Decision #94/24 - Type: Workers Compensation
Preamble
The firms are appealing the decisions made by the Workers Compensation Board (“WCB”) that:
1. The accounts should be associated in accordance with the provisions of WCB Policies;
2. The Group Firm meets the definition of Independent Contractor as defined by the Act;
3. The Group Firm is not eligible to purchase optional coverage under the Act; and
4. The Group Firm should be classified and assigned premium rates associated within the classifications of Building Construction and Heavy Industrial Equipment Sales and Services.
A hearing took place on September 18, 2024 to consider the firms’ appeal.
Issue
1. Whether or not the accounts should be associated in accordance with the provisions of WCB Policies;
2. Whether or not the Group Firm meets the definition of Independent Contractor as defined by the Act;
3. Whether or not the Group Firm is eligible to purchase optional coverage under the Act; and
4. Whether or not the Group Firm should be classified and assigned premium rates associated within the classifications of Building Construction and Heavy Industrial Equipment Sales and Services.
Decision
1. The accounts should not be associated in accordance with the provisions of WCB Policies;
2. The question is moot given the panel’s decision on Issue #1;
3. The question is moot given the panel’s decision on Issue #1; and
4. The question is moot given the panel’s decision on Issue #1.
Background
On February 22, 2023, one of the Appellant firms ("Appellant #1") submitted an Online Employer Registration, noting prior registration with the WCB that ceased in 2009. In the Registration, it was noted the firm’s owner and/or family members owned other businesses, which prompted WCB’s Assessment Services to review the association between this firm and the other firms with common ownership.
The WCB’s Assessment Services wrote to another Appellant firm (Appellant #2) on March 10, 2023 and advised that it determined multiple firms were associated based on common ownership. On March 15, 2023, Appellant #2 requested the WCB reconsider the March 10, 2023 decision as the WCB failed to consider the business relationship criteria in addition to the common ownership criteria as required by the WCB policies. The WCB returned the matter to Assessment Services for further investigation.
Appellant #1 advised the WCB on March 29, 2023 that it provides professional services in the construction, retail, sports, and restaurant industries. On April 5, 2023, Assessment Services advised Appellant #1 that it determined the firm should be associated with the other firms and when registered, the WCB would classify and assess Appellant #1 in accord with the predominant business activities of the group members to whom they provided services. On April 11, 2023, Appellant #1 questioned why the WCB would assign industry rates to its employees that do not align with the services they provide. The Firm confirmed provision of their services to employers within the associated firms and argued it would be difficult to assign one industry code to the Firm and as such, the Firm should be classified independently. On the same day, Assessment Services advised the Firm their services were considered ancillary and exclusive to the business operations of the other firms and assigned classifications and assessment rates based on the industry codes of the related firms. Appellant #1 disagreed with the WCB’s decision and the WCB requested additional information and clarification.
On April 19, 2023, the WCB advised Appellant #1 that it did not meet the criteria for optional coverage as most of the services provided were to the associated firms and that it would be assigned the classifications under Building Construction and Heavy Industrial Equipment Sales and Service. On August 9, 2023, the WCB wrote to Appellant #2 advising that upon further investigation, it determined there was both common ownership and business relationships between all the firms and as such, all firms would remain associated. On August 10, 2023, the WCB wrote to Appellant #1 confirming its classifications under Building Construction and Heavy Industrial Equipment Sales and Service.
Appellant #2 submitted a request for reconsideration of the WCB’s decision to associate all the firms on August 21, 2023. Appellant #1 also submitted a request for reconsideration of the decision on its classifications on the same date. On September 21, 2023 and October 5, 2023, Appellant #1 provided further information to the WCB’s Reconsideration Committee. The Reconsideration Committee determined on January 5, 2024 that the WCB correctly associated the firms, and the firms would be treated as one employer for the purposes of industry classifications and assigning rates. Based on this decision, the Committee also determined the WCB assigned the correct classifications to Appellant #1.
The representative of the firms filed an appeal with the Appeal Commission on February 2, 2024 and a hearing was arranged.
Reasons
Applicable Legislation and Policy
The Appeal Commission and its panels are bound by The Workers Compensation Act (the “Act”), regulations and policies established by the Board of Directors.
Section 2 of the Act provides that Part I of the Act applies to all employers and all workers in all industries in Manitoba except for those excluded by regulation under s 2.1 of the Act. Manitoba Regulation 196/2005, Excluded Industries, Employers and Workers Regulation (the Regulation) provides that industries, employers and workers listed in Schedule A are excluded from Part I.
Section 60(2) of the Act sets out that the WCB has exclusive jurisdiction to determine whether an employer’s undertaking is in an industry within the scope of Part I of the Act and to which class, sub-class, group, or sub-group the employer’s undertaking should be assigned. Section 79 outlines how the WCB conducts such assignment or reassignment. Section 75(3) of the Act defines independent contractor for the purposes of s 75.
The WCB established Policy 35.20.15, Associated Employers (the “Association Policy”) which establishes the criteria for determining when two or more employers will be associated and clarifies how such association will influence industry classifications and assessment rates. The Association Policy sets out that the WCB will associate two or more employers when their businesses have shared ownership and are ancillary to each other. Ancillary means, for the purposes of this policy, that the activities of the businesses are “essential to and/or dependent on another.” The criteria for establishing association are set out in the Association Policy, which requires that both ownership and relationship criteria be met to consider employers associated.
Appellant Firms’ Position
The appellant firms are represented by legal counsel who provided a written brief in advance of the hearing, outlining the firms’ position in relation to the issues under appeal and making additional oral submissions in the hearing. A representative of the appellant firms provided testimony in response to questions posed by the firms’ legal counsel and by members of the appeal panel.
Counsel confirmed that the appellants are abandoning their position that Appellant #1 is an independent contractor.
The position of the appellants on the remaining issues under appeal, as outlined in the brief and oral submissions is that:
1. The decision of the Reconsideration Committee of the WCB did not appropriately apply the test to establish the existence of a business relationship as set out in the Association Policy but rather relied on provisions of the Guideline to that Policy which are not consistent with the provisions of the Policy and as such do not bind the Appeal Commission.
2. On an appropriate application of the business relationship test as set out in the Association Policy, the evidence does not support the finding that the firms are in such relationship.
3. On this basis, the WCB will need to classify and assess these employers independently, and the panel ought to refer these questions back to the WCB for primary adjudication.
Analysis
This appeal arises primarily from the decisions of the WCB to associate the appellant firms, to classify the associated firm within the classifications of Building Construction and Heavy Industrial Equipment Sales and Services and that the associated or group firm is not eligible to pursue optional coverage under the Act. The WCB’s decision that the Group Firm does not meet the definition of independent contractor was also appealed but the appellants confirmed they were abandoning their appeal of that question.
For this appeal to succeed, the panel would have to find that the appellant firms do not meet the criteria for association set out in the Association Policy, and as such, that the WCB decisions as to classification of the group firm and its eligibility for optional coverage under the Act are not valid and require further adjudication. As detailed in the reasons below, the panel was able to make such findings and therefore the appeal is granted, and the questions of classification and optional coverage are referred to the WCB for further determination.
The panel considered the evidence in relation to the criteria for association of employers as set out in the Association Policy. The first criterion is that business ownership is shared, and the appellants have conceded that this is the case. The panel accepts and relies upon the appellants’ assertion in this regard, and we are satisfied that this criterion is established.
The second criterion for association is that the businesses are “ancillary to each other” which the Policy sets out is the case “when their activities are essential to and/or dependent on another.” The Policy further provides that determining business relationship takes into consideration factors that include whether the employers share the same premises, staff or equipment; whether the sole purpose of one business is to contribute supplies to or derive revenue from another; and whether the employers produce a common end-product or service. The appellants’ position is that these are the only factors that should be considered, but the panel finds that the policy wording is neither exhaustive nor limited to the listed factors, although we agree the listed factors ought to be considered in determining whether businesses are ancillary.
A plain reading of the Association Policy requires that both criteria, shared ownership, and ancillary relationship, be met for the WCB to consider employers as associated. The panel noted however that the Administrative Guidelines to the Association Policy differently describe the criteria for establishing business relationship, requiring only some mutual dependencies rather than dependency, to be found to be ancillary. Further, the panel noted the Administrative Guidelines outline that whether there is a business relationship between all the individual firms is “irrelevant” if one of the employers in the group “performs functions (e.g., administrative) for all of the other employers in that group.” We find that this provision effectively creates a kind of exception to the requirement that association requires meeting both criteria, but the Association Policy makes no allowance for any exception to that requirement.
While the panel is not required to apply and is not bound by the provisions of the Administrative Guidelines to the Association Policy, we are bound to apply the policy itself. Administrative guidelines are intended to provide clarity and direction, ensuring consistency in the application of a policy. The panel finds that these Administrative Guidelines extend the reach of the provisions of the Association Policy in a manner that is not consistent with the Policy by declaring it to be irrelevant if there is a business relationship between the other firms when the functions performed by one employer in the group for all the other employers in that group satisfy that criterion. If the WCB intended that to be the case, the policy would have been drafted to explicitly say so, and as the Policy does not reference any such exception or shortcut to finding a business relationship, the panel is not inclined to apply it.
The evidence before the panel indicates that Appellant #1 provides various administrative services to the other employers, but also provides those same services to firms that are not within the group firms as established by the WCB. The evidence also indicates that the provision of such services by Appellant #1 is not the sole, nor the primary source of revenue of that firm. The panel accepts and relies upon the testimony of the appellants’ witness in this regard. As such, the panel is satisfied that although it is a purpose of Appellant #1 to contribute supplies to or derive revenue from the other firms, it is not the sole purpose of Appellant #1, and as such this factor does not support association.
The panel also heard testimony that the sole purpose of each of the other group firms is not to contribute supplies to or derive revenue from the other firms, although the firms may from time to time enter into tendered contractual agreements with one another, and that when such agreements or contracts are entered into, the firms do so at market rates without any discounts based on common ownership or other relationship. We accept and rely upon this evidence and find that this factor also does not support association of the firms within the group.
In considering the question of shared premises, equipment and staff, the panel heard that four of the firms are located at the same address, including Appellant #1, and that these four firms share some office equipment and premises, including photocopiers, printers, a lunchroom, and a boardroom. We also heard that Appellant #1 is the owner of these premises and entered into lease agreements with each of the other three firms, although the panel noted that the controller of Appellant #1 signed each of these leases on behalf of the tenant firms. We also heard that two of the four firms at these premises share a general manager, and that another two other firms at another location also share premises owned by one of those two firms, as well as some equipment and a general manager. There is evidence that three of the appellant firms are independently located with no sharing of premises, staff, or equipment. The panel accepts and relies upon the witness’ testimony in this regard. In reviewing this evidence, we find that, based on the varying degrees of interdependence of the firms within the group, the sharing of premises, staff or equipment does not clearly point either to business relationship or independence of the group firms as a whole. This factor, then, is not persuasive either for or against association.
In respect of the question of common end-products or services offered, the panel heard evidence as to the nature of each firm within the associated group and specifically, the kind of work or product each produces. There are two firms involved in production of the same kind of product, although these two firms operate in different regions, and as such serve different customers. The two firms co-located on the same premises that share a general manager as well as some equipment, offer different but complementary services. The other firms each provide a different kind of end-product or service. The panel accepts and relies upon the testimony of the appellants’ witness regarding the lines of business of each of the employers in the group firm. We find that although there is some overlap between two of the firms, the employers within the associated group generally are not producing a common end-product or service. As such, this factor does not support association.
The panel also heard and relies upon testimony that the various employers within the associated group each could operate as stand-alone businesses. We heard that, as an example, one of the firms initially included in the Group Firm was subsequently sold to a third party, who continues to operate that firm independently of the group. Further, we heard that the owners are in the process of negotiating the sale of another firm within the Group, to a third party who is also expected to continue to operate that firm independently of the Group. The appellants’ position is that each of the employers in the Group Firm operates a business that is wholly sustainable without the other members of the group, and that even though many of the administrative functions including accounting, human resources, safety and legal are provided by Appellant #1 to the other firms in the associated group, those services could just as easily be obtained from and outsourced to another unrelated provider. The appellants argue and the panel accepts that this factor also supports a finding that the firms are not ancillary to one another.
Based on the evidence before the panel and on the standard of a balance of probabilities, we are satisfied that the criteria for relationship are not established and as such, despite shared ownership, the employer firms cannot be considered associated. The panel is unable to address the remaining questions on appeal given its determination of the first question. The WCB will need to classify and assess these employers independently, and therefore the panel refers these questions back to the WCB for further adjudication.
The appeal is granted.
Panel Members
K. Dyck, Presiding Officer
J. Peterson, Commissioner
M. Kernaghan, Commissioner
Recording Secretary, J. Lee
K. Dyck - Presiding Officer
(on behalf of the panel)
Signed at Winnipeg this 17th day of October, 2024