Age limit reasonable under charter exemption; life insurance limit not allowed in agreement
An Ontario arbitrator has upheld a company’s long-term disability (LTD) benefit plan that stopped at age 65 as not discriminatory, while quashing a life insurance policy that changed for employees at the same age.
While the LTD policy was discriminatory on its surface, human rights legislation and the Canadian Charter of Rights and Freedoms can permit age-related differentiation within reason, says Alyson Frankie, a lawyer with the Pension and Benefits Group at Stikeman Elliott’s Toronto office.
If there’s a distinction in a benefit plan based on age, there’s a defense to that under the Ontario Human Rights Code, because [of a] carve-out that says the code protections do not apply if a benefit plan complies with the Employment Standards Act (ESA),” says Frankie. “And we know that the ESA benefits plan regulation says that a benefit plan can comply with the ESA even if it has a distinction for employees that are aged 65 or older.
Rayonier is an operator of pulp and paper mills in northern Ontario. The company had a collective agreement that included short-term disability coverage, extended health insurance, life insurance, and LTD coverage.
Life insurance, LTD terminate at age 65
The life insurance provision in the agreement provided for a payment of twice annual earnings rounded up to the nearest thousand dollars for any active employees who died. The life insurance provider’s policy stated that the benefit reduced to $5,000 at age 65 and terminated upon retirement, although the collective agreement provision didn’t include this.
The collective agreement’s LTD provision stated that LTD benefits would terminate on one of three events – the date the employee ceased to be disabled, the employee’s death, or the earlier of retirement or age 65.
Although the life insurance provision was in place for decades, it didn’t become an issue until a 66-year-old employee raised concerns about his failing health. He died a short time later and the union believed, as an active employee, the employee’s estate should receive an insurance payment of twice his salary. Rayonier disagreed, saying that it should be $5,000.
The union filed a grievance, alleging that the life insurance and LTD provisions of the collective agreement discriminated against employees on the basis of age, violating both the agreement and the Canadian Charter of Rights and Freedoms.
Rayonier claimed that the union must have been aware of the terms of the life insurance policy because a benefits booklet given to each new employee clearly stated that the benefit reduced on an employee’s 65th birthday. The collective agreement had been negotiated for decades without the union requesting any changes to the life insurance provision, the company argued.
Language of agreement important
The arbitrator noted that the abolition of mandatory retirement in 2006 put many pre-existing benefits packages that stopped benefits at age 65 in flux. As a result, collective agreements had to be read in context with the plain and ordinary meaning of their language, the arbitrator said.
The arbitrator found that the collective agreement made no clear mention of reducing the life insurance benefit at age 65 – other benefits continued past age 65 for active employees – and there was no incorporation of the insurance provider’s policy. In addition, the parties could have chosen to make age a factor for benefit entitlement in clear and unambiguous terms, but they did not. As a result, the collective agreement provided that the estate of any active employee who died was entitled to an insurance payment of twice the employees’ salary, said the arbitrator.
Employers have to be careful if they have insurance policies that are not aligned with the benefits promised in the language of the collective agreement and ensure that both employees and the union are aware of any changes or limits, says Frankie.
“With respect to life insurance, it’s very common for there to be changes to coverage under policies with insurers as [employees reach] age 65 or sometimes 70,” says Frankie. “So it’s important to make sure that that’s been communicated and agreed upon, because in this case, the insurance policy said there was an age limit, but the arbitrator found that policy wasn’t incorporated into he collective agreement.”
The arbitrator also found that the evidence showed that the union was not aware of the age-65 cutoff in the policy. No other active employee over 65 had ever died and the information on the policy’s age cutoff wasn’t emphasized in the available information – it required digging by someone searching for those specific circumstances, said the arbitrator.
Most employees retire before 65
As for the LTD benefits, the evidence showed that the average age of retirement for Rayonier’s workforce was 60 with no retirements over 65 until 2020, when there were three. As a result, the issue of cutting off LTD benefits for active employees at 65 hadn’t come up before.
Treating employees 65 and over differently from younger employees was prima facie discrimination under the charter, but a charter right could be limited if it was of “sufficient importance” and was reasonable and justified with “cogent and persuasive evidence,” as established by the Supreme Court of Canada in R v. Oakes [1986] 1 S.C.R. 103, said the arbitrator.
“Section 15 of the charter provides that every individual is equal before and under the law, including the right to equal protection and equal benefit of the law without discrimination based on age,
says Frankie. “And then also in the charter, there's s. 1, which provides that the rights set out in the charter are guaranteed, subject only to such reasonable limits as prescribed by law.”
The arbitrator noted that the Ontario Human Rights Code states that a benefit plan that complies with the province’s ESA is allowed to discriminate on the basis of age – and the ESA’s regulation permits age differentiation for benefit plans.
The key element is that the ESA benefit plans regulation defines age as a protected ground from discrimination between 18 and 65 – making limits to benefits for employees over 65 permissible under either the ESA or the code, and potentially subject to the s. 1 charter justification for reasonable limits as prescribed by law, says Frankie.
“The carve-out [of protection] under the Human Rights Code, and the carve-out under the [ESA], work together as a multi-piece legislative framework where we end up with this exception that employers can rely on to say, ‘Our plan is only for employees aged 64 [and under], but the ESA and the Human Rights Code say that that in these circumstances it’s okay,’” she says.
Other benefits continued after age 65
The arbitrator pointed to the fact that Rayonier workers who reached age 65 lost their LTD benefits, but other benefits, such as dental and health coverage, continued. In addition, such employees became eligible for Canadian Pension Plan (CPP) benefits as well as the company’s own pension, which both served a similar function as LTD benefits, the arbitrator said.
The overall circumstances of older employees was that most employees retired by age 65 and those who didn’t still received other benefits – and those who retired received other income replacement – key factors in the analysis to determine if the age limit for LTD benefits was reasonable and justified, says Frankie.
“This case had a strong factual basis to say that it's rationally connected, there's minimal impairment, there's a robust set of other benefits that are available – that definitely contributed to the arbitrator’s finding that it was a reasonable limit and that it was justified,” she says.
The arbitrator found that Rayonier’s limit of LTD coverage to age 65 was reasonably justified because it was “rationally connected to and consistent” with pension benefits. The arbitrator also found that the age cut-off didn’t significantly impact employees when looking at the proportionality – the vast majority of employees retired before they reached age 65 and they weren’t significantly disadvantaged.
The arbitrator added that the age of 65 was a limit that had been negotiated in collective bargaining and helped balance the interests of younger workers the company might recruit with those of older workers, as well as allowing the parties to negotiate changes in future collective bargaining.
The grievance concerning the LTD plan’s age limit was dismissed, while the one concerning the life insurance plan was allowed.
Workforce demographics
There isn’t really a way to ensure that age-based exclusions in benefit plans are applicable, says Frankie, but she suggests that it can be helpful for employers to understand the demographics of their workplaces and have data about the costs associated with providing certain benefits up to an age-based restriction.
“The more an employer can explain the reasoning behind an age-based distinction, that would allow an employer to be better prepared should there be a challenge to the terms of their plan,” says Frankie. “And if the employer is unionized and the plan is the product of free collective bargaining, that that would also help demonstrate that the terms of the plan were negotiated and intended to balance the interests of the employer and employees, and the different [benefits] for different ages.”
In addition to being fully informed on the reasons for age-related restrictions, employers should also look at options that could mitigate the risk of challenges to the plans when it comes time to renew policies with third-party providers, says Frankie.
“Anytime that a benefit plan is being renewed, I would recommend asking the benefit provider for options, so that the employer can consider whether changes would make sense based on workforce demographics,” she says. “Having an understanding of what restrictions are there and why, can go a long way to coming up with a benefit plan that covers all or most employees, or if restrictions are necessary based on cost or availability of certain benefits that an employer could defend as having reasonable limits that are justified.”
See Rayonier and Unifor, Locals 256 and 89, 2022 CanLII 75226.
