Staff Present: TR, GG, OE, GS, SN, PL
Notetaker: Steven Noble
Date: Thursday, April 9, 1998
- General Topic - Funding the System, including employer assessments, experience rating assessment classification and relief of costs.
- JOHN STEEVES
- Mr. Chairman this morning I think I can be quite brief and although I think I will need some time in rebuttal and the under funding the system the first issue we want to address is:
- FUNDING THE SYSTEM - Experience Rated Assessments
- You will recall we put a detailed submission in to you in September of last year and we rely in full in full on that submission and ....
- In our submission of September 22, 1997 we provided a full submission on the issue of experience rating assessment.
- Our general position is that workers find attractive the idea that claims costs might have a deterrent affect on employers and the result might be safer workplaces. So we do not say experience-rating assessment should be eliminated. However, we point out a number of problems with experience rating assessment. The result is that we submit that the diligence and effectiveness of employer prevention programs, the practices and programs of employers to assist disabled workers to get back to work and the cooperation of the employer with the health and safety committee should be used along with claims costs to determine assessment rates.
- So we suggest there's other things to look at that can add to the effectiveness of experience rating assessment that is to take the concept of incentives and you look at other ways besides - other things besides claims costs which we know is sometimes a definition problem - a collection issue and you provide incentives to employers based on those things as well.
- Since our submission in September 1997 two further developments have come to our attention. First, at Tab 12 of the BC Federation of Labour documents is an excerpt from the Construction Labour Relations Association of BC newsletter,
"Safety Line", February 1997. It describes how the provincial Ministry of Transportation and Highways ("MOTH") has dropped its long-standing reliance on the Board's experience rating assessment system as the primary instrument to measure a contractor's safety performance. This was at the suggestion of the Council of Construction Associations urging. They convinced MOTH that experience-rating assessment is not an appropriate measure of a contractor's health and safety program because experience-rating assessment simply reflects claims costs. These costs are "regularly, adversely, and haphazardly" affected by a number of non-safety factors.
- The other development since our last submission on this issue was the evidence provided by the Board. For many of the reasons given in the BC Federation of Labour submission in September 1997 the Board believes the experience rating assessment does not currently "contribute to the Board's objectives of prevention and durable return to work". It is "outdated and has significant design flaws". It is an "arguably ineffective system today" although the Board believes it can be rehabilitated to be more effective. And those are quotes from the summaries.
- As we said in September 1997 no one commenting on any experience rating assessment program ever defends the status quo. All defenders of experience rating assessment say it is sound in principle and it will work if certain things are done to address its shortcomings. Dr. Thomason, for example, [who we heard from in September] did not support the current experience rating assessment program in BC and he would change the system by making it more difficult for employers to appeal decisions in order to off set the incentives on employers to be more active in the appeal system.
- And since writing this argument Mr. Chairman, another thing has come to our mind with respect to experience rating assessment - and that is we suggest that the public sector should be - I think ultimately treated differently for experience rating assessment but there's different considerations in the public sector. One of the premises I think of experience rating assessment I think is that it is - it will work in a competitive environment - that is where two employers in the same industry who have -who are competing against each other as well as trying to keep their costs down for competition reasons - and one factor they'll be looking at is their assessment rate and so if one pays more on assessments than the other then that affects their competitiveness. Now that doesn't apply as well or may be not at all - in the public sector - so for example - if you look at a hospital if a hospital's assessment rate and I don't - don't - don't - I don't know how whether an individual hospital is assessed - is it assessed as an entity or whether there is a larger group that the hospital would be part of - I just don't have an answer to that but - if the - if the hospital that's assessed - given an assessment - and the cost of that is a burden that they can't control for whatever - for economic reasons or for other reasons - then the response it seems to me would be to lay off some people - we would hope not but may be close off some beds - that's the response in the public sector to problems with money - problems with funding. And so we suggest that that is a different context - very much a different context than in the private sector. So our concern in general terms is that if increased assessments against public sector entities might result in the reduction of services provided b those entities and some of them - some of them Mr. Chairman might not even see a staffing of a skating rink or something like that - where they hire casuals from time to time - they simply wouldn't hire as many casuals as before. And no one would see that and that would just be - there might just be a bit more rubbish around after - a bit longer after the hockey game. So as I said that occurred to us after we'd written this and we just offer it as a different application of experience rating assessment and in raising different problems.
- Q: Would that not be more of an accountability problem within the public sector management?
- A: I think it is partly accountability - by that you mean shouldn't someone - if they are closing hospital beds - to take an extreme example - because of the high assessments - shouldn't someone be accountable for that - absolutely. But the - and again I guess I pose that I don't know the answer to is - what unit within the public sector is a - is given the experience rating assessment - is the hospital? Is it the health board? Or the Ministry of Health? Or what? That would affect that decision. But I think ultimately accountability is part of it but still the lack of competition and the response in the public sector in the face of funding issues - to reduce services makes the public sector different.
- Q: In essence are you saying it is industry wide as opposed to mismanagement within a specific firm or organization amongst any number of others that might also providing that same service?
- A: Yes, yes. And to state it a slightly different way - in the private sector because of competition - I think your point about accountability is apt. The more accountability there is more control on costs and for the reasons competition - in the public sector it doesn't mean there's no control on costs; it is just in a different direction. The direction could be to reduce costs by reducing staff, by reducing services. So that is not a fully developed analysis Mr. Chairman - it is something that occurred to us very recently - we think there is something there and we think you should get someone to have a look at it.
- RECOMMENDATION: We recommend that Board policy be amended to reduce the amount of resources and funds allocated to experience rating assessment and that other incentives that measure effectiveness of prevention and return to work programs be implemented and given adequate resources.
- EXCEPTIONS TO EXPERIENCE RATED ASSESSMENTS
- Section 30:50:52 of the Assessment Policy Manual sets out a number of costs that are excluded from consideration for experience rating assessment purposes.
- We are opposed to one of those exceptions, occupational disease claims, "which on average require exposure for, or involved latency periods of, two or more years before manifesting into a disability". The diseases presently excluded under this policy are non-traumatic hearing loss, silicosis, other pneumoconiosis, heart disease, cancer and Raynaud's phenomenon.
- We are not aware of any principled reason to exclude these diseases from experience rating assessment. If the purpose of experience rating assessment is to provide an incentive to prevent diseases then it is illogical to specifically exclude some diseases. Excluding these diseases removes any economic incentive for employers to prevent them. If the concern is that workers will have incurred exposure at a previous employer then that can be dealt with specifically in policy - there should not be a blanket exception.
- Focusing on a specific concern there Mr. Chairman - is - I'm no expert in cancers - I've seen a few of them in my work; I don't know of any cancer that has a latency period of less than two years. So the effect of this policy is as far as I can tell is to exclude all cancers from experience rating assessment and it may be that a worker suffers cancer after a year - on a specific employer - but there's still exposure history prior to that which is work related and that is where we suggest that a specific policy can be addressed, that is, it would be unreasonable to tag an employer whose employed the worker for one year with the full cost of that cancer claim that - we accept that - but there shouldn't be a blanket exception - the blanket exception doesn't follow from that problem that that - the problem - the problem of tracing that exposure can be dealt with a more specific and finely tuned policy.
- RECOMMENDATION: We recommend that Board policy be amended to delete as an exemption to experience rating assessment diseases involving exposure or latency of more than two years. We further recommend that the Policy Bureau prepare policy that would provide for exemptions to experience rating assessment in cases where the employer at the date of disablement has been the employer for a period of time less than the latency period for the specific disease. This new policy should balance prevention of occupational disease with equitable allocation of costs to facilitate prevention of those diseases.
- RECOVERY OF COSTS THROUGH ASSESSMENTS
- The Board described a "general policy practice on assessment rate setting" that places a cap of 20% on increases on assessments employer might otherwise have to pay. This cap is different than the 33.3% merit/demerit limits.
- I might say here Mr. Chairman this is not an area that I have a lot of expertise in and perhaps Mr. Winter knows this - I had a look in the assessment memo - I couldn't see the 20% cap in the assessment manual. I may be just missing it but. If that is so then I think we are into one of our common themes here - is that where is the policy; where is the procedure - how do we get to this point? Is it a practice to have a 20% cap or has it been approved by the government - the governance of the Board? I could be totally wrong; Mr. Winter can correct me. Assuming that it is now policy:
- The effect of this cap was graphically explained by Mr. Fattedad when he used the examples of shipbuilding and heavy construction. In the case of shipbuilding there was a rapidly shrinking payroll and, because of the 20% cap, the subclass "went into the tank" [as Mr. Fattedad delicately put it]. Similarly, heavy construction has been in deficit position for 12 years.
- The consequence of these under funded subclasses affects the funding of the entire system. By limiting the increase in assessments to 20% for these two industries the funding of the entire system has been distorted. As well it significantly reduces the financial incentive to immediately correct dangerous conditions and it results in intergenerational cost transfers. A study by the C.D. Howe Institute of the financing of workers' compensation concluded that there should be a fair and efficient financing system to impose the full costs of a workplace injury on the generation of business firms responsible for it. The study goes further and suggests that a policy of precautionary overfunding be considered.
- RECOMMENDATION: WE recommend that the practice of a 20% capping on assessments be removed. We further recommend that Board policy on assessments be amended to require recovery of the full cost of injuries and diseases in each year. We also recommend that Board policy be amended to require precautionary overfunding for all subclasses of employers.
- Q: That is the fully capitalized cost; you are arguing for a fully funded system?
- A: Yes, yes. I think the way Vaillancourt puts it is it should be - may be it is Mr. Boshier that - the cost of injuries and diseases should be recovered in the year it is incurred.
- RELIEF OF COSTS
- Mr. Fattedad explained that the purpose of section 39(1)(e) was to encourage the employment of persons with a pre-existing disability. The idea was that if the compensation system permitted relief of costs for person who get injured, but who had a pre-existing disability, then employers would hire these people. Unfortunately, this has not happened; a Board discussion paper (undated) made the following statement, "There is no empirical evidence, and little convincing anecdotal evidence, which demonstrates that Section 39(1)(e) has in fact been a useful tool in encouraging the employment of workers with disabilities."
- What we don know is that Section 39(1)(e) combined with experience rating assessment has resulted in the "unintended consequence" of large numbers of employers retaining consultants who make their living out of obtaining relief of costs for these employers. Sometimes the relieved costs are as much as 20 years old and the Board indicated that new employers are having to pay some of these applications.
- A recent Board discussion paper (August 27, 1997) stated:
- This is a significant issue as processing and granting cost relief on past claims increases overall current assessments by millions of dollars per year.
- In our submission the time has come to put an end to how Section 39(1)(e) has become perverted from something that was intended to help disabled workers to something that has become a mini-industry for employer consultants who consume vast amounts of Board resources.
- RECOMMENDED: We recommend that Section 39(1)(e) be repealed.
- Q: As I understand it you don't take issue with the intention of 39(1)(e) - which is to encourage the employment of people with disabilities?
- A: Yes.
- Q: So what do you suggest if anything as a substitute for that if another way is to be found?
- A: One of the things we recommended is that the return to work issues be part of the incentive program for assessments. The ability of employers to get their employees back to work should effect the amount they pay in assessments.
- Q: There are different categories of disabled workers I suppose so and that would then determine how the incentive is applied - who it is directed to; whether it is to the employer of a worker who is injured and who is trying to return back to that same employer as opposed to employers generally - the incentive that has been given to employers generally to hire disabled people.
- A: Well, I think you start with the first and you end with the second. That is you focus on - it's some workers can't go back to work because of a disability and that's a case of we're into the loss of earnings side of the pension and retraining and things like that. Although that retraining may be able to get them back to the pre-injury employer - but for those cases where the worker is injured, becomes disabled and the employer through - without going to undue hardship can accommodate that worker - then we think that that employer should have an economic benefit from that. They should be rewarded somehow through the assessment program.
- Section 39(1)(e) has become something entirely different - it's original intention has - well - it hasn't happened at all - it's become something that it was never intended to be.
- Q: Well, really the 39(1)(e) problem in once sense is a sort of a backlog problem isn't it? If you ensure that awards made to injured workers don't - or aren't paid for - at least a component - employers don't pay that portion of an award that they are not responsible for. In the future would - to ensure that that happens you won't have to deal with this problem on an ongoing basis. In other words, it's really an historical problem isn't it? It's a question of reviewing files where employers are paying for that portion of an award that they weren't responsible for.
- A: Yes, that is partly taken care through proportion entitlements - that is that - it is not a complete answer but it is partly there - employers never had this right and they shouldn't have had this right - this - this was - this - 39(1)(e) wasn't put in the Act to do that. It's become that over time. It's not - the backlog if you like has occurred on a right that shouldn't be there. No one has consciously said when they drafted 39(1)(e) that it was the purpose of as you just described or as it is currently being used now - it is for an entirely different purpose.
- Q: But isn't that the logical consequence?
- A: Well, it is a consequence but it's not the primary effect. You can't skip the primary effect and rely on a consequence.
- Q: But if there was no backlog would you have a problem with 39(1)(e)?
- A: Yes, because it is not doing what it was intended to do. The intention - the mischief in legal terms - that it was intended to address was the - to assist disabled workers from being employ- to assist disabled workers to get re-employment and it just hasn't happened.
- Q: Isn't there a fairness component as well though? Leaving aside the prime policy reason for it to encourage re-employment - isn't there a fairness issue? Is it fair that the employer at the time has to bear the entire responsibility?
- A: Well, as I say section 5.5 partially addresses that. And we say that that addresses the fairness adequately. And the policy on 39(1)(e) is much broader than section 5.5 - it is not - it is more than - in order for section 5.5 to come into effect you need to prove a pre-existing disability. Where in section 39(1)(e) it is just a pre-existing condition.
- Q: But they are different - section 5.5 deals with carving out that portion of a disability that pre-existed irrespective of a work related injury. Section 39(1)(e) takes that pre-existing condition and pays for that portion of the current work related injury that is enhanced by virtue of the pre-existing condition. So there is a difference.
- A: Yes, but we - but we don't go farther than section 5.5.
- Q: So you say if an individual has a non-work related, pre-existing disability - okay? Then has a work related injury - that is made worse than it would have been but for the pre-existing disability that the employer should pay for both components?
- A: Well,
- Q: I just want to make sure I understand that that is your position; because I don't think - it doesn't seem to me that they are the same thing - section 5.5 and 39(1)(e) don't seem to be addressing the same issue.
- A: I think I agree with that but the common example with section 39 (1)(e) is a back - a worker has a - developed a back injury at work and then - 6 to 8 weeks down the road it turns out that there is degeneration in the back and what's really happening is that the work injury has aggravated the underlying degeneration. So then you get into whether this is a section 5.5 or 39(1)(e) - if the - if the back - if the underlying problem had been symptomatic prior to the date of injury - the date of the work injury - then Section 5.5 may apply because there was an underlying disability. If it was an underlying condition then the section 39(1)(e) would apply. Now - but the claim is acceptable and it is assumed that there is no effect on the worker; there - it is an internal accounting - the worker gets the same benefits. But if the work triggered - permanently aggravated the underlying condition why should - and that's accepted in Board policy to the extent that the worker can get full benefits. Why should there be a set off because there was an underlying condition? If the claim is acceptable because the work permanently aggravated they underlying condition then why should there be - why should there be a spreading of that cost?
- Q: Well if the question of who should pay for it can - should be that particular employer or the fund generally?
- A: Well, the - it was the work incident that aggravated the underlying condition and that work incident happened on the employer's premises - so it seems to me that it's not a - and in those circumstances the medical evidence would have to be - if it wasn't for the work it wouldn't have happened so why make that distinction at all? I guess is what I'm saying.
- Q: Well it seems to me that the worker gets compensated; it's just that that portion of the condition that resulted from the injury that has been enhanced because it was a pre-existing disability - is not paid for by that particular employer but from the fund generally - that is what section 39(1)(e) says.
- A: Pre-existing condition.
- Q: Yes.
- A: If it was a pre-existing disability section 5.5 would apply.
- Q: They both speak of disability.
- A: Yes. But the policy at 39(1)(e) is that it applies for conditions - underlying conditions as well.
- Q: All right; I won't occupy any more of your time on that - it seems to me that they deal with slightly different situations.
- A: I agree that they do - the question is whether they should. And we say they shouldn't.
- FUNDING OF THE SYSTEM
- Workers want to have a financially sound system of compensation in order to provide them with secure benefits. As well, workers know that as soon as there is under funding of the system employers will be asking for benefits to be reduced. A more rational approach is to address distortions in the system such as the 20% cap on assessment increases and the millions of dollars spent each year for employer relief of cost applications but governments have not been responsive to these kinds of arguments.
- In any case the BC system is fully funded. The Board's "1998 Business Plan and Budget" points out the Board became fully funded in September 1997. A surplus is estimated for the end of 1997 and the Board will be 102.8% funded.
- Some employers have attempted to challenge the financial viability of the Board by comparing the injury rate over time, which has gone down (with a slight increase in 1997), with the claims rate which peaked in 1993 and it has dropped since then. The Business Council of BC makes this point at pages 8 and 9 of their submission and they provide a graph that shows the injury rate going down and the claims costs increasing until 1993. I asked Mr. Fattedad about this analysis and Mr. Winter then asked Mr. Buchhorn. And I just wanted to address generally the - there is a problem using the injury rate first of all in this way. It is not reflective of actual claims activity and costs.
- The problem with using the injury rate is that it is not reflective of actual claims activity and costs. The injury rate is calculated by the number of short-term disability claims accepted in a year divided by the average person years of employment. Person years of employment are not precise because they are not determined until May of the following year [this was Mr. Fattedad's evidence]. The injury rate does not include long term disability claims, which more than doubled over the time in question. As well the average employment rate is relevant to assessing claims costs. According to figures collected by Hunt (Still in Transition, page 272) the numbers of employed persons in BC went from 1.3 million in 1987 to 1.7 million in 1994. It is sensible to conclude that the cost of claims would increase with the increase in the number of workers (even though the injury rate has actually stayed the same). As the Board agreed, in order to assess the performance of the Board it is much more complicated than a simple comparison of the injury rate and the cost of claims.
- That's the submission of the BC Federation of Labour on Funding the System.
-
- ALAN WINTER
- If I could just take a moment and just respond to a point raised by Mr. Stoney yesterday; I said I would try to get back to it - we were talking about the historic compromise and whether it was intended to compensate full or partial loss and the discussion continued on about the negative and the positive components of it and Mr. Stoney asked the question about Employment Insurance and Canada Pension Plan and fringe benefits - I think I did the best as I could yesterday in the fringe benefits. I had a discussion with Mr. Sayre yesterday - just so that I could have a little bit of understanding of what happens when an employee is on disability at Workers' Compensation Board with respect to Canada Pension Plan and Employment Insurance. Starting with Employment Insurance because he does do a lot of work in that area and I do not. My understanding and I do invite Mr. Sayre to assist me here if I make this wrong as opposed to waiting until he respond. My understanding from Mr. Sayre on Employment Insurance - if the employee is off on disability for Workers' Compensation Board no Employment Insurance assessments are being paid generally - there will be an exception if I understand it - we talked yesterday about top up situation where the employer pays the full amount and gets it back from the Board. My understanding of how employees do that is all of the deductions are made so they will be paying Canada Pension Plan and Employment Insurance in that situation but other than that limited situation when a worker is off on Workers' Compensation Board no assessments are being made to Employment Insurance. My understanding from Mr. Sayre is that when the person comes back to work and then needs to go on Employment Insurance for whatever reason - termination, lay off - there is an ability within the Employment Insurance system to exclude the Workers' Compensation Board disability period for up to a year - maximum. And to go back in time within a two-year period, if I understand it - to see what the earnings were to replace that period of time. So, for an employee on disability with Workers' Compensation Board for six months, comes back and has to go on Employment Insurance - that six months that they were on Workers' Compensation Board would basically be excluded and they would go back in time another 6 months - over a two year period.
- The employee who was away for a long time on Workers' Compensation Board - 2 years or so - may find they can't do anything. Is that fairly accurate?
- Okay; so it was close. So there is a buffer there - I do understand what you are saying - yes there is some aspect that the employee on Workers' Compensation Board is being treated differently than if they are at work. But Employment Insurance at least has some recognition of that. On the Canada Pension Plan side of things as I understand it - say an employee is away for 6 months no contributions are being made by the employer or the worker to Canada Pension Plan - it is not like government superannuation - you can buy it back later. It is just no contributions were made. At the end of the day that period is not counted - there are no contributions for that period of time. So I forget which we call negative and which we call positive but that is there I understand that. Again we think that at the end of the day there is overall balance and another factor that you balance it - again we talked about this yesterday - the tax rates - since 1954 when the compensation rate went to 75% - have increased greatly. But there has been no corresponding change to the compensation rate in the period of time. So an employee in 1954 who goes off on Workers' Compensation Board got 75% gross. At that time the percentage that they are - the net take home of gross would be much larger because they are paying less tax. They are actually taking more home that way with less tax. In the 1990's you have a higher tax rate. And so now the percentage of take home is much lower and so the effective value of the workers' compensation being tax-free is much greater. But there has been no change - if you want to have the 1954 rate - and you try to be equal and balanced in every thing - the government should have legislated the 75% down to compensate the level of tax having gone up. But that hasn't happened either so again I think it comes to the basic premise the employer community is trying to get across to you is that the historic compromise was never intended to provide full economic loss compensation. It was intended to provide partial. And then I have to agree - there's been a lot of things that have happened since 1954 - 1966 the last Royal Commission -that the Commission is going to balance after it determines what the premise should be. They have to determine first - is the employer community accurate when it said it wasn't for a full loss - I think other Royal Commissions and other authors on the topic agree with that. But then the second question you still have to answer - is that proper? Anyway, and again it is proper and it is a balanced situation.
- Q: I'm not sure you believe when the timeframe was that the value of having gross of 75% actually started people to get more than 100% of their net income? I don't know what year you think that started to happen for people - whether that was 1976 or 1966 what date it was -but would you agree that governments have had many many opportunities since it went over that line to change to change this if they wanted to? You just mentioned it that....
- A: I certainly have to agree since 1954 to 1998 there has been no change. I must assume that government had the opportunity to do it so I agree with the basic premise that you are saying - objectively - the period was there - they could have done it. I can't answer at all subjectively - they were to put their mind to it or somebody brought it to their attention and why they then didn't do it.
- Q: It wasn't a secret.
- A: I can't say; I do know the employer community has been advocating to the Board of Governors and I'm not sure the Board of Governors has taken that position back to government. And since 1991 the government's position has been quite strenuously from the employers who have approached government - that they are to go to the Board. And so we have run into lots of blocks with the Board there's - we wouldn't get anywhere with government. And we run into lots of blocks at the Board.
- FUNDING THE SYSTEM
- I'm going to switch to today's topic. I want to start with an attempt - a weak attempt to talk about globalization and competitive cost concerns. I'm in no way an expert - I would say that I'm not even very knowledgeable on international market and economic competitiveness. But as a very lay layperson I had difficulty understanding Mr. Steeves' comment yesterday when he - when in rebuttal he was saying well we during lunch we were trying 1917 because we were sure at that time it was considered employers were always global because the canal just opened - I assume we were talking about the Panama Canal as opposed to Suez but the canal just opened. And I'm sitting there going well that's 1917 - the canal just opened - there is no doubt in 1917 that would have been an historic event. The ability to have the quicker transportation route for commerce - for all sorts of things. Certainly that was historic in those days but compare it to 1998 and the 1990's and the way our world interacts. On - you start with trade agreements like the North American Free Trade Agreement or the Economic Block that you have in Europe. Or you look at technological communications advances in the way that people can now communicate and do business with each other instantaneous - I think we are in a different world from 1917 - and without looking at what may have been raised in 1917 - I just don't think it is a comparable situation when we raise the issue of how this costs in BC impact the ability of a BC employer to compete on a world basis.
- The Business Council on the other hand does have the expertise available to them. You had Mr. Finlayson come and speak on an economic basis to the Royal Commission during the first phase - one of the open speakers on the economic perspective of occupational health and safety regulations and the impact of that.
- The Business Council has put in a submission dated January 28, 1998 - they have attempted to deal with the concept that you've raised on pages 5 through 7 -and rather than read it I will refer you to that. It does try to get at the impact of the global market place - the international market place on BC and the general government regulatory and tax issues - in particular the Workers' Compensation Board.
- And if we following that the Royal Commission should have questions on this issue I would be pleased to approach the BC Business Council to see if Mr. Finlayson can come to respond to questions. Now I just want to take that point just one more - the employer community and this Royal Commission - to which the employers I act have come to this Royal Commission and said we look we are in dire financial circumstances in BC we have to have cost reduction. I'm just not aware of that position being made - you won't hear it from me. As the situation was and still probably is - as in Ontario -there is no doubt the employer community has raised proposals and recommendations that would result in cost reduction. But we have tried to deal with those on the merit that the position - net versus gross is a good example of it. As I said yesterday there are going to be changes that the Commission are going to recommend that are going to have impacts on the system as a whole. Some are going to be beneficial; some are going to be detrimental; some are going to be neutral - it depends on whose view you are looking at it where we put those words. And so the employer has come with what we believe are reasonable requests and - yes - we do understand some of the implications of cost reduction but that is a very different focus than coming and saying hey we are in really bad shape here - we have to reduce; we have to cut. Now that is different than cost containment. When you read the Business Council's assertion I think they make a strong case for why there is a nervousness in BC to have additional costs imposed through government and quasi government action - be it through a regulatory basis or a direct assessment/tax basis. And containment is an issue.
- Whether we are or not we are in a recession or not in a recession I can't answer those things but clearly the Business Council makes the assertion that compared to our neighbours to the south and our neighbours to the east we are not doing as well - economically our marketplace is not as strong. And additional external factors can make us in a more fragile situation than we currently find ourselves. And so that is a cautionary note - and that will be as I've said on several occasions today and next week for cost containment. And the particular areas that I will talk about when we do that will be loss of earnings pensions, workplace stress, and today very briefly on retroactivity of benefit entitlements.
- Cost increase of course is going to be a major concern from the perspective of where we sit today in the marketplace on a global basis and of course the employer community is going to be a little more vocal about significant cost increases. Again, I think that is about all - in my league on globalization and economics. So if I may I'm going to switch to the classification system. This is more my league. There are obviously, obviously many, many problems and concerns employers have with the existing classification system. And obviously the employer community realizes that the complete system is being revised and overhauled. The major criticism is that it has taken a long time to get to this point. I tried to show that about the Roger's Sugar case about how long it took just to get the point to get something done. And we are still waiting to see the final result. And so one of the comments when I come to the end about what we are looking for from the Royal Commission is to make some recommendations on how to get things done in a more timely manner so if there is an element that everybody has recognized as an unfairness. We don't have to wait a long, long time to correct what seems to be an unfair situation. And again I think the Board has come a long way towards rectifying the situations and we will talk about that in a moment. But the current system - the hallmark of the current system is a complete and utter lack of flexibility. And the Roger's Sugar is an extreme example showing that. Now there is a discussion paper on the proposed changes. I just read it last night. Because I am trying to keep up on a day to day basis. I know the employer community has the one dated the March 1998. I don't know if the Commission has it but I strongly recommend the Royal Commission - whoever the researchers are who are looking into this issue need to look at this - I'm sure they have it. But I think this says a lot of things that I would have said.
- Q: So can - what is the title of that paper you said?
- A: It is called "Employer Classification Structure - A Discussion Paper" dated March 1998. It says if you have thoughts about the proposal or request more information it refers you to Laura Hawthorne, a policy analyst, but this doesn't look like nor was it intended to be a policy discussion paper - I think it is a starting discussion paper that is going on. But the employer community, from the feedback that I've gotten, and now that I've read it wholeheartedly supports the direction that the - the concepts that are in here and I think when the Royal Commission is looking at what to do in this area it is basically describing what we are coming to ask. There is one significant problem I just wanted to assure myself was still there. Mr. Dugas told me that my thinking and my line of reasoning is right and I will share that in a minute. I have to do some background here. But just to give a highlight of what is in here because you know from when we had the funding day with Mr. Fattedad and I was asking some questions about the classification system some comments came and some questions were raised about what should be the principles of - that characterized the classification system as opposed to the nitty gritty which you just came out with to this extent we were asking for broad principles and he sets them out in quite a nice format and I just want to refer you to where they are and tell you what they are. I have a point or two to elaborate but that would be it. They are found in two places - page 4 and page 5 - I'm sorry on page 5 and page 6. On page 5 they refer to a study done that was by Nexus, Actuarial Consultants, Limited. And what they say coming out of that study is they identify four factors that they feel contribute greatly to the success of a classification structure. We agree with these principles - 1) consistency in the classification of employers, 2) employer acceptance of the classification system - and I think that involves consultation which they refer to here as well as understanding; 3) ease of classification- which our current system doesn't have; 4) ongoing review of the classification system with a methodology for changing classification units and rate groups when necessary. Those are all very valid classification principles that the employer community has been seeking.
- It then goes on on page 6 and talks about general objectives and principles of a classification system and they set out 8 of them. And this is much wider than just the classification part - it also gets into assessment and experience rating assessment I believe. For example, the first bullet - the facilitation and promotion of accident prevention and the support of rehabilitation and return to work measures. Experience rating assessment component of the classification system - we'll cover that. Second - the fair and equitable distribution of the costs of work related injuries amongst employers.
- Third - The grouping together of firms that have common characteristics and levels of risk in order that the system does not work unfairly against competitors. And what the discussion paper refers to later which is wholly supported by the employer community is that the Board should not be an economic factor between competitors. That doesn't mean that the competitors won't make it an economic factor - when you get into experience rating assessment but the Board started neutral. Two competitors should be starting at the same base rate and if their experience rating assessment system takes them in a different direction then that will be in their control.
- Next - Comprehensibility -the stake holders into the public - which picks up on the acceptance by the public.
- A balance of individual accountability and modified collective liability.
- The formation of classification groups large enough to be financially and statistically credible and to reflect sound insurance principles and practices.
- The Flexibility to accommodate changes in industry and competition and administration efficiency.
- So again - the employer community wholeheartedly accepts and supports those principles that I've just gone through on those two pages as being good hallmarks for what we anticipate to be a successful classification system.
- Q: It seems that some of those may - potentially may conflict with one another - I guess that's the nature of the beast?
- A: conflict with one another?
- Q: Yes, when you look at for example at administrative efficiency - it can conflict with - to some extent with flexibility or equity.
- A: I think the details and you may be right - and there may have to be priorities given - I thought that - and this is a very inefficient administrative system - it is not computerized to any significant degrees with the technologies that we currently have and the classification community books which we don't have access to unless we go to the Board - I understand our - you know we have a contribution manual - and these cumbersome books and committees in how to deal with these things. I think that is trying to get at the easier ways of doing this but I tend to understand what you are saying -does it mean that the simplest way may conflict with other ones and then how do you do that? Again, this is a very good starting point - and I think a lot of the details have to be worked out and again when we talk about experience rating assessment will have to be done through the Board with the stakeholders -as opposed to primarily the employer community. As opposed to I think the Royal Commission having to get into the nitty gritty details but still we are looking for those kinds of comments on priorities and priority objectives that the commission believes that some should be essentially - for example - the paper talks a lot about the use of this kind of classification system to achieve the objective of prevention and safety. And then the next objective of return to work. And you'll see when we talk next Friday - again as I've said on several occasions - certainly the employer community supports what Mr. Steeves said on behalf of labour - we are looking at one agency - one Act for both prevention and compensation - I think this paper makes a very good inroad on why and we'll come back to that next Friday from that perspective.
- Now there are going to be some things that come out of here - let me start with the simple ones - you'll see on page 6 when you get this - the changing terminology - what we currently call class and subclass - the new system is going to call sector and rate group. But because the legislation still calls it class and subclass they are going to call it class, sector, and they are going to call it subclass rate groups. So it is going to start getting very confusing to everybody on terminology if the new system has to comply with the Act as opposed to when we see the recommendations - this is going to be a housekeeping one I suggest. That the Act should conform with this new system if the Commission has a look at it - that they believes that this is going in the right direction - and accept it.
- I think the terminology used is more appropriate and does give the Board more flexibility the way they are trying to build it into the system. Another example when we get there - they greatly reduce the number of classes from what is currently in the Act under Section 36. Just have 7 sectors. That should clearly be set out in the legislation -my suggestion is that we don't need Section 36 at all. The 37 then gives the Board the authority to change classes, rearrange classes, and create classes and that is what they are doing here - why don't we just have that authority without setting out in the Act the classes?
- So that's a housekeeping, legislative matter that the Commission will have to turn its mind to.
- Q: Who did you say wrote this paper?
- A: It was written - it looks like the Policy Bureau -
- Q: You mentioned somebody's name?
- A: It said Laura Hawthorn - H A W T H O R N.
- Q: Okay.
- Now that's the first point of for the Commission to contemplate - about what it is in the proposed changes. Now here is where the problem is -I think I have to make sure - I take it that this is new to the Royal Commission?
- Q: It is new to me -
- A: To the panel. To the panel.
- Q: It is certainly probable that we have it somewhere at the Royal Commission offices - our researchers have probably located it but it's not familiar to me.
- The concepts is not something discussed - we didn't discuss it when Mr. Fattedad was here because I didn't have this at that time. So I think I'm going to take two minutes just to bring back what the current system is - the problem with the current is that there is one key critical decision. What subclass are we put in? And under the new system there are two key critical decisions. And the system has built in the flexibility for one and left the same problem with the other and I need to explain that. Because that is an area that we are still seeking the Royal Commission - at the end of the day I'm going to be saying to you Roger's Sugar and Southern Rail could be potentially in the exact same situation they find themselves today with the inability to get change. The current system - basically we have three matters that we have to be concerned with The first is the industrial classification given to the employer. You come in and they tell you what you are - you tell them what they are and they tell you what you are for Workers' Compensation Board purposes. So I'm going to use Roger's Sugar. They are a manufacturer of sugar. That is not the key critical decision because if a mistake is made there or if you change that is changeable at the Board level - the assessment department. If they are no longer a manufacturer of sugar - they are a manufacturer of something else - that will be changed. If they were never a manufacturer of sugar - it should have been something else that will be changed. And then the Board will look now where they should be on that change so that wasn't the problem. Then what the Board does is take their industrial classification and groups them into subclasses. And so with the Roger's Sugar situation with six different industrial classifications put together. And one of them as you know is poultry processing. I'll come back to subclass - that's an important one.
- The third one is class and I think as of this paper it says that class it doesn't have a lot of - it isn't used in our system other than for purely informational purposes other than at a high level - it really has no day to day effect on anybody coming to the Board so subclass. The problem with the existing situation is that once you are put into subclass you cannot move. It is next to impossible. Again you can be moved as far as the industrial classification was wrong but you cannot move the subclass - even if it is unfair. And Roger's Sugar is a classic situation - everybody agreed - the Board, the employer, I think Mr. Steeves even agreed when he heard it that something was wrong with the situation at least in the timeframe. But nothing could be done. No flexibility to do it; it had to go to the governors. Okay, let me turn to the current situation - that is being proposed - the new situation that is being proposed and explain what they are doing and the problem areas have come. Or one problem area that I still envision. What they are going to do now is that they are going to have five different classifications instead of three. We are going from industry classification, subclass and class to start from the bottom up again - classification unit, industry group, subsector, rate group, and sector.
- Q: can you run by those again?
- A: Classification unit, industry group, subsector, rate group, and sector.
- And three of them are supposed to try to correspond to the old three of industry class, and subclass. We have two new ones in to build in the flexibility.
- Let me start at the bottom just to give you an explanation of what they are doing before I get to the problem.
- Classification unit -this is most helpful. What they are going there is they are trying to identify what the nature of the business and as compared to what you do - what the products you produce and what your peers of competitors are. And they will have they say approximately 800 classification units. And so you start off by getting slotted into what you are. Again that is like coming getting industry except there is a lot wider choice now so they have the flexibility of not putting round pegs into square holes - if that is the way the expression goes. And so everybody will have a classification unit - they give examples of classification unit might be a berry farm, orchard, or a vineyard.
- Okay, next is an industry group - an industry group is a collection they call it of one - how you have a collection of one? -But it is collection of one classification unit or more that is lumped together and to call it an industry group. Now to be an industry group you have to meet a minimum criteria. And this is for credibility information purposes - they have had their actuarial department work with them on this. And the criteria you have to meet to be an industry group is you have to have at least 25 new short term disability claims in each of the last three years or an annual assessable payroll of $15 million in each of the last three years. And a classification unit can be an industry group -so for example take pulp mills - let's say they are going to become a classification unit they are going to be large enough to be an industry group by themselves. They don't have to bring any other classification units in - they will either be 25 short-term disabilities or $15 million payroll whichever way you want to do it. And so they will be an industry group. But there will be others that are too small to be either of those. They will be lumped with other like classification units like - being again nature of business and primarily risk, cost experience and they will be lumped together to form their own industry group. That is the first key critical point - I'm going to come back to it. Getting lumped into an industry group. What happens if you don't like that industry group? How do you get out? This is the problem area - the flexibility is not there I'm going to come back to it. But I want to keep going up the ladder so that we understand what is going on. So the industry group to continue on with the example that they've given - would be taking the industry group of fruit farms - made up of the classification units of berry farms, orchards, and vineyards.
- And that industry group is roughly corresponding to what used to be called the industry classification. So the flexibility was added to the bottom level - the classification unit. That we can really now figure out what people are - what the employers are. And that is a good step.
- Okay; so now we have our industry group - they now are put into subsectors - and this is for as I say just to put in another boundary - to make sure that you are keeping people together as a safeguard. So this subsector would be the agricultural subsector of the industry group of fruit farms and they may have vegetable farms as an industry group and animal farms. So you have classification units all lumped together into different now industry groups and they are all going to be in the subsector of agriculture. For our purposes subsector has not other use - again it would be for information but it has no other day to day use for the employer community. Now we get to the next critical point - rate groups - this is what the old subclass used to do -this is where you are going to determine the assessment rate. And they are all going to - I assume they don't think get into a discussion here about assessment rate but under the current system they would all have the same base rate in that rate group. And experience-rating assessment is not going to effect - they all have the same base. So it is very important on lumping the similar industry groups together. And to have a system that is flexible enough to move industry groups. That is built into the system. The system is very good new system at moving people out of rate groups into other rate groups if that is where they belong. And so if Roger's Sugar was an industry group that probably would have been resolved with this new proposal. And I'll come how do you move out in a minute.
- Above rate groups is the sector -and that is what used to be the class. They are proposing seven broad sectors - Primary resource, manufacturing, construction, transportation and warehousing, trade, public services, and general services. I won't worry about the deposit accounts - we talked about that earlier and we won't worry about the federal government. They talk about that here. So that's fine. And then the class is more for information purposes on a much broader perspective. The only relevance class has is they are going to try to keep the rate groups in a sector. But even that is not a hard and fast rule. As you may have an industry group in one sector, which doesn't fit with anybody else, but on the cost basis they make a better fit within an industry group in a different sector - that will move them. That's a good point - showing the flexibility. Okay so I've tried to build and I should stop for a minute to answer questions or elaborations because I will come back to the problem area. Now that is the new proposed structure.
- Q: Where would professional services be?
- A: They have public service is publicly funded services, general services, privately funded services - I assume that...
- Q: So the service sector - those who provide professional services in our society would be in general services.
- A: That is a broad sector - there's going to be a whole bunch of different industry groupings within the sector and I don't know what those are.
- Q: What is the purpose of that final level or layer? The seven different sectors?
- A: The sector? They say here that is - I think it is primarily for broad information - the purpose of sector is to provide boundaries within which groups will be classified into rate groups. And that is the first one. The main rule will be that you will stay within your sector for your rate group and for your industry group you won't be easily moved out but there is that flexibility to do it. And then it says the category sector also permits broad structural data to be derived at this level that will assist the Board in determining and communicating injury trends. And again what they describe here is that the state of their technology you might as well pull out the information at that level which seems best appropriate for what issue they are looking at; be it broad, a subsector, an industry group or a classification unit. It all makes good sense.
- Q: Any time we heard a presentation from an employer who was having a difficult time with the current system it was because they were complaining that they were ones had the lowest experience rating and that they were paying the big shot and there was this - the bad operators in the same group as they were. Would industry rather have everybody have their own deposit account plus some premium to pick up the - you know when they really get into trouble?
- A: I can't answer for all industry - I would be very surprised if the vast majority of employers wanted to move to that system. Again I do think the basis of the workers' compensation system is a collective - the modified collective liability and there are certain large employers that certainly can fund themselves through a private insurer but I think the vast majority of employers that would end up being prohibitive. But again that is my own personal opinion. Grant, if you have a comment on that? You are much more - in terms of a lot of employers - do you agree with that? All we are looking at is Mr. Stoney is a system that has timely flexibility to respond to problems as they come up. And the current system does not have that. The proposed one will at the rate group level -won't at the industry group level. And that is what I want to turn to.
- Okay so back at the rate group level where the assessment rate is going to be determined and applied the flexibility is there - what they have put in is - again they are trying to get rid of this cross subsidization issue. If for a three year period an industry group within a rate group is substantially different in their history and the other industry groups in that rate group they will be moved. And they anticipate a 20% difference. And you can be moved out to the higher group or lower group. It's not like a penalty system where we are only going to move the poultry out. It could be a lower one that is the anomaly to what the rest of the rate group is. And move them out. That is a good feature. Again, so if Roger's Sugar was a separate rate group after three years of showing this pattern they would be moved. Let's try a different rate group then. Well, poultry would have been moved - if they were the anomaly - let's try you in a different rate group, then. And the assessment rate would adjust because they are going to a new rate group and that is what we are looking for. We are looking for that flexibility. And 3 years seems to be a good time - nobody came to the Board and do it today because we've had a good year or a bad year. It has to be some reasonable period time to make a decision that yes you've changed and 3 years is what is proposed.
- We have to make it down to the bottom level to see where the problem is. The bottom level is okay - classifications but if you are not large enough to be an industry group i.e. you don't have the 25 short term disability claims for each year over 3 years or you don't have $15 million payroll for each year over 3 years you have to be lumped with other groups. I went - today I checked my file - neither Roger's Sugar or Southern Rail meet that test - so they are going to be lumped with other groups. Now the problem is the exact same -who are you lumping them with? And if experience shows that my experience rating assessment are very different - should I get out? The answer is - no - I think. When it says here at the industry group level to get out it says the Board will conduct -this is on page 11 -movement within the classification structure - the Board will conduct ongoing maintenance and review of each sector to ensure that employers are correctly classified into each classification unit which represents their type of business. Individual firms may be shifted into different classification units if their type of business has change or evolved. Which is exactly the problem we face when Roger's Sugar went to Southern Rail. We didn't change or evolve; we are just subsidizing someone else who hasn't changed or evolved either now we are both together. Now the Board is very policy oriented - once this becomes policy although they are moving the decision making power from the Governors to the assessment department which is where it should be - they are still bound by policy. This is what they are proposing is the policy. So the Director of Assessments should still be telling Roger's Sugar if they put us with poultry - tough luck. You haven't changed; poultry hasn't changed we are going to leave you there.
- It also says that the Review Process has a second ability to review. That is when the classification unit becomes large enough to now qualify as an industrial group. They will move them so they are in their own industrial group. So, for example, Roger's Sugar over experience now has 25 injuries over a 3 year period or has a payroll over that three year period of $15 million they can be moved and they should be moved out. This kind of disincentive to say to Roger's Sugar if they - you won't get out to the Board - why don't you make sure you have 25 injuries a year and get out.
- That is not what the system is supposed to do - that's not the way of having the flexibility. I think Southern Rail is in a bigger problem. Because I don't think Roger's Sugar is going to hook up with poultry. But we don't know who they are going to be put with. Southern Rail, if I understand it - when they met with me - they are the only railway that is not a deposit account. So they have to be put with somebody again.
- The problem is that they are probably still going to be put with somebody in that trucking group - when you look at the trucking subclass the first section of the subclass has a lot of different types of trucking operations.
- It's got -and is just one industrial classification - private car service, baggage handling services, cartage, delivery service, freighting, freight forwarding, garbage collection, hauling, messenger service, mobile home towing, moving and storage, rubbish removal, trucking, flyer distributors. That's all one industrial and then there's two others and the last would be railway. They all have the same subclass. Well when we break them up - railways are going to be put with somebody and I can anticipate that they are going to be put With cartage or freighting and they are going to have an industry group being called cartage or freighting and the subsector will probably be called land transportation and we know that the sector will be called transportation - that's how the build up goes. The rate group has no name. They are putting them together and figuring out what the rate should be. Well if they are put with cartage we may end up with the exact same problem - they find Southern Rail has an excellent record over for three or four years but the rate is still high because who they are put with may have the total payroll has an awful record. The system still has to build in the same flexibility of the industry grouping level that they are proposing at the rate group level. After a certain period of time - three years seems fair - if whatever the - the cross-subsidization they should be moved to try different industry grouping - that only makes sense. That is a significant problem of the new proposal. I hope that was explained in a way that makes sense and I am happy to answer questions and I am happy to have Mr. Dugas answer questions if the panel wishes.
- Q: That is a lot of information to digest - I don't have anything right now. I was just going to ask whether you in fact have run through - you went through the principles on which the proposals are built on -did you actually run through to see if those principles meet the test in terms of Roger's and Southern Rail?
- A: I think - again I have no doubt that when we have the new system out in place we won't see Roger's with poultry processing in the same industry grouping. They are both different classifications - we know that. I said again it is concerns about another industrial classification in that same subclass - is called manufacturer of food. They are the second highest on the statistically put in - in our submission we said poultry is the number one concern - but food is not far behind. I can see an industry grouping being called sweet things and we've got within food syrup products, and so that is sugar and syrup products -I don't know what syrup products is like - that is the concern - I don't have the detail to do it. And nor do I want that - we are talking about 800 classification units. Now I think my phrase would be the same as what Jim Sayre said yesterday - we can't trust the Board with Blind faith. But this is certainly a step in the right direction. I have a lot of faith that we are going to see a much better first shot. But the Board has to have flexibility to correct problems as they come up - that's the main concern. They have built from one now into two key decision points -before they only had one key decision point and that's why I think they did it - they may not have even understood it - the rate group corresponds to subclass. They take it to the rate group level the problem of subclass -they have created the problem a little bit lower when they created a new industry grouping.
- Q: So it is all in how they are going to administer it in terms of setting out the principles and then either weighting or prioritizing those principles and then applying them to how they deal with cases like Roger's so if they put administrative efficiency above fairness or equity or ability to deal with it because the funding issue underlying the particular sector or business then different decisions will come out or spit out so that is where in the detail and not just in the detail but in the various broad principles that reviews for setting up this criteria I think would be very important.
- A: I think that is an excellent point because if this ends up in policy say and some of the priorities in the Director is going to be more tied then what this may have intended - if it ends up being practice only the Director may have more flexibility and so coming back to the point raised with the Chair that that may be the prime focus of the Royal Commission when they look at these principles of giving some guidance on priorities that there are going to be objectives that they are setting overall for the system as a whole. Without the details it is hard for me to comment other than to say this is a really good step in the right direction and sets out proper principles to start contemplating for the foundation of the compensation system. And I've tried to identify the one serious problem that was going to be considered in this paper.
- Q: You might give it a stab in terms of getting back to us in terms of priorities -I would be interested in seeing what you think in a purely - administrative efficiency might be a priority for the Board might not be a priority for employers. In how that policy is administered.
- A: Okay. Again the other flexibility built in is very much appreciated is the taking out of the governors' hands the policy issue and putting it in the director's hands but that will require a change in policy. Right now the classification list and rate list is one document - this book is governor policy - so that's where we have to go - if there are policy changes we have to go through the governors - if I understand the proposal ratemaking will still be governor policy - it has to be approved but not the maintenance of the classification system and the ability to make changes to where you are classified. That is another good step.
- The only other comment I would like to see in - or at leas the Royal Commission to at least consider is the timeliness issue. We are still waiting and I have no idea how - this doesn't indicate when we are going to see real results. And employers like Roger's Sugar and Southern Rail - I'm sure there are many more -are waiting a long, long time not quite patiently - are forced to wait a long, long time. And the Board has to do whatever is reasonably possible to get this up and running - at least starting making those revisions.
- I would like to in about five minutes and suggest a way to deal with the issue of cap -that is the only real issue I want to deal with on assessments and then the rest will have to deal with experience rating assessment.
- The issue of cap - cap has been around a long time. And what I'm trying to do is find a document - when we did the 621 Subclass restructuring and what do you do with the deficit? The issue of cap came up. And that is why you will see the Appeal Division number August 14, 1995. And this document was what I could find was one of the earliest that I could find that talked about a cap and I think Mr. Stoney had asked questions about the actuary and how long they had actuary I think in the same group. The actuaries in 1983. To see if you turn to the - it is the third page in but it's titled page five. And they are talking about assessment rates and the first - top - the paragraph just before the numbered 1, 2, 3 comments - there are a number of objectives we believe are important in setting assessment rates. These include, but are not limited to, the following: Point Two - The ratemaking process should not result in wide swings in rates from year to year if this can be avoided.
- Point Three - Even if a substantial increase in rates is needed we consider it more appropriate to implement a large increase in several stages so as to dampen the impact on the budgeting competitive position of individual employers and to avoid the possibility of wide variations in rates from year to year.
- And if you turn the page you will see the next one - I think it is page 9 - heading - Subclass Increase Limits - the aggregate assessment rate should be allocated to the subclasses in the usual manner. Some reasonable limit should be imposed on the year to year rate increase for any subclasses. A 20% limit has been applied in each of the last two years. So that got me to the earliest point - so from 1981 on there's been a cap in our system. And then it goes - Because of currrent economic conditions in BC, the Board may wish to moderate further the rate increases that may be required for any subclass. This can be accomplished by reducing the 20 % limit to some lower figure such as 10%. I can't say if they did or didn't. And so the rate cap and in my understanding was that generally it was 20%. My understanding is when we had a governance system in 1991 the rate risk became published policy at some point in time. It wasn't actually in 1991. But when this became published policy the cap was also part of that. And when you read the resolution the - it is my understanding that the governors would actually approve a cap. Just to answer the question about what role the governors had. And in fact it wasn't a hard and fast 20% cap - it is my understanding that there was exception to the cap for some of the more distressed groups and it has been 30%. The position of the employre community is that we'd like to see in the Act a specified discretion at the governor level to have a cap - and I think the reasons are set out in the 1983 document by the actuary. You want to make sure you don't have wide swings on a year to year basis. And if you do need to recoup large amounts you ought to be able to do it in a thoughtful way as opposed to - it has to be done every year that way - but it should be a discretion. We're not advocating a set cap in the Act of 10%, 20% or any percent. But the governors should be able to look and it doesn't have to be for each - we are going to keep calling them a subclass because that is what is - each subclass will be treated different. But there should be the ability to have a cap.
- Q: But if these principles are to be - if there is some merit in these principles - about the need for stability and to amortize changes over a fairly short space of time - to consider generational funding kinds of concerns - things like that - surely not of those relate to the situation where you have chronic underfunding in a particular sector? That is not something that is amenable to perpetual capping - you agree that that has to be addressed at some point by a mechanism other than capping.
- A: I think capping caused in large part the problem we have - we just can't blame it - we've had of the distressed groups have gone from this level of employment and employers to this level - they've had a carrying of compounds with that - the capping certainly - I'm hopeful that other than the ones currently in distress and how do we deal with that and the Board is trying to deal with that - we don't want to get back in that situation - caps should not be used in a way that it becomes a mandatory cap every year which builds up to distress but when we see that we are getting into a subclass with distress we should be dealing with it now and that means that we may decide that we are not going to hit you with the 50% increase that this may mean but we are not going to give you the general average cap of 20-30% either - you - we are looking at a five year period to clean this up so for that five year period you are capped - starting with this year at 25-30% - subject to change - depending on whether this year went the way we thought.
- Q: So the objective is not to make a permanent subsidy?
- A: Definitely.
- The other thing about fully funded once I'm on it and the cap may go against the funding - the other thing about fully funded - first off we seem to be in a strong financial position if you accept the Board's and I don't have reason to doubt it - there doesn't seem to be a lot of need to get into a lot of debate about putting in language about having it be fully funded. But the Board's position paper on funding the system raises some of the reasons why there is a concern first off - this is a legal opinion that they don't have to be fully funded and I think that is neither her nor there - that is an issue for the future as opposed to what was in the past. But they raise some concerns that I think have to be taken into account - One - future funding for capitalized accounts is a natural art not a science and they clearly say that changes. Year to year when you go back and reassess and sometimes that has substantial impact. And there has got to be a rational way of absorbing that impact. They are just saying well this year we have to fully fund again so whatever that impact is has to be absorbed. The second one is the widow pension kind of situation. Where a source from outside the system that was anticipated throws a wrench into the system that just cannot be absorbed in one year. And again if I understood Mr. Fattedad I think it was a five year plan - something like that to absorb the $400 million and change that is coming to the widows' pension case.
- Q: Do you believe this proposal will deal with the situation that was in construction industry for one and the shipbuilding industry were the other two examples that were used that there was no way that even 30% was going to keep up with the experience that was happening in those two industries?
- A: I don't think I think they are related -I don't think having a cap or the ability to have a cap would do anything for who are already in distress - I think they compound it. Equally I think we have to be realistic that Mr. Fattedad said we can't go to those industries today -the solution is not to those subclasses and say you're going to pay up today all of it because they would be out of business - those subclasses. So they looked at another solution and we went through some of them and there is a lot of controversy as a whole under section 39.1.e. - through the Accident Fund clean up once and for all because again a lot of the employers are saying that this wasn't our problem but you are making us pay for it. It goes against modified collective liability there has to be other ways of dealing with it. But the cap issue is certainly not an issue that has any assistance in dealing with existing distressed - the cap issue helps to create that to an extent.
- Q: Because it was there?
- A: Because they had compounded the other factors that were putting it into distress. There is no doubt that if there was no cap and to be fully funded that we wouldn't be in distress but I can't answer what the ramifications would have had business wise - I mean we'd still be in business I mean if we could survive that. But I don't know the history of how that distress builds and the causes to it but we have it.
- EXPERIENCE RATED ASSESSMENT
- Start with the overall position of the employer community; there is a very strong consensus among all sectors of the employer community that experience rating assessment is an important and integral part of the Board's assessment and classification system and the concept of experience rating assessment should continue to be applied in BC. There are several broad principles I'm going to talk about today with which the employer community appears to be in agreement. However, just stepping back a second; there can be no doubt that a one size experience rating assessment system does not fit all industries. We heard much evidence in the first phase about how to even do this with small employers. And I'll come back in a minute just to give a thought on that.
- So what we are asking the Royal Commission is to do is to adopt that experience rating assessment does have value to achieve the objectives that we will talk about in a minute within the Workers' Compensation system - the wide Workers' Compensation system including prevention. And that the system has to be redone - the employer community - I've said this several times in the first phase - and I'll say it again today - we acknowledge that the existing system doesn't meet the objectives. A system that is based only on claims cost is going to have difficulties meeting objectives in prevention and safety. There is some tie I believe but certainly not a direct tie between the two - of claims costs only. And that the system does have to be revamped to meet both the primary objectives that are in the assessment manual. And that is found in policy number 30.50.10 - Experience rating assessment was adopted to provide as an incentive for injury prevention and to provide some equitable between employers in the same industrial group. Just on claims costs it is difficult to meet both those objectives. So here are some of the principles the employer community can agree to - again these are broad principles.
- Different sectors of the employer community perceive experience rating assessment being developed and applied differently to them. Construction will have certain needs that have to be met due to the unique nature of construction. That forestry and mining may not have and small business certainly is different and it is clearly anticipated that the Board will again when they move to the phase of experience rating assessment will work with the employer community and putting together a system that does not start with the premise of one size fits all.
- The first premise is that and in my submission a properly designed experience rating assessment system can and does provide an incentive for injury prevention on the part of the employer. I think that clearly was the evidence of Mr. Thomason in the first phase. And I also did put in a submission back then on the relevance and the application of the evidence - I won't repeat that today. I know the panel will have to review that when they consider the issue of experience rating assessment. I also refer to Mr. Fattedad's presentation, which is on pages 12 and 13 and page 19 of the afternoon session when I was questioning him. And which he stated that he felt experience rating assessment has value within the workers' compensation system -he acknowledged that all Canadian jurisdiction have experience rating assessment systems. He agreed that in a properly -and we both emphasized the word - properly - structured experience rating assessment system that it does provide incentive to promote safety awareness and for taking steps for preventative action. And he felt that an incentive system could have more impact because the dollars that could be brought to bear on the employer are potentially much larger than enforcement or penalty. He felt again as we have hear from a variety of witnesses that there are a variety of tools that should be used but experience-rating assessment is one of them. And we'll take off the "a" from that one - experience rating is fine.
- The next point - the factors upon which the experience rating assessment system should be based must be capable of being objectively weighed. We cannot identify all factors today - again there are going to be different factors in different industries - I will identify a couple. But whatever the factors are they must be based on objective weights. And for example in Mr. Steeves' presentation for the BC Federation of Labour says in the first page for experience rating assessment - the result is that we submit that the diligence and the effectiveness of employer prevention programs, the practices and the programs to assist disabled workers get back to work and the cooperation of the employer's health and safety committee should be used along with claims cost in determining assessment rates. We certainly agree that other factors should be used along with claims cost - it is the subjective nature of weighing what cooperation means or effectiveness - there has to be objective standards for whatever other standards we put in. Example - we are not advocating that taking part in the Diamond program necessarily has to be a part of the experience rating assessment system. But we envision certain industries will have participation in the Diamond Program as a factor. There will be an experience rating assessment system without it and more incentive with it. So participation is objective. And that would weigh on the assessment rate. Then I assume from my limited understanding of the Diamond Program that there are different levels within that program? That could be objectively used when you reach that level that has the impact on the experience rating assessment. I am sure other programs for other industries can have objective standards too. What we are very hesitant to have an officer to come in and say - Hey we think this works well - tick. And so that one gets benefit and goes into another place and it is a different officer and says I have a lot of problems with your occupational health and safety committee - ex. And that one gets a different status on that - it has to be objectively weighed.
- Two of the primary factors which the employer community is in agreement should be included in any experience rating assessment system are frequency of claims and claims costs. The costs associated with those claims. It is believed that on the frequency side the frequency of the rate of claims will be used as one of the indicators of the firm's safety record, safety awareness, safety attitude.
- Incorporating the frequency of claims into the experience rating assessment system would appeal to removing the harshness that is associated with basing experience rating assessment solely on claims cost. For example - we have one serious injury can have such an inordinate impact on today's system where you can go a 33% merit to a demerit on one injury depending on the size of your payroll. And the example I used on the presentation day was compare a MacMillan Bloedel fatality with a small logging company's fatality. We don't get the same amount for experience rating assessment purposes - $150,000 - $160,000 - the impact on MB's payroll isn't nominal but it won't take it from one end to the other. On a small business it will. If it was at the high end it will take it to the low end. The claims cost experience of the firm would be an indicator of the severity of the firm's claims.
- Now Mr. Fattedad said that when they are going to be looking at claims cost they are no longer going to be using the 30 month cap that we have -they will be looking at all the costs associated with that. The employer community is not adverse to removing that 30 month cap and widening costs - what we are adverse is that it is a set rule that has no exceptions to. We think there should still be some timeframe. It should capture the significant parts of the assessment - in other words it has to capture the capitalized value of the pension. And the 30-month doesn't. The reason we are advocating that it still has to be considered is with no timeframe at all we believe the employers that have an older workforce or employ an older workforce - for whatever reason would be unduly penalized by the system. Mr. McGinn tells me it seems to be sensible - because we have the statistics if need be. Older workforce when they suffer an injury take longer to recover and have more expense incurred. That is an arbitrary factor that would inflate the experience rating assessment claims cost on one employer and not on another employer assuming they have a younger workforce so we do want to capture the costs in a much more accurate way than a 30 month cap. But there are factors and there may be others that was just the one that came to mind. That should be looked at - it's not something that we want to jump in and have everybody say total. On the other side there needs to be equity between employers in the same grouping. That is an important - it must be an important aspect of experience rating assessment - the example I used with Mr. Fattedad was take two employers, both in the same industry, both the similar number of employees at 10; one has the excellent culture that we are striving for as we heard from one of the witnesses - Professor Stewart - and that excellent culture is in showing the attitude and it's shown in the work record -and it is shown in the minimal if any injury levels. Then on the other hand you have another employer who is ambivalent - not doing anything with malfeasance but they are just ambivalent to it - production takes the number one focus. They have a significant injury record to show for that. To treat the two the same is inequitable; it's unfair. Experience rating assessment should get involved and give that incentive to say to that employer who has the great record when they come and say - well what's in it for me that I'm doing this - look at my competitor I mean to be able to say that's what's in it for you. There is an incentive. There is an equity part of the incentive.
- We also uncover formulas in how do you weigh frequency versus claims. We are not saying it has to be a 50-50 or deal with the other factors - just throwing out factors that should be considered. Mr. Fattedad raised a question - how do you weigh one claim of $1 million with 100 of whatever it is to get to a million. $10,000 I think it is. That's a tough question - I don't know how to weigh that - it doesn't mean it's 50-50. But these are the factors that should be built into it. The employer community does believe and support small business that there is room in the experience rating assessment system and there is value to include small business. Mr. Fattedad may be right - 1,2,3,4,5 sized employees in a small business may not fit altogether. But the alternative is that they should be first looked at before that conclusion is reached. Safety, prevention, and equity are important enough features that should apply to small business as well as large. We don't advocate so I don't understand what is going on in Quebec. But it is certainly a system that should be looked at. The grouping together within associations for those that choose to be. To have access to the assessments of the experience rating assessment system. That may be something that's workable. That has to be dealt with by people that understand their industry and small business and by the Board. There will need to be exclusions from experience rating assessment system. We have talked about section 10.8 the other day -the fault between employers and when we get to equity we have to build that in. Section 39(1)(e) -I'll come back to that but that has to be built in on the cost side for pre-existing disease, disability, or condition. Occupational diseases - Mr. Steeves says there should be included, I don't know why they aren't. Mr. Thomas had spent a lot of time if I remember, explained that there is a problem with occupational diseases. I'm not sure he could readily identify either what it was - I had to check the transcript but two aspects come to mind just to answer - nothing comes to Mr. Steeves' mind on this. First, when we talk about cancers for example, they have a 10-20 year latency period. When the employer - if we are assuming in good faith - the employer really didn't know - when the employer finds out that now my industry and this disease are connected - to include the costs today and forward when now is the only time we can start taking prevention steps. But what has happened in the past is that it is now going to come and haunt us. To say all those costs should be put on that employer there's an unfairness there. I certainly agree with him that from that point forward once we get by whatever is coming through after that latency period - is a different issue.
- But in the past when we finally know that now we have a cancer problem because of this industry. I'm not sure that it is a fair system for that employer cost of years. The other aspect of occupational disease even on the deferred basis is the potential magnitude of the costs and you have to have a lot of confidence in your classification structure to say those costs should be absorbed for experience rating assessment purposes. If you put dissimilar industries together for subclass purposes that is a real distortion then on the ones that have those potential occupational diseases versus others in their subclass that don't have any occupational disease concerns. And that distortion is part of the system that has to be identified when the classification system is put back together. If occupational disease costs are included. Again, I don't have a set answer; maybe it's a cap situation like you have with fatalities now. It is the same reason; you don't want to wipe somebody out with a fatality on the cost side. So I don't have the answers but I'm not so - on the behalf of employers so readily able to agree that there is no reason that occupational disease costs should be excluded; I think there is reason to consider it.
- Those are my comments on experience rating assessment that I have to share today with the panel - I will move subject to questions to a couple of comments on cost relief. Section 39(1)(e) -I have two significant concerns with Mr. Steeves' proposal on behalf of the BC Federation of Labour. The questions have brought them both out. Fairness and intent. Let's start with the intent of the section - the intent of the section so we are told is to promote an incentive for employers to hire and retain disabled workers. And I think that still has value. If you look at the vocational rehabilitation process; priorities for return to work the first one is back to the pre-injury employer and the pre-injury job. The next one is for pre-injury employer and any job. And the next two are to other employers. The same industry or other industries. I have heard from employers; I have heard from the Board when the Board goes and talks to these employers - the employers always say - hold it a minute now - you are coming in with a disabled worker that we have fears that they are going to have an adverse effect on our claims costs. We are willing to do this but where's our protection to do this? And there is two ways the Board answer this; first, we cost share the Board said for a training period to work with them. That is always an incentive; employers are willing to do that when they have a coventure with them. And the second they are always able to say on a pre-existing condition, disease or disability the Act builds in cost relief. They understand that you may now have a person that gets injured and that is enhanced because they had a pre-existing disability and the Act contemplates that.
- Whether that is used a lot or not used a lot is there and should still be recognized in the Act. The flip side is just fairness - even if you don't do that - to have an employer gets out - if you are going to build in experience rating assessment system that has claims costs associated with it you have to look at the fairness of some of the elements that flow from claims costs. And having an employee that has a pre-existing injury, or disease or a condition that wasn't related to the work and it is enhancing or aggravating the work component is not fair to saddle the full cost with the employer - it is not a fair situation. The employee is getting full entitlement so from that aspect we are not worried about fairness or no fairness. The employer community I think again I can't say unanimously but right up there agrees that there should be a cost allocation when you have this experience rating assessment system. And they agree to contribute to the accident fund for that purpose. And so it is very difficult to understand from the year forward - we will talk about historical in a minute but from the year forward - it is very difficult to understand why they would be this furore about Section 39(1)(e) also. Section 5.5 just does not cover it. Section 5.5 deals with pre-existing disabilities. There is a difference between the two pre-existing disabilities in Section 5.5 and Section 39(1)(e). Section 5.5 has been interpreted I think wrongly - but it has been interpreted to only apply to pensions and only to functional pensions. Section 39(1)(e) applies twice; they consider it for temporary wage loss after 13 weeks so section 5.5 isn't even considered. And then they will be considered for pensions again whether it should be applied and that would include loss of earnings pensions. Section 5.5 doesn't apply to loss of earnings pensions - only to functional pensions. So there is certainly an area that doesn't overlap. The second aspect about Section 5.5 -the Appeal Division has held that section 5.5 is only applied to a situation where the pre-existing disability of a worker is in the same area as the new disability. And there are cases where you have a disability in one area and you suffer a new disability in another area and that gives an enhanced total disability. Section 39(1)(e) deals with that on relief - no effect on entitlement under section 5.5 - the employee gets the full entitlement because it is a different area. So again the two are very different. They are dealing with different purposes. If we wanted to bring them in for the same purpose and we are looking at fairness the other way - the employer community can come say section 5.5 should be used for entitlement on pre-existing disability, disease or condition. Why should the employer community be saddled with someone who had a pre-existing disability or pre-existing condition - it has now come patent; they are disabled - why should we pay? We are not making that pitch; we understand that it is between Section 5.5 where it affects entitlement and section 39(1)(e) where it doesn't affect entitlement - it affects cost. And we do ask the Royal Commission to strongly recommend that that be maintained.
- Historical - there is no doubt that historical problem with section 39(1)(e) is a problem with the system. There is no doubt from the employer community that this is a problem created by the Board itself. They created a policy that it would do something and it didn't do it. The employer community when they found out acted.
- The problem is that the Board keeps as the Board does - talks about wanting to correct the problem but hasn't. So we still have a historical out there. The problem with historical is that we have to bring that to an end. They have to figure out how to do it. The Board is working that way. But it has to incorporate an element of fairness. And that is what the employer community is saying. We have some in the system so that so it has to be dealt with and there's others not in the system - we are not advocating that you deal with all of them anyways. But there has to be some notice given that we are going to stop doing historical and then we are only dealing with present cases since it is not a big administrative burden for the section 39(1)(e) when you read the forms and how they deal with section 39(1)(e) and they are supposed to deal with it in each case. It doesn't add a lot of administrative wherewithal for that one claims adjudicator on that one file. And so it makes no sense to take the problem that has been created from one point and say that we should wipe out section 39(1)(e) for the good reasons it has to be there totally.
- Q: Just I case - I don't know if you are going to come back to section 5.5 in the future but I'm just noting your comments and what you regard as inappropriate application to - you said it only deals with pensions, and only deals with functional pensions.
- A: Correct.
- Q: You suggested that it should also apply to loss of earnings pensions - are you suggesting that it should deal with short term disability claims or is that as far as you go?
- A: I haven't thought about it at all but I will deal with it on pension day - what I said today was that I think the interpretation is wrong - when you read the Act there is nothing on the face of the Act that limits section 5.5 to pensions. And whether or not philosophically it should apply to wage loss I'm going to give it some thought and I'll come back on pension day.
- So 39(1)(e) - 39(1)(d) - I've given you a case -39(1)(d) is a section that - if you look at the case it's provided on the very first page - this is the other reserve that employers have had access to before this decision for relief of costs. And it (d) - provides a reserve to be used to meet the loss arising from a disaster or other circumstance which the Board considers would unfairly burden - the key words was the employers in a class. What happened before this case is that an individual employer in a class of employers - and class included subclass was they were able to get this relief if it was an unfair burden on that individual employer. It was in policy. The two examples - the main examples were training on the job where the Board, vocational rehabilitation was paying another employer and the worker gets injured. Why should that training on the job employer get the cost relief? And the other one was the treatment for compensable injury - the Smith Case - they go to the hospital and they die on the table - why should the employer get saddled with the full cost. It is not an entitlement issue. And so that was dealt with through section 39(1)(d) - this case held that the words - the employers in the classification - could not be interpreted to be on an individual employer - it has to be on all the employers in a class. So an earthquake -that is one that will have such an effect on the assessment rate to qualify; it doesn't have to affect all employers directly. It would have to affect them indirectly it would have to be that broad. And so what happened with those two other ones is that you will now see them as exclusions when you look at the experience rating assessment exclusions they are there now as opposed to being covered under section 39(1)(d) but the panel in this case recognized - you will see the circumstances set out on the bottom of page 305 - it was a death in the logging industry that had absolutely nothing to do with the industry -it was natural circumstances - a torrent of several tons of water and natural debris was released from the unlogged hillside and the result was a fatality. The panel itself on page 307 - said this - it's the second full paragraph. The panel agreed with the view expressed by the employer's representative that it was unlikely that the legislature had the current experience rating assessment system in mind when it first enacted section 39(1)(d). Skipping a sentence. Nevertheless it is possible that the expansion of the system has created anomalies or unanticipated inequities that the Act does not explicitly address. And they come back to this point on page 315 - and it is the second to last paragraph on page 315. The employers have also - they made this an open hearing - they haven't held those in a long time. But this was one of the open hearings that they asked for stakeholder involvement on the general issue - they never asked for specific facts. They give you a broad outline about the facts and they ask generally what do you think? So it says the employers have also stressed that because of experience rating assessment it is possible for an individual employer and not the class to be unfairly burdened by the cost of a claim in situations other than those specified under section 10 (a) -remember I raised that the other day about experience rating assessment and section 10(a) don't' fit anymore and section 39(1)(e). They argue therefore that there is a need for interpretation of section 39(1)(d) that would allow the Board to grant equitable relief to employers. This argument is compelling; it's underlying premise is that statutory interpretation results taking into account changes in circumstances, however, we are of the view that should there be a clear gap in the legislation it is not incumbent upon the Appeal Division to remedy the inefficiency by stretching the interpretation of legislation. The Appeal Division can only alert the governors to the existence of such a deficiency. And that is in fact what happened here - they found on page 317 - I won't read it. The interpretation could not be for an individual employer when there was a class of employers - they did say again they repeated that there seems to be a gap because of experience rating assessment should be considered now that how the experience rating assessment system interacts with section 39(1)(d) - said to the governors it is up to you. What we did get was change in policy where those two circumstances were taken out of section 39(1)(d) and put into exclusions for transfer. The employer community is asking for that gap to be considered. The section 39(1)(d) on costs should not be on all the employers in the class. It should just be on an employer - individual employer and those kind of unusual circumstances can be relieved of the cost - it is not an entitlement issue - and that is on the assumption that experience rating assessment will have as a factor - claims cost. If there is no factor and there is no claims cost gets involved it may not be as relevant. I have to give that thought but the assumption is that claims cost is a factor in experience rating assessment - fairness has to be looked at in Section 39(1)(d) what was has been used to deal with that aspect.
- I bring to your attention -there is one other area that is dealt with only in policy. That is on allocation of costs for occupational disease when there is multiple exposure. And I'll just point you to that - that's number 113.20 of the claims manual. That is the other allocation that is dealt with in a different way - that's in the claims manual.
- That's relief of costs.
- Overpayments - Retroactivity - retroactivity is the related one.
- There is a decision of the Appeal Division - I didn't bring the case - it's 7 WCR 173 - so it is reported. Decision 91-0850. What the Appeal Division had a look at there is did the Board have the power to recover overpayments? They found - yes on administrative overpayments such as writing a cheque with too many zeroes; no on a decision letter, which the Board had always been doing. A decision letter would be an adjudicator says that it will be a 20% loss of earnings and the Review Board says 15% - the Board would recover the 5%. The Appeal Division said they don't have the power to do that unless the statute explicitly gives you that power which we all acknowledge it probably didn't or unless there is an implicit inference in the statute for that power which the employer community says - this is another open hearing - argued it did - I was on behalf of the Business Council for that argument. The case itself goes through both the pros and cons of that - I won't do that. At the end of the day it was we can only get overpayments back - the Board can only get overpayments back for administrative errors, fraud or misrepresentation, or decision under review which is not within the statutory authority of the Workers' Compensation Board - i.e. outside the jurisdiction.
- No more decisional. The employer community says that there should be some ability or discretion to get back decisional. The Ontario Board has a policy where if it does not cause undue hardship and within a reasonable parameter of time - I believe theirs is 3 years they have the ability to get it back. One it raises here is back to my example of the adjudicator saying 20% or 50% or whatever and the Review Board is lowering it - but there are still payments coming to the worker from the Board over the longer term. It is difficult to see why an overpayment cannot be recovered in those circumstances from the future payments so at the end of the day over the long term the worker is getting what they are entitled to. No more, no less. Similarly when they go through the system and they are entitled to get more it goes back. I understand that and this was the case that was decided on it the presumption against retroactivity is when it is a detriment not a benefit. But we would ask the panel after this case is looked at to give the Act that explicit authority the Appeal Division found missing. Which moves to retroactivity. The final area. What happened then is that the governors applied that case retroactively - there is a recorded reported governors decision - I don't have that number on me. And it applied to everybody from a set date - I think it was that had gotten the money from a decisional compensation in error received it got it taken back by the Board and then this decision - retroactive - said okay give it back again. The old two wrongs in this case did make a right. And even though you never should have got it - we took it back and here it is again. And that is because the Appeal Division found that you don't have the jurisdiction to take it back even though you never should have got it under a decision letter they give it back. And during the assessment - the funding date -I asked Mr. Fattedad - he didn't know but Mr. Dugas did - he said it was a $5 million number on the system for retroactivity. The other concerns that have come up on retroactivity and they are described in the funding briefing paper by the Board are primarily the two widow pension cases. And it is a two step; I won't go through it - but we - the employer community found twice that it has come up. The first time it was $108 million I think is the number in 1993 and the second was 430-odd million -and I'm not sure that is the final number - in 1997. These came out of a finding of discrimination on lawfulness in the statute. And the question that comes up on retroactivity is who is responsible for that? Is it a public system through general revenue because it was an unlawful enactment of the statute? Or was it the workers' compensation system as Mr. Steeves responded on the day that Mr. Fattedad was here - doesn't that go against the collective liability principle - modified collective liability. I don't think so. I think collective liability is built on the principle that today's employers are supposed to pay today's costs - capitalized - we are supposed to try to keep it out of intergenerational. Bringing in from an external source an unlawfulness through the Act is now raising the policy issue of - okay these employers here aren't necessarily responsible and a lot of them weren't. Is it a public interest or is it something that should be for a specific segment of the population that also wasn't involved should have to pay for it, i.e. the employer community of the Workers' Compensation Board? The employer community thinks that is a harsh, unfair, cost allocation to that one segment only. So when - the recommendation that we are seeking is that when it flows from an unlawfulnees of the statute that if there is going to be retroactivity -should be from the public interest -it should be from general revenues; if it flows from a policy decision within the Board we think retroactivity should be greatly limited as there is a policy that does that. And that is already dealt with by way of policy. Those are all my submissions; thank you for the additional time.
- Q: Look I understand that there are lots of new employers coming through that didn't exist 30 years ago but this was a situation with a large forest company like MacMillan Bloedel is. And it was employee who had this and suffered 20 years ago or 30 years ago. Fatality benefits are not a bad example - if they were in existence; it they were around; if they were on the scene - why should they get away it and general revenue pick up the cost?
- A: Get away - that's a strong term. Well, first off MacMillan Bloedel 20 years ago did whatever budgeting whatever money was involved then not now and so the fairness of coming to a company that is still in existence and say 20 years later - here is your $1 million, $2 million, $3 million bill - that's one thing. But it has to be balanced so where do you get the balance? Of those employers who weren't there. Let's say you have a good argument on the ones who are still there; does it hold true to the ones who aren't there? Should we have a blend now; maybe that's it - maybe there should be a formula where general revenue comes into the system the amount for those not there - there's a lot of mining companies that were there then that are out of business because mines die. And new mines have come in should that subclass pick it up? So you may have a point of merit that should be considered but that's not what happened in any event - that whole kit'n' kaboodle was put on the employers' system. I'm not quite sure how the Board dealt with the new 1994 employers - whether they got any of it but if they did that's another unfairness in the situation. In previous Royal Commissions - and that is in the funding paper again - have commented on that - thinking that it should be from general revenue. Mr. Fattedad had the same answer on page 24 of his transcript - i.e. I was talking about it with him and he said - or Mr. Steeves then asked him why should the public pay? He says the tax payers' representatives makes a decision that caused the cost to be borne by the workers' compensation system then that ought to be something an accountability between the tax payers and their representatives. He was talking about when I asked him questions that he felt that this was external to the Workers' Compensation Board system so it's an extreme onerous situation to put it on the Workers' Compensation Board system. So again I see some merit worthy of further discussion on employers who were there and are still there in similar circumstances. And there are so many ifs, ands, and buts - what if you had an employer who was there and is now in a completely different subclass because they changed business. How do you deal with that?
- Q: The whole issue of retroactivity is an interesting one because it actually points to two other issues - where does the buck stop in terms of accountability for legislative review and amendment and how does that tie in to representation on the Board of Governors or the Panel of Administrators or whoever is ultimately sitting in the authority in the best position at the Board to make recommendations on changes to legislation and I'm not quite sure because in the case - if you do have employers and employees represented equally on or the two stake holder groups on the Board administering the statute is it harder then to make the case that the responsibility for these retroactive payments come out of some other body like consolidated revenue - outside of the system? Or is it not incumbent on the Board to behave in a responsible manner and each of those groups bring to attention to whoever can make the administrative - or the process changes to legislation - but they ultimately have the responsibility to identify those changes and make them in a timely manner. Do you know what I'm getting at?
A: Maybe, the buck starts here -the answer is whether it should be general revenues is an easy one. Governance - I thought at first you were leaning toward so should there be government on governance. And that is an interesting question, which I will come back to on governance day. Whether - it is impacted by worker....
Q: Well as I understand it - the widows' issue came out external to the Board that came out -
A: Definitely; that is my understanding also.
Q: Right; is that because that - go ahead....
A: I can't answer why it happened. I can envision why it happened. You know government being government - any government - there's an alternate source for where these funds are going to be taken from - they are going to look that way - and the Workers' Compensation Board is an obvious other source. I don't know if that was the reason or not. I don't think a governance structure of workers and employers in the minority on the governance structure impacts that issue I think the way you phrased it. If government is on that - you know....
Q: Who is the custodian of the legislation that determines as things fall through the gaps or if they don't fall through the gaps? Whose feet do you hold to the fire if the legislation aside from the widows' one because that is a bit more controversial but things are not caught; issues are not addressed through legislative change - whose responsibility is that? Whoever's responsibility it is should ultimately then pay?
A: I understand what you are saying; ultimately it is the government's responsibility in my view because it is government legislation and they are responsible for the legislation but you are saying well, you have a governance system that is one that recommends changes and should they have brought it to their attention? That is an accountability issue between the governance and who appoints them. And that is government. I don't think we are recommending any change there. When you start getting down to getting into accountability between the governors and the senior management and staff - that is a whole different thing but from that level - so who should have brought it to the governors? That is accountability within the Board. And should the governors then have brought it to the government - that is an accountability between government and its governors in my view but that then ties in that even with the governors erred -the cost of accountability is the employer community in the system picks up the cost - I don't see how that ties in to the governors erred in their accountability or their err of judgement or they didn't meet the obligation.
Just to say that may be while there may be a difference on policy. When you find that something is wrong with policy versus legislation - but again they have already dealt with the policy side in policy. But then it is hard to say to government - you know you should have done this because it is clearly a policy matter that became a problem.
JIM SAYRE
- I was mildly regretting my misguided generosity and agreeing that I wouldn't need very much time this morning. I do have a lot to say; I think it is all important and I'm going to try to cover it as efficiently as I can. On the question of the classification system - I've given you a hand out. I did try to set out there as best as I could. Starting at page 26 - the classification system - I attended the Employer Services Strategy session that was held in late March - I thought I listened to the description of the problems with the existing system and the proposals for changing it sounded sensible and workable to me; I think from an injured worker's perspective it is primarily an issue for employers to deal with as far as what classification they are put in and it sounded to me what the Board said made sense. Going to rate making. And the issue there that we wanted to address which I don't think has come forward at all this morning is the fact that when the Board determines the rate it does it on the basis of payroll as opposed to hours worked. Now I believe this was raised in the presentations through some of the questioning and the response was that it was pretty complicated to track hours worked. It was a lot easier to track payroll because it is reported to Revenue Canada and it is documented more carefully and therefore the Board chose to do it that way. But there was a good deal of discussion the day that I was there because there were a number of representatives from building trade unions and they were attending that same session and all of us agreed that relying on payroll rather than hours worked has some unfair consequences. And that's what I wanted to address in dealing with rate making. The rationale that was given to me when I raised the question of why would you do it? Why - the example I've given here is suppose we had two ironworkers. One working for union company making $25/hr and one working for anon-union company to make the math simple - making $15/hr - so that is only 60% of the union wages. The Board by basing the assessments on payroll the effect is that the Board charges for the protection and coverage of the system charges the nonunion company only 60% as it charges the union firm. That strikes us as unfair particularly because the risk of an hour worked for each ironworker is probably identical. The Board's answer to that was well yes but there is an insurance principle that the says - and they compared it to insuring an expensive house as compared to insuring a cheap house. In other words the rates were different because the risks - the financial risks to the Board was greater in the case of the union ironworker. And that presupposed obviously - that presupposed a very direct link between the wages being paid to the person at the time of the injury and the amount of benefits that they will get as a result of that injury. In other words the Board is assuming that if you happened to be working in a low wage part of your occupation or a low wage job in your occupation and you are hurt that is all you are ever going to get. And of course that makes the payroll system here relevant to us to injured workers because it provides a direct link to the way that wage rates are set and I talked to you a lot yesterday about the need to look at future earning capacity; it would be our position that if the earning capacity of two young iron workers were injured - one on a non-union job and one in a union job - is identical in the long run. In the short run - it is a short term injury probably the loss is best measured in terms of what they would have made if they hadn't been hurt and they continued to work for the same employer. So there the risk would be different - the financial risk. But if we are talking about permanent injury with long term pension consequences that young non-union iron worker could have and I'm sure would have tried to get into the union sector and tried to join the union or and the other possibility - is that the - over time the forces of the marketplace might have resulted in non-union firms being forced to pay the same wages as union companies. In fact there was a proposal which I think is still out there somewhere that legislation be enacted which in effect would provide for a more level playing field across particular sectors of the economy and construction in particular and that may still be on some government's agenda some day in the future.
- So we think - now the other effect of using the payroll basis as opposed to the hours worked basis is that it enhances the competitive advantage of the firm that pays low wages. And we think that is unfair. I took some interest in the fact that Mr. Winter said that employers want a level playing field. They don't want the Board to be a factor in the competition between different types of employers. Well, we say that is exactly what's happening here. You have a non-union employer, which is exposing its workers to exactly the same number -the same quantity of risk for ten hours' work that the union company but they only pay 60% as much. That gives them a freer advantage in terms of bidding on contracts. Another observation that was made by one of the representatives of the union that were present that day was that in some - as a result of the difference in the wages some unions are now having to agree in order to help the company get contracts that they will subsidize the wages that are paid to the workers on that contract. That was news to me. But the point that was being made when that happens is that the company is being assessed on the full amount of the wages that the worker receives on the union job - in fact part of that money is coming from the union. And the union representatives felt that that was unfair.
- Q: It is not assessments that drive the benefit levels. It is ultimately if there has been a low assessment and the Board determines that the award should have been higher because the young worker's potential would have increased for example that's ultimately going to be reflected in later assessments.
- A: We've heard a lot about equity this morning in terms of employers. And if they were really concerned with equity, which I don't - you know I'm not impressed with the arguments that are being made here in that regard but if they were concerned with equity we would as Mr. Steeves put it yesterday feel their pain. We think the present assessment system - the aspects that I'm going to be talking about - particularly experience rating assessment are highly inequitable. And equity here suggests that yes it is quite true that if I am representing a non-union iron worker I'm going to do my damnedest to get his wage rate increased to the same level as the union worker. And I may well - if I'm good at what I do I'm going to be successful on appeal. That doesn't change the fact that the employer in that case will only have been assessed on the basis of the low wages. Even though the risks of injury to the worker are the same and the risk of long-term financial consequences might well have been higher as a result of the appeal process. So what I'm suggesting is that conceptually it is fairer to do it on the basis of the actual risk of injury - which is supposed to be what the assessment process is intended to address.
- Now I know that is more complicated - Mr. Buchhorn said in another context that if the Royal Commission feels that something is proper that the Board will a way to get around the administrative difficulties and so on. I'm not - I don't mean to be flippant about it but it may be that it is unworkable to do that. I think at least it should be examined because theoretically it would do a much better job of applying the assessment process to the actual risk of injury. And that is what people on all sides of the table agree ought to be done.
- On to experience rating assessment - it is our firm position that the present system of experience rating assessment is profoundly irrational, and that its negative effects far outweigh whatever slight theoretical effect it may in promoting safety efforts and accommodations of injured workers. We are not -and I think I should perhaps rephrase the position that we are taking because I think I said earlier and has been quoted as saying that we favour the abolition of experience rating assessment - we do not think that the Board ignore the accident record of employers in setting assessments. We favour the abolition of the present experience rating assessment system and we have a proposal for a system, which will directly address the purposes that it supposedly serves. And that is what I'm going to be dealing with in a moment. But before getting there I want to just repeat what I think I've said earlier about the inadequacies of the present system and the perversities of the present system. And I want to start with a bit of an example - let's take a case - the paper cut was one that was brought up during the presentations. I found that a rather trivial example to talk about. I mean we aren't really worried - I don't think the Board has much of an impact when people suffer paper cuts. Let's take another instance which I may come back to a little later because it effects an area that happened in one case that I've handled over 20 years that I think led to the most financial impact for the Board but we'll leave that for another day. Let's take a truck driver that - two truckdrivers - truck accident - both going down a hill. In one case the company hasn't maintained the truck properly. The brakes fail. Let's suppose it was a problem that could not have been determined by the driver when he did the inspection at the top of the hill. So the company's safety record has directly contributed to the occurrence of an accident. There is a terrible crash at the bottom and the driver becomes a paraplegic. Young driver - millions of dollars in total future value of compensation and so on. Let's take another instance. Similar consequences for the drivers. Only this time the truck is in perfect condition. The company has done absolutely everything that it could have done but as the driver drove down a hill a child runs out in front of the truck. The trucker swerves to go off of the road to save the child's life - truck crashes - the driver becomes a paraplegic. Experience rating assessment would treat both of those instances exactly identical. The emperor has no clothes in terms of experience rating assessment being a safety incentive. It doesn't address safety. And I think that illustration that I've just given you is a perfect example of that. If you want to address safety look at the causes of an accident. Ask yourself - not necessarily did the employer violate the law in a way that there should be a penalty assessment or charges but is there something that the employer could or should have done which might have prevented that accident? To the extent that the answer is yes the results should be some kind of economic consequence or some other appropriate consequence and we don't always say - we say that the appropriate result of a focused safety responsibility determination in the case of serious injuries is not always going to be to charge the employer more money.