of the following:

"In reviewing the file the appropriate policy and process was adhered to in applying the policy, originally. The employer has stated in his present appeal that he does "not have an opinion as to the merits of the claim notes." The employer's basis of appeal rests solely on the fact that he did not own the company at the time of the injury and he maintains a good record. An item already made known in the original appeal."

On February 19, 2015, the Assessment Committee considered the file evidence and denied the appellant's appeal. The Assessment Committee indicated that based on WCB policy 31.05.20 "Transfer of Employer Cost Experience, the experience and rate of assessment will be transferred from the predecessor to the successor of a business upon the sale/purchase of assets, where the business continues to operate in substantially the same way. The WCB and the Assessment Committee had no jurisdiction to reverse or dismiss the requirements of the Act or board policy. On March 30, 2015, the appellant appealed the Assessment Committee's decision to the Appeal Commission and a file review was arranged.

Reasons

Applicable Legislation

The employer has appealed a decision that it is responsible for costs associated with a claim originating with the predecessor owner of the business assets.

The Appeal Commission and its panels are bound by the provisions of the Workers Compensation Act (the "Act"), regulations, and policies passed by the WCB Board of Directors.

As well, WCB Policy 31.05.20, Transfer of Employer Costs Experience on Change of Ownership (the "Policy") provides that:

... As a general principle, the cost experience will follow the business when all or part of a business changes ownership. The cost experience of the predecessor employer will be transferred to the successor employer and will be used to determine the assessment rate of the successor employer.

When the business ceases to operate through a change in ownership, the ongoing cost experience will be shared among employers in the Class.

1. When the change in ownership occurs through:...

b) the sale of a substantial portion of the assets of an incorporated or unincorporated business, and the business continues to operate in substantially the same form; or, ...

The cost experience will be transferred to the successor employer(s).

The Policy also has Administrative Guidelines which are relevant to the issue under appeal. The relevant sections are:

Sale of Assets

One firm has sold some form of assets to another. These assets can include equipment, vehicles, buildings, trade name, customer lists, etc.

· If the predecessor has ceased operations entirely, the experience and rate of assessment will transfer to the successor if the assets purchased are used to operate the business in “substantially the same form”.

· If the predecessor has only sold a portion of their assets to the successor, both the experience and rate of assessment will be transferred if this portion of the predecessor’s operations were:

1. in a separate sub-group from their other operations, or

2. reported under an associated legal entity with independent experience rating, or

3. were in the same sub-group as their other operations but: had different cost centre(s) established for the assignment of claims pertaining to this aspect of the business, or both the successor and predecessor agree which claims pertain to the transferred portion of the business.

and the successor operates the business in “substantially the same form” (see below).

If the successor does not meet the criteria in 1, 2 or 3, but does operate in "substantially the same form" and has the same sub-group as the predecessor on their account, only the rate of assessment will be transferred.

Consider the answers to all of the following questions when determining whether the successor is operating in “substantially the same form”:

Have they continued selling the same goods and/or services to the same or similar customer base?

· When a firm that continues to sell the same product or offer the same services, this indicates they are operating a similar business.

· If the firm continues to have the same primary customer base, it is an indicator that they are operating a similar business.

Have they adopted the same or similar business name?

· A firm that continues to use the same or similar name to generate work would suggest the continuation of a similar business.

Are the equipment, land and/or buildings purchased going to be used to produce the same product or service?

· Although the firm may be operating the same equipment, using the same processes and work from the same location, if the end product or service provided is not substantially the same, they may not be operating similarly.

Are the same employees engaged to do the same type of work?

· Specialists, professionals and skilled trades doing the same work for both owners would indicate the continuation of a similar operation.

· If different employees are engaged to do the same type of work, it may still indicate a continuation of the same business with different employees. Compare the occupations of workers.

Did the business cease operating between the changes in ownership?

· Depending on the type of business, a break in operations can indicate a temporary suspension of the existing business, or it can reflect the closure of the existing business and the creation of a new business. Consider the length of the break as well as the type of industry involved. Some businesses can close for extended periods with no ill-effect to their customer base (e.g. restaurants), however others can lose substantial customers if closed for even a short period of time (e.g. manufacturers that make components for another manufacturer).

The Employer's Position

The employer provided a number of written submissions to the WCB Assessment Department, the WCB Assessment Committee and to the Appeal Commission. Their concerns relate to their discovery, after the purchase of their business, that a worker with the predecessor owner had suffered a work injury which is now affecting their experience rating and their WCB premiums. They had no involvement with the worker or the circumstances of her injury. They pride themselves on their own excellent safety record, and felt that they should not bear the burden of what had happened before their purchase of the business.

The employer was also concerned about the WCB's failure to provide it with a Disposition of Business Enterprise Certificate at the time of their purchase of the business, which would have flagged the issue for them.

Analysis:

The Policy generally provides that "when a business changes ownership, but continues to operate in substantially the same form, the WCB will transfer the experience and assessment rates from the old employer to the new employer." For the employer to succeed on this appeal, the panel would have to find exceptions or exemptions to this Policy together with supporting facts that would allow the panel to provide relief from the transfer of experience and assessment rates. After our review of the file, including the employer's various submissions, the panel was unable to make this finding.

As noted above, the language of the Policy is quite clear in its intent, with strong and directed language. In particular, Section A. of the Policy states that..."As a general principle, the cost experience will follow the business when all or part of a business changes ownership. The cost experience of the predecessor employer will be transferred to the successor employer and will be used to determine the assessment rate of the successor employer."

The Policy describes the types of change in ownership that are covered. It includes "...the sale of a substantial portion of the assets of an incorporated or unincorporated business and the business continues to operate in substantially the same form..." [emphasis is in the Policy]. The evidence before the panel is that the transaction involved the sale of assets from one owner to a successor owner, and that the business (a hotel) continued to operate as such, prior to and subsequent to the sale/purchase. Therefore, the panel finds that the Policy applies to the matter under appeal.

The question then turns to whether there is any relief available to the employer under the Policy from having the cost experience transferred to it. In this regard, the panel notes that the Policy has Administrative Guidelines (the "Guidelines") appended to it, with the preliminary note that "...they are intended to provide clarity and direction to ensure consistent administrative

application of the policy." The panel notes that the Guidelines do anticipate a number of circumstances for relief, that is, when claims cost experience and rates of assessment will or will not be transferred from one firm to another. While the panel is not bound by the Guidelines, we feel they nonetheless provide a reasonable framework for our consideration of the appeal before us.

Where there is a sale of assets, the first test in the Guidelines deals with whether the assets purchased are used to operate the business in "substantially the same form." The evidence on file indicates that the predecessor owner operated a hotel business on a particular property until October 7, 2013, when the entire assets were transferred/sold to the employer (the successor owner). The file evidence discloses that while the employer replaced the staff, the hotel business continued uninterrupted, on the same premises, starting October 8, 2013. It continued to offer the same services to the same primary customer base. Based on this evidence, the panel finds that assets purchased were used to operate the business in "substantially the same form" and therefore the panel cannot provide relief from the transfer of cost experience on the basis of this test.

A second test under the guidelines deals with potential relief if the business ceased operating between the changes in ownership. As noted earlier, the hotel operation did not see a break in operations, rolling from one day under old ownership to the next day with the new ownership, so the panel can also find no basis for relief under this test.

Based on this analysis, the panel can find no basis under the Act, Policy or Administrative Guidelines to provide the relief sought by the employer, and accordingly finds that the employer is responsible for costs associated with a claim originating with the predecessor owner of the business assets.

The panel notes that the employer is concerned about not having been protected against these costs while his purchase transaction was being carried out, and in particular not having been provided with a Disposition of Business Enterprise Certificate by the WCB. In this regard, the panel notes that the WCB's primary purpose, as expressed in the Policy, is to ensure continuity of responsibility of employers to their workers and to the funding of the WCB system where businesses are sold. The predecessor employer had a responsibility for its experience ratings and assessments to WCB which are intended to roll over to a successor owner to ensure the integrity of the WCB system.

In the panel's view, the details associated with the actual legal transaction for the purchase and sale of a business are an entirely different matter. There are clearly a variety of WCB-related (and other) costs associated with operating any business in Manitoba, and the onus is on the purchaser (the employer in this appeal) to inform itself and protect itself at the time of purchase of any potential risks (presumably including WCB matters) associated with the business. This would include initiating contact with the WCB to seek any documentation it might find

appropriate in managing its risk and in negotiating the final terms of its purchase. In the panel's view, these are matters related to the closing of the commercial transaction between the former and current owners of the business, and the WCB's role would simply have been to provide the Disposition of Business Enterprise Certificate, if asked. From a file memo dated May 1, 2014 that documents a phone conversation with the employer's lawyer, it appears that no such request was made to WCB at the time of purchase.

In the panel's view, the purchase/sale transaction was entirely outside the purview of the WCB, as were the details or failings of that transaction or any legal remedies that the purchaser might have as a result of any failings. The panel notes that the Policy does not provide for any relief for the transfer of costs because of what may or may not have happened with the Disposition of Business Enterprise Certificate, and the panel therefore has no jurisdiction to provide such relief.

The employer's appeal is therefore denied.

Panel Members

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

Recording Secretary, B. Kosc

A. Finkel - Presiding Officer

Signed at Winnipeg this 30th day of July, 2015