Okanagan College decision throws light on 65+ LTD benefits

A recent B.C. labour relations arbitration decision regarding long-term disability (LTD) benefits for older employees could have broad implications for Canadian employers.

The decision, ordering the college to extend LTD to employees past the traditional 65-year cap, highlights the evolving legal landscape around age-based benefits as employee careers extend later than ever.

It is the latest in a 10-year long battle between the college and the Okanagan College Faculty Association (OCFA) and, according to Lisa Chamzuk, pension and benefits lawyer at Lawson Lundell in Vancouver, it’s a warning signal to employers and HR leaders that their own benefits offerings may soon be under review.

“Those of us who work in pension benefits, we've been seeing an ever-growing body of case law on this particular issue,” she says.

“What this arbitrator is suggesting is that it may be appropriate to look more closely at the plan in assessing whether or not it’s bona fide … certainly the Okanagan College case, to me, would embolden others to challenge terms that might have otherwise been seen as being bona fide, because of how the test has been applied previously.”

LTD benefit plan not bona fide under Human Rights Code

The case revolved around Okanagan College’s LTD plan, which capped benefits at age 65. The union argued that this age limit was discriminatory, given the removal of mandatory retirement in 2008 under the British Columbia Human Rights Code. Plus, during 2022-25 collective agreement negotiations, the age limit for group life insurance and accidental death and dismemberment insurance – which had also been capped at 65 – had the eligibility age extended to 75.

In his decision, the arbitrator ruled that the college’s plan was not bona fide under the Code’s exemption, section 13(3)(b), which permits age-based distinctions in employee benefits if the plan is bona fide.

The union argued: “An age limitation on the duration of benefits that is carrier-imposed based on an actuarial need may be needed for the bona fide operation of the LTD Plan. However, that is not the issue in the crievance, which is about the college excluding employees at age 65 from LTD benefits (i.e., the selection of the LTD Plan). A college decision to deny coverage based on age to limit its costs is not the bona fide operation of the LTD Plan.”

Shifting standards for benefits plans

The decision critically examined the Supreme Court of Canada’s 2006 Potash ruling, which set the standard for what constitutes a bona fide employee benefit plan. The arbitrator highlighted that while Potash remains the guiding precedent, its application may require re-evaluation given evolving societal and workplace contexts.

“It’s another challenge to the historical presumption that long-term disability benefits don’t continue for age 65 and onward … which is useful for sponsors to know that these types of plan terms aren’t going unchallenged,” Chamzuk explains.

“Though not binding on anybody other than the parties to the dispute, it’s not a throwaway decision... because of the nature of the work that the arbitrator did, and the nature of the expert evidence that he considered.”

This suggests that the legal community and HR professionals alike should take note of the decision’s implications, as they could influence future court rulings on similar disputes; with this in mind, Chamzuk advises employers to take a critical eye to their own benefits offerings.

“If I was a sponsor, I would want to be freshly aware of what, if any, age-based, gender, marital status, or any enumerated distinctions or restrictions in the plan terms that are based on the Human Rights Code,” she says.

“I would want to be aware of what those restrictions are.”

Challenges for employers and benefit sponsors

The ruling may prompt more frequent and detailed scrutiny of benefit plans by unions and employees, Chamzuk says, increasing the legal risks for employers who rely on outdated or restrictive policies; for now, employers are advised to closely examine their benefit offerings and consult with legal and pension experts to ensure compliance and mitigate risks.

“Often, what happens is a sponsor will create a plan, and then it sits there for years and gets applied over and over again and through the passage of time, we the sponsor will forget what its own plan terms are,” she says.

However, she does acknowledge the practical difficulties for employers of navigating this landscape. The insurance market in Canada has been slow to adapt, and finding post-65 coverage remains challenging.

“Though it gets glossed over a little bit in the decision, the reality is it is very difficult to go to market and find a product that easily answers this issue for a sponsor,” Chamzuk says.

Giovanni Gallipoli, professor of economics at the University of British Columbia, echoes this sentiment, noting that while some products are emerging, they come with higher costs and are not straightforward to implement.

“The burden of regulation and commitments to workers, especially for small employers, has become very large in Canada,” he said, stressing that employers under economic strain are likely to seek government support or alternative solutions to manage these challenges.

Expert insights: market and demographic shifts

The arbitrator’s decision relied heavily on expert testimony to assess the market realities and demographic changes affecting the workforce. Gallipoli emphasized the growing need for older workers to stay employed due to skill mismatches and labour shortages.

“That's the reality of things, and this is going to only increase as the population ages, and the needs of the labour market are not fully satisfied by younger people, or perhaps not even immigrants,” Gallipoli explains.

“For whatever reason, it could be that there are specific skills that are required that are mismatched, and you need to keep the workers for longer. This is going to occur more and more.”

However, he also points out the costs associated with employing older workers, underscoring the balancing act that employers face between filling vacancies and managing the financial implications of supporting an aging workforce.

“There are two offsetting incentives,” Gallipoli says. “The incentive to fill the job position, the vacancy, and so the employer might need the older worker to fill the vacancy. On the other hand, the likelihood of disability claims, especially in old age, goes up. So, from the point of view of the employer, that's a cost, an additional cost. So, these two forces will tend to offset each other over time.”

The bottom line will be a higher cost of labour to employers, leaving them with the option to increase pay or increase benefit premiums, he says, “which usually is not a good thing for economic growth and development, or a good thing for workers, because at the end of the day, when employers pay benefits, that benefit comes out of the workers’ pay.”

Benefits remain important retention and recruitment tools

Regardless of how legislation around post-65 benefits evolves, or how long it will take for the shift to occur provincially or nationally, Chamzuk points out that benefits will remain an important tool for retention and recruitment, and post-65 benefits will likely play a part.

“The reality is our workforce is changing. There’s a reason why these challenges are coming to the courts, because we do have people working past age 65,” Chamzuk says.

“That's really why… sponsors offer plans in the first place, is to ensure that they get and that they can attract and retain the talent that they want. So, if a sponsor hasn't looked at the benefit plan in ages, and then looks at its workforce and says, ‘Oh, this doesn't match up, we want to be able to attract and retain these folks, but we're not offering the benefits that we might want in order to do so,’ then that's an appropriate assessment of the benefit plan, regardless of what the Okanagan College case says.”