2024 CanLII 34664

decision number:

20240027

employer

HEARD BY:

DATED:

M. LA CIVITA, appeals resolution officer

MARCH 14, 2024

ISSUES

The employer is objecting to the Account Specialist’s (AS) October 26, 2023 decision, which was a reconsideration of the AS’s October 6, 2023 decision to classify the employer’s operations in NAICS Code 237210, Land subdivision, Class G2.

The employer seeks their operations be reclassified to a NAICS Code with a lower premium rate as their business activity was incorrectly classified, and more closely matches one of the following classification codes:

NAICS Code 541330, Engineering services, Class L, or

NAICS Code 541310, Architectural services, Class L.

BACKGROUND

On October 4, 2023, the employer submitted an electronic registration form to the Workplace Safety and Insurance Board (WSIB), noting it employed one worker other than the executive officers, and engaged in real estate development and investment activities.

The AS issued a new business registration letter to the employer on October 6, 2023, indicating the employer’s WSIB account had been registered, effective September 18, 2023, with their business activity classified in NAICS Code 237210, Land subdivision, Class G2. The letter informed the employer of their right to appeal the decision by notifying the WSIB of their intent to do so, in writing, by no later than April 6, 2024.

DT, an executive officer of the employer, telephoned the WSIB on October 19, 2023, and spoke with a different AS, to advise he disagreed with the employer’s classification. According to electronic notes on the employer’s account, the AS requested DT provide invoices, purchase orders, contracts, and advertising to show what the employer’s business activity was, and DT agreed to provide what they had, along with a description of the business activity.

On October 21, 2023, DT emailed the WSIB to advise that “Land Subdivision” was an incorrect description of the employer’s business activity. DT explained that the nature of the employer’s business was purely office/administrative, and the employer should be classified similarly to other office-based businesses, like consulting companies, architects, accountants, etc. DT described the employer as a real estate development company, citing the employer’s website, but added that there was no onsite activity involved, and the employer was not a construction company. DT described the essence of the business activity as:

Working on design and approvals for proposed new real estate projects
The work is all done in the office, working on architectural and engineering plans, financial feasibility reports and budgets, communications with municipalities to obtain approvals, etc.
We do not conduct onsite work for any of our projects. This is done by separate construction management companies once we complete our design and approvals stage
Our employees work from home part of the time.

DT expressed the employer’s belief that a substantially lower premium rate was justified due to the employer’s working environment being very safe, and asked to be advised as to what else was required.

On October 26, 2023, the AS reconsidered and upheld their classification decision of October 6, 2023. The AS’s October 26, 2023 letter to the employer noted the decision was made in accordance with Policy 14-01-01, The Classification Structure. They added that the WSIB had requested documentation during a telephone conversation on October 19, 2023 and, to date, no documentation had been received. The AS also advised the employer that compulsory coverage extends to independent operators, sole proprietors, partners, and executive officers, in construction, as deemed workers, unless they are exempt, and that their insurable earnings must be reported and premiums remitted.

On November 2, 2023, DT emailed the WSIB disputing that the WSIB had requested a long list of documentation. Attached was an Account QuickReport as of November 2, 2023 pertaining to the employer’s work in progress transactions, by property. DT argued that it was unfair to set a Premium Rate of $1.81 for purely office work, and added:

The attached accounting printout shows our current projects (work in progress) with detailed listing of our expenses - all being consulting, engineering design, architectural, appraisal fees, planning consulting, etc.

We do not build the buildings you see on our website. We only do design and approvals from the office environment. The essence of what we do is consulting.

Should any further documentation be required, please indicate what exactly and we will gladly provide it.

The employer completed and submitted their Objection Form on November 29, 2023, objecting to the AS’s decision of October 26, 2023, in which the AS reconsidered and upheld their October 6, 2023 classification decision.

The employer’s objection was forwarded to the Appeals Services Division where it is now before me for review. The employer requested a hearing in writing with no additional submissions provided.

Preliminary Discussion with the Employer and Communication of Potential Downside Risk

I spoke with DT, on the telephone, on March 7, 2024 in order to obtain clarification with respect to the employer’s activities and objection, as the employer had chosen to proceed with a hearing in writing, without further submissions. I explained that, although the employer is seeking reclassification to a class with a lower premium rate, my decision will take into account any applicable NAICS Codes/Classes within the Employer Classification Manual, and that the employer’s operations could potentially be reclassified to a NAICS Code with a higher class premium rate than they currently have. DT said he understood the risk.

I explained to DT, the option for the employer to withdraw the objection, in order to further consider the risk before proceeding and/or to prepare and provide further evidence in support of their arguments for reclassification. DT replied that the WSIB was asking the employer to provide documentation for activities that they do not do, which is impossible. The workers only do administrative work. We discussed that the WSIB classifies employers according to their business activities, as a whole, even when they may contract out a portion of those activities, and that ancillary operations are not classified separately. I suggested that the employer could submit documents for a specific property, to show what the employer did, from start to finish, with respect to the property.

DT responded that the business is real estate development and has nothing to do with construction. The employer is not registered with Tarion or construction associations. DT stated the company consists of the two executive officers, an accountant, and a project manager. None of the individuals visit the sites, or need hard hats/safety boots. He added that the WSIB looked at the employer’s website, saw an old picture of a person in a hard hat, and decided the employer is in construction.

We discussed that the employer’s website contains more recent photographs of buildings under construction, along with conceptual depictions of proposed developments, and DT asserted that the employer has not hired someone to build on one of their properties since 2021, for a particular development. DT stated the employer’s website shows the potential of the properties being developed for business purposes, but is not an indication of exactly what the employer does. The employer acquires land without approvals, and gets it to the point where it is approved for development. This does not mean the employer will develop the property themselves. He said the employer is closer to a real estate company, getting assessments and approvals, which can take years.

With respect to the properties listed on the Account QuickReport of November 2, 2023, DT explained they are owned by holding companies, which are established for each development, and that the holding companies and the employer are owned by the same parties. As to site servicing (such as utilities, etc), when any such work is required, it is carried out by contractors who are paid by either the employer or the holding companies.

DT referred to one of the residential properties listed on the Account QuickReport and on the employer’s website and stated that the work on that property, for example, was considered completed by the employer. The employer just received all required approvals for the development. The employer does not know if they will construct the building pictured on their website, or if they will sell off the property as is. If the employer were to decide to have the building constructed, the construction would be carried out by a construction company with no affiliations with the employer.

DT acknowledged that the employer also owns and/or operates properties which are leased out to unrelated parties, with the employer overseeing the operation and maintenance of the properties. However, the employer does not track the workers’ time or wages per property or activity.

The employer decided to proceed with the hearing in writing, with no further submissions.

AUTHORITY

Operational Policy Manual:

14-01-01, The Classification Structure

14-02-06, Employer Premium Adjustments

Employer Classification Manual:

NAICS Code 237210, Land subdivision, Class G2

NAICS Code 541330, Engineering services, Class L

NAICS Code 541310, Architectural services, Class L

NAICS Code 236110, Residential building construction, Class G1

NAICS Code 236220, Commercial and institutional building construction, Class G6

NAICS Code 531120, Lessors of non-residential buildings (except mini-warehouses), Class K

NAICS Code 531111, Lessors of residential buildings and dwellings (except social housing projects), Class K

Published:

January 3, 2023

April 4, 2023

Published:

January 1, 2020

January 1, 2021

January 1, 2020

ANALYSIS

I have carefully considered all of the available information, legislation and relevant operational policies in reaching this decision, and have denied the employer’s appeal. The employer’s operations will remain classified in NAICS Code 237210, Land subdivision, Class G2.

Under Policy 14-01-01, The Classification Structure, the Workplace Safety and Insurance Board (WSIB) classifies individual Schedule 1 employers according to the nature of their business activities as generally described in the North American Industry Classification System (NAICS). The WSIB Classification structure is made up of 35 industry classes and subclasses.

Generally, employers provide a description of their business activities to the WSIB, and the WSIB will then classify the business activities of the employer in one or more 6-digit classification codes, based on the description in the WSIB’s Employer Classification Manual (ECM) that represents those activities. To ensure accurate classification, the WSIB may request and consider information such as business contracts, direct competitors, equipment used, operational processes, and staff duties, or review other documentation (i.e. annual reports, brochures, websites, etc.) as provided by the employer. For the purposes of classification in this case, the employer provided the WSIB with written and verbal descriptions of their activities, their website address, and an Account QuickReport dated November 2, 2023, listing their work in progress transactions per property.

On their electronic registration form of October 4, 2023, the employer described their business activities as “real estate development and investment”. In subsequent communications with the WSIB, the employer explained that they engage in real estate development by acquiring land, and obtaining assessments and approvals with respect to the development of the land to the point where it is ready to be constructed on.

As explained to me by DT, an executive officer of the employer, this is a process that can take years. The employer must submit site plans and assessments, and request and gain approvals for subdividing, zoning by-law amendments, etc, from municipalities as required in order for the developments to proceed. However, once the employer has completed the design and approvals stage, the employer can either sell the land, or retain it and hire a non-affiliated construction company to construct upon it.

The development process includes the establishment of holding companies for the properties, and as noted on the Account QuickReport of November 2, 2023, submitted by the employer for consideration, it also includes contracting out for the any of the following services, which vary, depending on the project: architectural concepts/designs/plans for the property, electrical and mechanical engineering design, environmental assessments, geotechnical and hydrogeological assessments, planning services, and traffic studies. With respect to site servicing (such as utilities, etc), any such work would be contracted out to other parties, as required, by either the employer or the holding company.

The employer’s operations are currently classified in NAICS Code 237210, Land subdivision, Class G2, which is summarized as follows in the WSIB’s Employer Classification Manual (ECM):

This Canadian industry comprises establishments primarily engaged in servicing land and subdividing real property into lots, for subsequent sale to builders. Land subdivision precedes any building activity and may create residential lots, commercial tracts or industrial parks. Servicing of land may include land clearing and excavation work for the installation of roads and utility lines. The extent of the work may vary from project to project and establishments may perform all the work themselves or subcontract it out. Establishments that perform only the legal subdivision of land are not included.

Among the included examples of activities covered in NAICS Code 237210 are land acquisition, assembling and developing; property development; and building lot subdividing, land development, which I find are activities carried out by the employer.

The employer has requested their operations be reclassified in either NAICS Code 541330, Engineering Services, Class L, or NAICS Code 541310, Architectural Services, Class L, stating that their business activity closely matches the activities within them. According to the WSIB’s ECM, NAICS Code 541330, Engineering Services, Class L comprises establishments primarily engaged in applying principles of engineering in the design, development and utilization of machines, materials, instruments, structures, processes and systems. NAICS Code 541310, Architectural Services, Class L, on the other hand, comprises establishments primarily engaged in planning and designing the construction of residential, institutional, leisure, commercial and industrial buildings and other structures by applying knowledge of design, construction procedures, zoning regulations, building codes and building materials.

While I find that the employer’s activities include obtaining engineering and architectural designs from contracted engineering and architectural firms, as is evidenced by the Account QuickReport of November 2, 2023, the employer does not engage in the provision of engineering or architectural services to clients as a business activity. Policy 14-01-01 defines ‘business activity’ as an activity of the employer that produces a product or provides a service for revenue. In the employer’s case, it garners revenues from the acquisition, assembly and development of land, which it is able to sell to builders, or potentially, build upon themselves. The employer’s obtaining of engineering and architectural designs are ancillary functions in support of their land development activities, and in accordance with Policy 14-01-01, are not classified separately.

The employer argues that they should not be classified in Class G, construction, because their executive officers, accountant, and project manager do not work on site or engage in any construction work themselves. If and when site servicing is required, the employer contracts it out to other parties. However, NAICS Code 237210, Land subdivision, Class G2, recognizes that the extent of work included within the NAICS Code may vary from project to project, and that employers whose activities fall within the NAICS Code may perform all the work themselves or subcontract it out. Therefore, the employer’s land development activities are covered under NAICS Code 237210, whether the work is performed by the employer, or whether the work is subcontracted out, provided the employer is not developing the land for their own use, i.e. to construct buildings upon, for sale.

As noted by the Account Specialist, in electronic notes on the employer’s account, the ‘About Us’ page of the employer’s website indicates that the employer specializes in strategically acquiring and developing vacant lands or under-utilized commercial/industrial properties. The company takes these properties through the development stages, including official plans and zoning by-law amendments, design development plans, and municipal approvals. Once the approvals are obtained, the employer constructs new buildings on the properties.

Given this description of the employer’s operations, I found it necessary to consider other NAICS Codes with respect to the employer’s business activities. Employers’ activities of constructing buildings on properties they have developed are covered, in the WSIB’s ECM, according to the type of building they are constructing. NAICS Code 236110, Residential building construction, Class G1, for example, includes the construction of single-family and multi-family residential buildings, including apartments and condominiums, by operative builders, while the construction of commercial and institutional buildings, by operative builders, falls under the scope of NAICS Code 236220, Commercial and institutional building construction, Class G6.

However, in my discussion with the employer’s executive officer, DT, he explained that the employer’s website information is not entirely indicative of the employer’s operations, and that the website is merely a means to promote the employer and the potential of the properties. According to DT, the employer has, in the past, hired construction companies to construct buildings for them on land they have developed; however, the last time this occurred was in 2021, with respect to a particular property.

In reviewing the employer’s Account QuickReport transactions for this property, as submitted on November 2, 2023, I see the employer was reimbursed by the property holding company, in 2022, for expenses relating to the obtaining of electrical and mechanical engineering designs, and the obtaining of an environmental consultant for construction financing. Given my discussion with DT, the construction contractors were, likely, paid directly by the holding company, which does not have a WSIB account of its own, but which DT described as being under the same ownership as the employer.

In our preliminary discussion, DT indicated the employer has no developments currently under construction. He added that one property had recently been approved for development, and the work on that property was considered completed by the employer as the property could be sold, as is. The employer currently has no definitive plans to construct on the property themselves. All of the other properties are still in the proposed development stage and are undergoing the assessment and approval process, which can take years.

With respect to employer classification changes, WSIB Policy 14-02-06, Employer Premium Adjustments allows that the WSIB may make adjustments back to January 1^st of the current calendar year of notification. In this case, the date of notification was October 4, 2023, when the employer submitted an electronic registration form to the WSIB requesting to register their account effective September 18, 2023. This request led to the AS’s October 6, 2023 classification decision and October 26, 2023 reconsideration, which are before me in this appeal. Therefore, in deciding whether to implement a classification change on the employer’s account, I may only consider the employer’s business activities as of current year 2023, and more specifically, no further back than the employer’s effective date of registration, which was September 18, 2023.

While the employer has had buildings constructed on their developed land in past years, there is no evidence before me to support that the employer constructed on their developed lands in 2023, or to date in 2024. Moreover, the employer has indicated it has no definitive plans to construct on any of the properties that are currently under proposal for commercial or residential development. For these reasons, I find there is no basis to add NAICS Code 236110, Residential building construction, Class G1, or NAICS Code 236220, Commercial and institutional building construction, Class G6, to the employer’s account at this time. I find the employer’s land development activities are covered under the scope of NAICS Code 237210, Land subdivision, Class G2.

The employer also owns and operates buildings with units that are leased to unrelated tenants. Included in the operating of the buildings is any related administrative work, as well as the provision of property services such as repairs and maintenance. These activities are separate and distinct from the employer’s activities under NAICS Code 237210, Land subdivision, Class G2, and are classified separately, by the WSIB, according to the type of building that is owned and operated.

The WSIB classifies employers who own and operate non-residential buildings, such as commercial properties, in NAICS Code 531120, Lessors of non-residential buildings (except mini-warehouses), Class K. Whereas, employers who own and operate residential buildings, such as apartments or condominiums, are classified in NAICS Code 531111, Lessors of residential buildings and dwellings (except social housing projects), Class K.

I have established that the employer carries on more than one business activity, that fall under different NAICS codes. However, as noted in Policy 14-01-01, The Classification Structure, the most important criterion for multiple classifications is the status of the employer’s payroll and wage records. The WSIB requires employers engaged in more than one business activity, that fall under different NAICS codes, to maintain segregated wage records and payroll for each activity. If an employer with more than one business activity does not maintain segregated payrolls, and records the insurable earnings of all workers with no regard to the business activity in which they engage, the payroll is considered aggregated, and the employer is not eligible for multiple classifications.

In cases where an employer with aggregated payroll has business activities in different classes or subclasses, the Classification Rules within Policy 14-01-01 require that the employer is classified in the NAICS code that corresponds to the class with the highest class premium rate, except when the employer is a ‘small employer’. A small employer is one whose workers’ total annual insurable earnings are less than five times the ceiling placed on one worker’s annual insurable earnings. When a small employer has aggregated payroll, the small employer is classified according to the class or subclass for the business activity that is considered to make up the largest share of the employer’s annual insurable earnings.

In my preliminary discussion with DT, he advised that it is not possible for the employer to segregate their workers’ earnings per business activity or property. Therefore, the employer’s payroll is aggregated and the employer is not eligible for multiple classifications. In addition, based on the employer’s reported insurable earnings for 2023, the employer is considered a small employer, and thus their operations should be classified according to the activity accounting for the largest share of their annual insurable earnings.

The majority of the workers’ activities involve administrative functions that are ancillary to, or supportive of, the employer’s land acquisition and development operations. As a result, I am upholding the AS’s October 6, 2023 decision, and subsequent reconsideration on October 26, 2023, which classified the employer’s operations in NAICS Code 237210, Land subdivision, Class G2, as this NAICS Code includes activities such as land acquisition, assembling and development, and property development.

CONCLUSION

The employer’s objection is, therefore, denied.

DATED March 14, 2024

M. LaCivita

Appeals Resolution Officer

Appeals Services Division