For many employers in the U.S., Canada offers an attractivemarket for business expansion. Culturally and economically close,Canada shares a strong western economy, one of the world's largestdisposable incomes, a higher paid price for goods, and on occasion,less competition for market share.

Even with all the advantages, businesses should also be aware ofthe risks when considering expansion across the border. Workplacelegislation and the legal policies companies must follow aresignificantly different from those in the United States. Notably,the Workers' Compensation system has some unique and costlyelements.

No employer wants to see an accident or injury in the workplace,but when they do happen, employers in Canada need to understand howto negotiate the complex maze of the local Workers' CompensationBoard.

The Canadian Workers' Compensation system

The Canadian Workers' Compensation system is more than 100 yearsold and was cultivated in the rich and hazardous landscape of abooming industrial and economic revolution. In 1910, Chief Justiceof Ontario, Sir William Meredith, was asked to head a RoyalCommission studying Workers' Compensation systems throughout theworld.

In his Royal Commission report, Meredith said that the true aimof compensation law was to provide for both injured workers andtheir dependents. He identified five basic principles for acompassionate system: no-fault compensation, security of benefits,collective liability, exclusive jurisdiction and administration byindependent boards. The most significant of these was the idea of“no-fault compensation.” This means the workers give up their rightto sue their employers in exchange for no-fault income security inthe event of a workplace injury. Employers pay for the system inreturn for protection against liability.

Today, the system in Canada is still built on the foundingMeredith principles. It is a quasi-government run system, 100percent employer-funded and provincially administered throughindividual boards. In each province these boards operate underdifferent names and have different maximum benefit levels,legislative provisions, and penalty programs (SeeTable).

If not managed carefully, the cost of Workers' Compensationpenalties can have a significant and serious financial impact on acompany's bottom line. This often takes employers by surprise atthe end of the year when they receive a large bill that is due andpayable in 30 days. The penalties are sometimes so heavy they wipeout entire profit margins.

To navigate rough (and potentially damaging) legislative waters,it is important for businesses to chart the cause of penalties andunique differences in each relevant province and map out the bestcourse to manage risk.

In putting any strategy together, the following factors areparticularly important to note.

The experience rating program

The majority of the Provincial Workers' Compensation boards havean experience rating program in place. The employer's premium isbased on the perception of their risk and historical cost. If acompany's experience is poor, it can more than double the premiumcost for a business.

In Canada, these programs can vary quite a bit from province toprovince. In Alberta, there are two experience ratings programs(one for large and one for small employers). Next door in BritishColumbia, there is one program for all and in Ontario, there arethree systems in place (one for small employers, one forconstruction companies and one with surcharge penalties or refundsfor everyone else).

Most experience rating programs compare employers that are inthe same industry classification. Groups are classified by thenature of work the employees perform. As a word of caution, acompany may not always be in the correct group classification, sodiscovering and correcting this can sometimes lead to significantcost savings.

For example, in Ontario where the clothing retail rate is $1.59per hundred of assessable payroll, on a salary base of $50 millionthe base premium would equate to $795,000, but the year-endexperience rating penalty could be up to $1,000,000 due and payable30 days from the receipt of the invoice.

There are specific strategies to contain these costs and manageclaims. The stakes are high and the solutions sometimes hidden foremployers not familiar with the system.

The role ofconsultants

Many employers will use consultants to assist in understandinglegislation, claims management, cost control and the differentappeals processes. In the province of Ontario, the representativemust be a paralegal or lawyer licensed by the Upper Canada LawSociety and working for a firm that is recognized by the LawSociety. The Workplace Safety and Insurance Board (WSIB) will notdeal with unlicensed representatives.

In Quebec, the language of choice at the CSST (Commission de la santé et de la sécuritédu travail) is French, and it is very difficult to interactwith the Board in any language other than French. Each Board holdsits unique appeal system and the use of specific WorkersCompensation consultants is very common at the appeal level.

Unlike the U.S., there are very few cases that involve employeelawyers, although there has been an increase in litigation sincethe legal field was given the ability to advertise. The legislationis not administered on precedent, but on the interpretation oflegislative and operational policy provisions based on theindividual merits of each case. The appeal system is generally atwo- or three-level system with the final decisions preventingfurther appeal unless there has been a gross misinterpretation ofpolicy.

Be aware (and beware) of legislation

The Canadian system is governed by a legislatively driven actand operational policy. The legislation and operational policy ineach province outlines all key steps for compliance. This can beeverything from defining who requires coverage to how permanentimpairment awards are established.

In 2012, the government of British Columbia passed Bill 14eliminating the phrase “mental stress” in favour of “mentaldisorder,” and included specific wording to deal with bullying andharassment in the workplace as a cause of such a disorder. It iscommon to see in a lot of Canadian legislation that an employer'sfailure to manage risk associated with mental health can be just asserious as failing to manage risk associated with physicalinjury.

Canadian Workers' Compensation legislation is complex and hasmany pitfalls for companies not familiar with them. In particular,companies should watch for:

1. Failure to offer return to work immediately.In many provinces, failure to offer return to work immediately andactively participate in an employee's return to work program canresult in additional penalties of up to a year of the injuredemployee's salary.

2. Third-party cost transfer and second injuryfunds. Third-party cost transfer and second injury fundsare still alive and well in Canada, and if an individual haspersonal or past work-related limitations, some of the cost can beattributed to this fund instead of the employer's individualaccount.

While the boards advise employers that they review all files forpotential cost reductions; there is evidence to indicate otherwise.If employers want third-party cost transfer or access to secondinjury fund cost relief, it must be applied for with adequatedocumentation to support the rationale for these costreductions.

3. Claims management. Claims management is anarea of significant attention in the employer community. Thevarious Workers' Compensation boards have the final authority ofany continuance of benefits and claim decisions. However, manyemployers either assertively manage the claims internally or hireexternal experts to assist in the management of files.

The consequence of not paying attention to claim initiation,claims management, return to work and financial management ofworkers' compensation claims in the Canadian market can befinancially crippling. In the last economic downturn, severalcompanies reported the Workers' Compensation penalty programscontributed to their bankruptcy and ultimate closure of theirbusiness.

How well-managed return to work programshelp

Return to work is strongly advocated by most of the Workers'Compensation boards in Canada. The exception is Quebec, where thephysician still controls the lost time and ultimate return to workof the injured employee.

In Quebec, it is extremely important to have a French-speakingrepresentative either internally or externally. The CSST has a14-day waiting period where the employer is to pay the injuredemployee. This is the window of opportunity to affect the ultimateoutcome of the file. Once it is taken over by the CSST, thelegislative peculiarities make it the most difficult province tomaneuver. The experience rating system is complex with threepotential levels. The cost consequences can be very high.

Some strategies can work extremely well for employers. Forexample, if the employee is injured and cannot return to a full jobrole, modified work (if available) should be offered immediatelybefore lost time from the job can occur. No lost time is the goalfor employers and the employee should always, and immediately, befocused on returning to work.

Accurate diagnosis and high touch communication involving theemployee, any relevant healthcare providers, immediate supervisorsand HR senior management yield the best results in return to workplanning. If handled correctly, return to work coordination candramatically reduce an employee's time away from the job.

The ideal situation is for the return to be quick and safe,while ensuring it doesn't lead to any relapse or furthercomplications. Less lost time for employers often means betterexperience ratings, lower premiums and can even be the differencebetween receiving a rebate over a surcharge.

Permanent impairment

Sometimes an injury may be serious enough to be considered apermanent impairment and these awards are governed by thelegislative provisions in each province. The permanent impairmentawards in most provinces account for future earnings loss and painand suffering. However, a few provinces separate loss of futureearnings from pain and suffering and have very specific schedulesfor the calculation of these awards.

In most provinces an employee can have both a permanentimpairment award and also be paid loss of earnings. This is often apoint of contention and ultimately an area of appeal foremployers.

The Canadian Workers' Compensation system is very complex andU.S. businesses that operate in Canada or are considering expandingto the country must understand its intricacies.