Pensions, Benefits & Executive Compensation Newsletter – March 2021

March 8, 2021

Welcome to the 29^th issue of the Blakes Pensions, Benefits & Executive Compensation Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions, benefits and executive compensation and is not intended to be legal advice.

For additional information or to discuss how any aspect of these developments may affect you, please contact a member of the Blakes Pensions, Benefits & Executive Compensation group.

IN THIS ISSUE

EQUALITY RIGHTS

Fraser v. Canada, 2020 SCC 28

This is an appeal of the Federal Court of Appeal’s decision in Fraser v Canada, 2018 FCA 223, as discussed in our January 2019 Pensions, Benefits and Executive Compensation Newsletter.

Ms. Fraser, Ms. Fox and Ms. Pilgrim (Claimants) were three retired members of the Royal Canadian Mounted Police (RCMP) who took maternity leave in the 1990s. Upon returning to full-time service, they experienced difficulties balancing their work obligations with childcare responsibilities. These difficulties caused Ms. Fox to retire from the RCMP in 1994 and resulted in Ms. Fraser taking unpaid leave in 1997. At the time, the RCMP did not permit regular members to work part-time. In December 1997, the RCMP introduced a job-sharing program in which multiple RCMP members could split the responsibilities of one full-time position, allowing each member to work fewer hours than a full-time employee. The Claimants enrolled in the job-sharing program along with 137 other RCMP members between 1997 and 2011. Most participants were women with children. From 2010 to 2014, all RCMP members who job-shared were women, and most of them cited childcare as their reason for joining the program.

Pursuant to the Royal Canadian Mounted Police Superannuation Act and the associated Royal Canadian Mounted Police Superannuation Regulations (Pension Plan), RCMP members can treat certain gaps in full-time service, such as leave without pay or suspension without pay, as fully pensionable. Upon returning from unpaid leave, a member can buy back the service they missed by making the contributions that both the member and the RCMP would have made had the member been actively employed, increasing the member’s years of full-time pensionable service and resulting in a more valuable pension. However, no such buy-back option is available to job-sharers who temporarily reduce their working hours, as job-sharing is classified as part-time work under the Pension Plan for which participants cannot obtain full-time pension credit.

The Claimants argued that the Pension Plan violated section 15(1) of the Canadian Charter of Rights and Freedoms (Charter) on the basis of sex, because it prevents women with children -- the majority of participants in the job-sharing program -- from contributing to pensions in the same way as members who worked full-time or took unpaid leave.

The Federal Court dismissed the application, holding that there was insufficient evidence that job-sharing was disadvantageous compared to unpaid leave and, even if it was, these outcomes were the result of a participant’s choice to job-share. The Federal Court of Appeal upheld the Federal Court decision, holding that job-sharing RCMP members did not receive inferior compensation to members on leave without pay and that any adverse impact on job-sharing participants flowed from their choice to work part-time, not from the Pension Plan.

Writing for the majority, Justice Abella allowed the appeal and held that the Pension Plan constituted adverse impact discrimination on the basis of sex.
Justice Abella applied the two-step approach to section 15(1) analysis: to prove a prima facie violation of section 15(1), a claimant must demonstrate that the impugned law or state action (a) on its face or in its impact, creates a distinction based on enumerated or analogous grounds, and (b) imposes burdens or denies a benefit in a manner that has the effect of reinforcing, perpetuating, or exacerbating disadvantage.

With respect to the first stage of section 15(1) test, Justice Abella found that the buy-back restriction met the first stage of the section 15(1) test. The statistical evidence shows that RCMP members who worked reduced hours in the job-sharing program were predominantly women with young children. Moreover, Justice Abella referred to evidence about the disadvantage women face as a group in balancing professional and domestic work. These sources of evidence show the clear association between gender and fewer or less stable working hours, and they demonstrate that the RCMP’s use of a temporary reduction in working hours as a basis for imposing less favourable pension consequences has an adverse impact on women.

With respect to the second stage of the section 15(1) test, Justice Abella found that the Pension Plan perpetuated a long-standing source of disadvantage to women: gender biases within pension plans, which have historically been designed for “middle and upper-income full-time employees with long service, typically male”. Justice Abella noted that differential treatment can be discriminatory even if job-sharers choose to job-share.

After finding a prima facie breach of section 15(1), Justice Abella conducted section 1 analysis and found that the Pension Plan could not be demonstrably justified in a free and democratic society. Justice Abella found that the Attorney General identified no pressing and substantial policy concern, purpose or principle that explains why job-sharers should be denied full-time pension credit for their service. Additionally, Justice Abella indicated that this limitation is entirely detached from the purposes of both the job‑sharing scheme and the buy‑back provisions. Job‑sharing was clearly intended as a substitute for leave without pay for those members who could not take such leave due to personal or family circumstances. It is unclear, then, what purpose is served by treating the two forms of work reduction differently when extending pension buy‑back rights.

Justices Brown and Rowe in their dissenting reasons found that the Pension Plan does not represent a source of ongoing systemic disadvantage as it does not contribute to women’s systemic disadvantage, nor does it reinforce, perpetuate or exacerbate the pre-existing disadvantage of women in the workplace which arises in part from unequal distribution of parental responsibilities.

In separate dissenting reasons, Justice Cote found that the Pension Plan created a distinction not on the basis of sex, but on the basis of caregiving responsibilities. Because the Court does not recognize caregiving status as an analogous ground under section 15(1), the Claimants fail at stage one of the section 15(1) analysis.

Supreme Court of Canada Decision

INTERPRETATION OF PENSION PLAN TERMS

***United Steel v. Georgia-Pacific LP*, 2020 ONSC 1560**

Georgia-Pacific LP (Employer) placed its employees on indefinite layoff with recall rights following the idling of the plant that they worked in. Pursuant to an agreement between the Employer and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (United Steel Workers), Local 14994 (Union), the employees who were laid off could elect at any time to either take their severance pay or to retain their recall rights. Six employees, who were the subject of the grievances, elected to forgo their recall rights and accept severance pay. As a result, the pension administrator, on behalf of the Employer, calculated the employees’ pensions without including any grow-in benefits provided for under the Ontario Pension Benefits Act (PBA). None of the employees were advised that they would not be entitled to grow-in benefits.

Under the PBA, grow-in benefits are only available if an employee ceases to be a member of the pension plan as a result of an “activating event” under section 74(1) of the PBA, including an employer’s termination of a plan member’s employment. The issue in this case is whether the employees had voluntarily terminated their employment and, therefore, were not entitled to grow-in benefits under the PBA.

The Ontario Divisional Court set aside the arbitrator’s decision that the employees had not been terminated within the meaning of the PBA and remitted the case to a different arbitrator. The Divisional Court found that the arbitrator failed to consider section 4(2) of Regulation 288/01 made under the Employment Standards Act (Regulation). Under section 4(2) of the Regulation, if an employer lays off an employee for a period that may exceed the period of temporary layoff, and doing so might be considered a breach of the collective agreement, the employer may give the employee a written notice of indefinite lay-off and the employer shall be deemed to have provided the employee with a notice of termination as of the date of notice. In the present case, the employees were all provided with a written notice of indefinite layoff by the Employer. Pursuant to the Regulation, the Employer may be deemed to have terminated the employees as of the notice date. If this is the case, the employees may be entitled to grow-in benefits.

Ontario Divisional Court Decision

***Aziz v. Calgary Firefighters Association.*, 2020 AHRC 66**

Paul Aziz was a firefighter employed by the City of Calgary (City) and a member of the Calgary Firefighters Association, Local 255, International Association of Firefighters (Union). Mr. Aziz was forced to retire at age 60 pursuant to a mandatory retirement provision in a Supplementary Pension Plan (FSPP), which formed part of a collective agreement between the City and the Union, covering the terms of his employment. Mr. Aziz alleged discrimination in employment pursuant to section 7 of the Alberta Human Rights Act (Act) and membership in a trade union pursuant to section 9 of the Act on the grounds of age.

The Human Rights Tribunal of Alberta (Tribunal) had previously determined in Aziz v. Calgary Firefighters Association, 2020 AHRC 40 that the FSPP was a “bona fide” pension plan within the meaning of section 7(2) of the Act, and dismissed the complaint against the City. The Tribunal found that the FSPP satisfied the indicia of a bona fide pension plan within the meaning of section 7(2) of the Act as:

The FSPP was first established and registered in 1974
The main purpose of the FSPP is to supplement and bridge the pension plan benefits provided to other City employees under the Local Authorities Pension Plan
The FSPP is a defined benefit plan registered with the provincial government of Alberta and subject to the Employment Pension Plans Act and the Income Tax Act
The FSPP is supervised by the Alberta Superintendent of Pensions
The FSPP is jointly administered by the City and the Union by an elected Board of Trustees
As of 2018, the FSPP was valued at C$188 million and has approximately 2,000 members

This constituted a complete defence for the City to the claim of age discrimination under section 7(2) of the Act.

The Tribunal dismissed the complaint and found that section 7(2) of the Act operates to act as a defence to a challenge to a mandatory retirement provision contained in a collective agreement, whether the challenge is brought against only the employer, or against the employer and union jointly. The defence offered by section 7(2) means that a mandatory retirement provision contained in a bona fide pension, retirement or benefit plan is not considered to be discrimination on the ground of age and, therefore, there is no obligation for either the employer or union to justify the age restriction. The duty to accommodate does not arise unless prima facie discrimination is established, and by virtue of section 7(2), the mandatory retirement requirement in a bona fide pension, retirement or benefit plan is deemed not to constitute prima facie discrimination.

Alberta Human Rights Tribunal Decision

PENSION PLAN ADMINISTRATION

***Canada (Attorney General) v. Jost*, 2020 FCA 212**

After retiring from the Canadian Armed Forces (CAF) in 2015, Douglas Jost did not receive his pension payment for 29 weeks, despite his expectation that he would receive his lump sum pension benefit within 8-12 weeks. He also did not receive interest on the money that was owed to him. Mr. Jost alleged he was forced to go into debt and incur interest to cover basic living expenses following his release. Mr. Jost also alleged other retirees from the CAF experienced similar delays and suffered similar losses. The Federal Court certified the proceeding as a class action (the Certification Order), finding that Mr. Jost’s statement of claim disclosed reasonable causes of action for breach of fiduciary duty, breach of contract and negligence, and that the other requirements of the class proceedings rules with respect to certification had been met.

The Attorney General of Canada brought an appeal from the Certification Order, alleging that the Federal Court made numerous errors in its legal analysis in determining that the statement of claim disclosed reasonable causes of action, amongst other things.

The Federal Court of Appeal (FCA) indicated that the Supreme Court of Canada (SCC) has held that a fiduciary duty does not attach to the relationship between the government and members of a public sector pension plan but noted that it may occur in some cases. The FCA therefore noted that it could not be said that it was plain and obvious, at that juncture, that Mr. Jost’s fiduciary claim had no reasonable prospect of success.

However, the FCA noted that there was a fatal flaw with Mr. Jost’s fiduciary claim as drafted. The SCC has held that for a fiduciary duty to arise outside of previously established categories of fiduciary relationships, the purported fiduciary must clearly undertake to act in the best interests of the beneficiary or beneficiaries, whether expressly or by necessary implication. Though the Federal Court stated that the Federal government undertook to act in the best interest of class members and that Mr. Jost pleaded the presence of the essential elements for a claim based on breach of a fiduciary duty, the FCA did not agree. The FCA stated that there was no reference in Mr. Jost’s statement of claim to any express or implied undertaking having been given by the Federal government to act in the best interests of proposed class members, nor did Mr. Jost suggest that any such undertaking arose from the relevant legislation. Based on this, the FCA indicated that it was plain and obvious that the claim for breach of fiduciary duty could not succeed as drafted.

With respect to Mr. Jost’s claim that by unreasonably delaying the calculation, processing and payment of class members’ pension entitlements, the government has breached its contractual obligations to members of the pension plan. The FCA noted that, while it appeared to be settled law that members of the CAF did not enjoy a contractual employment relationship with the Federal government, neither side had directed the FCA to any jurisprudence holding that the relationship between members of the CAF and the plan administrator could never be governed by contractual principles. As such, the FCA noted that it was not plain and obvious that Mr. Jost’s claim in contract could not succeed. Additionally, the FCA was not convinced that it was plain and obvious that the Federal government did not owe a duty of care to members of the pension plan and that any statutory remedies were not a substitute for a claim in negligence.

Lastly, the FCA held that the Federal Court erred in its Certification Order in failing to comply with the requirements. The appeal was allowed, setting aside the Certification Order, but allowing leave to Mr. Jost to file an amended statement of claim.

Federal Court of Appeal Decision

***Boreen v. Mosaic Esterhazy Holdings ULC*, 2020 SKCA 132**

Ms. Boreen was the common law wife of Lloyd Holmes, who died in August of 2014. At the date of his death, Mr. Holmes was legally married to Glenda Holmes from whom he had separated in 1993, but Mr. Holmes and Ms. Holmes did not formalize their separation by entering into a separation or matrimonial property agreement, nor did they legally divorce. At the date of Mr. Holmes death, he was a member of Mosaic Esterhazy Holdings ULC’s (Mosaic) pension plan (the Plan). In 2013, a few months after Mr. Holmes learned he was terminally ill, he contacted the Mosaic Human Resources department about the possibility of changing the designated beneficiary of his pension to include Ms. Boreen. The administrator of the Plan (the Administrator) provided a Declaration of Spousal Status form (the Declaration). Mr. Holmes completed and signed the Declaration, wherein he designated Ms. Boreen as his beneficiary and his children as contingent beneficiaries under Saskatchewan’s The Pension Benefits Act (the SK PBA). Upon receipt of the signed Declaration, the Administrator initially confirmed that it would update its database to reflect Ms. Boreen as Mr. Holmes’ spouse, but later advised the Human Resources department that the Declaration had not been properly filled out. The Human Resources department advised Mr. Holmes that Ms. Holmes would receive his pension unless he legally divorced her or had her sign a form waiving her entitlement. Although advised to seek legal advice, Mr. Holmes said he had no interest in Ms. Holmes signing a waiver and took no steps to obtain a divorce.

In January of 2014, Mr. Holmes received a pension statement dated December 31, 2013 (the Pension Statement) indicating that Ms. Boreen was the beneficiary of his pension under the Plan. On August 3, 2014, Mr. Holmes passed away and Ms. Holmes, as the legal surviving spouse under the SK PBA, requested the pension benefits be paid to her. In 2015, Ms. Holmes received a declaration that she was the surviving spouse for the purpose of the SK PBA and an order directing Mosaic to pay Mr. Holmes’ pension benefits under the Plan to her.

Ms. Boreen commenced an action against Mosaic seeking, amongst other things, damages against Mosaic for breach of contract and negligent misrepresentation, and damages against Ms. Holmes for inducing Mosaic’s breach of contract. The Chambers judge granted summary judgment in favour of Mosaic as he concluded the claim was without merit and could not possibly succeed. The Chambers judge made certain factual findings with respect to Ms. Boreen’s claim for negligent misrepresentation, including that Mr. Holmes had access to all pertinent information surrounding his pension benefits and he was specifically advised, and he understood, that in order for Ms. Boreen to receive any portion of his pension, he would be required to either divorce Ms. Holmes or arrange for her to sign a waiver of her interest in his pension. He did neither. With respect to the five essential elements of the tort of negligent misrepresentation, the Chambers judge found that:

There was no special relationship between Mosaic and Ms. Boreen
That the information Mosaic provided to Mr. Holmes was true and accurate
There was no basis in the evidence to assert that Mosaic had acted negligently in communicating the spousal benefit information to Mr. Holmes
There was no reasonable reliance on a representation by Ms. Boreen
No damages were caused by a misrepresentation by Mosaic because no misrepresentation was made

One of the issues on appeal was whether the Chambers judge made an overriding and palpable error of fact relating to the discussion and correspondence between Mr. Holmes and Mosaic in the course of his analysis of negligent misrepresentation. Ms. Boreen submitted that in determining that the elements of negligent misrepresentation had not been proven, the Chambers judge failed to consider that the Pension Statement provided to Mr. Holmes indicating that Ms. Boreen was the beneficiary of his pension was inaccurate, untrue or misleading. The SKCA noted that Ms. Boreen focused entirely on the Pension Statement and submitted the Chambers judge ignored that it represented her as the designated beneficiary. The SKCA found that it was open to the Chambers judge to make the finding that Ms. Boreen did not reasonably rely on any representation that she was the beneficiary of the pension, and that there was no palpable and overriding error in doing so.

The SKCA also agreed with the Chambers judge that the element of damages had not been proven. The SKCA noted that Ms. Boreen’s failure to receive the pension was due, in the circumstances, to the fact she was disentitled by law to receive it pursuant to the terms of the SK PBA. Any damages that she may have suffered were not caused by Mosaic but rather by the failure of Mr. Holmes to do what was required to eliminate Ms. Holmes from entitlement to his pension and clear the way for Ms. Boreen to become the legal beneficiary.

The SKCA dismissed Ms. Boreen’s appeal.

Saskatchewan Court of Appeal Decision

Burley v. The Queen, 2020 TCC 68

This decision was rendered following Mr. Burley’s appeal of an assessment under the Income Tax Act which disallowed the deduction of certain professional fees incurred in relation to the wind-up of his individual pension plan (IPP) as business expenses.

At all material times, Mr. Burley operated a management consulting service as a sole proprietorship. In August 1992, a numbered company operating as “Business Allies” was incorporated. Mr. Burley was the sole owner and officer of this company. In 2003, Business Allies established the IPP for Mr. Burley. The IPP was a registered pension plan of which Mr. Burley was the sole beneficiary. Mr. Burley's marital relationship later broke down. A family court order provided that the amounts payable to Mr. Burley's spouse as a result of their separation were secured by all of Mr. Burley’s savings and investments, as well as the savings and investments of the numbered company. As a result of the family court order, Mr. Burley made an assignment in bankruptcy. Business Allies was later forced into bankruptcy and the company was dissolved. The insolvency coordinator with the Financial Services Commission of Ontario appointed Mercer (Canada) Limited (Mercer) as the administrator of Mr. Burley’s IPP for the purpose of winding up the IPP. Shortly after Mr. Burley was discharged from bankruptcy, the Ontario Superior Court of Justice ordered, amongst other things, that one-half of the amount accrued in Mr. Burley’s IPP was to be transferred to Mr. Burley’s spouse and that the amount accrued in the IPP was to be calculated after deducting the payment authorized to be paid by the Superintendent of Financial Services for the Province of Ontario for the fees and disbursements of the service providers to Mercer. Mr. Burley paid C$33,653 in legal, accounting and other professional fees to Mercer for the IPP wind-up process.

The issue before the Tax Court of Canada (TCC) was whether the Minister of National Revenue rightfully concluded that those legal, accounting and professional expenses incurred in connection with the wind-up of the IPP did not qualify as business expenses. The TCC indicated that legal, accounting and professional fees can ordinarily be deducted as business expenses when they are incurred in the normal course of a company's revenue-generating activities or incurred to defend those activities. However, the TCC found that the fees involved in the winding up of an IPP established by a corporation on behalf of a shareholder are not incurred in the normal course of income earning operations. In this case, the legal, accounting and other professional fees were incurred specifically in order to comply with the terms of a family court order. These fees were not paid for the purpose of earning income for the company, the IPP or the taxpayer, nor were they paid to defend their income earning activities. The TCC found that the legal, accounting, and other professional fees incurred by Mr. Burley were simply too remote and unrelated to the company’s and the IPP’s income-earning activities in order to qualify as valid tax deductions.

Tax Court of Canada Decision

Martin v. Barrett, 2020 ONSC 2272

Two beneficiaries of the Participating Co-Operatives of Ontario Trusteed Revised Pension Plan (Plan) and the plan administrator (Administrator) brought a motion seeking orders that class counsel pay monies from its trust account to the Administrator and to approve a proposal to locate missing members of the Plan, which had been winding down since 2003. The proceeding arose as a consequence of a serious under-funding of the Plan. There was a multi-million-dollar settlement reached with most of the defendants. In the class proceedings, the defendants not part of the settlement were noted in default and a default judgment was ordered. Through enforcement proceedings, the class eventually obtained C$97,933.20 which was held in trust by class counsel.

A total of 106 unlocated members remained in the Plan at January 31, 2020, with a total of C$454,207 in benefits owing. There was approximately C$39,000 in Plan funds, beyond the value of benefits owing, which remained available to complete the winding up of the Plan. Of the 106 unlocated members, only 51 had individual entitlements valued at C$2,000 or more. The Administrator had attempted to use various methods to locate the unlocated members, and the only remaining method was the use of a private investigation agency.

The Administrator sought an order directing payment of C$97,933.20 from class counsel’s trust account to the Administrator for the purposes of paying for the search for unlocated members of the Plan. The Administrator would then apply for an order directing the Administrator to use the C$97,933.20 to pay for the expenses of the search. The Administrator proposed to structure the search in such a manner as not to use the Plan’s fund before exhausting the other funds available to conduct the search. The Administrator indicated that using the C$97,933.20 from class counsel’s trust account would provide the necessary funding to carry out the search and continue the necessary administration of the Plan until the Administrator was discharged, without touching those funds necessary to pay the entitlements of the unlocated members.

With respect to the search itself, the Administrator proposed to first search for those unlocated members with individual entitlements valued at C$2,000 and then those with the next greatest entitlements, to the extent that funds remain in the Plan. Thereafter, the Administrator would apply for an order directing the Administrator to pay into court any remaining monies representing Plan participant entitlements to the credit of the persons identified by the Administrator, as soon as practicable after any necessary approval by the Financial Services Regulatory Authority of Ontario (FSRA). The Administrator would then apply for an order releasing the Administrator in respect of the entitlement that any Plan participant may have to such monies once the monies are paid into court, and apply to FSRA to be discharged of its duties and to FSRA and the Canada Revenue Agency for the Plan to be deregistered.

The Ontario Superior Court of Justice found that the plan to complete the winding up of the Plan and to complete the administration of the class action was eminently sensible and fair, and granted the motion.

Ontario Superior Court Decision

FAMILY LAW

***Langeman v. Langeman*, 2020 ONSC 5751**

In 2019, Mr. Langeman was temporarily ordered to pay to Ms. Langeman C$8,000 per month in spousal support under the federal Divorce Act (the 2019 Order). Pursuant to the 2019 Order, the trial judge directed the relevant financial institution to satisfy the spousal support obligation by making payments out of Mr. Langeman’s registered retirement savings plan account (the RRSP Account). The RRSP Account was exhausted in or about August 2020. Ms. Langeman brought an urgent motion, on the basis of financial hardship, requesting an order “assigning” or “transferring” C$59,953 from Mr. Langeman’s locked-in retirement account (LIRA) to meet Mr. Langeman’s spousal support obligation to her for the period of September 1, 2020, to September 15, 2021. The LIRA was not ‘in pay’ and was subject to the Pension Benefits Act (Ontario) (PBA) which contains statutory restrictions in connection with locked-in retirement accounts.

Section 65(2) of the PBA provides that every transaction that purports to assign, charge, anticipate or give as security money transferred from a pension fund in accordance with certain provisions of the PBA is void. There are exceptions to the general prohibitions, including section 65(3) of the PBA which sets out that section 65(2) does not apply to prevent the assignment, by an order under the Family Law Act, a family arbitration award or a domestic contract, of an interest in any money payable under a pension plan or an interest in money payable as a result of a purchase or transfer under a number of provisions, including section 67.3 of the PBA relating to a transfer of a lump sum for certain family law purposes. The motion judge indicated that it was noteworthy that the 2019 Order is a temporary and periodic order for support, and not an order for lump sum payment of support. Accordingly, Ms. Langeman also requested an order converting the periodic support payments to a lump sum order.

Applying the reasoning of the Ontario Court of Appeal (the ONCA) in Trick v. Trick, [2006] O.J. No. 2737 (Trick), the motion judge dismissed Ms. Langeman’s motion. The ONCA in Trick noted that section 65(3) of the PBA cannot provide relief from the general prohibition against pension assignment for orders made under the Divorce Act (as opposed to the Family Law Act). In addition, the ONCA stated that section 65(3) of the PBA exempts only the assignment of pensions, but that the PBA continues to void all other transactions such as those that purport to charge, anticipate or give as security money payable under a pension plan. The ONCA also indicated that rather than seeking an assignment of a pension for equalization purposes, or for the purpose of lump sum support, the respondent in Trick was seeking to execute, seize, or garnish 100 per cent of the appellant’s pension to enforce the appellant’s outstanding obligation, which she was precluded from doing at law by section 66(4) of the PBA.

The motion judge refused to convert the period support payments to a lump sum order. In addition, the motion judge found that there was no statutory authority that permits the court to make an order transferring any portion of Mr. Langeman’s LIRA to Ms. Langeman for the purpose of satisfying a temporary and periodic support order made pursuant to the Divorce Act.

Ontario Superior Court of Justice Decision

BREACH OF TRUST OBLIGATION OVER UNPAID CONTRIBUTIONS

***South Bruce Grey Health Centre v. Ontario Public Service Employees Union*, 2020 ON LA 73641**

Ms. Netzke was a laboratory technician with South Bruce Grey Health Centre (Employer). She began thinking about retirement planning in 2019 and, upon receipt of certain information, became concerned that her contributory years of service did not match her eligibility years of service. After Ms. Netzke spoke with another two laboratory technicians (Employees), they concluded that they must not have been given appropriate credit for pension entitlement accrued during their respective maternity leaves (the latest of which occurred in 2004) and that an unusual scheduling arrangement (which practice ended in 2005) had also produced an improper shortfall. The Union, on behalf of the Employees, brought a motion alleging that the Employer failed to make appropriate pension contributions for the Employees due to scheduling irregularities, pregnancy and parental leaves, and any other events which may have occurred.

Arbitrator James Hayes (Arbitrator) dismissed the grievance. The collective agreement contained mandatory time limits, which required action by grievers within 14 days after the circumstances giving rise to the grievance occurred. In this respect, the Employer submitted that the delays in filing the grievance were extreme and the delay was the fault of the Employees. The Union argued that the grievance was not out of time because it was a continuing grievance and Ms. Netzke only became aware that she had a claim when she started retirement planning in 2019. Alternatively, the Union argued that the Arbitrator should relieve against time limits as pension entitlements were important to the Employees, a substantial number of records had been retained and the Employees acted in good faith.

The Arbitrator found that the delay relied upon by the Employer was so lengthy that there was no need to settle upon the appropriate trigger date(s). The Arbitrator indicated that if the circumstances giving rise to the grievance arose at the time of the leaves of absence or the unusual scheduling arrangement, the delay may have been measured in decades. If employee receipt of annual statements is preferred, the delay still amounted to years. The Arbitrator held that Ms. Netzke knew or ought reasonably to have known about the occurrence that gave rise to the grievance long before 2019. In addition, the grievance was not of a continuing nature. The alleged breaches related to either improper allocation of pensionable service to leaves of absence or scheduling arrangements, the latest of which occurred 14 years prior to the filing of the grievance.

Ontario Labour Arbitration Decision

***Trustees of the IWA-Forest Industry Pension Plan v. Log Smart Contracting Ltd.*, 2020 BCCRT 730**

The Trustees of the IWA-Forest Industry Pension Plan (Pension Trustees) and Trustees of the IWA-Forest Industry Long Term Disability (LTD) Plan (the LTD Trustees, collectively the Trustees) oversee a pension plan and LTD plan for B.C. Forestry workers. The Trustees claimed that Log Smart Contracting Ltd. (Log Smart) breached its trust obligations because it did not pay contributions to the pension trust and LTD trust, as required. Sky Gibb and Trisha Gibb are Log Smart’s sole directors and owners. The Trustees claimed the Gibbs were personally responsible for the unpaid contributions because they knowingly assisted in Log Smart’s breach of trust. The Pension Trustees and LTD Trustees claimed C$2,579.32 and C$621.60, respectively, in unpaid contributions, plus contractual interest.

Log Smart was a participating employer in both the pension plan and LTD plan based on the participation agreements. The pension plan trust agreement and the LTD plan trust agreement clearly stated that the pension plan and LTD contributions were trust funds. Therefore, Log Smart was required to hold the employer and employee contributions for both the pension plan and LTD plan in trust for the Trustees. Further, section 58(2) of the B.C. Pension Benefits Standards Act required Log Smart to hold the pension plan contributions in trust for the Trustees. The Tribunal held that Log Smart breached the trust agreements by not holding the pension plan and LTD contributions in trust for the Trustees and by, instead, using the funds to pay its general operating expenses.

Although Mr. Gibb signed the participation agreements and undertakings on Log Smart’s behalf, the Tribunal found that he was not personally bound by the terms of the trust agreement. Ms. Gibb was also not found to be personally bound.

The Tribunal then turned to the issue of personal liability for Mr. and Ms. Gibb. In accordance with Air Canada v M. & L Travel Ltd, one may be held personally responsible for the company’s breach of trust if they knew that the trust existed and that the company’s breach was “dishonest and fraudulent”. Where a trust is imposed by statute, someone outside the trust is deemed to know that the trust exists. Where a trust is imposed by contract, someone outside of the trust’s knowledge will depend on their involvement with the contract. The Tribunal found that the Gibbs knew of the trust obligations over the pension plan contributions, as the trust was created by statute. The Tribunal found that Mr. Gibb knew of the trust obligations over the LTD plan contributions, as he signed the participation agreements. However, Ms. Gibb did not know of the contractual trust over LTD plan contributions so the claim for LTD plan contributions and contractual interest against Ms. Gibb was dismissed.

The Tribunal then considered whether the Gibbs knew that Log Smart’s breach of trust was dishonest and fraudulent. A dishonest and fraudulent breach occurs when the trustee takes a risk it had no right to take, to the prejudice of the rights of others. The Trustees claimed that Log Smart created an unnecessary risk that the contribution funds would be used for general operating expenses, rather than paid to the Trustees, by not keeping the contributions separate. The Tribunal held that Log Smart’s breach of trust was dishonest and fraudulent. Further, the Tribunal found that Mr. Gibb had full knowledge of the nature of Log Smart’s breach, as the owner-operator and sole employee of Log Smart. There was no indication that Ms. Gibb directed the comingling of funds, directed the payment of general expenses, or in any other way assisted with Log Smart’s breach of trust. Therefore, the Tribunal dismissed the Trustees’ claim for the pension plan contributions against Ms. Gibb personally.

The Tribunal found Log Smart and Mr. Gibb equally responsible for the breach of trust and found them jointly and severally liable for the unpaid contributions and contractual interest was ordered.

Civil Resolution Tribunal of British Columbia Decision

HEALTH AND WELFARE BENEFITS

Megan Singeris v. Elementary Teachers' Federation of Ontario, 2020 CanLII 67197 (ON LRB)

Megan Singeris was a teacher employed by the Thames Valley District School (School Board). Pursuant to collective agreements entered into between the School Board and the Elementary Teachers’ Federation of Ontario (ETFO) and its predecessor bargaining agent, Ms. Singeris was entitled under the terms of the School Board’s benefits program to receive private duty nursing care for her son 24 hours a day, seven days a week. For Ms. Singeris and her son, this had a value of over C$200,000 per year. The details of the benefits plan – including the variety and level of benefits covered – were not set out in the collective agreement but were described in the policies of insurance.

With the passage of the School Boards Collective Bargaining Act (SBCBA) in April 2014, the bargaining process between ETFO and the school boards of Ontario changed. Employee benefits became a centrally bargained issue. ETFO participated in the new bargaining process by gathering information about existing benefit plans, costing benefits, advising its members of tentative agreement terms and negotiating the categories of benefits to be provided. However, ETFO was not involved in designing a new benefit plan or negotiating the details of new plan coverage. In February 2015, ETFO and the Ontario Public School Boards’ Association – the designated employer bargaining agency for every English-language public school board for all bargaining units – entered into a Memorandum of Settlement of all outstanding matters forming part of the agreement on central terms under the SBCBA. ETFO members, including Ms. Singeris, voted in the ratification process with respect to the Memorandum of Settlement. The majority voted in favour of the Memorandum of Settlement for the period of 2014 to 2017.

Prior to the ratification vote, ETFO distributed to its members a four-page document (Highlights). One item read that “[s]uperior entitlements in local collective agreements are preserved”. With respect to benefits, the Highlights indicated that the ETFO was to create a provincial benefits trust, and that the School Board and local-owned benefits plans would transition to the ETFO Provincial Benefit Trust from September 2016 to September 2017. The Highlights also indicated that funding would be negotiated at a level that allowed ETFO to develop a benefits plan that protected members’ existing benefits entitlements and that the school boards would continue to provide benefits in accordance with existing collective agreement terms until board and local-owned plans were transferred into the ETFO Provincial Benefits Trust. Ms. Singeris was adamant that she interpreted the Highlights to mean that the level (in her case, the unlimited level) of the private duty nursing care benefit under the School Board’s benefit plan would be protected.

Among the negotiated changes agreed to in the central terms of the 2014-2019 Collective Agreement (Central Agreement) was the establishment of an Employee Life and Health Trust (ELHT), which established a single, province-wide employee benefit plan for eligible ETFO members. Under the new plan, Ms. Singeris’s private duty nursing care coverage was capped at C$50,000 per year. The ELHT established a transitional benefit appeal process to address claims by ETFO members who were faced with a reduced benefit under the benefits plan as compared to their prior coverage. Ms. Singeris submitted an appeal in 2017 and was granted the maximum benefit available upon appeal: C$25,000. Ms. Singeris was granted an additional C$25,000 in 2019.

Ms. Singeris contended that the ETFO acted in a manner that was arbitrary, discriminatory and in bad faith, contrary to its duty pursuant to section 74 of the Labour Relations Act, when it entered into a collective agreement which did not protect the level of health benefits available to Ms. Singeris. Specifically, Ms. Singeris argued that:

ETFO should have provided details of the new benefit plan prior to the ratification vote and that it failed to warn her of the likelihood of significant benefit reduction
ETFO’s actions were arbitrary in that ETFO failed to investigate whether or not its members would suffer a significant reduction in their benefits
ETFO acted in bad faith by deliberately misleading its members, prior to the ratification vote, to believe that the existing level of benefits would be maintained by ELHT, when it knew or ought to have known that some benefits for some members would be significantly reduced

The Arbitrator dismissed these arguments. The Arbitrator found that there was no evidence that established ETFO intentionally made a misrepresentation about benefits in the lead up to the ratification vote, and that the ETFO did not commit or promise to replicate or carry over all the same benefits then in existence, including benefit caps, deductibles and other items. No one in ETFO knew, or could have known with certainty, what the benefit levels in the benefits plan to be developed within the next year or so would be; that remained to be determined by the ELHT. In addition, the Arbitrator found that the ELHT considered the needs of members like Ms. Singeris, whose benefits may have been reduced due to the centralization of benefits, and in particular created a transition claims and appeal process.

Ontario Labour Relations Board Decision

VESTING DURING THE REASONABLE NOTICE PERIOD

***Matthews v. Ocean Nutrition Canada Ltd.*, 2020 SCC 26**

The Supreme Court of Canada awarded damages in respect of a bonus payment which would have been earned had an employee worked to the end of his common law reasonable notice period. For the case summary and key employer takeaways, please see our October 2020 Blakes Bulletin: SCC Finds Employee Entitled to Damages for Bonus Triggered During Notice Period.

Supreme Court of Canada Decision