Canada: Group Benefits Are Not Wages

Last Updated: July 17 2015
Article by Lorraine Allard and Cristina Toteda

Most Read Contributor in Canada, September 2018

On May 27, 2015, the Quebec Court of Appeal released its decision in Syndicat des employées et employés professionnels et de bureau, section locale 574, SEPB, CTC-FTQ c. Groupe Pages jaunes Cie.[1] Since this decision deals with revisions to pension and group benefit plans in a unionized setting, and given the relative rarity of such decisions, this one will be of interest to employers who bargain pensions and benefits, and is worth reviewing in detail.

Facts

On November 1, 2002, Bell Canada spun-off its affiliate, Yellow Pages, which then became publicly traded. At that time, Yellow Pages had 1,300 salaried and 200 unionized employees. As part of the spin-off, Bell Canada and Yellow Pages agreed that Yellow Pages' employees could stay in Bell Canada's pension and group benefit plans until July 1, 2005 at which time Yellow Pages had to provide replacement plans.

On May 28, 2004, Yellow Pages and the Syndicat des employées et employés professionnels et de bureau (Union) signed their first collective bargaining agreement with effect from January 1, 2003 to June 30, 2005 (First CBA). The First CBA included a letter of understanding (2003 LOU) which read as follows:

The Employer will maintain benefits under the plans listed below, as they existed as of the date of execution of this collective bargaining agreement, during the term of the collective bargaining agreement, to the extent that they apply to the employees to whom the agreement applies:

  • medical insurance plan;
  • disability plan;
  • pension plan;
  • survivor protection plan;
  • supplementary maternity benefits plan;
  • education insurance;
  • unpaid leaves.

The Employer will not amend the benefits provided under these plans without the Union's consent. The Union must respond within thirty (30) days of a request of the Employer and cannot refuse without a valid reason.

All amendments will be made in compliance with applicable regulations and laws. [Our translation and emphasis.]

In March 2005, Yellow Pages met with the Union to present its new pension and group benefit plans (New Program). The New Program differed from the Flex Program in several ways. On March 29, 2005, in a brief written response, the Union objected to the changes and specifically to the following:

  • employees hired before January 1, 2001 would no longer have vested rights with respect to short-term disability benefits;
  • employees hired before July 1, 2005 and retiring after January 1, 2007 would be required to pay for their own retiree dental benefits coverage and for the health benefits coverage of their dependants;
  • employees hired on and after July 1, 2005 would no longer be offered retiree benefits;
  • employees hired on and after January 1, 2006 would participate in the defined contribution (DC) component of a registered pension plan while employees hired before that date would continue to participate in a defined benefit (DB) component.

On April 28, 2005, Yellow Pages informed the Union that it would proceed with the implementation of the New Program. The Union then filed two grievances, one against Yellow Pages' decision to implement the New Program and one against employee notices of the New Program distributed by Yellow Pages on August 2, 2005.

While the grievances were being heard, Yellow Pages and the Union negotiated a renewal of the First CBA and, on November 10, 2005, they signed a letter of understanding in which they agreed that "subject to remedies available to them, the arbitrator's decision would apply for the term of the new collective bargaining agreement to be entered into" (2005 LOU).

On December 21, 2005, the parties signed a second collective bargaining agreement effective from July 1, 2005 to December 31, 2009 (Second CBA). The Second CBA included a letter of understanding identical to the 2003 LOU.

On January 20 and February 14, 2006, at the invitation of Yellow Pages, the Union provided further written reasons for its opposition to the New Program.

On May 12, 2010, the parties signed a third collective bargaining agreement effective from January 1, 2010 to December 31, 2013 (Third CBA). The Third CBA also included a letter of understanding identical to the 2003 LOU.

Arbitration

The arbitration of the grievances began on June 19, 2006 and took four years. Part of the Union's arguments rested on its contention that Yellow Pages was in breach of section 87.1 of An Act respecting Labour Standards (Act) and sections 10, 16 and 19 of the Charter of Human Rights and Freedoms (Charter) of Quebec.

Section 87.1 of the Act reads, in part, as follows:

87.1 No agreement or decree may, with respect to a matter covered by a labour standard that is prescribed by Divisions I to V.1, VI and VII of this chapter and is applicable to an employee, operate to apply to the employee, solely on the basis of the employee's hiring date, a condition of employment less advantageous than that which is applicable to other employees performing the same tasks in the same establishment.

Divisions I to V.I and VII deal with minimum employment standards such as wages, hours of work, vacation, and maternity and other special absences. The concept of "wages' is defined at subsection 1(9) of the Act as "remuneration in currency and benefits having a pecuniary value due for the work or services performed by an employee".

Sections 10, 16 and 19 of the Charter read, in part, as follows:

10. Every person has a right to full and equal recognition and exercise of his human rights and freedoms, without distinction, exclusion or preference based on race, colour, sex, pregnancy, sexual orientation, civil status, age except as provided by law, religion, political convictions, language, ethnic or national origin, social condition, a handicap or the use of any means to palliate a handicap.

Discrimination exists where such a distinction, exclusion or preference has the effect of nullifying or impairing such right.

16. No one may practise discrimination in respect of the hiring, apprenticeship, duration of the probationary period, vocational training, promotion, transfer, displacement, laying-off, suspension, dismissal or conditions of employment of a person or in the establishment of categories or classes of employment.

19. Every employer must, without discrimination, grant equal salary or wages to the members of his personnel who perform equivalent work at the same place.

A difference in salary or wages based on experience, seniority, years of service, merit, productivity or overtime is not considered discriminatory if such criteria are common to all members of the personnel. [Emphasis added.]

The arbitrator found that the Union did not have a valid reason to object to Yellow Pages' changes to the pension and group benefit plans with respect to employees hired after July 1, 2005 (Post-July 2005 Hires). Given the context of the negotiations leading to the 2003 LOU, Yellow Pages' undertaking to preserve the status quo should be interpreted in a restrictive manner and as applying only to the employees employed as of the signing of the First CBA and thereafter until July 1, 2005.

The arbitrator also rejected the Union's interpretation of section 87.1 of the Act as precluding an employer from giving different benefits to different employees based on their date of hire. He did not agree that the term "wages" included benefits for the purposes of this provision.

As for the Union's Charter argument, the arbitrator held that the Union's reliance on a reference in a report from Yellow Pages' expert to the effect that new employees are generally younger did not constitute proof that different benefits result in discrimination based on age. Greater benefits provided to longer service employees do not amount to a discriminatory practice.

However, the arbitrator found that the Union did have a valid reason to reject the changes with respect to employees hired before July 1, 2005 (Pre-July 2005 Employees).

Finally, since the New Program had already been in place for five years, the arbitrator held that the proper remedy was not to eliminate the benefit changes but rather to compensate, on an individual basis, those employees who had been prejudiced under the New Program. The period of compensation was set to terminate on the Second CBA's expiration date. The Union had until June 30, 2011 to submit to Yellow Pages the names of the prejudiced employees as well as the form and amount of the compensation.

Judicial Review

Yellow Pages requested a judicial review of the arbitrator's decision with respect to the Pre-July 2005 Employees and the remedy. The Union requested a judicial review of the arbitrator's decision with respect to the Post-July 2005 Hires and the remedy. The Superior Court upheld the arbitrator's decision.

The parties made many arguments. The Union's grounds for judicial review were as follows:

  1. The arbitrator's decision to limit Yellow Pages undertaking to preserve pension and group benefit plans for Pre-July 2005 Employees breached the principles of natural justice, or, in the alternative, his interpretation of the 2003 LOU was irrational. This was based on two things. First, the Union contended that no party had proposed that the 2003 LOU be interpreted as meaning that its application be limited to employees hired prior to July 1, 2005. Second, this interpretation was in breach of section 67 of the Labour Code of Quebec which provides that "a collective agreement shall be binding upon all the present or future employees contemplated by the certification".
  2. The arbitrator incorrectly interpreted section 87.1 of the Act and sections 10, 16 and 19 of the Charter.
  3. The arbitrator's decision to limit the remedy in time to December 31, 2009 was not reasonable. The Union's position was that the effects of a breach of a collective bargaining agreement are continuous and perpetuated even under subsequent agreements. In addition, the rights of employees having retired during the arbitration had crystallized.

As for Yellow Pages' grounds for judicial review, it argued that the arbitrator had exceeded his jurisdiction by:

  1. adding the Flex Program to the pension and group benefit plans dealt with in the 2003 LOU. This was based on the fact that the 2003 LOU, while enumerating a number of benefits, did not actually refer to the Flex Program.
  2. adding the 2005 LOU to the Second CBA. Yellow Pages' position was that the arbitrator should not have extended the period for the remedy beyond the expiration of the First CBA.
  3. deciding that the thirty-day time limit in the 2003 LOU did not preclude the Union from adding grounds later on. This was based on Yellow Pages' contention that the arbitrator should have limited himself to the Union's response provided within the thirty-day limit provided in the 2003 LOU and that he should not have taken into account the Union's reasoning in the January 20th and February 16th 2006 responses, nor even to its pleadings during the arbitration.
  4. ignoring the term "valid" in the expression "valid reason".

The Superior Court judge held the arbitrator to the correctness standard with respect to the interpretation of the Charter and the issue of whether the principles of natural justice had been breached, and to the reasonableness standard for the balance of his decision (such as the application of section 87.1 of the Act).

The judge held that the arbitrator had not violated the principles of natural justice and had correctly interpreted the Charter. She rejected the Union's argument that the arbitrator should have reconvened the parties to hear their views with respect to his interpretation of the 2003 LOU.

She also found that the arbitrator's interpretation of section 87.1 of the Act was reasonable.

Appeal

Natural Justice

The Court of Appeal agreed with the Superior Court that the applicable standard of review for this question was correctness. As for the Union's argument that the arbitrator had breached the principles of natural justice by limiting the application of the 2003 LOU to Pre-July 2005 Employees, the Court of Appeal also agreed with the Superior Court that the parties had ample opportunity to present their case and that the arbitrator was permitted to interpret the 2003 LOU as he did.

Reasonableness of Interpretation

The Court of Appeal agreed with the arbitrator and the Superior Court. It held that:

  • the arbitrator's interpretation of section 87.1 of the Act was reasonable and should stand. This provision was not meant to preclude an employer from differentiating among employees with respect to benefits based on their date of hire, but only with regard to the specific conditions of employment that are referred to in section 87.1 of the Act. Benefits are not captured by section 87.1. The arbitrator's interpretation of sections 10, 16 and 19 of the Charter was also correct. There was no proof of discrimination.
  • section 67 of the Labour Code does not preclude the parties to a collective bargaining agreement from stipulating in the agreement conditions applicable to a category of employees. Not only was interpreting the 2003 LOU as applying only to a particular group of employees reasonable and not in breach of the Act or the Charter, it also did not breach the Labour Code.
  • given that the Union had no grounds to object to the New Program with respect to the Post-July 2005 Hires, it was the pension and group benefits, as changed under the New Program, that applied when the Second CBA was signed.
  • even though the 2003 LOU used terminology that preceded the introduction of the Flex Program, the arbitrator's conclusion that the 2003 LOU meant the pension and group benefit plans then in place was the only one that could allow him to determine what the parties intended.
  • since Yellow Pages' undertaking was to continue pension and group benefits during the term of the First CBA, the arbitrator was justified in not finding damages beyond the expiry of that collective bargaining agreement.
  • the arbitrator was not precluded from taking into account all of the Union's reasoning (and not just its initial response provided pursuant to the 2003 LOU).
  • the arbitrator was justified in evaluating the pension and group benefit plans globally, leading to his conclusion that the New Program, while advantageous to the majority of employees, was not so for all. Therefore, the Union had a valid reason to object to the New Program.
  • section 100.12 of the Labour Code gives the arbitrator a great deal of flexibility in crafting an appropriate remedy. The First CBA did not impose any limit on an arbitrator's powers in that regard (nor did the Second and Third CBAs). Given the disappearance of the Flex Program more than five years prior to the date the arbitrator's decision was rendered and the fact that Yellow Pages undertook to maintain pension and group benefits during the term of the First CBA only, the arbitrator's choice of remedy was entirely reasonable. As for Yellow Pages' objections, the parties had agreed in the 2005 LOU that any remedy imposed by the arbitrator would apply for the duration of the Second CBA. Therefore, the arbitrator was justified in selecting December 31, 2009 as a cut-off date.

Conclusion

This decision is noteworthy for a number of reasons. First, it confirms that the provision of different benefits to employees hired before and after a given date do not breach either the Act or the Charter. Second, it confirms that the context in which benefit arrangements are negotiated is important, it provides an example of how the application of obligations undertaken in a collective bargaining agreement may be limited in time, and it shows how important it is to be as clear as possible when drafting this type of documentation. The area of pensions and benefits is very technical, and it behooves an employer to get the best legal advice possible when negotiating such matters.

Footnote

[1] D.T.E. 2015T-414 (C.A.).

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