Pensions and Employee Benefits Law Blog 

Since the elimination of mandatory retirement in British Columbia (and across the country), we have seen a flurry of cases that deal with the issue of the provision of benefits to employees aged 65 and older.  In September of this year a new decision was added to this growing body of case law: Okanagan College v. Okanagan Faculty Association (“Okanagan College”). The decision is a departure from the interpretative approach that has been taken in BC previously about how to apply the “bona fide” test found in section 13(3)(b) of the Human Rights Code (“Code”), where long term disability (“LTD”) benefit coverage terminates for employees once they reach age 65. Termination of LTD coverage at age 65 is a common feature in LTD plans across the country, so the arbitrator’s decision that the plan was not “bona fide” is an important one to be aware of for any sponsor of such a program.

The Dispute and Framework of the Decision

The BC Human Rights Code prohibits age-based discrimination in relation to employment, but 13(3)(b) of the Code creates an exception to the prohibition for a “bona fide group or employee insurance plan”. The Faculty Association argued that the LTD plan discriminated on the basis of age (as is prohibited by the Human Rights Code) and that either (i) the plan was not bona fide for the purposes of the section 13(3)(b) exception or (ii) section 13(3)(b) itself violated the Canadian Charter of Rights and Freedoms. Importantly, during the grievance process the Faculty Association surrendered its demand for the LTD benefits to be provided without any age-based distinction and agreed to focus the challenge to an exclusion from age 65 to 70.

The employer argued that the plan was a “bona fide” plan, permissible under section 13(3)(b).

The Supreme Court of Canada’s decision in New Brunswick (Human Rights Commission) v. Potash Corporation of Saskatchewan Inc. (“Potash”) interpreted language very similar to the bona fide test used in section 13(3)(b) of the Code and held that the appropriate legal test is to ask whether the plan “was adopted honestly, in the interest of sound and accepted business practice and not for the purpose of defeating the rights protected under the Code”. The Court specifically noted that the human rights legislation at issue (which parallels the language used in the Code) did not impose a requirement that the plan or practice be “reasonable” and bona fide, but merely bona fide.

The Evidence

The Faculty Association, the employer and the Attorney General (because of the constitutional challenge to the Code) all submitted expert actuarial evidence as well as evidence from labour experts. A full discussion of the evidence is beyond the scope of this summary but the arbitrator noted that the evidence supported the view that:

• With demographic changes and life expectancy increasing, work histories are lengthening particularly in the education sector;
• Careers tend to start later, and it takes longer for workers to secure a permanent position;
• Significant numbers of those who work past age 64 do so for financial security;
• There is a correlation between gender (women) and those who work past age 64 particularly for the “baby boomer” women who started their careers at a later date and for those women who left the workforce for family responsibilities and who may have less choice about when to retire;
• The presumption that LTD benefits will be replaced by an unreduced pension that the individual can draw is not a reliable one and does not reflect the career patterns that we see in the workforce.

The Meaning of “Bona Fide”

At the crux of the Okanagan College case is the meaning of “bona fide” as it is used in section 13(3)(b) of the Code. As noted above, from the Potash decision our Supreme Court of Canada specifically rejected the requirement that the plan or practice be “reasonable” in addition to bona fide. In the Okanagan College case, the arbitrator cites the Potash test but concludes that there remains an objective and subjective component to the bona fides test. An employer’s belief that the plan was not adopted to defeat protected rights must be measured against an objective standard in the sense that the belief is reasonable in the circumstances of the particular case (para. 397). Applying this interpretation of the bona fides test the arbitrator concluded that the employer “knew and accepted that the Plan was continued for the purpose of defeating rights” (para. 433). Significantly, the arbitrator concluded that while the employer initially believed that post-64 coverage was not available or would be costly, the reasonableness of its position disappeared as the context evolved, including adjustments in the insurance industry, to respond to the end of mandatory retirement. As options for post-64 workers emerged in the market it “became untenable for the Employer to maintain its previous reasonable belief” (para. 439).

The question for those left to apply the Okanagan College decision is whether the arbitrator has interpreted the Potash test appropriately as that case remains the current, binding authority on the meaning of “bona fide” for the purposes of the Code. This question is particularly challenging because the conclusion in Okanagan College is at odds with other decisions (including Johnston obo others v. City of Vancouver (No. 2)) where the fact that disability plans across Canada almost uniformly terminate benefits at age 65, has been accepted as proof of the legitimacy of such a plan and the good faith motives in its adoption. The Okanagan College case challenges whether such an exclusion is necessary when the decision maker is determining whether the employer’s motive was to defeat protected rights. The arbitrator concluded that, given the evidence set out above, the employer must have understood at some point during its duration that the Plan was continued to defeat protected rights. In Potash, the Supreme Court of Canada specifically rejected an interpretation of “bona fide” that meant “reasonable and bona fide”. The question to be resolved is whether the Okanagan College decision is a nuanced and thoughtful examination of the motives of the employer or whether it imposes on an employer the obligation that the plan or practice be not just bona fide, but also “reasonable” (which interpretation was rejected in Potash).

The Decision

Having concluded that the LTD program of benefits was not bona fide, the arbitrator concluded that the exclusion amounted to impermissible age-based discrimination under the Code. Given that conclusion the arbitrator did not have to resolve whether section 13(3)(b) of the Code itself violated section 15 of the Charter (and if so, whether section 1 of the Charter would save the provision).

The Consequences

Unlike court decisions, labour arbitration decisions are not binding on any person or party other than the parties to the dispute. Of course, the decision is still important particularly because the arbitrator spent significant time considering the evidence of availability and cost of post-64 LTD coverage. Though not binding on others, the Okanagan College decision signals how other similar disputes could be resolved. Reasonable people may disagree on whether the arbitrator’s interpretation of “bona fide” follows the test adopted by our Supreme Court of Canada, but there is no question that the decision is thoughtful and based on the arbitrator’s understanding of the evidence presented. For that reason it should cause any plan sponsor to pause and consider the exclusions in their own program of LTD benefits.

The other note from the decision is that the Faculty Association only argued about the LTD plan’s application up to age 70. Therefore, the Okanagan College decision does not shed light on whether a program that offers LTD benefits but that excludes those benefits for members who reach age 70 would be “bona fide” for the purposes of section 13(3)(b) of the Code.