THE WORKPLACE SAFETY AND INSURANCE BOARD
APPEALS RESOLUTION OFFICER DECISION
DECISION NUMBER: 20090078
OBJECTION BY: Employer
REPRESENTATIVES: Employer
ISSUE
The employer representative (“M”) asks the Workplace Safety and Insurance Board (“WSIB”) to reverse an auditor’s decision that the firm (“P”) does not maintain proper payroll segregations and, accordingly, that the company is not entitled to have any insurable earnings attributed to rate group 958, classification unit ("CU") 7799-011 (“Quality Assurance”) for 2005 and 2006. M also asks the "WSIB to reimburse the employer, by cheque, for interest charges on prior employer payments at the Bank of Canada + 6% rate."
HOW THE ISSUE ARISES
Based on information provided by the firm that it was engaged in “engineering service,” its WSIB account was originally set up in 2003 under rate group 958, CU 7752‑000 ("Offices of Engineers"). Upon further review a couple of years later, on the basis of its understanding that the firm was engaged in the provision of quality inspection services on a contract basis to auto parts manufacturers, the WSIB reclassified P as of January 1, 2005, under rate group 419, CU 3231-000 ("Motor Vehicle Assembly Ops”). P objected, asking for reclassification to rate group 958, CU 7799-011 (“Quality Assurance”). A WSIB Account Manager found that P’s business activity fell within rate group 421, CU 3259-001 (“Other Motor Vehicle Accessories, Parts, and Assemblies”), and reclassified the firm accordingly, as of January 1, 2005. A different employer representative (“V”) objected on P’s behalf, accepting CU 3259-001 for the rework of parts but maintaining that the quality inspection fell within CU 7799-011. The operating area denied the objection and referred the matter to the Appeals Branch.
In a decision dated August 22, 2007, rendered under the WSIB’s expedited 60-day appeal process, an Appeals Resolution Officer stated as follows:
The employer says they do not take contracts that include both inspection and rework. The employer says that the contracts are specifically one or the other.
The sample contracts provided by the employer with respect to non quality assurance work include re-packaging goods for General Motors and a list of rework jobs for a variety of customers. There is not much detail about these jobs and the submissions made in support of the appeal do not help. What is clear is that the employer does take work that is not part of quality assurance inspection. Also clear from the record is that the work comes from auto and truck manufacturers and suppliers. It is safe to say that the work falls squarely into the rate groups associated with auto parts manufacturing.
The majority of the work done by the employer is quality assurance inspection to satisfy the quality requirements of the auto makers. The inspection is performed on a contract by contract basis and is done at the manufacturer’s location or at the employer’s location. In any case the inspection is being done at the point of manufacture before the part is sold, used or installed.
The evidence shows that the employer is contracted by manufacturers to provide the service of custom quality-control inspection at the point of manufacture. … In addition the firm will offer the manufacturer engineering advice to improve is [sic] processes or procedures to maintain the quality level required. I am convinced that [CU 7799-011 (“Quality Assurance”)] does describe the employer's operations, with the exception of any rework or re-packing contracts.
Having found that the employer engages in separate business activities it is appropriate to add that the employer is now responsible to demonstrate a segregation of payroll between these two activities and to appropriately allocate any ancillary earnings to the applicable rate classification. It is also appropriate to ensure the employer is aware of its responsibility to be forthcoming with any future changes or modifications to its business. If for example it takes or begins to take contracts that include both quality inspection and rework or any other task the employer must disclose this within ten days.
Based on this analysis, the Appeals Resolution Officer concluded as follows:
The employer is engaged in the business of custom quality assurance classified in CU 7799-011, Rate 958-22. The employer is also in the business of providing rework and re-packaging to the automobile parts industry. The employer says they can segregate the two business activities.
The employer’s account will be adjusted by adding CU 7799-011 Quality Assurance Rate 958-22 as of January 1, 2005. The other aspect of the employer’s business activity may remain classified in CU 3259-001 Other Motor Vehicle Accessories, Parts, and Assemblies Rate 421-04 until such time as a more specific rate can be assigned.
So as to implement the Appeals Resolution Officer’s decision, the operating area wrote to V for segregated payroll information. V provided documentation relating to 2005, 2006 and January 1 to October 31, 2007. The operating area accepted the information and, in December of 2007, processed a reallocation of the majority of payroll from rate group 421 to rate group 958, resulting in credit adjustments of over $300,000.
V subsequently requested that a refund be issued to the employer. Due to the magnitude of the credit amount, the operating area requested an audit to confirm the payroll segregations on which it was based. A Notice of Audit Visit was sent out on September 22, 2008, advising that an audit would commence on October 9, 2008, relating to payroll records for 2005, 2006 and 2007. According to a Contact Chronology on the employer file, someone from the company “explained that their firm had a massive flood recently (during the high rainfall period several weeks back) and most of their records for past years, including WSIB records, were destroyed. They are currently attempting to recover the records.” As a result, the commencement of the audit was put off to October 16, 2008.
Over the next several months, the firm compiled and provided documentation to personnel from the WSIB’s Employer Audit Services department, to demonstrate payroll segregations for 2005, 2006 and 2007. The audit department was satisfied with the verifiability of the records for 2007 but had a number of concerns regarding the information for 2005 and 2006. As a result, the auditor implemented the Appeals Resolution Officer’s decision by allocating payroll between rate group 421 and rate group 958 for 2007, but for 2005 and 2006 the auditor left all insurable earnings under the highest-rated applicable rate group, which was rate group 421. She advised P of her decision in a letter dated February 26, 2009.
After receiving further documentation and submissions, the auditor confirmed classification of all payroll under rate group 421 for 2005 and 2006, and referred the matter to the Appeals Branch.
RESOLUTION METHOD AND PROCESS
M has completed a 60-Day Decision Option Form, indicating his desire to have an Appeals Resolution Officer render a decision within 60 days based on information already on file and without further review processes.
AUTHORITY REFERENCES
Operational Policy Manual document 11-01-03 (“Merits and Justice”).
Operational Policy Manual document 14-01-01 (“The Classification Scheme”)
Operational Policy Manual document 14-01-02 (“Single Classification”).
Operational Policy Manual document 14-01-03 (“Segregated Payrolls”).
Operational Policy Manual document 14-01-04 (“Aggregated Payroll”).
Operational Policy manual document 14-02-07 ("Employer Non-Compliance Interest and Charges").
ASSESSMENT OF EVIDENCE AND SUBMISSIONS
Operational Policy Manual ("OPM”) documents 14-01-01 through 14‑01-04, which reflect section 9 of Regulation 175/98, provide that, where an employer carries out more than one business activity, separate classifications are available if there are payroll segregations. Otherwise, the entire operation is to be classified under the single applicable classification category that bears the highest premium rate. The only exception, in accordance with the Regulation and WSIB policy, is for a “small employer,” which is defined as one whose annual insurable earnings for the year in question are less than fives times the annual maximum insurable earnings ceiling for that year. The single classification that is given to a “small employer” who cannot segregate is the one that represents that employer’s predominant business activity. P is not a “small employer,” as its total insurable earnings, being over $6 million for 2005 and over $5 million dollars for 2006, far exceed five times the annual maximum. Accordingly, unless it maintains payroll segregations that satisfy the WSIB’s criteria, this firm must be classified entirely under the single applicable classification that carries the highest premium rate.
According to subsection 1(a) of the Regulation, a proper segregation exists where:
(a) the wage records for the payroll for the business activity or operation are segregated from the payroll for the employer's other business activities and operations, and
(b) the segregated wage records can be verified by records of the employer kept for a reason other than for verifying those segregated wage records.
OPM document 14-01-03 gives further definition, providing that a proper segregation exists where there are actual records setting out the amount of labour, or labour time, that the workers expend in each of the relevant activities.
Since P’s representative has chosen the 60-day option, the scope of my review is limited to the submissions that have been made to date. The evidence on file indicates that, for 2005 and 2006, P does not have verifiable payroll records that indicate how much of its workers’ labour related to quality assurance and how much to rework.
One of the concerns the auditor had with the information put forward by the employer as a payroll segregation is that the firm constructed the data after the fact by reviewing records and, in a round-table discussion, attributing things to either inspection or rework based on what they thought their workers had done. While this does not meet any standard of proof, it might very well be that, in an appropriate case, considering the merits and justice, the WSIB might accept payroll segregations created after the fact where the original records have been lost or damaged in a flood, the employer has done its best to try to reconstitute the information contained in those records, and there is no reason to doubt the accuracy of what the firm has later come up with. However, I am not satisfied that this is such a case.
A review of P’s employer file indicates that even those records that are available for the pre‑2007 period are not reliable in reflecting which labour (let alone how many dollars and cents in labour value) related to the quality assurance and which related to the rework. The auditor noted that there were some claims that were incurred by workers who performed rework but which the firm had attributed to quality assurance. One Form 7 that has been placed on the employer file, relating to an injury that occurred in 2006, lists the worker’s job title and business activity as “Quality Inspector,” but the description of the incident says “Carving out excess material from a bezel parts [sic],” which appears to be rework, not merely inspection.
In addition, the auditor has stated on file that invoices and other documents that she viewed were not specific as to what kind of work was involved in each particular job, and that most invoices for 2006 gave a job description of “Containment/Rework Inspection Reg Time,” which seems to refer to both of the business activities in question, without differentiating between them. That would render any claim as to what kind of work was actually done unverifiable. The auditor said the firm had a round-table gathering to try to remember what the jobs were for, but without specific documentation to support their recollections.
There is nothing to indicate that the firm’s compilation of payroll allocations without supporting documentation was done dishonestly. However, the fact remains that the information it has put forward is demonstrably incorrect in a number of respects. For 2005, the problems may have been due in some part to the loss of records in a flood. However, even for 2006, there were still inaccuracies, inconsistencies, and lack of full documentary detail supporting which labour was for which business activity. Therefore, it would be remiss of me to presume that the records for 2005, had none of them been destroyed, would have been any more accurate. As a consequence, in this case I find it would not be appropriate to consider the flood to be a basis for accepting the firm’s subsequently compiled segregations for 2005 at face value. In fact, as documented on file, the firm said they had not begun to keep verifiable records until April/May of 2007. Had they done so in 2006, the firm might have had records that were sufficiently detailed and accurate that the auditor might have regarded them as verifiable proof of proper segregations. In that event, it might have been a reasonable exercise of discretion to have also accepted the segregations that the company has been able to offer for 2005. However, that is not what happened here. Rather, the firm started keeping verifiable segregations more than two years after the start of the audited period and the records that it did keep for both of the first two audited years were too problematic to accept as proper segregations.
While the auditor says the invoices did not differentiate between inspection and rework, that does not seem to be the case for documents that the employer representative provided with the objection form. That documentation does show invoicing that involved inspection only. However, the apparent inconsistency between the auditor’s observation (that the invoices, at least for 2006, gave a job description of “Containment/Rework Inspection Reg Time”) and the documentation submitted with the objection form (which does show invoicing specifically for inspection), reasonably gives rise to a number of questions. For example, were these documents shown to the auditor? If so, considering that the submitted documents seem to be examples and not the firm’s entire invoicing, were there other invoices that did in fact not distinguish inspection from rework? What did the majority of the invoices say? If the auditor was not shown these invoices, why not? Were these original invoices or were they altered after the fact? If the latter, were those alterations based on recollections or on verifiable documentation? These are but a few examples of the kinds of things that would need to be clarified before a responsible decision-maker could accept at face value the invoices that were submitted with the objection form.
Given the inaccuracies that the auditor found in the records she viewed, and given that I would have questions about the apparent inconsistency between the auditor’s claim of how invoices were made out and the way in which the invoices attached to the objection form were made out, I cannot accept without question that the jobs the invoices related to did actually involve only inspection. After all, if records show inspection only, it could be that: (a) the job did actually involve inspection only, or (b) the job involved rework but it was all recorded as inspection. If the latter, there are two concerns. First of all, it would be important to make a determination as to whether such inaccurate recording was inadvertent or intentional. Secondly, whatever led to the incorrect recording, there would still be the problem of determining what the accurate allocation is. Most significantly, given that the auditor has recounted how there were in fact instances in which P recorded all work as inspection even where there was rework, there is a fundamental question regarding credibility. Since the employer has chosen the 60‑day expedited decision option, I have no opportunity to examine anyone from the firm under oath to ask further questions and assess credibility, so I cannot make determinations on any of these things. Being limited to making a decision based on the evidence on file, and having doubts as to the accuracy of the information, I simply cannot accept it at face value.
In light of the above, I am not satisfied that the payroll segregation information provided to the WSIB constitutes a “proper segregation” as referred to in WSIB policy or Regulation 175/98.
The question remains, however, as to whether there is a basis for allocating at least some of P’s payroll to the quality assurance rate for 2005 and 2006. It has been suggested that the WSIB should accept the company’s estimate of the percentage of contracts that related to rework as opposed to quality assurance. I find that to be problematic for a number of reasons. First of all, as noted above, WSIB policy specifies that this is not a proper basis for establishing a payroll segregation. More fundamentally, however, the firm has not shown that its information for 2005 and 2006 was complete, consistent and, therefore, reliable, so I see no basis for accepting its estimates at face value.
One might say that, if a firm does mainly one kind of work and only a little of another, even in the absence of proper segregations one should, in fairness, allow at least some payroll to be classified under the rate that represents most of what the firm does. Under that approach, one might say that, if an employer claims that 95 per cent of its contracts relate to one business activity but cannot prove it objectively, the WSIB should accept, as a compromise, some lesser amount, say a 50/50 split. However, that is not what WSIB policy provides. Rather, as I have noted above, employers who cannot segregate payrolls are to be classified entirely under the single applicable rate group that bears the highest premium rate. The only exception is for a “small employer,” in which case the employer would receive only one rate group but it would be the one which predominates, rather than the one with the highest premium rate. P is decidedly not a small employer.
In any case, the fact is that where there are no “proper segregations,” the WSIB does not permit or intend to permit the application of more than one rate group and the splitting of payroll between them. Rather, it requires the application of only one rate group, with the method of determining which one being dependent on whether the employer is “small” or not. To say that the WSIB should allow more than one rate group even in the absence of verifiable – or even reasonably reliable – segregations might be a statement of one’s sense of fairness; however, it would not be reflective of the WSIB’s intent, and WSIB intent is central to the merits and justice principle that gives decision‑makers the authority to exempt an employer from the strict application of WSIB policy. As provided for in OPM document 11-01-03, a decision-maker can exempt a worker or employer from a policy if the application of that policy “would lead to an absurd or unfair result that the WSIB never intended.” To say that payroll can be allocated to two or more rates on the basis of inaccurate and inconsistent segregation information would not be an act of exempting someone based on fairness and WSIB intent; rather, it would be an act of policy‑making, which is something appeals decision-makers are not empowered to do.
Further, if one were to say that a firm that cannot prove a 95/5 split should perhaps receive a 50/50 split as a compromise, that would be a completely random calculus. One would have to ask, why not 60/40? 75/25? The halfway point between what the employer claims and what it might be able to demonstrate? Some other split that is something other than the unproven 95/5? In my view, the very arbitrariness of such a split demonstrates why it cannot be the basis of a payroll allocation and why the WSIB could not have intended that it might be.
In summary, whatever one might consider fair, it would not be consistent with the WSIB’s policy or intent if one were to accept payroll figures submitted by an employer, where the information that has been provided appears to be unreliable, the employer has not provided the decision-maker with records that constitute a “proper segregation,” and there is no opportunity to obtain clarification or assess credibility. It would also be against the WSIB’s policy and intent if one were to allocate payroll amongst two or more rate groups based on the idea that an employer does more of one thing than another.
OPM document 14‑01-04 provides that, while sales volumes, revenue figures or units of production may be used to demonstrate, within an aggregated payroll, which business activity predominates, “Sales volumes and revenue figures cannot be used to support the segregation of a payroll.” In other words, these things can be used by a small employer who cannot segregate, in order to determine which single rate group to apply; but they cannot be used by any employer, large or small, to constitute a segregation and obtain more than one rate. Accordingly, I must confirm that, under this OPM document and the others I have cited in this decision, P’s entire payroll is to be classified under the single applicable rate group that carries the highest premium rate. Of the classifications the Appeals Resolution Officer found were applicable to P’s business activities, rate group 421 bore the highest premium rate. Therefore, I confirm the auditor’s decision to allocate P’s entire payroll to rate group 421 for 2005 and 2006.
Since I have confirmed the allocation of payroll as carried out by the auditor, there are no adjustments on which to consider paying interest. Therefore, there is no basis for awarding the interest that the representative has requested, and I decline to do so.
CONCLUSION
As determined in the decision of another Appeals Resolution Officer, the business activities carried out by P fall within two separate rate groups – one for quality assurance and one for rework. Since P does not have verifiably accurate payroll segregations distinguishing the amount of labour that applied to each business activity during 2005 and 2006, and it has not demonstrated that the subsequently-compiled records are reliable, the entire payroll for those years must be classified under the applicable rate group with the highest premium rate. For 2005 and 2006, the premium rates for the rework rate that has been assigned to the firm (rate group 421, CU 3259‑001) were higher than those for the quality assurance category (rate group 958, CU 7799-011). Accordingly, I confirm the auditor’s decision to allocate P’s entire insurable earnings to rate group 421 for those years.
In light of my decision regarding payroll segregations, I find no basis for paying interest.
Therefore, the employer’s objection regarding payroll segregations and interest is denied.
DATED September 22, 2009.
B. Patlik
Appeals Resolution Officer
Appeals Branch