December 21, 2018
When considering the legal cases attracting the most attention from the pension and benefits industry in 2018, the Ontario Human Rights Tribunal’s decision in Talos v. Grand Erie District School Board was one of the most talked about of the year.
“This case is important because plan administrators who previously relied on the Employment Standards Act to terminate extended health, dental or life insurance benefits for persons age 65 and over will likely no longer be able to do so without the risk of facing a human rights complaint,” says Jana Steele, a partner in the pension and benefits group at Osler Hoskin & Harcourt LLP.
The case originated with the school board’s policy of terminating group health, dental and life insurance benefits at age 65, even if employees continued working. Like many employers, Grand Erie relied on the exception permitted by the Ontario Human Rights Code, which allows differential benefits plan treatment on the basis of age for those under 18 or over 65.
However, the tribunal concluded the exempting provision of the Employment Standards Act violated the prohibition against age discrimination in the Charter of Rights. “This [conclusion] was based primarily on the actuarial evidence, which established that the financial viability of benefits plans can be achieved without making those over 65 vulnerable to loss of benefits,” says Fiona Campbell, a partner at Goldblatt Partners LLP.
Health and welfare plan providers also suffered a setback in 2018, when the Ontario Court of Appeal, in Capcorp Planning (2003) Inc. v. Ontario (Finance), ruled that retail sales tax was exigible on benefits plans.
Capcorp Financial Corp. sold a health and welfare plan under which an employer submitted its employees’ claims. If Capcorp approved the claim, the employer sent a cheque for the amount claimed and an administrative fee to Capcorp, which reimbursed the employee directly. Capcorp didn’t charge retail sales tax on the amounts paid by employers.
The Retail Sales Tax Act taxes benefits plans “that could otherwise be obtained by taking out a contract of insurance.” Capcorp argued its plans didn’t meet that definition because many of the employers that enrolled wouldn’t have been able to obtain insurance coverage.
The court rejected Capcorp’s reasoning, ordering the company to collect and remit the unpaid tax and imposing a penalty of $278,625.31.
“The court ruled that benefits plans, whether they are funded or unfunded, are taxed because such plans are substitutes for insurance and therefore receive similar tax treatment to contracts of insurance,” says Kathryn Bush, a partner at Blake Cassels & Graydon LLP.
In another case, MacIvor v. Pitney Bowes, the Ontario Court of Appeal continued its history of allowing employers and plan sponsors a very short leash for excluding post-termination long-term disability claims. The court allowed a claim submitted two years after an employee resigned and five years after the workplace injury occurred, despite policy wording that terminated coverage on “the day which you cease to be actively employed.”
As the court saw it, that language was intended to prohibit claims for injuries that arose after termination, but not claims that originated while the employee was on the job. In the case, Lenard MacIvor suffered back and traumatic brain injuries in 2005 while attending an event hosted by his employer, Pitney Bowes Inc., but he didn’t discover the full extent of his injury until after he left the company. That fact didn’t bar him from recovering under its LTD policy. Here, the court observed the policy specifically provided that benefits would be paid if an employee became “totally disabled while covered under the long-term disability coverage.”
Furthermore, the policy didn’t contain “exclusionary language” that terminated coverage for undiscovered disability claims occurring during the course of employment. “To so conclude would leave former employees, like the appellant, in the untenable position of having no disability coverage from either their former employer or any new employer,” the court stated. “Such a result would be contrary to the very purpose of disability insurance and the plain meaning of the coverage provision.”
In another case, Swampillai v. Royal & Sun Alliance Insurance Company of Canada, an Ontario Superior Court judge demonstrated a similar finding for employees who had signed releases of their LTD plans.
In this instance, Joe Swampillai was pursuing an appeal for the denial of his benefits against his employer and the plan’s administrator when he was terminated. He subsequently settled his severance claim in documentation that specifically released any claim for LTD benefits. The documentation, however, didn’t make specific reference to the outstanding appeal.
Justice Peter Cavanaugh ruled Swampillai could continue his appeal despite signing the release, reasoning that Swampillai had signed the release in “unconscionable” circumstances.
Carl Cunningham, an employment lawyer at Bennett Jones LLP, says although he believes the decision is one of significant concern for employers, it doesn’t represent a major shift in the law.
“This was a relatively unique scenario, including the fact that Royal was self-insured and that it’s not uncommon for employees to be terminated, settle and continue their claims against third-party insurers,” he says. “As well, Royal knew when it terminated Swampillai that he had appealed the denial of his LTD benefits and the judge made several references concerning the employee’s ‘confusion’ about exactly what he was releasing.”