Assignment within the Classification System Assessment Manual: Practice Directive 1-37-2 (A)
Assessment Manual: Practice Directive 1-37-2 (A) Assignment within the Classification System OBJECTIVE.................................................................................................................................................................................. 1 GLOSSARY .................................................................................................................................................................................. 1 INTERPRETATIVE GUIDELINES ................................................................................................................................................. 3 I CLASSIFICATION SYSTEM / THE THREE-LEVEL ASSIGNMENT HIERARCHY................................................................. 4 ADJUDICATIVE GUIDELINES...................................................................................................................................................... 5 I THE FIRM’S MAIN BUSINESS UNDERTAKING ................................................................................................................... 6 A Administrative activity .................................................................................................................................................. 10 II CLASSIFICATION UNIT WHICH BEST DESCRIBES THE FIRM’S MAIN BUSINESS UNDERTAKING .............................. 11 III DOES A POLICY EXCEPTION APPLY ............................................................................................................................... 12 A A strategic business undertaking ................................................................................................................................. 12 B An administrative business undertaking ....................................................................................................................... 13 C Multiple classification rules ........................................................................................................................................... 14 (1) AP1- 37-2(3.2.1): Criteria for multiple classifications ............................................................................................. 15 (2) AP1- 37-2(3.2.2): Specific cases .......................................................................................................................... 16 (a) The fishing industry ....................................................................................................................................... 16 (b) The non-industrial building construction exception ........................................................................................ 16 (c) The residential employer exception ............................................................................................................... 17 (d) Management companies ............................................................................................................................... 17 (e) Special hazard activities ................................................................................................................................ 18 (3) AP1- 37-2(3.2.3): A firm with business undertakings that do not qualify for multiple classifications ....................... 18 (a) A firm has more than one business undertaking which does not meet the criteria or a specific case ............. 18 (b) A firm with multiple classifications has additional business undertakings ....................................................... 19 (c) A firm in an enterprise has additional business undertakings ........................................................................ 19 D Consulting firms ........................................................................................................................................................... 20 E Labour supply firms...................................................................................................................................................... 22 F Firms in an enterprise .................................................................................................................................................. 22 (1) The firms are affiliated .......................................................................................................................................... 23 (2) A cooperative and coordinated relationship .......................................................................................................... 24 (3) The enterprise’s main business undertaking in British Columbia ........................................................................... 25 (4) The multiple classification rules ............................................................................................................................ 26 IV “FULL AND ACCURATE INITIAL INFORMATION” .............................................................................................................. 27 APPENDIX “A” ............................................................................................................................................................................ 28 OBJECTIVE 1. This practice directive explains how a firm is assigned to one or more classification units within the Classification System1 and aids in interpreting and administering Assessment Manual Item: AP1-37-2. GLOSSARY 2. The following explanations complement definitions, descriptions, and terms in the Workers Compensation Act and policy, and aid in understanding, interpreting, and implementing the Act and policy. Activity A process that combines inputs, technology, skills, and labour to create a product or service. Generally an activity is a task or a group of tasks. An activity may be a part of another activity [AP1-37-1(1.4)]. Activity is the bottom level of the three-level assignment hierarchy. 1 See Assessment Manual Item: AP1-37-1 and Practice Directive 1-37-1(A). Effective – From and after 1 January 2013 Version 1.0 – 1 January 2013 Practice Directive 1-37-2 (A) Page 1 of 28 Administrative activity An activity for a firm’s own use which is primarily concerned with maintaining the firm as an ongoing business entity; and which relates to the firm as a whole, does not become an integral part of the firm’s usual and primary product or service (unlike raw material or direct labour), and generally cannot be applied or traced to any specific product or service. Examples include: human resources and infrastructure (e.g., management, accounting, legal). Administrative business undertaking An administrative activity undertaken by a firm for another firm or an enterprise [AP137-2(3.1)]. Administrative or management services A management company’s services which aid other firms in achieving their strategic goals. These entail the organization and coordination of a firm’s activities to achieve its business goals within, and in accordance with, the firm’s policies. Affiliated or affiliation Business operations Where one firm controls another firm; or both firms are controlled by the same person or persons; or the firms are controlled by family members – immediate, extended, or equivalent [AP1-37-1(1.3)]. All of a firm’s activities, which may include one or more business undertakings [AP137-1(1.4)]. Business operations is the top level of the three-level assignment hierarchy. Business undertaking One or more activities carried out by a firm’s or enterprise’s own workers, or by contracting other firms, that produce a product or service for revenue. If generating revenue is not the purpose of the activities, a business undertaking will advance the firm’s or enterprise’s goals [AP1-37-1(1.4)]. Business undertaking is the middle level of the three-level assignment hierarchy. Control (for affiliation) The “ability or power, actual or potential, direct or indirect through intermediaries, to direct or cause the direction of the management of a firm’s business operations, through the ownership of voting securities, by contract, or by other means” [AP1-371(1.3)]. Control entails the organization and coordination of the firm’s activities to achieve the firm’s goals within, and in accordance with, the firm’s or an enterprise’s policies, objectives, and overall direction. Accordingly, it does not entail operational, project, or contract management. “Cooperative and coordinated relationship” Two or more firms intentionally and willingly acting in common in harmonious combinations or interactions to synchronize the facilitation or accomplishment of the transformation of inputs (resources, raw materials, services) into desired products, services, or results. Enterprise Two or more affiliated firms engaged in a cooperative and coordinated relationship to produce a product or service, not for the enterprise’s own use [AP1-37-1(1.3)]. Industry Main business undertaking Principal A specific branch of business, trade, or manufacture – public or private, for profit or not – defined on the basis of the inputs (resources, raw materials, services) used; the process of production (methodology of combining inputs, technology, skills, and labour); and the type of products and services produced. The business undertaking that produces a firm’s or enterprise’s usual and primary product or service, which is not for its own use [AP1-37-1(1.4)]. An individual who has the direct or indirect power or ability to control or influence a corporation or similar entity’s operations, through the ownership of voting securities, by contract, or otherwise [AP1-1-1]. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 2 of 28 Revenue The amount generated from the sale of products or services, or any other use of capital or assets, associated with a firm’s business operations, before any costs or expenses are deducted. Rule of classification The Board assigns a firm to the classification unit that the Board determines best describes the firm’s main business undertaking in British Columbia, unless a policy exception applies [AP1-37-2(2)]. Secondary business undertaking A business undertaking that is subordinate to the main business undertaking (generally measured by revenue). The hierarchical analytical framework – activity, business undertaking, and business operations – used by the Board to tier a firm’s business into defined levels in order to ascertain the firm’s methodology of transforming inputs into a product or service for either revenue or its business goal. A process of combining inputs, technology, skills, and labour to create a product or service. Task Three-level assignment hierarchy Activity “A” Activity “B” Activity “C” One or more activities carried out by a firm’s own workers, or by contracting other firms, that produce a product or service for revenue. All of a firm's activities, Business operations Activity “D” (contracted out) Activity “E” which may make up one or more business undertakings. Business undertaking A:D Business undertaking E For these purposes, “Usual and primary” Usual means that the product or service is habitual or customary. Primary means that the product or service is first or foremost in rank or importance for the purposes of the workers’ compensation system, as established in section 36(2) of the Act and AP1-37-2(1)’s principles. INTERPRETATIVE GUIDELINES 3. Section 37(1) of the Act establishes a system for classification of industries; section 37(2)(d) charges the Board to assign firms into one or more classes within that system; and section 37(2)(f) dictates that the Board can withdraw firms from a class or subclass and transfer firms to another class or subclass. 4. The Classification System is an extension and refinement of section 37(1)’s system for classification of industries; and the three-level assignment hierarchy is the analytical framework the Board uses to effect section 37(2)’s charge to assign firms into the Classification System and to administer, maintain, and regulate that system. 5. The assignment of a firm into the Classification System is done within section 36(2) of the Act’s mandate that the Board “manage [the accident fund] with a view to the best Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 3 of 28 interests of the workers’ compensation system.” It involves a balancing of one or more policy objectives and multiple interdependent interests simultaneously such that a deliberate symmetry between various constituencies with different and competing interests is maintained. Accordingly, in assigning a firm into a classification unit, the department will consider and weigh the legitimate interests of the affected firm, of other firms within impacted classification units, and of the Classification System as a whole. 6. Several of AP1-37-2’s provisions grant the department discretion of a judicial nature.2 The intent of these grants of discretion is to effect a reasoned balance between “the best interests of the workers’ compensation system” and the prevention of demonstrable prejudice to a firm. Such balance requires that the department consider the purposes and objects of the Act, the purposes and principles of classification policy, and the merits and justice of the individual case. I CLASSIFICATION SYSTEM / THE THREE-LEVEL ASSIGNMENT HIERARCHY 7. Each of the Classification System and the three-level assignment hierarchy’s business undertaking level includes a methodology of transforming inputs into a product or service for either revenue or a business goal (or, if revenue is not the firm’s business goal, a product or service which achieves its business goal). That methodology is the link between the Classification System and the three-level assignment hierarchy. Classification System Three level assignment hierarchy Activity CLASSIFICATION UNITS 1 British Columbia’s collective economic undertaking 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 f(x) = industry 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 90 94 95 96 97 98 99 10 0 10 10 10 10 10 10 10 10 10 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 12 12 12 12 13 13 13 13 13 13 13 13 13 13 14 14 14 14 14 14 14 14 14 14 15 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 15 15 15 15 15 15 15 15 15 16 16 16 16 16 16 16 16 16 16 17 17 17 17 17 17 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 17 17 17 17 18 18 18 18 18 18 18 18 18 18 19 19 19 19 19 19 19 19 19 19 20 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 20 20 20 20 20 20 20 20 20 21 21 21 21 21 21 21 21 21 21 22 22 22 22 22 22 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 22 22 22 22 23 23 23 23 23 23 23 23 23 23 24 24 24 24 24 24 24 24 24 24 25 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 25 25 25 25 25 25 25 25 25 26 26 26 26 26 26 26 26 26 26 27 27 27 27 27 27 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 27 27 27 27 28 28 28 28 28 28 28 28 28 28 29 29 29 29 29 29 29 29 29 29 30 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 30 30 30 30 30 30 30 30 30 31 31 31 31 31 31 31 31 31 31 32 32 32 32 32 32 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 32 32 32 32 33 33 33 33 33 33 33 33 33 33 34 34 34 34 34 34 34 34 34 34 35 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 35 35 35 35 35 35 35 35 35 36 36 36 36 36 36 36 36 36 36 37 37 37 37 37 37 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 37 37 37 37 38 38 38 38 38 38 38 38 38 38 39 39 39 39 39 39 39 39 39 39 40 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 40 40 40 40 40 40 40 40 40 41 41 41 41 41 41 41 41 41 41 42 42 42 42 42 42 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 42 42 42 42 43 43 43 43 43 43 43 43 43 43 44 44 44 44 44 44 44 44 44 44 45 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 45 45 45 45 45 45 45 45 45 46 46 46 46 46 46 46 46 46 46 47 47 47 47 47 47 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 47 47 47 47 48 48 48 48 48 48 48 48 48 48 49 49 49 49 49 49 49 49 49 49 50 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 50 50 50 50 50 50 50 50 50 51 51 51 51 51 51 51 51 51 51 52 52 52 52 52 52 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 52 52 52 52 53 53 53 53 53 53 53 53 53 53 54 54 54 54 54 54 54 54 54 54 55 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 55 55 55 55 55 55 55 55 55 56 56 56 56 56 56 56 56 56 56 57 57 57 57 57 57 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 Activity Business undertaking Activity Type of products or services produced Inputs Process of production Business operations Activity Activity Business undertaking Process of production (the methodology of combining inputs, technology, skills, & labour) A methodology of transforming inputs into a product or service for revenue or a goal One or more activities (processes of combining inputs, technology, skills, and labour) (a) In the Classification System, the methodology is represented at the classification unit level. A classification unit is comprised of one or more industries, each of which is a specific branch of business, trade, or manufacture delineated on the basis of the 2 A degree of freedom conferred on a decision-maker to act or determine according to the dictates of the decisionmaker’s own judgment of the facts and circumstances, but in accordance with the law, policy, and the principles of natural justice. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 4 of 28 inputs used; the process of production (the methodology of combining inputs, technology, skills, and labour); and the type of products and services produced. Industry CLASSIFICATION UNITS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 British Columbia’s collective economic undertaking Inputs Activity “A” Activity “B” Activity “C” Type of products or services produced Activity “D” 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 90 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 377 378 379 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 397 398 399 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 419 420 421 422 423 424 425 Process of production (methodology of combining inputs, technology, skills, & labour) 426 427 428 429 430 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 451 452 453 454 455 456 457 458 459 460 461 462 463 464 465 466 467 468 469 470 471 472 473 474 475 476 477 478 479 480 481 482 483 484 485 486 487 488 489 490 491 492 493 494 495 496 497 498 499 500 501 502 503 504 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 520 521 522 523 524 525 526 527 528 529 530 531 532 533 534 535 536 537 538 539 540 541 542 543 544 545 546 547 548 549 550 551 552 553 554 555 556 557 558 559 560 561 562 563 564 565 566 567 568 569 570 571 572 573 574 575 (b) In the three-level assignment hierarchy, the methodology is represented at the business undertaking level; for a business undertaking is one or more activities – processes of combining inputs, technology, skills, and labour – that produce a product or service for revenue or a business goal. Business undertaking Activity “A” Inputs Activity “B” Activity “C” Product or service Activity “D” One or more activities (processes of combining inputs, technology, skills, and labour) that produce a product or service for revenue 8. Therefore, the three-level assignment hierarchy’s business undertaking level is used in assigning firms into the Classification System. This ensures consistency, equity, and a degree of certainty in the assignment of firms into the Classification System. The business undertaking level is used in assigning a firm into the Classification System Activity “A” Activity “B” Activity “C” Business undertaking A:D Business operations Activity “D” (contracted out) Activity “E” Business undertaking E ADJUDICATIVE GUIDELINES 9. AP1-37-2(2)’s rule of classification – the Board assigns a firm to the classification unit that the Board determines best describes the firm’s main business Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 5 of 28 undertaking in British Columbia, unless a policy exception applies – entails the following three findings of fact3: (a) The firm’s main business undertaking in British Columbia (ascertained by way of the three-level assignment hierarchy). (b) The classification unit which best describes the firm’s main business undertaking in British Columbia. (c) Whether a policy exception applies. Strategic business undertaking The classification unit which best describes the firm’s main business undertaking in British Columbia The firm’s main business undertaking in British Columbia Whether a policy exception applies I Multiple classification rules Specific exceptions Firms in an enterprise Yes (see Appendix “A”) No The firm is assigned to the classification unit which best describes its main business undertaking in British Columbia Administrative business undertaking The firm is classified, at least in part, through application of the applicable policy exception THE FIRM’S MAIN BUSINESS UNDERTAKING 10. Every firm engages in more than one activity, for a firm must produce a product or service for revenue (or, if revenue is not the firm’s business goal, a product or service which advances its business goal) and must perform administrative activities. 11. A firm’s business operations encompass all of its activities. However, only those activities that produce a product or service for revenue (or, if revenue is not the firm’s business goal, a product or service which achieves its business goal) are business undertakings. Business operations All of a firm’s activities Business undertaking(s) Activities for revenue or goal 3 A conclusion about evidence made during the process of determining a person’s rights or obligations under Division 4 of Part 1 of the Act. A finding of fact does not confer or impose a right or obligation, and no immediate consequence to a person arises from a finding of fact (i.e., it is neither final nor operative). Generally, a finding of fact is part of the process which goes towards making a decision – either an administrative application or action, or a requisite stage leading to a decision. See also, Compensation Services’ Practice Directive # C14-4 – Findings of Fact. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 6 of 28 12. A firm’s main business undertaking is the business undertaking which produces the firm’s usual and primary product or service, which is not for its own use [AP137-1(1.4)]. The majority of firms produce only one product or service for revenue; and that one product or service is the firm’s usual and primary product or service and establishes the firm’s main business undertaking. A firm which engages in more than one business undertaking can have only one main business undertaking. Business operations All of a firm’s activities Business undertakings Activities for revenue or goal The main business undertaking 13. AP1-37-1(1.2)’s description of main business undertaking as the business undertaking that produces a firm’s or enterprise’s usual and primary product or service, which is not for its own use is a “rigid rule”4; which, unless a policy exception applies, is binding on the Board’s decision-makers. AP1-37-2(2)’s direction that “[i]n determining the main business undertaking, the Board first considers revenue [but] may also consider payroll, units of production, and/or any other measure which the Board determines best describes the firm’s main business undertaking” is a guideline,5 which requires the use of reasoned discretion to find the pith of AP1-37-1(1.4)’s rigid rule – a “firm or enterprise’s…usual and primary product or service”: (a) The word “primary” is used in its ordinary sense – first or foremost in rank or importance – and the evaluation of rank or importance is for the purposes of the workers’ compensation system, as established in section 36(2) of the Act and by AP137-2(1)’s principles. Thus, “primary” is not synonymous with either “plurality” or “majority”; and therefore a firm’s primary product or service does not necessarily refer to the product or service which generates the plurality or majority of the firm’s revenue. However, policy and practice recognize that revenue is a fair, practical, and consistent measure of a firm’s usual and primary product or service, and therefore a firm’s main business undertaking in British Columbia can almost always be ascertained through its revenue. (b) In those few atypical cases where revenue may not, in and of itself, establish a firm’s usual and primary product or service, the Board considers revenue, the following listed measures, and any other relevant measure, to find the firm’s main business undertaking. The relevance and relative weight of any such measure will depend on the particular facts and circumstances of the case. 4 5 WCAT Decision Number: WCAT-2012-02569, paragraphs 69 to 75. Ibid. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 7 of 28 Always Revenue MEASURES Methodology of transforming inputs into a product or service for revenue Close substitutes to the firm’s usual and primary product or service, which serve or satisfy the same basic customer needs Classifications of the firm’s competitors Listed Occupations of the firm’s workers Units of production Assessable payroll Market perception Other relevant measures Revenue typically establishes a firm’s “primary and usual product or service.” The firm’s main business undertaking in British Columbia The classification unit which best describes the firm’s main business undertaking in British Columbia Typical case No The firm is assigned to the classification unit which best describes its main business undertaking in British Columbia Atypical case Always Strategic business undertaking Whether a policy exception applies Administrative business undertaking Multiple classification rules Specific exceptions Firms in an enterprise Yes The firm is classified, at least in part, through application of the applicable policy exception Revenue Methodology of transforming inputs into a product or service for revenue MEASURES A firm’s “primary and usual product or service” establishes its main business undertaking in British Columbia. Close substitutes to the firm’s usual and primary product or service Classification of the firm’s competitors Listed Occupations of the firm’s workers Units of production Assessable payroll Market perception Other relevant measures EXAMPLE 1:6 PecanCo bakes pecan pies and receives 100% of its revenue from the sale of those pies. Revenue establishes that its main business undertaking is pecan pie manufacturing. 14. Generally, an uncustomary and isolated transaction does not relate to a firm’s usual and primary product or service (and hence the firm’s main business undertaking); for “usual” means that the product or service is habitual or customary. EXAMPLE 2: UndMinCo is a mining company. Generally, its revenue is generated from mining; but every few years it generates revenue from the sale of its older equipment. In those years, a large portion of its revenue comes from the sale of equipment (e.g., the sale of a single machine can generate $2,500,000 in revenue). The sale of such expensive equipment represents an atypical case and requires that the Board consider UndMinCo’s revenue plus other measures in finding that its main business undertaking is underground mining. 6 Practice Directive 1-1-0: “In these practice directives, examples are intended to be illustrative; and the conclusions drawn in each example are based solely on the facts included in the example.” Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 8 of 28 More indicative of: All of the listed non-exhaustive measures are used in this example for illustrative purposes only, for many clearly do not distinguish between the two candidate business undertakings. Mining Machine sales – Revenue In most years, 100% of revenue comes from mining. In some years, over 50% of its revenue comes from sale of its equipment – Methodology Includes acquiring expensive mining machinery, using that machinery for mining, and selling the used machinery Close substitutes to product or service Similar ores Classification of its competitors Underground mining Occupations of UMinCo’s workers Engineers, miners, and support staff Units of production Tonnage of ores; equipment sales every few years Assessable payroll 100% to mining Market perception Underground mining EXAMPLE 3: WidgetCo manufactures widgets and owns a parcel of undeveloped land. In each of 2011, 2012, and 2013, its revenue from widget sales was $4,000,000. In 2013 WidgetCo sold its parcel of land for $6,000,000. Although 60% of its 2013 revenue was from the sale of land, the sale of land was an uncustomary and isolated transaction and did not relate to WidgetCo’s usual and primary product – widgets (and hence its main business undertaking of widget manufacturing). 15. Although each of a firm’s usual and primary product or service and its main business undertaking can be described in various ways, as a finding of a firm’s main business undertaking is undertaken within the context of the Classification System, the descriptions must reflect the manner in which classification units are defined and described in that system. EXAMPLE 4: WindoCo manufactures windows with wooden casings and aluminum grilles. On first blush, revenue suggests that WindoCo’s main business undertaking can be described as window manufacture. However, as the Classification System includes separate classification units for aluminum window manufacture and wood window manufacture, the description of WindoCo’s usual and primary product or service must be refined to reflect the composition of the Classification System. This requires consideration of WindoCo’s revenue plus other measures in finding its main business undertaking. On such consideration, the distinguishing measures of methodology, occupations, and assessable payroll establish WindoCo’s main business undertaking to be wooden window manufacture. More indicative of: All of the listed non-exhaustive measures are used in this example for illustrative purposes only, for many clearly do not distinguish between the two candidate business undertakings. Al. Wood – – Revenue 100% of revenue is from the sale of windows Methodology The bulk of the processing relates to the manufacture and finishing of the windows’ wooden casings Close substitutes to WindoCo’s product Aluminum, vinyl, or wooden windows – – Classification of its competitors Aluminum window manufacture, vinyl window manufacture, and wooden window manufacture – – Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 9 of 28 Occupations of WindoCo’s workers The majority of workers are engaged in the manufacture and finishing of the wooden casings Units of production Windows Assessable payroll 40% related to millwork and other manual fabrication and 10% related to computer assisted automation respecting the aluminum grilles Market perception Window manufacture – – – – 16. A firm’s main business undertaking is established through the activities carried out by the firm, either through the efforts of its own workers or vicariously through the efforts of others with whom it contracts [AP1-37-2(1)(d)]. EXAMPLE 5: Call&HaulCo operates a call centre in British Columbia. It receives phone calls from the public – e.g., homeowners, campgrounds – in need of garbage pick-up services and arranges for independent firms to do the actual garbage pick-up. The independent firms are sometimes paid directly by a client and they then remit a portion of the payment to Call&HaulCo. Such outsourcing represents an atypical case and requires that the Board consider Call&HaulCo’s revenue plus other measures in finding that its main business undertaking is garbage pick-up. More indicative of: Call centre Revenue 100% of Call&HaulCo’s revenue is from the public who are paying for the service of garbage pick-up Methodology Includes receiving a request for pick-up, dispatching an independent firm to undertake the pick-up, and garbage pick-up (although it contracts out the actual garbage pickup) Classification of its competitors Garbage pick-up Occupations of its workers Call centre staff Units of production Garbage pick-ups Assessable payroll 100% related to a call centre Market perception A garbage pick-up firm Garbage pick-up – – 17. As the Board only has to make a finding of fact as to the firm’s main business undertaking; absent exceptional circumstances, the Board does not have to ascertain all of the firm’s business undertakings. A Administrative activity 18. As an administrative activity does not produce a product or service for revenue (or, if revenue is not the firm’s business goal, a product or service which achieves its business goal), it cannot be a business undertaking; and as AP1-37-2(2)’s rule of classification dictates that a firm is assigned to a classification unit on the basis of business undertaking – not activity – a firm’s administrative activities are not relevant to its assignment to a classification unit. EXAMPLE 6: General office administration is an administrative activity: it is for the firm’s own use; is primarily concerned with maintaining the firm as an ongoing business entity; relates to the firm Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 10 of 28 as a whole; does not become an integral part of the firm’s usual and primary product or service; and it cannot be applied or traced to any specific product or service. It therefore cannot qualify for its own classification. 19. An administrative activity is for a firm’s own use. A firm engaging in such an activity for another firm is engaged in a business undertaking which may qualify for its own classification or which may be an administrative business undertaking (see paragraphs 24 to 26). II CLASSIFICATION UNIT WHICH BEST DESCRIBES THE FIRM’S MAIN BUSINESS UNDERTAKING 20. In finding the classification unit which best describes a firm’s main business undertaking in British Columbia, the Board considers the criteria in the likely classification units and compares those criteria across the classification units. EXAMPLE 7: MatsCo’s main business undertaking is transporting oilfield rig mats from a warehouse to oilfield sites and from one oilfield site to another. Three classification units may likely include the industry which best describes that business undertaking. CLASSIFICATION UNIT DESCRIPTIONS (A classification unit description provides information about business activities covered in the classification. Items listed are EXAMPLES only and do not apply to every employer) Sector Primary Resources Primary Resources Transportation and Warehousing Subsector Oil and Gas or Mineral Resources Oil and Gas or Mineral Resources Transportation and Related Services Classification Unit 704002 [Oil or Gas Drilling] 704003 [Oil or Gas Field Servicing (by means other than service rigs)] 732019 [General Trucking (not elsewhere specified)] Transport This criterion is not included in the classification unit description This criterion is not included in the classification unit description “Commercial goods,” “Industrial equipment,” “Building materials” Services Drilling; Oilfield supervision Generally, the services relate to the maintenance, repair, and continuance of a well Hauling; Trucking Materials Drilling mud; Lubricants This criterion is not included in the classification unit description This criterion is not included in the classification unit description Equipment Derrick; Drill bits; Hydraulic jack; Substructure Various Various vehicles, including trucks and trailers Processes “Set up equipment at a predetermined location; level the oil derrick; commence drilling; complete drilling; dismantle the oil derrick” This criterion is not included in the classification unit description This criterion is not included in the classification unit description Occupations Derrickhand; Driller; Floorhand; Leasehand; Motorhand; Rig manager This criterion is not included in the classification unit description This criterion is not included in the classification unit description Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 11 of 28 Consideration of the applicable policy – sector, sub-sector, and title – and practice components of the three likely classification units establishes that Classification Unit 732019 [General Trucking (not elsewhere specified)] best describes MatsCo’s main business undertaking in British Columbia. III DOES A POLICY EXCEPTION APPLY 21. If more than one exception applies or if there is a conflict between exceptions, the firm will be assigned the classification unit(s) on the basis of the principles set out AP1-37-2(1) in order to best achieve the Board’s mandate to “manage [the accident fund] with a view to the best interests of the workers’ compensation system” [section 36(2) of the Act]. A A strategic business undertaking 22. A strategic business undertaking is one which provides corporate direction to another firm or an enterprise, that is integral to the other firm’s or the enterprise’s achievement of goals and critical to the other firm’s or the enterprise’s current and future business direction. 23. A firm’s business undertaking may be considered along a continuum which includes the following indistinct regions: strategic, tactical, and operational. Integral to achievement of goals and critical to its existing and future business direction Day-to-day logistics and oversight that achieve tactical objectives within the boundaries of infrastructures, resources, and processes Endeavors that trend toward achieving strategic goals STRATEGIC Decided by a firm’s directing mind (e.g., a company’s board of directors or its senior executives) TACTICAL OPERATIONAL Decided by departmental heads Operationalized by subordinate staff 24. AP1-37-2(3.1) directs that where a firm’s main business undertaking is a strategic business undertaking of one other firm or an enterprise, it will be assigned to the same classification unit(s) as the other firm or the enterprise. This does not mean that the service providing firm cannot provide service to more than one other firm; it means that the service providing firm’s main business undertaking can only be a strategic business undertaking of one other firm or an enterprise. The multiple classification rules may be applied. EXAMPLE 8: OpCo outsources all of its finance and accounting functions to an unaffiliated firm, FinCo. The functions of OpCo’s former workers were as follows: Chief Financial Officer Strategic Comptroller Tactical Accounts receivable clerk Operational Integral to OpCo’s achievement of goals and critical to its existing and future business direction The financial analysis and cost control necessary to achieve OpCo’s key and long-term policy and management goals Day-to-day bookkeeping operations As the functions of OpCo’s former chief financial officer were strategic, FinCo performs a strategic business undertaking for OpCo and will be assigned to the same classification unit(s) as OpCo. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 12 of 28 EXAMPLE 9: FinCo provides a strategic business undertaking for OpCo (96% of FinCo’s revenue) and provides some minor services – neither strategic nor administrative – to two other persons (4% of FinCo’s revenue). Although FinCo is providing service to more than one other firm, its services are a strategic or administrative business undertaking to only OpCo; and therefore FinCo will be assigned the same classification unit(s) as OpCo. B An administrative business undertaking 25. An administrative business undertaking is an administrative activity undertaken by a firm for another firm or an enterprise. 26. The question of whether a firm’s main business undertaking is an administrative business undertaking of another firm or an enterprise involves both a qualitative and quantitative aspect. Qualitative Quantitative Whether the service providing firm’s main business undertaking, is primarily concerned with maintaining the other firm as an ongoing business entity, relates to the other firm as a whole, does not become an integral part of the other firm’s usual and primary product or service, and generally cannot be applied or traced to any specific product or service. The degree of the service providing firm’s attachment to the service recipient(s)’ business operations Percentage of revenue from the service recipient(s) Percentage of service to the service recipient(s) A principal’s prior employment by, or affiliation with, the service recipient(s) Common premises, equipment, or identity Capital investment – e.g., in technology, information systems, market identity – which relates specifically to the service recipient(s) Processes and equipment specific to the service recipient(s) Contractual constraints EXAMPLE 10: OpCo outsources all of its accounts receivable function to Paye & Mee, an unaffiliated firm. Paye & Mee provides appreciably all of its services to OpCo and receives appreciably all of its revenue from OpCo. Qualitative Paye & Mee’s main business undertaking is a facet of accounting, which is a major administrative activity common to most business operations Quantitative There is a high degree of attachment, through both revenue and percentage of service As each of the qualitative and quantitative aspect of whether Paye & Mee’s main business undertaking is an administrative business undertaking of OpCo is established, Paye & Mee will be assigned to the same classification unit(s) as OpCo. EXAMPLE 11: OpCo retains the two-person law firm of Barr & Ister to represent it in a momentous patent case. OpCo deals with its other legal issues either in-house or by retaining other outside counsel. The preparation for trial and attendance at trial consumes most of Barr & Ister’s Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 13 of 28 resources for 29 months. Although, Barr & Ister continues to serve the general public – it has premises, pays professional liability insurance in its own name, and retains other client files – it provides most of its services to OpCo and receives appreciably all of its revenue from OpCo in that span. Qualitative Barr & Ister’s main business undertaking of legal services is a major administrative activity common to most business operations. However, Barr & Ister’s retainer on the patent issue is related to its specialized expertise and not to OpCo’s outsourcing of an administrative activity Quantitative Although Barr & Ister receives a high percentage of its revenue from OpCo and provides a high percentage of its service to OpCo, there is not a sufficient degree of attachment As the quantitative aspect of whether Barr & Ister’s main business undertaking is an administrative business undertaking of OpCo is not established, Barr & Ister will not be assigned to the same classification unit(s) as OpCo. 27. AP1-37-2(3.1) directs that where a firm’s main business undertaking is an administrative business undertaking of another firm or an enterprise, it will be assigned to the same classification unit(s) as the other firm or the enterprise. This does not mean that the service providing firm cannot provide service to more than one other firm; it means that the service providing firm’s main business undertaking can only be an administrative business undertaking of one other firm or an enterprise. The multiple classification rules may be applied. C Multiple classification rules 28. AP1- 37-2(3.2)’s multiple classification rules comprise, AP1- 37-2(3.2.1)’s “criteria for multiple classifications,” AP1- 37-2(3.2.2)’s “specific cases of business undertakings in multiple industries,” and AP1- 37-2(3.2.3)’s standards for “a firm with one or more business undertakings that does not qualify for multiple classifications.” 29. In formulating the multiple classification rules, the Board recognized that a firm may have significant financial incentive to structure its business operations to meet the criteria for multiple classifications or a specific case when its main business undertaking has a higher base rate than its other business undertakings (and vice versa), and that the firm has the ability to structure its business operations, and therefore the department administers the rules in a manner that best achieves the purposes of the workers’ compensation system, as established in section 36(2) of the Act and AP1-37-2(1)’s principles. Accordingly, a factor in interpreting and administering the multiple classification rules is the recognition that the system is premised on each firm paying assessments which reflect the real likelihoods of a claim and cost of the claim. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 14 of 28 (1) AP1- 37-2(3.2.1): Criteria for multiple classifications 30. AP1-37-2(3.2.1)’s test for multiple classification is whether the firm’s main and secondary business undertakings are “distinct and independent,” as demonstrated by application of the four listed criteria. The test entails the following findings of fact and decision: (a) The firm’s main business undertaking in British Columbia. (b) Whether the firm has a secondary business undertaking. (c) Whether the firm’s main and secondary business undertakings are “distinct and independent” as demonstrated by application of the four listed criteria. As these four criteria are conjunctive, each criterion must be satisfied in order for a firm to qualify for multiple classifications. The firm’s main business undertaking The firm has a secondary business undertaking Single classification No Yes The business undertakings are distinct and independent Separation of risk Yes and endevour The secondary business undertaking is not a strategic or an administrative business undertaking 50% of the secondary business undertaking’s output is sold to unaffiliated customers Yes Yes The secondary business undertaking is significant (per one of the listed conditions) Yes Multiple classifications EXAMPLE 12: PMC Corp. operates a pub, a marina, and a campground. Each business undertaking has specific personnel and provides more than 50% of its product or service to the general public. PMC Corp.’s total revenue is $1,650,000, and its total annual assessable payroll for these three business undertakings is $825,000. Revenue BUSINESS UNDERTAKING Payroll Amount % of total Assessment rate ($ per $100 of payroll) 55% $450,000 55% 2.35 $500,000 30% $250,000 30% 1.43 $250,000 $1,650,000 15% 100% $125,000 $825,000 15% 100% .85 Amount % of total Pub $900,000 Marina Campground Total: What is PMC Corp.’s main business undertaking? The pub. It is the business undertaking which results in the production or provision of PMC Corp.’s usual and primary product or service (as determined by revenue). What is PMC Corp.’s secondary business undertaking? Each of the marina and campground business undertakings is a secondary business undertaking. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 15 of 28 Marina Does PMC Corp. meet AP1-372(3.2.1)’s criteria for multiple classifications? Campground Is there is a clear temporal and spatial separation of risk and endeavor? The secondary business undertaking is not a strategic or administrative business undertaking. Is at least 50% of the product or service of the secondary business undertaking sold to unaffiliated customers? Is each business undertaking demonstrably significant as determined by policy? PMC Corp. qualifies for multiple classifications and will have classification units reflecting each of the pub and marina business undertakings assigned to its account. Payroll related to campground will be added to that of the pub as the pub’s business undertaking has the higher assessment rate and makes up at least 25% of the firm’s business operations (see example 17). (2) AP1- 37-2(3.2.2): Specific cases 31. The policy exceptions in AP1- 37-2(3.2.2) are discretionary: “[t]he Board may assign a firm’s business operations to more than one classification unit.” (a) The fishing industry 32. Section 4 of the Act, the Fishing Industry Regulations,7 and Assessment Manual Item: AP1-4-1 contain special provisions for the “fishing industry” which reflect the unique characteristics of that industry. 33. If the Board determines a firm to be the employer of a commercial fisher (as defined in the Fishing Industry Regulations) for the purposes of Part 1 of the Act and is harvesting fish by means of a business undertaking best reflected in one of the following six classification units, the firm will also be assigned that classification unit: Classification Unit 702005 Classification Unit 702006 Classification Unit 702007 Classification Unit 702008 Classification Unit 702009 Classification Unit 702010 Dive Fishing Gillnet or Troll Fishing Longline or Trap Fishing Seine Fishing Trawl Fishing Fish Packing (b) The non-industrial building construction exception 34. Non-industrial building construction refers to building construction not associated with the industry of a firm’s main or other classified business undertaking. 7 British Columbia Regulation 674/76, 22 December 1976, available at http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/12_674_76. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 16 of 28 35. Where a firm engages in non-industrial building construction, the criteria for multiple classifications in AP1-37-2(3.2.1)(a), (b), and (d)8 are applied to determine if a construction classification is to be added to the firm’s account. EXAMPLE 13: DineCo will be opening a restaurant. It hires workers to renovate its premises prior to the opening. While the premises are under renovation, DineCo must register as an employer to cover the workers engaged in construction; and it will be classified in Classification Unit 721027 [House or Other Wood Frame Construction or Renovation Work]. Once the renovation is complete and the restaurant begins to operate, DineCo must contact the Assessment Department to have its classification changed to Classification Unit 761035 [Restaurant or Other Dining Establishment]. EXAMPLE 14: DineCo operates a successful restaurant and hires workers to expand its premises. While the expansion of its premises is ongoing, DineCo will be assigned to each of Classification Unit 761035 [Restaurant or Other Dining Establishment] and Classification Unit 721027 [House or Other Wood Frame Construction or Renovation Work] if the construction business undertaking meets the multiple classification criteria in AP1-37-2(3.2.1)(a), (b), and (d). (c) The residential employer exception 36. A residential employer is one or more individuals who employ a worker to work in or about the individual(s)’ private residence, other than for the owner(s)’ or occupier(s)’ trade or business, or who employ a worker to serve the owner(s)’ or occupier(s)’ personal needs or those of the owner(s)’ or occupier(s)’ family [AP1-2-1(b)(1)]. 37. Where the Board registers one or more individuals to cover a business undertaking and the same individual(s) operate as a residential employer, the Board may add an additional classification to the existing account to cover a worker employed by the residential employer(s). EXAMPLE 15: A proprietor operates a retail store located in a commercial mall. The proprietor is registered with the Board for that business and is assigned Classification Unit 741013 [General Retail (not elsewhere specified)]. The proprietor then hires a worker to provide full-time in-home care to the proprietor’s children in the proprietor’s home. Classification Unit 764029 [Hiring or Providing Domestic Childcare] will be added to the proprietor’s business account, effective the date the proprietor first employed the caregiver. (d) Management companies 38. A management company is a “separate limited company, that provides some degree of administrative or management services to one or more firms, a group of affiliated firms, or an enterprise” [AP1-37-2(3.2.2)]. 39. The phrase “administrative or management services” is a term-of-art which refers to the services a management company provides to other firms which aid those other firms in achieving their strategic goals. These services entail the organization and coordination of 8 Criterion (c) is not applied, as non-industrial building construction cannot generate sales to unaffiliated customers or clients. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 17 of 28 a firm’s activities to achieve its business goals within, and in accordance with, the firm’s policies. 40. Where a management company provides administrative or management services to one or more operating firms or to a group of affiliated firms, the classification unit(s) assigned to each such service receiving firm is added to the management company’s account. (e) Special hazard activities 41. A classification unit may be designated as a special hazard classification unit in an annual Classification and Rate List. 42. A firm whose business operations include the pith of a special hazard classification unit will have that classification unit added to its account if the firm’s activity in the industry generates an annual assessable payroll of greater than four times the maximum wage rate9 for that year. (3) AP1- 37-2(3.2.3): A firm with business undertakings that do not qualify for multiple classifications 43. AP1-37-2(3.2.3) applies to three specific circumstances: (a) Where a firm has more than one business undertaking and the business undertakings do not qualify for multiple classifications. (b) Where a firm is classified in more than one classification unit and has additional business undertakings which do not qualify for further classifications. (c) Where a firm is in an enterprise and has a business undertaking in addition to the enterprise’s main business undertaking and the firm’s business undertakings do not qualify for multiple classifications. (a) A firm has more than one business undertaking which does not meet the criteria or a specific case 44. This policy exception recognizes that where a firm produces more than one product or service for revenue and does not meet the “criteria for multiple classifications” or a “specific case,” the determination of the firm’s primary product or service must reflect the real likelihoods of a claim and the cost of the claim. Therefore, where a firm has more than one business undertaking and the business undertakings do not meet AP1-372(3.2.1)’s criteria for multiple classifications and AP1-37-2(3.2.2)’s “specific cases,” the firm is assigned to a single classification unit as follows: 9 Section 33 of the Act, Assessment Manual Item: AP1-38-6, and Appendix “A” to the Assessment Manual. See, http://www.worksafebc.com/regulation_and_policy/policy_decision/maximum_wage/default.asp . Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 18 of 28 (a) If one or more business undertakings make up at least 25 percent of the firm’s business operations, the firm is assigned to the classification unit that has the highest base assessment rate and makes up at least 25 percent of its business operations. (b) If no business undertaking makes up at least 25 percent of the firm’s business operations, the firm is assigned to the classification unit that has the highest base rate. However, if the firm’s payroll in that classification unit is less than four times the maximum wage rate, policy grants the Board discretion to assign the firm the classification unit with the next highest base rate. EXAMPLE 16: Janus Inc. receives ½ of its revenue from each of its two business undertakings, a dance school and a taxidermy shop; which are, respectively, best described in Classification Units 765009 [Dance School] and 715031 [Taxidermy]. As Janus Inc. does not meet either the criteria for multiple classifications or a specific case, it is assigned to CU715031 [Taxidermy]; as that classification unit best describes the business undertaking which generates more than 25% of its revenue and has the higher base rate. (b) A firm with multiple classifications has additional business undertakings 45. Where a firm is assigned to more than one classification unit and has additional business undertakings which do not meet AP1-37-2(3.2.1)’s criteria for multiple classifications and AP1-37-2(3.2.2)’s “specific cases,” any such additional business undertaking is assigned to a classification unit as follows: (a) The business undertaking is assigned to the classification unit which, has met the criteria for multiple classifications, and has the highest base assessment rate, and makes up at least 25 percent of the firm’s business operations (where a “specific case” applies). (b) If no business undertaking makes up at least 25 percent of the firm’s business operations, the additional business undertaking is assigned to the classification unit which has met the criteria for multiple classifications and has the highest base assessment rate. EXAMPLE 17: As PMC Corp.’s (see example 12) business undertaking of operating a campground does not meet either the criteria for multiple classifications or a specific case, the payroll related to the campground business undertaking will be added to Classification Unit 761034 [Pub] as PMC Corp is already assigned to that classification unit; and the classification unit makes up at least 25% of PMC Corp.’s business operations and has the higher base rate. (c) A firm in an enterprise has additional business undertakings 46. Where a firm in an enterprise has a business undertaking in addition to the enterprise’s main business undertaking, and the enterprise’s main business undertaking and the additional business undertaking do not meet AP1-37-2(3.2.1)’s criteria for multiple classifications and AP1-37-2(3.2.2)’s “specific cases,” the firm is assigned to a single classification unit as follows: Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 19 of 28 (a) If one or more business undertakings make up at least 25 percent of the firm’s business operations, the firm is assigned to the classification unit that has the highest base assessment rate and makes up at least 25 percent of its business operations (see example 24). (b) If no business undertaking makes up at least 25 percent of the firm’s business operations, the firm is assigned to the classification unit that has the highest base assessment rate. However, if the firm’s payroll in that classification unit is less than four times the maximum wage rate, policy grants the Board discretion to assign the firm the classification unit with the next highest base rate and meets four times the maximum wage rate. If no business undertaking meets four times the maximum wage rate, then the firm is assigned to the classification unit with the highest base rate. D Consulting firms 47. AP1-37-1(1.3) describes a “consultant” as an individual or firm that performs impartial services for unaffiliated clients on a contractual basis. The services are those provided by an expert or a professional in a specific field, who has a wide knowledge of the subject matter in that field and provides advice or assistance in a specific area of expertise, but has no direct authority to make decisions or direct work. 48. An individual or firm who is responsible for implementation or who acts on behalf of, or in place of, a manager is not acting as a consultant but as a “surrogate manager.” Such business undertakings do not qualify as consulting. 49. The classification of an independent firm as a consulting firm entails the following: There must be a contractual relationship between the firm as the service provider and another as the service recipient. Description The firm cannot be affiliated with the service recipient. The firm cannot have direct involvement or interest in the venture and cannot favour one interested party more than any other. The firm’s must provide professional or expert consulting services, which must be limited to “investigations, analysis, pre-planning, design, or compilation of a report” or a comparable service. Whether the firm is a consulting firm Consulting services The firm’s consulting services cannot, directly or indirectly, entail: fabricating, manufacturing, or constructing a product by any means, implementing the recommendations of a report, or supervising or directing the service recipient’s personnel (workers or independent operators). A construction management consulting firm may monitor or adjust processes or tasks to ensure they are on-course and on-schedule in meeting the objectives and performance targets. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 20 of 28 A consulting firm may be assigned to the classification unit which best describes its business undertaking of consulting. The firm’s classification A consulting firm that meets each of AP1-37-2(3.3)’s criteria for “construction management consulting” may be classified in Classification Unit 763005 [Construction Management Consulting]. 50. Where a firm fabricates, manufactures, or constructs a prototype or bench-test model as part of its consulting services, and the prototype or bench-test model is approximately the same size as the modeled product, or the fabrication, manufacture, or construction of the prototype or bench-test model is subject to the same risks as those of the modeled product, the firm is considered to be undertaking the fabrication, manufacture, or construction of the modeled product. Generally, in such a case, the firm will be assigned to the classification unit which best describes the fabrication, manufacture, or construction of the modeled product. EXAMPLE 18: Hugh Mus is a soil engineer in good standing with a professional accrediting body. He operates his business as a sole proprietorship and serves the general public. Mr. Mus’ clients collect soil samples and deliver them to his laboratory. He then provides his clients his professional services of soil analysis and of preparation of expert reports. An “independent firm” per AP1-1-1 business existence (licenses & permits, facilities, marketing, bank records, benefits expenses, etc.) accredited by, and in good standing with, a professional body insurance (general & professional liability) in his own name Whether Mr. Mus’ main business undertaking is consulting Description Contracts between Mr. Mus as a service provider and others as clients Mr. Mus is not affiliated with any of his clients Consulting services Mr. Mus does not: have direct involvement or interest in a venture, or favour one interested party over any other Mr. Mus’ expert and professional services are limited to analysis and to the compilation of a report Mr. Mus’ expert and professional services do not, directly or indirectly, entail: field investigation, fabrication, manufacture, or construction, implementation of his recommendations, or acting as a surrogate manager Classification The classification unit which best describes Mr. Mus’ main business undertaking of consulting is CU763033 [Geological Consultation or Analysis] Mr. Mus’ business is assigned to CU763033 51. A firm which engages in consulting and another business undertaking may be assigned to more than one classification unit if the multiple classification criteria are met. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 21 of 28 E Labour supply firms 52. A labour supply firm is one which hires workers directly, arranges for the workers to work under the direction and control of a client, and pays the wages of the workers [AP137-2(3.4)]. 53. The Classification System contains several “labour supply” classification units, which are identified as such by explicit language in either the classification unit’s title –“worker supply” or “labour supply” or in its classification unit description. These include: Classification Unit 701008 Farm Labour Supply or Farm Services Classification Unit 721013 Construction Labour Supply or General Labour Supply (not elsewhere specified) Classification Unit 762010 Clerical Worker Supply Classification Unit 731005 Warehouse Operation Classification Unit 766006 Community Health Support Services Classification Unit 763007 Computer Consulting or Custom Computer Programming Classification Unit 764029 Domestic Childcare Classification Unit 701012 Greenhouse Classification Unit 761019 Catering Services Classification Unit 741013 General Retail (not elsewhere specified) Classification Unit 741033 Large Retail Store (not elsewhere specified) 54. A firm whose main business undertaking is best described in any one of these labour supply classification units will be assigned to that classification unit. 55. A labour supply firm who furnishes an individual or a group of individuals to a firm in an industry not in one of the labour supply classification units will be assigned the recipient firm’s applicable classification unit(s) or will have those classification unit(s) added to its account. F Firms in an enterprise 56. An enterprise consists of two or more affiliated firms intentionally and willingly acting in common in harmonious combinations or interactions to synchronize and accomplish the transformation of inputs (resources, raw materials, services) into desired products, services, or results; not for the enterprise’s own use. 57. AP1-37-2(3.5) directs that all firms in an enterprise will be viewed as one for the purposes of classification and will generally be assigned to the classification unit which best describes the enterprise’s main business undertaking in British Columbia, and the multiple Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 22 of 28 classification criteria may also apply. Accordingly, the classification of firms in an enterprise entails the following four findings of fact: (a) The firms are affiliated. (b) The firms are engaged in a cooperative and coordinated relationship to produce a product or service. (c) The enterprise’s main business undertaking in British Columbia. (d) Whether the multiple classification rules apply to the subject firm in the enterprise. Whether the firms are in an enterprise The firms are affiliated (1) The firms are engaged in a cooperative and coordinated relationship Classifying a firm in the enterprise The enterprise’s main business undertaking in British Columbia Whether the multiple classification rules apply to the subject firm in the enterprise The subject firm’s classification The firms are affiliated 58. The pith of affiliation is control: the “ability or power, actual or potential, direct or indirect through intermediaries, to direct or cause the direction of the management of a firm’s business operations, through the ownership of voting securities, by contract, or by other means” [AP1-37-1(1.3)]. 59. As control entails the organization and coordination of the firm’s activities to achieve the firm’s goals within, and in accordance with, the firm’s or an enterprise’s policies, objectives, and overall direction; it falls between the strategic and tactical regions of the continuum. Accordingly, control does not entail operational, project, or contract management. Integral to achievement of goals and critical to its existing and future business direction Endeavors that trend toward achieving strategic goals Control Strategic Decided by a firm’s directing mind (e.g., a company’s board of directors or its senior executives) Day-to-day logistics and oversight that achieve tactical objectives within the boundaries of infrastructures, resources, and processes Tactical Operational Decided by departmental heads Operationalized by subordinate staff 60. Assessment Manual Item: AP1-1-1 directs that a principal controls a firm, and that an “officer, director or shareholder10 active in the operation of a corporation or similar entity is presumed to be a principal of that firm.”11 10 A Ministry of Finance BC Company Summary lists a corporation’s officers and directors, or a partnership’s partners. A corporation’s central securities register lists the shares issued and transferred, and a corporation’s shareholders (owners) can be ascertained from such. 11 The presumption establishes the fact of control unless contradicted and outweighed by rebuttal evidence. The party seeking to rebut the presumption bears the onus of producing the rebuttal evidence. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 23 of 28 61. The common use of a name or a distinguishing term12 amongst a group of separate legal entities, or a published assertion that a firm is part of an enterprise (howsoever described, e.g., corporate group, family of companies) can be presumptive of either or both of affiliation and a cooperative and coordinated relationship to produce a product or service.13 A published assertion on a website is presumptive of affiliation and common business operations The use of “Croesus” in each financial firm’s name may be presumptive of affiliation and common business operations The Croesus Family of Companies work together to provide a full range of financial services: $ $ Bank of Croesus (2) Croesus Leasing LLP Croesus Mortgage Corporation $ Croesus Payday Loans Inc. Bank of Croesus Croesus Leasing LLP Croesus Mortgage Corporation Croesus Payday Loans Inc. A cooperative and coordinated relationship 62. A cooperative and coordinated relationship entails two or more firms intentionally and willingly acting in common in harmonious combinations or interactions to synchronize and accomplish the transformation of inputs (resources, raw materials, services) into desired products, services, or results. EXAMPLE 19: Below in the diagram on the left, Seven Dwarves Mining Ltd. and Glass Slippers Corp. do not constitute an enterprise: although the firms are affiliated (as they have a common shareholder), they are not engaged in a cooperative and coordinated relationship to produce a product or service. In the diagram on the right, as the firms are in an enterprise and are engaged in a cooperative and coordinated relationship, they will be treated as one for the purpose of classification, and the multiple classification criteria may be applied (see example 24). 35% 100% 35% 100% MICROSOFT CORPORATION MICROSOFT CORPORATION MICROSOFT CORPORATION MICROSOFT CORPORATION Shares Shares Shares Shares Glass Slippers Corp. Wicked Witch Sugar Mills Inc. Seven Dwarves Mining Ltd. No cooperative and coordinated relationship A cooperative and coordinated relationship Hansel & Gretel Candy Company 12 This does not apply to commonplace identifiers such as surnames, place names (e.g., Nanaimo), or simple descriptive terms (e.g., financing, bargains). 13 Where found, the presumption establishes the facts of affiliation and a cooperative and coordinated relationship to produce a product or service, and will support a finding of either or both unless contradicted and outweighed by rebuttal evidence. The party seeking to rebut the presumption bears the onus of producing the rebuttal evidence. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 24 of 28 63. Generally, the cooperation and coordination underlying an enterprise is directed by the person(s) who control the firms within the enterprise. Accordingly, AP1-37-1(1.3)’s direction that the Board may find a firm to be affiliated with a firm that has ceased to operate or exist will apply if the evidence establishes that the person(s) who control the firms within the enterprise oversaw a cooperative and coordinated relationship, whether or not the firms existed or acted contemporaneously. EXAMPLE 20: Immediately before LabelCo ceases operations, its principal incorporates CollectCo and transfers all of LabelCo’s accounts receivable to CollectCo, which then only collects the monies that were owing to LabelCo. Although LabelCo did not operate – or perhaps even exist – when CollectCo was active, the firms nevertheless constitute an enterprise as each of the necessary control, and cooperation and coordination exist. 64. As an enterprise does not require common ownership amongst all its member firms (e.g., common interlocking ownership, directors, or officers may be sufficient), an enterprise can be comprised of a patchwork of the whole or part of other enterprises so long as such encompasses firms engaged in a cooperative and coordinated relationship to produce a product or service. EXAMPLE 21: In the diagram below, as Firms A and M comprise an enterprise and as Firms M and Z comprise an enterprise; Firms A, M, and Z comprise an enterprise: Firm M is affiliated with each of Firms A and Z; and Firms A, M, and Z are engaged in a cooperative and coordinated relationship to produce a product or service. Enterprise AM Firm A Enterprise MZ Affiliation Firm M Affiliation Firm Z A cooperative and coordinated relationship to produce a product or service (3) The enterprise’s main business undertaking in British Columbia 65. In determining the classification unit which best describes an enterprise’s main business undertaking in British Columbia, the Board considers the products and services the enterprise produces or provides through its business operations in British Columbia and may consider other relevant measures. EXAMPLE 22: OpCo manufactures stoves in Alberta. OpCo calves off its accounts payable and accounts receivable functions to FinCo, a daughter firm which operates in British Columbia. Although OpCo and FinCo constitute an enterprise – they are affiliated and are engaged in a cooperative and coordinated relationship to produce a product or service – FinCo will be assigned to the administration of an operation conducted outside British Columbia, which is the classification unit which best describes its main business undertaking in British Columbia. EXAMPLE 23: OpCo calves off its accounts payable and accounts receivable functions to its daughter firm, FinCo. FinCo provides 80% of its services to OpCo. As OpCo and FinCo constitute an enterprise – they are affiliated and are engaged in a cooperative and coordinated relationship to produce a product or service – they are assigned to the classification unit which best describes the enterprise’s main business undertaking in British Columbia. None of the multiple classification rules apply. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 25 of 28 66. AP1-37-2(3.5) establishes the dictate that the “Board generally assigns each firm in an enterprise to the classification unit which best describes an enterprise’s main business undertaking.” The inclusion of the word “generally” means that it is non-binding and can be deviated from in order to effect a reasoned balance between “the best interests of the workers’ compensation system” [s. 36(2) of the Act] and the prevention of demonstrable prejudice to a firm. Such balance requires that the department consider the purposes and objects of the Act, the purposes and principles of classification policy, the merits and justice of the individual case, and other relevant criteria, such as: (a) The ratio of revenue in each potential classification unit. (b) The ratio of assessable payroll in each potential classification unit. (c) The ratio of a relevant quantifiable measure – e.g., mileage, gasoline usage, hours – in each potential classification unit. (4) The multiple classification rules 67. AP1- 37-2(3.2)’s “multiple classification rules” may then apply. Accordingly, each of the following should be considered: AP1- 37-2(3.2.1)’s “criteria for multiple classifications,” AP1- 37-2(3.2.2)’s “specific cases of business undertakings in multiple industries,” and AP1- 37-2(3.2.3)’s principles for classifying a “firm with one or more business undertakings that does not qualify for multiple classifications.” EXAMPLE 24: TruckCo is a wholly owned subsidiary of Department Store Inc., a large national retailer. 70% of TruckCo’s revenue is generated directly from its services to Department Store Inc., and the remaining 30% is generated from services to the general public. AP1-37-2(2)’s rule of classification entails the following three findings of fact: TruckCo’s main business undertaking in British Columbia The classification unit which best describes TruckCo’s main business undertaking in British Columbia Whether a policy exception applies Trucking Classification Unit 732019 [General Trucking (not elsewhere specified)] 1) Criteria for multiple classifications 2) Firms in an enterprise Criteria for Multiple Classifications: As the “Firms in an Enterprise” exception is to be considered and as that exception directs that the “multiple classification rules…may also apply,” the criteria for multiple classifications are considered within the context of the “Firms in an Enterprise” exception. (If, however, the “Firms in an Enterprise” exception did not apply, as TruckCo does not meet criterion (c) of AP1-37-2(3.2.1)’s criteria for multiple classifications (at least 50% of its product or service is not sold to unaffiliated parties), the criteria for multiple classifications do not apply.) Firms in an Enterprise: AP1-37-2(3.3) directs that all firms in an enterprise will be viewed as one for the purposes of classification and will generally be assigned to the classification unit which best describes the enterprise’s main business undertaking in British Columbia, and the multiple classification rules may also apply. Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 26 of 28 Whether Department Store Inc. and TruckCo constitute an enterprise The firms are affiliated The firms are engaged in a cooperative and coordinated relationship Yes. Yes. “TruckCo is a wholly owned subsidiary of Department Store Inc.” Department Store Inc. and TruckCo are intentionally and willingly acting in common in harmonious combinations or interactions to synchronize and accomplish a desired service: the delivery of wares sold by Department Store Inc. Classifying TruckCo The enterprise’s main business undertaking in British Columbia 1. TruckCo operates in the business undertaking of trucking. 2. The enterprise’s main business undertaking is that of a department store (by revenue). 3. Therefore, TruckCo is provisionally assigned to CU741033 [Department Store]. Whether the multiple classification rules apply to TruckCo Criterion (c) of the “criteria for multiple classifications” does not apply. None of the “specific cases of business undertakings in multiple industries” apply. AP1-37-2(3.2.3)(a) applies. TruckCo’s classification(s) 1. TruckCo’s business undertakings are trucking and department store. 2. Each business undertaking makes up at least 25% of TruckCo’s business operations. 3. TruckCo is assigned to the classification unit with the higher base rate – CU 732019 [Trucking]. IV “FULL AND ACCURATE INITIAL INFORMATION” 68. Assessment Manual Item: AP1-38-1 charges every employer, and every firm seeking registration, with the “responsibility to provide full and accurate initial information”; and AP1-37-2(1)(f) charges every registered firm “to immediately inform the Board of any circumstance which may affect its classification, or assessment rate, and to notify the Board of any changes to its business operations, assets or ownership which may affect its status, classification or assessment rate.” 69. With respect to assignment into the Classification System, “full and accurate initial information” includes comprehensive descriptions of the following: (a) The firm’s usual and primary product or service which is not for its own use. Generally, this is ascertained through revenue; but in those few atypical cases where it is probable that revenue may not be the best measure, “full and accurate initial information” means revenue plus all other relevant measures. (b) The firm’s process of production, including the types and proportional combination of technology, skills, and labour used. (c) The raw materials and services utilized in the firm’s process of production. (d) Whether the firm is part of an enterprise, or is affiliated with another firm, or is otherwise engaged in a cooperative and coordinated relationship to produce a product or service. If so, subparagraphs (a), (b), and (c) apply with the necessary changes being made after taking the relevant differences into account. 70. A firm’s failure to fully discharge any part of its above duties may constitute a “failure to provide timely, complete, and accurate information” and therefore misrepresentation (see Assessment Manual Item: AP1-37-3 and Practice Directives 1-37-3(A) and 1-96-1(A)). Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Practice Directive 1-37-2 (A) Page 27 of 28 APPENDIX “A” The classification unit which best describes the firm’s main business undertaking in British Columbia The firm’s main business undertaking in British Columbia Does a policy exception apply Yes or unknown Strategic business undertaking No The firm is assigned to the same classification unit(s) as the other entity Yes Administrative business undertaking No Does the firm have a secondary business undertaking Yes Clear separation of risk and enterprise Yes Not a strategic or administrative business undertaking Yes 50% of the output is sold to unaffiliated customers Yes Is it significant No AP1-37-2(3.2)’s multiple classification rules Fishing industry No Non-industrial building construction No Residential employer The firm is assigned to more than one classification unit Yes Yes No No Management company No Special hazards No Yes AP1-37-2(3.2.3) The multiple classification rules may apply No Consulting No The firm is classified, at least in part, through application of the applicable policy exception Yes Labour supply No Affiliation Yes Cooperative and coordinated relationship No Effective – From and after 1 January 2013 Version 1.1 – 17 January 2014 Yes The firm is assigned to the classification unit of the enterprise’s main business undertaking in BC The firm is assigned to the classification unit which best describes its main business undertaking in British Columbia Practice Directive 1-37-2 (A) Page 28 of 28
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