Alberta’s Workers’ Compensation Appeals Commission frees purchaser of the poor WCB record of the company it acquired
In this case, a public company (Newco) had purchased the assets and undertaking of a business (Oldco) as part of a larger national transaction. Newco then carried on the business under a new name and a new corporate structure. The WCB had conducted a risk assessment and decided to combine Newco and Oldco’s experience records. Oldco had a poorer than average experience record compared to its risk class; therefore, the result of the combination was that Newco was forced to assume Oldco’s poor risk assessment. This resulted in higher WCB premium costs to Newco.
Newco requested a review of the WCB’s decision from the Dispute Resolution and Decision Review Body (DRDRB). The DRDRB upheld the decision and Newco then appealed that decision to the Appeals Commission for the Alberta Workers’ Compensation.
The Appeals Commission reviewed the WCB’s policies and governing legislation. The WCB’s policy provides that when the ownership of a business changes, the WCB will typically review the situation to determine if a combination of experience records is warranted. Thus, Newco’s acquisition of Oldco triggered a review to assess whether there had been a change in the risk.
The Appeals Commission reviewed the criteria set out in the WCB policy that should be considered by the WCB when considering its risk assessment: ownership, affiliation and control, business continuity, continuity of management personnel, change in financial and operational control, continuity of health and safety programs and disability management, intercompany transactions, and the transfer of workers between businesses. The WCB policy does not weigh these criteria and thus the process is discretionary.
The Appeals Commission ultimately concluded that the changes implemented by Newco had resulted in a substantial improvement in the risk profile of Oldco. Therefore, it was not reasonable for the WCB to combine Oldco’s unfavourable experience record with Newco’s. The Appeals Commission relied on the following factors:
- Oldco was an “orphan division” that did not have a corporate structure focused on occupational health and safety matters;
- There had been no overt efforts by Oldco’s directors or executives to manage or improve its occupational health and safety aspects;
- Newco was a division of an international organization that intended to operate the business in accordance with the high standards expected of an international organization;
- Newco had an explicit plan to revise the business’ safety culture and focus on preventative safety;
- Newco revised the organizational structure of Oldco, with executives in place who were specifically tasked with the responsibility for workplace safety;
- Newco rebranded Oldco, putting its own reputation in jeopardy if it failed to properly Oldco’s short comings;
- Newco made several capital investments to enhance Oldco’s safety;
- Newco brought in an appropriate corporate structure to support its safety initiatives; and
- Newco introduced numerous safety protocols that were wholly absent in Oldco.
The Appeals Commission found that these factors suggested a significant improvement in Oldco’s risk profile and overwhelmed the other policy criteria in this case. The Appeals Commission placed significant weight on the importance of having an effective corporate management structure in place to deal with occupational health and safety matters. It described Oldco as “drifting without corporate oversight, direction or investment” and without an established safety program. Under Newco, the business had a sophisticated safety program in place and the appropriate structure to ensure that the safety program were adhered to. Therefore, it was not appropriate to combine the experience records.
This decision highlights yet another consideration for potential purchasers of a business and notes the risks associated with taking over a business that has a poor WCB record. It also highlights some of the steps that a purchaser can take to minimize the risk that it ends up being saddled with the vendor business’ WCB failings.
Decision No. 2016-0534, 2016 CanLII 66308 (AB WCAC) http://www.canlii.org/en/ab/abwcac/doc/2016/2016canlii66308/2016canlii66308.pdf