The Appeal CommissionThe Workers Compensation Act of Manitoba

Preamble

The employer is appealing the decision made by the Workers Compensation Board ("WCB") that the director's liability in the amount of $25,679.78 associated with the outstanding balance of the firm's account has been correctly calculated. A hearing was held on November 19, 2018 to consider the employer's appeal.

Issue

Whether or not the director's liability in the amount of $25,679.78 associated with the outstanding balance of the firm's account has been correctly calculated.

Decision

The director's liability in the amount of $25,679.78 associated with the outstanding balance of the firm's account has been correctly calculated.

Background

The appellant firm filed a Notice of Intention to Make a Proposal on December 16, 2016, was placed into Receivership on April 5, 2017, and declared bankruptcy on September 15, 2017. The WCB filed a Proof of Claim with the bankruptcy trustee on November 3, 2017 for outstanding WCB premiums for 2016.

The director of the appellant firm was contacted by the WCB on February 23, 2018 and advised of his responsibility for the outstanding WCB premiums in accordance to subsection 85.2(1) of the Act. He was advised his portion of the outstanding premiums was $30,815.73.

The director contacted the WCB and provided a Notice of Change of Directors dated November 7, 2016, indicating he had ceased to be a director of the appellant firm as of November 1, 2016. On April 2, 2018, the WCB confirmed that the director would be liable for a pro-rated amount of the outstanding premium based on the 10 months out of the calendar year 2016 that he was director. The director was advised that based on the appellant firm's actual 2016 payroll, there was an outstanding amount owing to the WCB in the amount of $30,815.73, pro-rated to $25,679.78.

On May 2, 2018, the director requested reconsideration to the WCB's Assessment Committee. The director advised that the amount outstanding should have taken into account the amounts already applied against the appellant firm's account when the calculation was done and provided his calculation for the outstanding amount. The director further advised that the payroll amounts that the WCB premiums were calculated on had increased during the last six months of 2016, only part of which he was a director of the appellant firm. He further noted that there had been quite a length of time between when he stopped being a director of the appellant firm, the receivership and bankruptcy occurred, the WCB's claim was made and when he was advised of his responsibility for the outstanding amount. The director also advised that the Notice of Intention was filed after he left the appellant firm and he did not have a part in the decision to do so.

The WCB Assessment Committee advised the director on May 11, 2018 that while the appellant firm was not considered a seasonal firm and would have had consistent payroll paid uniformly throughout the year, if he could provide evidence that the appellant firm's payroll was higher during the two months he was no longer director, it would be considered by the Assessment Committee when it met on May 31, 2018. The director advised the WCB that he would attempt to provide the information.

On May 31, 2018, the WCB Assessment Committee determined that the director's liability in the amount of $25,679.78 was calculated correctly. The Assessment Committee confirmed that the outstanding amount for 2016 arose as the estimated payroll submitted to the WCB by the appellant firm was updated to a higher amount based on the appellant firm's actual 2016 payroll. This resulted in a shortfall in WCB premiums for 2016 in the amount of $30,815.73, pro-rated to $25,679.78 for the period in 2016 that the director was with the appellant firm. The Assessment Committee noted that there were some omissions and errors in the calculation provided by the director with his reconsideration request and confirmed that the calculation of $25,679.78 was correct. The Assessment Committee further advised that the length of time that passed before the director was contacted regarding the outstanding premiums was not unreasonable given the circumstances of the receivership and bankruptcy.

The director filed an appeal with the Appeal Commission on July 3, 2018. An oral hearing was arranged.

Reasons

Applicable Legislation and Policy

The Appeal Commission and this panel are bound by The Workers Compensation Act (the Act), regulations and policies of the WCB Board of Directors.

With respect to this appeal, the relevant sections of the Act include:

Basis of estimated payroll 

80(4) In computing the amount of the payroll of an employer for the purpose of assessment, the board must only consider the portion of the payroll that represents workers and employment within the scope of this Part.

Insurable earnings for payroll 

80(4.1) In computing the amount of the payroll of an employer in any year after 1991 and before the day this subsection comes into force, the board must only consider the annual wages of a worker at or below the maximum annual earnings mentioned in section 46.

Continuing liability of employer 

80(7) Where, for any reason, an employer liable to assessment is not assessed in any year, he is nevertheless liable to pay to the board the amount for which he should have been assessed; and payment of that amount may be enforced in the same manner as the payment of an assessment may be enforced.

Collection of assessments by board 

85(1) Where an assessment or part thereof or deficiency is not duly paid in accordance with the terms of the assessment and levy, the board has a right of action against the defaulting employer in respect of the amount unpaid, and any penalties imposed under the provisions of this Act, together with costs of the action.

Certificate of default filed in court 

85(2) Where default is made in any payment required to be paid to the board under this Act, including an assessment or any part of an assessment, the board may issue a certificate stating that the amount is required to be paid to the board, the amount owing, and by whom it is payable, and the certificate, certified under the seal of the board to be a true copy, and purporting to be signed by the secretary, the chief executive officer or such other officer as the board may authorize by resolution, may be filed with the registrar of the Court of Queen's Bench, and when so filed shall become an order of that court, and may be enforced as a judgment of the court against the person for the amount mentioned in the certificate.

Liability of directors for money owing 

85.2(1) Where an employer who defaults in the payment of money to the board under this Act is a corporation, a director of the corporation at the time the amount is due, other than a director elected pursuant to a collective agreement that entitles the workers employed by the corporation to have representation on the board of directors, is jointly and severally liable with the corporation to pay to the board any amount owing in excess of $1,000., and section 85 applies to a director of a corporation as if the director were the employer.

The relevant WCB polices which apply to this case include Policy 31.10.50 - Collections, Policy 35.05.10 - Reporting and Verifying Payroll, and Policy 35.05.20 - Paying and Refunding Premiums.

Director's Position

The director of the company was self-represented. The director noted that he was one of two directors of the firm in 2016. He provided background on the firm's assessment in 2016. He advised the firm amalgamated two businesses in 2016 which resulted in financial issues for the firm and its ultimate failure.

Regarding the issue before the panel, the director explained his position regarding the calculation of the assessment and his responsibility for a portion of the unpaid assessment. He submitted, in part, that:

I do believe with my case, moving straightforward, the facts within it are virtually undisputed. I was an owner and director of [the firm] for the first 10 months of 2016, from January through October. The actual payroll of the company for 2016 was $7,388,000.00.

… 

Although we sought a reclassification of our growing logistics operation, which constituted about 20 people that were purely an office, it was denied. Therefore, the applicable WCB rate for the year was $2.22 for every $100.00 of payroll.

At that level of payroll, the WCB premiums owed for the full year were $164,000.00 ... WCB practice is to assume that payroll is paid uniformly throughout the year, as corroborated on page 3 of the assessment committee’s notes.

Because [the firm's business] is not considered a seasonal business… and because I was unable to obtain evidence of significant weighting difference of payroll incurred for the months of November and December, each month of 2016 would have an equal premium share of the total annual amount, or, $164,000.00 divided by 12 is $13,668.00 per month.

Applied to the term of my directorship, from January through October 2016, or 10 months times that amount, would mean that the total amount of liability is $136,000.00... After removing amounts [firm] paid for penalties and interest, WCB premiums collected on account for the year were $133,200.00.

As the limit of my liability as director can be no more than 10 months, or the prorated amount of $136,000.00, the maximum amount that can be expected from me as a second payer on this account is the difference between $136,000.00, which is the amount due from January through October, and the amount collected from the primary account holder, [the firm], of $133,200.00, or $3,400.00.

My position, just from the facts, and from it being a total year basis, is that I’m not liable for the shortfall, or the difference between the total premiums owed for the year, and what was paid.

Rather, I am liable for the total amount of premiums that were due from January through October of the year after the primary account holders’ payouts.

In reply to a question the director reiterated that:

I don’t disagree with most of the numbers. I don’t disagree with the 10-12s. I simply am saying that the 2016 premiums owing, that total, as indicated by non-seasonal business with even monthly payments, would mean that the premiums that I am liable for as a director is 10-12s of the total, not 10-12s of the adjustment. 10-12s of the total is $164,015.73, divided by 12, times 10, which means that the premiums for the term of my role there is $136,679.78. Less the 2016 payments made on those 2016 premiums means that the balance, the most that I can be held liable for is $3,479.78. WCB is attempting to hold me responsible for payroll incurred when I wasn’t a director. This is not only unfair, it is flat-out inaccurate. The proration of 10-12s is valid, but it needs to be applied to the whole of the premium, not simply to the adjustment.

The director provided background information on his involvement with the firm and its financials issues. He advised that:

I will state that the actions and the path taken after I was gone were not what I would have chosen…Here I am being asked to pay for something that was not a result of business decisions I made, or influenced, at the time that I was there.

In respond to a question the director explained that: 

My argument goes back to the way the debts are typically paid back, which is that debts go, they pay the first amount first. So if you’re based on each month, actual month within the year, and we’re using actual payroll figures, that $133,200.00 isn’t prorated. That is simply the first $133,200.00 that was paid back in 2016, and it’s applied for the months until it runs out.

The director referred to his position as being a second payer. He explained that he meant the directors are not asked to pay anything if the business can pay it. It is only if the firm cannot pay the assessment that the directors liability arises. He also noted that there was only one director in November and December.

The director also made a plea, on compassionate grounds, that the WCB not pursue collection of the assessment owed by the other director.

Analysis

The issue before the panel was whether the director's liability in the amount of $25,679.78 associated with the outstanding balance of the firm's account has been correctly calculated. The director acknowledged that he was liable for a portion of the firm's assessment but disagreed with the WCB's calculation of his share.

The panel has considered the director's submission but is unable to agree with his position.

The panel notes that Subsection 85.2(1) provides, in part:

that an employer who defaults in the payment of money to the board under this Act is a corporation, a director of the corporation at the time the amount is due …, is jointly and severally liable with the corporation to pay to the board any amount owing in excess of $1,000., and section 85 applies to a director of a corporation as if the director were the employer.

The panel finds that the following calculations are consistent with the wording and intent of the Act and are correct:

2016 Original estimated Payroll $6,000,000

2016 Underreported Payroll $1,388,096

Total Payroll 2016 $7,388,096

Premium on 2016 payroll calculated as ($7,388,096/100 x $2.22) = $164,015.73

2016 Premium Owing $ 164,015.73

2016 Payments on 2016 Premiums ($133,200.00)

Balance owing on 2016 Premiums $ 30,815.73

Director's Responsibility for shortfall of payments made on 2016 Payroll is:

$30,815.7 total shortfall - Director's share for 10 months = 10/12 of $30,815.73 = $25,679.78

The panel finds that the employer's liability has been correctly calculated by the WCB. The panel finds, in this case, that it is reasonable to calculate the director's liability on the actual payroll for the calendar year, not the estimate initially provided by the firm.

At the hearing the director submitted that it was improper for the WCB to use the revised assessment amount of $7,388,096.00. The panel does not agree with the director's position. The panel notes that in making its decision, the WCB assumed that the payroll was paid uniformly throughout 2016 as no records were provided to prove otherwise. The panel finds this to be consistent with Act and appropriate in the circumstances of this decision.

The panel also notes that the WCB did not include payments received with respect to late filing and for under-reported payroll in 2015. The panel finds that this was appropriate.

Regarding the director's request that collection action not be taken against the other director, the panel finds that this issue is not before it and accordingly has no authority to address the request.

The director's appeal is dismissed.

Panel Members

A. Scramstad, Presiding Officer
R. Campbell, Commissioner
M. Kernaghan, Commissioner

Recording Secretary, J. Lee

A. Scramstad - Presiding Officer
(on behalf of the panel)

Signed at Winnipeg this 3rd day of January, 2019