On July 18, 2008, the Supreme Court of Canada released its decision in New Brunswick v. Potash Corporation of Saskatchewan1. In this case, the highest Court of the country distinguished the applicability of the bona fide occupational requirement test formulated in Meiorin2 and established a new test for employers seeking to justify discriminatory action in the context of pension agreements.

The Meiorin decision provided a three-step test for determining whether an employer has established that a prima facie discriminatory standard is a bona fide occupational requirement (“BFOR”). To meet the test, an employer must first show that it adopted the standard for a purpose rationally connected to the performance of the job. Second, the employer must establish that it adopted the particular standard in an honest and good faith belief that it was necessary to the fulfilment of that legitimate workrelated purpose. Third, the employer must prove that the standard was reasonably necessary to the accomplishment of that legitimate work-related purpose.

Facts

In 2004, Melrose Scott, a healthy New Brunswick miner, filed a complaint with the New Brunswick Human Rights Commission when he was asked to retire at the age of 65 pursuant to the mandatory retirement policy contained in his employer’s pension plan. He alleged that this constituted age discrimination pursuant to ss. 3(1) to (4) of the New Brunswick Human Rights Code (the “Code”), which prohibits discrimination in employment on the basis of age.

It must be noted, however, that s. 3(6)(a) of the Code provides that the protections against age discrimination found in ss. 3(1) to (4) do not apply when the termination is “because of the terms or conditions of a bona fide retirement or a pension plan”.

Section 3(5) further creates an agerelated limitation of these rights if it is based upon a “bona fide occupational qualification”. Applying the Meiorin test, to avail itself of s. 3(5) limitation, an employer would need to establish that the age-related limitation is “reasonably necessary to the achievement of a legitimate work-related objective,” and that the complainant could not be accommodated without imposing undue hardship on the employer.

The dispute in Potash Corporation was whether the Meiorin test ought to apply to assess the concept of “bona fide” in connection with a pension plan.

The employer argued that s. 3(6)(a) imposes on employers the burden of showing that the pension plan was not established to further an improper motive (assessed subjectively) and that the plan conforms to usual business practices (assessed objectively).

The New Brunswick Human Rights Commission urged the Court to apply the Meiorin bona fide occupational requirement test to determine whether, under s. 3(6)(a), the employer’s pension plan was bona fide.

Prior Decisions

In the first instance, the New Brunswick Human Rights Board found that the criteria for determining the bona fides of a pension plan were the same as would apply to the concept of “occupational requirement”. The Board concluded that once a prima facie case of age discrimination has been made out, the employer must apply the three-part “bona fide occupational requirement” test from Meiorin. On judicial review, the Court of Queen’s Bench overturned the Board’s decision, concluding that pension plans must be “reasonable” in the circumstances of the adoption as well as bona fide. Russel J. explained that the Meiorin test relates to individuals and is not compatible with assessing the bona fides of a pension plan. The aim of a pension plan would be to provide benefits to its members on an equitable basis and the plan cannot be determined with a view to an individual's needs or circumstances.

The majority of the Court of Appeal agreed with the Court of Queen’s Bench that the Board’s decision ought to be overturned. However, the Court of Appeal concluded that s. 3(6)(a) was a distinct provision, attracting a different test than the one applying to s. 3(5) dealing with bona fide occupational qualifications. In the Court of Appeal’s view, s. 3(6)(a) was, in fact, designed to relieve employers who had a bona fide pension plan of any obligation under s. 3(5) to justify mandatory retirement policy as a bona fide occupational qualification.

Decision of the Supreme Court of Canada

The Supreme Court of Canada agreed with the Court of Appeal in concluding that the applicable test was the one stated in the legislation: the bona fides of the plan. In other words, to successfully counter an allegation of prima facie age discrimination, employers need only to establish that retirement was imposed under a bona fide pension plan and a bona fide occupational qualification should not be read into s. 3(6)(a) of the Act.

The Supreme Court of Canada did not accept that the bona fide requirement in s. 3(6)(a) ought to lend itself to the same analysis as the analysis required by s. 3(5) just because these provisions are both contained in the same statute.

The Court concluded that it must consider the meaning of the entire phrase, and not only be guided by the modifier bona fide, the descriptive content of which emerges from, but does not define, the statutory context. In so doing, the Court reasoned that if both s. 3(6)(a) and s. 3(5) meant the same thing, both requiring a Meiorin analysis, s. 3(6)(a) would be redundant.

The Supreme Court of Canada concluded that the legislator was seeking to address different concerns in s. 3(5) and s. 3(6)(a). Pensions were treated differently from limitations or preferences based on an occupational qualification because they arose from different protective concerns. The Court concluded that by enacting s. 3(6)(a), the legislator was seeking to confirm the financial protection available to employees under a genuine pension plan, while at the same time ensuring that they were not arbitrarily deprived of their employment rights pursuant to a sham.

In the Court’s view, for a pension plan to be found bona fide within the meaning of s. 3(6)(a), the pension plan must be:

(a) a legitimate plan;

(b) adopted in good faith; and

(c) not for the purpose of defeating protected rights.

The Court recognized that the important criterion in satisfying this test is whether or not the pension plan meets the definition of a “pension plan” under applicable pension plan legislation, such as the Pension Benefits Act or the Income Tax Act, and is registered under the applicable statutory scheme. Consequently, unless there is evidence that the plan as a whole is not legitimate, it will be immune from the conclusion that a particular provision compelling retirement at a certain age constitutes age discrimination.

Implications of this Decision

The Supreme Court of Canada’s decision allows an employer to put in place a legitimate pension plan, adopted in good faith, that includes an age restriction. By allowing age discrimination pursuant to a legitimate pension plan (where it is permitted by the applicable human rights legislation), without the necessity to prove the criteria of a bona fide occupational requirement, the Supreme Court has effectively decided to evaluate the alleged discriminatory effect of a pension plan differently, making it easier for employers to assert a plan’s legitimacy.

While, in most Canadian jurisdictions, human rights statutes exempt pension plans from age discrimination claims, they do not all require that the pension plans be bona fide.

In Ontario, the Human Rights Code (section 25(2.1)) provides that the right to equal treatment with respect to employment without discrimination because of age is not infringed by a pension plan that complies with the Employment Standards Act, 2000 and its Regulations. There is no requirement that the pension plan be bona fide. Consequently, the Supreme Court of Canada’s decision in Potash Corporation may not have direct application in Ontario.

On the other hand, the Ontario Regulation 286/01 – Benefit Plans, made under the Employment Standards Act, 2000, allows for a pension plan to discriminate based on age as long as the plan does not contravene the Pension Benefits Act (section 4(3)).

Under the Pension Benefits Act, the normal retirement date under a pension plan submitted for registration after January 1, 1988, must not be later than one year after the employee attains 65 years of age (section 35(1)). The Pension Benefits Act also allows members to continue membership in the pension plan and to continue to accrue pension benefits after attaining the “normal retirement date” under a pension plan, subject to any contributions or service caps in the plan itself. The Pension Benefits Act also allows pension plans to set a maximum number of years of employment or membership that can be taken into account for purposes of determining a pension benefit (section 35(4)).

Therefore, in Ontario, despite the enactment of new legislation in December 2006 ending mandatory retirement, the Pension Benefits Act still allows pension plans to cap the years of employment for purposes of benefit entitlement, therefore, effectively allowing what can be described as an indirect form of mandatory retirement.

While the absence in the Ontario Human Rights Code of the bona fide requirement may allow Ontario employers to escape the new test adopted by the Supreme Court of Canada in Potash Corporation, in this new era preventing mandatory retirement, employers should be careful not to put in place pension plans that seek to defeat the end of mandatory retirement. Practically speaking, therefore, legitimacy and good faith should be at the root of any employer’s decision to establish a pension plan.