The Appeal CommissionThe Workers Compensation Act of Manitoba

Preamble

The firm is appealing the decision made by the Workers Compensation Board (“WCB”) that the firm's assessable payroll for the years 2009 to 2013 have been correctly calculated. A hearing was held January 9, 2024 to consider the firm's appeal.

Issue

Whether or not the firm's assessable payroll for the years 2009 to 2013 have been correctly calculated.

Decision

The firm's assessable payroll for the years 2009 to 2013 have been correctly calculated.

Background

The WCB's Compliance Services provided the firm with a letter dated February 21, 2019, advising the firm a review of its payroll for the years 2009 to 2013 had been completed. Copies of the audit working papers and an Investigation Findings Report, dated January 10, 2019, were also enclosed. On February 22, 2019, the firm was provided with a Notice of Administrative Penalty by Compliance Services, which indicated the firm had not reported the correct probable amount of their payroll.

On March 8, 2022, the WCB's Compliance Services provided the firm's representative with a Revised Investigations Findings report, completed after new information had been submitted by the representative. The firm's representative was advised the information provided had changed some of the previous findings but it was the determination of the WCB the firm had not reported the correct amount of their payroll for the years 2009 to 2013. A Notice of Administrative Penalty was also provided on March 8, 2022, with revised penalty amount indicated.

The firm's representative requested reconsideration of the WCB's Compliance Services' March 8, 2022 decision on July 27, 2022. The representative provided additional information to support the firm's reported payroll, including accounting information and a letter in support of the firm's position. A further detailed submission was provided by the firm's representative on February 8, 2023. The WCB's Reconsideration Committee confirmed the WCB's decision on April 5, 2023. The Committee determined the firm had not reported the correct payroll amount however, a labour percentage was noted to be calculated incorrectly and the Reconsideration Committee returned the matter back to the WCB's Compliance Services for recalculations. On May 11, 2023, a Revised Investigations Findings was provided to the firm's representative indicating the revised calculations based on the Reconsideration Committee's decision.

The firm filed an appeal with the Appeal Commission on May 30, 2023 and a hearing was arranged. Following the hearing, the appeal panel requested additional information prior to discussing the case further. The requested information was later received and on July 18, 2024, the appeal panel met further to discuss the case and render its final decision on the issue under appeal.

Reasons

Applicable Legislation and Policy

The Appeal Commission and its panels are bound by The Workers Compensation Act (the "Act"), regulations made under the Act and policies established by the WCB's Board of Directors.

Determining whether someone is a worker under the Act is a key factor in determining who is responsible for paying for a person's WCB coverage. The Act defines “worker” at Subsection 1(1) and sets out several types of workers, including: 

• a person who enters into or works for another under a contract of service or apprenticeship 

• a person who has purchased his or her own optional coverage 

• a person who the WCB deems to be a worker

In many traditional employment relationships, a service provider works for a principal and the principal pays the service provider wages. In such cases it is clear that the service provider is a worker within the meaning of the Act. It is also clear that the principal is an employer who is responsible for paying for the worker's coverage. Employers do so by including the worker as part of the assessable payroll and paying WCB premiums on their behalf. In industries with contractors and subcontractors, the relationships are less clear. In such circumstances the WCB must determine if the service provider is a worker, an independent contractor, or an employer. There is a policy to assist in doing so.

Policy 35.10.50, Status of Workers, Independent Contractors and Employers, (the “Policy”) outlines the circumstances when the WCB will allow individuals may purchase their own optional coverage and outlines the circumstances in which the WCB will deem a service provider to be a worker under the Act and the consequences that flow from this in terms of who is responsible for paying for the service provider's coverage.

The Policy also describes how to calculate the assessable earnings of a worker who does not earn T4 income. In circumstances when a worker is paid under a contract, assessable earnings can be more difficult to calculate. The WCB has developed a Labour Percentage Schedule to separate the labour portion of a contract from the price of materials and equipment. The Labour Percentage Schedule (the “Schedule”) is included in the Administrative Guidelines to the Policy.

The Schedule, which is Guideline 3 to the Policy, provides guidance in determining assessable earnings for specific industries. The Schedule lists specific industries, the materials supplied and the labour portion of the total contract. The first few lines of the Schedule are reproduced below by way of example.

Schedule of Industries           Materials Supplied (if applicable)           Labour Portion of Total Contract 

Acoustic Ceiling Installation   Major Materials                                                             40% 

Air Testing & Balancing                                                                                                85% 

Blasting For Roadwork          For Roadwork                                                                25%

                                               For Other (i.e. Beaver Dams)                                        85% 

Blinds Installation                   Major Materials                                                              40%

The Schedule indicates that to determine assessable earnings one is to look to the listed industries and “assign the appropriate major materials percentage or 85% (minor materials).”

Section 80 of the Act sets out the obligation of an employer to provide the WCB with payroll information for the purpose of assessment and the Act also sets out the obligation of an employer to pay assessments to the WCB.

The Act also provides authority for the WCB to assess penalties for employers who refuse or neglect to furnish the WCB with payroll returns, required documents or the books of their firm.

The WCB has also established a policy outlining the procedures that WCB decision makers must follow when making decisions under the Act. Policy 22.00, Decision Making, (the “Decision Making Policy”) provides that the WCB operates under an inquiry model of adjudication.

Employer’s Position

The employer was present at the hearing and represented by legal counsel. The employer relied on their written submission provided in advance of the hearing and made an oral submission at the hearing. The employer responded to questions posed by their legal counsel and by the panel members.

The employer’s position is that the WCB incorrectly and unfairly assessed the firm’s payroll, without proper consideration of the unique circumstances and the details of the particular contracts the employer had with the First Nation communities.

The employer submits that the evidence of the former Chief of one of the First Nations the employer contracted with, contained in a letter written by the said Chief, was disregarded by the WCB. The employer states that the evidence regarding the percentage of labour costs was credible and that there was no contradictory evidence. The position of the employer is that the labour percentages indicated by former Chief of the First Nation ought to be considered, and given greater weight, by the WCB in their decision regarding the appropriate assessable payroll for the employer for the years 2009 to 2013.

The employer explained through the questions posed by their legal counsel that they sourced, purchased and provided ready to move (“RTM”) homes to several First Nation communities. The evidence of the employer was that their firm had to deliver the RTM homes to the sites and install them at the sites. Installing the RTM homes involved the employer ensuring there was a clear site with granular or aggregate, vapor barrier and wooden crates put down, and then the RTM homes were put onto the wooden crates. In addition, there would be a trench dug for the water hookup and skirting installed on the base of the RTM homes. There was no construction involved as the RTM homes were in move-in ready condition. Occasionally a minor repair would be required from damage during the delivery process. The employer stated that it was the First Nation’s responsibility to connect the electricity, water and sewer.

The employer also provided details regarding the contracting process between the First Nations and the employer. The employer’s evidence was that the contracts they entered into were verbal in nature. The employer indicated that the contracts with the First Nation communities all had stipulations that required benefits to go back into the community. The evidence from the employer was that approximately 12 to 18 percent of their contract needed to go back to the community. The employer submits that a portion of the good and services contracted back to the First Nation would be for labour by the First Nation, typically in the 5% range. The employer states that the contracting process between the firm and the former Chief's First Nation was typical of all the contracts the employer entered into with First Nations communities.

The employer argues that because a portion of their contract and payroll was related to benefits returned to the community, they ought not to be assessed based on the entire amount of the contract. The employer acknowledged in its submission that it owes some monies for WCB assessment premiums but submits that the amount of such premiums is significantly less than 85% of the value of its contracts with First Nations.

The employer’s position is that their assessable payroll ought to be based on the labour percentage set out in the letter from the former Chief of the First Nation. The employer states that the WCB acted outside its jurisdiction by failing to assess the firm's premiums based on actual labour amounts reasonably calculated.

The employer further argues that the guidelines to the Policy are not binding and therefore, the WCB ought not to have determined the employer’s labour percentage based on the Schedule to the Policy.

Analysis

The issue before the panel was whether or not the firm’s assessable payroll has been correctly calculated. For the firm's appeal to be successful the panel must find that the allocation proposed by the employer is reasonable and accurate. The panel is unable to make this finding on a balance of probabilities. The panel finds that the allocation of labour of 85% for the years 2009 to 2013 to be the correct calculation of payroll costs for assessment purposes.

The employer has stated that they do not dispute that the service providers are workers within the meaning of the Act, rather the employer’s appeal relates to the amount of the assessment premiums, which they dispute.

The Policy, which is binding on the panel, states that to determine the assessable earnings the WCB must look to Guideline 3. Therefore, the panel considers Guideline 3 (and the Schedule included therein) to be an integral part of the Policy. Guideline 3 indicates that the assessable earnings are based on the industry and the corresponding major materials percentage. In the event the industry is not listed then the labour percentage of the contract is to be set at 85%. In the case at hand, the contract involved the installation of RTM homes. This type of work or industry is not listed in the Schedule and therefore, the workers assessable earnings are based on the labour percentage being set at 85% of the total contract.

The Policy states that the Schedule reflects a general guide for various industries. It is not possible to include all industries in the Schedule, and so it is reasonable for the Guideline to set out a percentage to be used in the event the industry is not listed in the Schedule.

The panel acknowledges that the Policy also states that when determining a worker's assessable earnings, it shall also consider documentation provided by employers and/or workers. The panel has considered the documentation provided by the employer respecting the approximate labour percentage involved with the RTM homes, however the panel lacks specific evidence relating to the costs, details and labour involved respecting the benefits to the community that the employer funded. 

The evidence of the employer was that they provided funding for various community requests, such as building a church and a playground and providing Halloween candy and Thanksgiving hampers. The panel cannot quantify the percentage of labour related to these benefits. The evidence provided by the former Chief of the First Nation, does not assist in determining the labour costs of the entire contract. If the total cost of the contract involved several payments to the First Nation for a variety of jobs and benefits back to the community, then it is not reasonable that the entirety of the contract can have one labour percentage applied to it. It appears this is what the employer is suggesting.

The panel accepts and acknowledges that it may be customary to have oral contracts, however, the panel does not find it reasonable that the details of the money provided to the community would not be properly accounted for by the employer. When the panel requested further details from the employer relating to specific funds provided to the First Nation Community, the employer could not provide sufficient details or information to confirm the benefits provided or the amounts paid.

The letter from the former Chief of the First Nation provided as evidence indicated that part of the contract was that the employer agreed to purchase an assortment of goods and services from the First Nation and the letter goes on to state that these goods and services varied but could include anyof the following:

“local labour for site preparation and installation of the housing units, local owner/ operator machine rentals, local transportation, local accommodations, local fuel; local sand, and gravel granular products."

The letter does not however confirm the agreement of the parties whereby benefits would flow back to the community, as is the evidence of the employer. The letter does state that “additional amounts may have been paid to the First Nation for other fees, unrelated to goods and services provided." The employer submits that this statement is referring to the benefits that flowed back to the community or the contributions made by the employer to the community, such as the money for the church and the playground.

The evidence of the employer was that it was the First Nation communities that determined what the benefits would be that flowed back to the communities. The employer states that there was an ongoing discussion and a running tally. When questioned by the panel, the employer could not provide any documentation or further details respecting the said tally. The responses from the employer were vague and the corroborative evidence is not sufficient to address this flaw in the evidence. While the panel acknowledges the passing of time that has occrurred, with a contract of such significant value, the panel does not find it reasonable that the employer would not have been able to produce additionalspecifics respecting the funds provided.

Specifically, when asked about the tally kept there was a lack of recall about the exact details. The employer mentioned that once the payments were made the items were recorded in the general ledger. When further questioned about the firm's bookkeeper/accountant and her availability to provide evidence, the employer again provided a vague response. Following the hearing a letter was provided by the bookkeeper, but the letter did not provide specifics or make mention of several of the larger projects that the employer indicated the firm provided funding for. In addition, when asked about specific line items in their general ledger, the employer responded on several occasions that they could not recall or did not have any information to provide.

The Decision Making Policy sets out that WCB decision makers must continue to seek evidence until they are satisfied there is sufficient evidence upon which to make a decision. The Decision Making Policy also sets out that the worker or employer is responsible for co-operating with the decision maker's efforts to gather evidence. The panel sought out further information from the employer following the hearing, and the panel gave the employer various opportunities to provide further evidence to confirm the labour involved with the contract. However the responses received from the employer were lacking in specifics. The Decision Making Policy states that in the absence of such cooperation, the WCB must make a decision based on the limited evidence available to them. The role of this panel is to ensure that the Act and policies are being applied correctly and consistently. Based on the evidence before it, the panel does not see a sufficient reason to alter the assessable earnings set out in Guideline 3. The panel finds, on a balance of probabilities, that the firm's assessable payroll for the years 2009 to 2013 have been correctly calculated.

The appeal is denied.

Panel Members

R. Lemieux Howard, Presiding Officer
J. Peterson, Commissioner
M. Kernaghan, Commissioner

Recording Secretary, J. Lee

R. Lemieux Howard - Presiding Officer
(on behalf of the panel)

Signed at Winnipeg this 6th day of August, 2024