Welcome to the 19th issue of the Blakes Pensions Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions and benefits 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
- International Brotherhood of Electrical Workers, Local No. 1007 v. Epcor Utilities Inc., 2017 ABCA 314
- Barker v. Molson Coors Breweries and another, 2017 BCHRT 208
Michael Shestowsky was an employee of Ontario Power Generation Inc. (OPG), who retired in February 2003 and received a pension until his death in May 2011. Mr. Shestowsky’s pension was calculated in accordance with his pension election form, which confirmed that he did not have an eligible spouse. Following the death of Mr. Shestowsky, the appellant, Sylvia Bell, brought a suit against OPG, claiming that she was his spouse and thus entitled to survivor pension benefits pursuant to the Pension Benefits Act (Ontario) (PBA). The PBA defines “spouse” as a person who, at the date of retirement, has been “living together in a conjugal relationship” with the employee for at least three years. The trial judge concluded that Ms. Bell and Mr. Shestowsky had not been living together in a conjugal relationship for the three years preceding his retirement and dismissed the claim on this basis, finding that Ms. Bell was not an eligible spouse under the PBA and therefore not entitled to survivor pension benefits.
Ms. Bell appealed to the Ontario Court of Appeal (Court of Appeal) on various grounds. First, the appeal raised issues that challenged findings of fact, including that the trial judge neglected the fact that a flood had destroyed evidence supporting Ms. Bell’s claim and found that her evidence and that of her daughter and friends was unreliable. Second, Ms. Bell argued that the trial judge misapplied the law respecting conjugal relationships by focusing on Mr. Shestowsky’s subjective intent and relying on his pension election form. To support her claim, Ms. Bell relied on a previous case where it was held that subjective intent is not a required element of a conjugal relationship, and that the approach to defining a relationship of this kind must be flexible.
The Court of Appeal found that findings of fact by the trial judge were amply supported by the evidence and thus, the trial judge was entitled to deference. Further, the Court of Appeal held that the trial judge correctly applied the non-exhaustive criteria set out in Molodowich v. Penttinen, which held that to find a conjugal relationship, emphasis should be placed on objective, contemporaneous evidence. In this case, objective evidence included, but was not limited to:
- The cohabitation agreement signed by both parties indicating that the cohabitation commenced in September 2002 (and which also included a release of Ms. Bell’s claims to Mr. Shestowsky’s pension entitlements)
- Change of address notifications filed by Mr. Shestowsky in September 2002
- The letter from OPG advising Mr. Shestowsky that his pension records indicated he had no eligible spouse
- The pension election form signed by Mr. Shestowsky confirming he had no eligible spouse under the PBA definition
- The letter from OPG confirming Mr. Shestowsky’s pension election
- The fact that Mr. Shestowsky received pension benefits until his death and never sought to amend his election, despite asking for, and receiving, instructions on how to designate an eligible spouse
- The income tax returns of both Ms. Bell and Mr. Shestowsky, which indicated marital status as “divorced” until 2002, when it changed to “common law.”
Because this evidence supported the trial judge’s conclusion that Ms. Bell was not an eligible spouse under the PBA, the Court of Appeal dismissed the appeal and awarded costs of C$10,000 to OPG.
In 2001, the appellants were granted stock options to acquire shares of their employer, Cybectec Inc. (Cybectec), in the event of an initial public offering or a sale of all of Cybectec’s shares. In 2007, Cooper Industries (Electrical) Inc. (Cooper) offered to purchase the assets of Cybectec, following which, the stock options were amended to allow the option holders to exercise them on an asset sale. The option holders agreed to sell the shares issued under the options to Cybectec’s parent company.
The appellants exercised their options at C$0.20 per share and two days after completion of the sale to Cooper, sold the shares issued on exercise of the options to Cybectec’s parent company for C$1.2583 per share. The appellants reported a taxable benefit equal to the gain on the options and claimed a deduction pursuant to paragraph 110(1)(d) of the Income Tax Act (ITA). Under paragraph 110(1)(d), an option holder may deduct 50 per cent of the taxable benefit arising from the exercise of employee stock options provided, among other things, that the shares are prescribed shares under section 6204 of the Income Tax Regulations (ITR).
Both the Minister of National Revenue and the Tax Court of Canada (TCC) disallowed the 50 per cent deduction on the basis that the shares acquired by the appellants under their options were not prescribed shares. The appellants appealed to the Federal Court of Appeal (FCA), which overturned the TCC decision.
Pursuant to subparagraph 6204(1)(a)(iv) of the ITR, a share will not be a prescribed share if the holder of the share can require the issuer or a person who does not deal at arm’s length with the issuer to redeem, acquire or cancel the share. In addition, according to paragraph 6204(1)(b), a share will not be a prescribed share if it is reasonable to expect that, within the two years following issuance of the share, it will be redeemed, acquired or cancelled by the issuer or a person who does not deal at arm’s length with the issuer. Pursuant to paragraph 6204(2)(c), rights or obligations to reacquire shares may be ignored in determining prescribed share status if the principal purpose of the right or obligation is to create a market for the shares and certain other conditions (which the appellants satisfied) are met.
The TCC held that the purpose of the arrangement under which the appellants’ shares would be redeemed by Cybectec’s parent was to provide a market for the shares and the exception in paragraph 6204(2)(c) applied such that subparagraph 6204(1)(a)(iv) did not prevent the shares from being prescribed shares. However, the TCC found that there was no logical connection between paragraph 6204(2)(c) and paragraph 6204(1)(b), with the result that the exception in paragraph 6204(2)(c) did not apply to paragraph 6204(1)(b). Since there was a reasonable expectation that the shares would be redeemed by a person who did not deal at arm’s length with Cybectec within two years of being issued (i.e., Cybectec’s parent company), the TCC found that they did not meet the prescribed share requirements.
The FCA held that paragraph 6204(1)(b) should be thought of as an anti-avoidance provision designed to ensure compliance with subparagraph 6204(1)(a)(iv). In other words, paragraph 6204(1)(b) broadens the scope of subparagraph 6204(1)(a)(iv) by extending it to situations where the redemption of shares is reasonably predictable. In the FCA’s view, subparagraph 6204(1)(a)(iv) and paragraph 6204(1)(b) are logically connected as they have a common purpose and paragraph 6204(2)(c) was therefore relevant to the application of paragraph 6204(1)(b) in this case. The FCA concluded that paragraph 6204(1)(b) should also be applied without reference to the obligation of Cybectec’s parent to redeem the option shares and, as a result, the shares were prescribed shares and the deduction under paragraph 110(1)(d) was available.
The International Brotherhood of Electrical Workers, Local No. 1007 (IBEW) and Epcor Utilities Inc. (Epcor) are parties to a collective agreement that provides for long-term disability benefits to Epcor employees. Under the terms of the standard form insurance policy purchased by Epcor, long-term disability benefits terminate at the earlier of age 65 and when the disabled worker retires with a pension or is eligible to retire with a full pension.
Mr. McGowan became unable to work and started to receive long-term disability benefits in 2011. A year later, he became eligible to retire on full pension and his long-term disability benefits ended. Mr. McGowan filed a grievance claiming he should be entitled to remain on disability benefits until he chose to retire or until age 65. He argued the insurance policy is unenforceable since it effectively discriminated against him based on his age, in violation of the Alberta Human Rights Act(HRA).
Subsection 7(1) of the HRA prohibits discrimination in employment based on certain grounds, including age. However, subsection 7(2) provides that a bona fide employee insurance plan is unaffected by the prohibition in subsection 7(1).
The grievance arbitration board found that the insurance plan was a bona fide employee insurance plan and therefore unaffected by the HRA. An application for judicial review was then dismissed by the Alberta Court of Queen’s Bench. The IBEW appealed to the Alberta Court of Appeal (Court of Appeal).
The issue to be determined by the Court of Appeal was whether the long-term disability insurance plan was indeed a bona fide plan and therefore unaffected by the prohibition on age discrimination in subsection 7(1) of the HRA.
The Court of Appeal considered the “bona fide” tests developed by the Supreme Court of Canada in Zurich Insurance Co. v. Ontario (Human Rights Commission) and New Brunswick (Human Rights Commission) v. Potash Corporation of Saskatchewan Inc. Considering the long-term disability plan as a whole, the Court of Appeal found nothing objectionable with a plan containing provisions to transition an employee off disability benefits and onto pension income. Further, the IBEW ought to have bargained for a different type of long-term disability benefit if it thought the one selected by Epcor was not bona fide. In dismissing the appeal, the Court of Appeal held that the plan was a bona fide plan and therefore unaffected by the prohibition in the HRA.
John Barker was employed by Molson Coors Breweries (Molson) and represented by Brewery, Winery and Distillery Workers Union, Local 300 (Local 300) in collective bargaining. Molson and Local 300 (together, the Respondents) are parties to a collective agreement (Collective Agreement), under which Mr. Barker is a member. The Respondents had also agreed to a letter of understanding that limited the benefits available to union employees who continued employment after age 65 (LOU).
At age 68, while still employed by Molson, Mr. Barker filed a complaint with the British Columbia Human Rights Tribunal (Tribunal), alleging that the Respondents discriminated against him on the basis of age contrary to section 13(1) of the Human Rights Code (Code) by agreeing to terms in the Collective Agreement that provided for the denial or reduction of benefits for employees over 65 years of age. Section 13(1) of the Code provides that a person must not discriminate in employment on the basis of age. Section 13(3)(b) provides an exception to the prohibition in section 13(1) if the employment insurance plan is a “bona fide” plan.
Relying on the exception in section 13(3)(b), the Respondents each applied to the Tribunal to have Mr. Barker’s complaint dismissed without a hearing as per sections 27(1)(b) and (c) of the Code, on the basis that either their actions did not contravene the Code, or that the complaint had no reasonable prospect of success, respectively.
Analyzing only the applications, but reserving a ruling on the merits of the dispute for a later date, the Tribunal found that Mr. Barker’s complaint successfully alleged the elements of a prima facie case of discrimination. Therefore the Respondents did, at least at first glance, contravene the Code. The Tribunal also found that, since the LOU was not a “bona fide group or employment insurance plan” per section 13(3)(b) of the Code, Mr. Barker’s complaint had some reasonable prospect of success. In determining whether there was a “bona fide group or employment insurance plan,” the Tribunal considered the “bona fide” test developed by the Supreme Court of Canada in New Brunswick (Human Rights Commission) v. Potash Corporation of Saskatchewan Inc., which requires the plan to be looked at as a whole. The Tribunal found that the portion of the LOU containing the limitation on benefits for employees over age 65, was not on its face a plan at all, nor part of any constituent plans, but rather a separate instrument. Even if the Tribunal had found the LOU was a plan, it would likely not have been “bona fide” as it was designed for the purpose of defeating protected rights. Therefore, the Tribunal dismissed both applications.