Decision #174/18 - Type: Workers Compensation
This is an appeal of the decision made by the Workers Compensation Board ("WCB") that the franchisee is deemed to be a worker of the appellant firm. A hearing was held on November 14, 2018 to consider the appeal.
Whether or not the franchisee should be deemed to be a worker of the appellant firm.
The franchisee should be deemed to be a worker of the appellant firm
The franchisee applied to the WCB to register as an independent business. The WCB advised the franchisee on September 27, 2017 that they were unable to register the franchisee as an independent business as they had determined they were deemed a worker of the appellant firm for the following reasons:
• [Appellant firm] obtained the clients
• [Appellant firm] bills and collects from the clients and pays the franchisee once a month
• [Appellant firm] has the right to observe and evaluate the work
• If a clients (sic) is unhappy with the franchisee they follow up with [the appellant firm]
• The franchisee is subject to [the appellant firm's] values
• The franchisee can only use [the appellant firm's] specified equipment, chemicals and cleaning supplies
• The franchisee can only work for [the appellant firm]
On December 15, 2017, the appellant firm requested reconsideration of the WCB's decision. The appellant firm noted that the franchisee commenced operations on or about November 13, 2017 and that it had at least one employee who was not an officer, director or shareholder of the company. The WCB advised the appellant firm on December 21, 2017 that they reviewed the request but determined the franchisee does not meet the criteria of an independent contractor as:
• They perform work that is integral to the activities of [the appellant firm].
• Currently has workers who are paid below the minimum.
• [The appellant firm] has the right to observe and evaluate the work.
• Complaints regarding quality of work are made to the head office, not the franchise.
The appellant firm filed a Request for Review of the WCB's decision to refuse to register the franchisee and deeming the franchisee a worker with the WCB's Assessment Committee on February 7, 2018. After filing the Request, the appellant firm provided the WCB with copies of a service agreement, a customer acceptance form and the franchise agreement it had entered in to with the franchisee. On March 28, 2018, the WCB advised the appellant firm that it had reviewed the information submitted but was unable to reverse its earlier decision and the request had been forwarded to the WCB's Assessment Committee for consideration.
On April 13, 2018, the WCB Assessment Committee advised the appellant firm that they upheld the decision of the WCB and that the franchisee was deemed a worker of the appellant firm. The Assessment Committee found that in order to be considered an employer by the WCB, an employed worker of the franchisee must be at or above the payroll minimum set by the WCB. The employee of the franchisee did not meet the minimum as required and the franchisee could not be registered as an employer. The Assessment Committee disagreed with the appellant firm's position that the franchisee was an independent contractor. The Assessment Committee found that the appellant firm provided the training, the operational and procedural manuals, the service/product identity and key financial aspects for the franchisee. The Assessment Committee determined that the franchisee is in a contract of service for the appellant firm and confirmed that they were a worker of the appellant firm.
The appellant firm filed an appeal with the Appeal Commission on May 22, 2018. An oral hearing was arranged.
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.
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 describes the circumstances in which the WCB will deem one person to be the worker of another and provides Administrative Guidelines to assist with application of the policy.
The appellant firm, a corporation, was represented by its owners, M and T.
The representatives advised that their firm is a franchisor of commercial cleaning services, and they help people start their own commercial cleaning business.
The firm provides:
• training to franchisees, so they understand how to run a business;
• training on how to do the cleaning;
• equipment, if the franchisees want to buy it from them;
• the franchisee's initial clientele, if the franchisee wants to get clients from the firm;
• proprietary software under which the firm does invoicing and collecting for franchisees.
The firm doesn't get involved in their day-to-day decision-making in terms of how franchisees deal with the customers:
So we feel that we’re a framework, we’re a franchisor that gets someone started, and then they run their business.
The firm does not provide any services to the cleaning customer directly. The firm can assist the franchisee in determining a price but the decision is made by the franchisee.
The firm charges a royalty fee, a franchisee support fee and a fee on all accounts which the franchisee services. Franchisees cannot perform janitorial or cleaning services outside of the franchise agreement.
The firm owners advised that to their knowledge none of the franchisees have been able to establish their own accounts with the WCB as employers. All of the franchisees are incorporated.
Owner T commented that they feel strongly the franchisees are definitely not their employees as the franchisor has very little control over them, in certain areas.
The issue before the panel was whether the franchisee should be deemed to be a worker of the firm. For the firm's appeal to be approved, the panel must find that it is not appropriate to deem the franchisee to be a worker of the firm for the purpose of the Act. The panel was not able to make this decision. The panel finds, based upon the facts before it, that the franchisee is properly deemed a worker of the firm for the purposes of the Act.
In addressing this appeal, the panel considered the Policy. It also considered the Administrative Guidelines under the Policy. When a contract relationship exists between the parties, the guidelines assist in determining the nature of the relationship between the parties for workers compensation purposes. While the Appeal Commission is not formally bound to implement the Administrative Guidelines, they are nevertheless helpful in establishing criteria to be used in a given case.
The panel also considered the WCB requirement that for registration as an employer, a party must have a minimum annual payroll. The panel notes that for 2018, the minimum average payroll was $24,060.00.
In its appeal form, the firm noted that:
• the director of the franchisee provides labour to the franchisee and it has one employee
• the franchisee does not provides services to the firm
• the service contract with customers is owned by the franchisee
• the customers are the principals, not the appellant firm.
In a letter to the Assessment Committee, the firm also indicated that:
• the firm does not provide cleaning services and takes no liability for the service
• the firm is the agent of the franchisee for invoice and collection
• the firm does not provide management or supervision
• the firm is not the only source of service contracts (customers)
• the franchisee has all the risk of maintaining customers, hiring and firing staff
The panel finds the following facts:
• the franchisee is an incorporated company
• the franchisee entered an agreement with the appellant firm
• the franchisee operates a janitorial service which performs work in a compulsory industry under the Act
• R.H. is a director of the franchisee
• the annual payroll of the franchisee was $5000.00 at the time of the application for coverage
• the franchisee does not meet the WCB's minimum annual payroll for registration as an employer
The panel also notes that the franchise agreement provides, amongst other things, that
• the franchisee obtains its customers from the appellant firm, although it can also solicit customers directly
• the franchisee does not send invoices or collect payments directly from its customers
• the franchisee relies upon the appellant to invoice and collect payment from its customers • the franchisee must pay the firm a royalty and support fee on contracts purchased from the firm as well as any contracts it solicits on its own behalf
• the franchisee is subject to observation and evaluation by the firm and the service standards of firm
• the franchisee is subject to the values of the firm
• the franchisee cannot compete against the firm
• the franchisee is an independent contractor
• the franchisee and its employees are not employees of the firm
• the franchisee must incorporate
• the franchisee is not permitted to be involved in commercial janitorial services outside the franchise
The panel notes that the Administrative Guidelines define Principals as:
Principals: In a contract relationship, the principal is the person or firm that hires and pays a service provider to perform work for them. A principal can be a general contractor, a private individual (i.e. homeowner), or a business owner.
As well, the Administrative Guidelines define Service Providers as:
Service Providers: In a contract relationship, the service provider is the person or firm that is hired to provide the labour, and at times the materials, to complete or perform certain tasks… Unless a service provider is defined as employer, they need to demonstrate they operate an independent business in order to register with the WCB. If a service provider cannot pass the Independent Business Test (“IBT”) - see Appendix A - they may be deemed workers of principal(s) that engage them.
The Administrative Guidelines also provide:
Service Providers with Annual Payrolls Less Than the Minimum
Service providers whose workers earnings amounts are under the minimum, and who do not qualify to be considered an “EMP” as described above, will need to pass the Independent Business Test (see Appendix A) in order to be registered with the WCB.
The panel finds, in applying the Administrative Guidelines, that the franchisee is a service provider and performs work for which the firm which receives benefits, such as royalty payments and support fees on all service agreements regardless of whether they are supplied by the firm or acquired separately by the franchisee, and mark-ups on the sale of equipment and materials.
The panel finds, based upon the facts noted in this decision, that it is appropriate to deem the firm as the employer of the franchisee and its workers. This decision is authorized under Section 60(2.1) of the Act which states, in part:
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.
The panel finds this to be in keeping with the purpose and spirit of the Act, and in particular the historic principles outlined in the preamble of the Act.
The panel notes that this decision is restricted to the particular facts of this case and to the period under review. The panel acknowledges that other franchisees of the firm may satisfy the requirements of the guidelines and Policy.
The firm's appeal is dismissed.
A. Scramstad, Presiding Officer
A. Finkel, Commissioner
M. Kernaghan, Commissioner
Recording Secretary, J. Lee
A. Scramstad - Presiding Officer
(on behalf of the panel)
Signed at Winnipeg this 12th day of December, 2018