The battle over who pays the OHP

Arbitrator says Ontario’s health premium is a tax employer shouldn’t have to pay

The argument about whether Ontario’s health premium should be paid by employers took another interesting turn in a strongly worded arbitration decision involving PPG Canada and the Canadian Energy and Paperworkers Union.

While a few arbitrators have ruled that old language in some collective agreements meant employers were on the hook for paying the premium introduced by the province in 2004, and at least one court ruled such thinking wasn’t patently unreasonable, the arbitrator in this case said it would be a bizarre leap of faith to assume language relating to an old premium that was repealed in 1989 could possibly be read to mean employers were responsible for paying the new “premium” which, in reality, is an income tax.

When the premium was a premium

Prior to 1989, the Ontario Hospital Insurance Plan (OHIP) charged a premium to residents to access the province’s health-care system. The scheme was pretty basic: the government-imposed OHIP levy was a fixed monthly amount, payable by individuals, with a higher fixed monthly amount payable by individuals with dependents.

The payment was routinely collected by employers as a deduction from employee wages. Because the OHIP premium was a deduction from wages, and OHIP was thought of as a kind of insurance, it was not unusual for employees, through collective bargaining, to obtain an employer-funded subsidy for those premiums. This meant the employer agreed to pay the premiums for employees.

But in 1989 the province changed the system, eliminated the premium and instead imposed a payroll tax on employers to fund the health-care system.

Fast forward to 2004 and the province decided to introduce the “Ontario Health Premium,” (OHP) an income-based levy calculated with reference to an employee’s taxable income. There is a sliding scale that sees workers pay up to a maximum of $900, depending on income.

The government’s intention with the OHP was that individuals would be responsible for paying the fee, not employers, although employers would be responsible for collecting it and submitting it to the province. The payroll tax on employers also remained in place.

But a problem quickly arose. Unions began to review their old collective agreement language to see whether it was elastic enough to cover the new OHP. Many agreements had clauses negotiated prior to 1989 that were kept in place, despite the fact the premium had been scrapped.

So the question facing arbitrators across the province became whether such language would cover the new premium. Some said yes, others said no. The arbitrator reviewed 22 decisions involving the OHP. In 17 awards, arbitrators determined the employer was not responsible. In five others, the arbitrators came to different conclusions.

“To an extent seldom seen in the arbitration community, experienced arbitrators simply disagree with the approach or the conclusions of their professional colleagues — even on language that is superficially similar,” the arbitrator said.

In this case, PPG Canada argued the old OHIP premium and the new OHP were very different creatures, created under very different legislation and that any assignment of such new economic cost to the employer can only be accomplished through the process of collective bargaining. The existing words don’t cover it.

The union argued it was a simple matter of interpreting the collective agreement and it covered the OHP just as it had the old OHIP premium. It was the clear intention of both parties that employees were not required to personally pay for the costs of health care. The union said the employer is to be solely and exclusively responsible for the package insurance plan that includes OHIP, as well as for the funding of that package and any costs payable by the employee.

OHP unconnected to any insurance plan: arbitrator

The arbitrator said, in his view, the OHP is a government funding arrangement that is unconnected to any insurance plan for the delivery of health benefits.

“The OHP isn’t part of any insurance scheme and it’s not (like OHIP) a program for the delivery of health-care benefits,” the arbitrator said. “Rather, it is a more generalized funding arrangement, where the monies raised may or may not be used for OHIP services, or for other things, in accordance with the government’s opinion of how these income tax monies are to be dispersed. And, unlike the old OHIP premium, the non-payment of the OHP does not inhibit access to medical care.”

Despite the similarities in the labeling of the new OHP and the old health premium (which the arbitrator called political “window dressing” and said he put “no weight on the assurance of politicians on how the OHP money may be used), payment of the OHP is not related to OHIP. The OHP is quite different than the old premium because it’s not a premium at all — it’s an income surtax.

“No doubt some of the monies raised by the OHP might go into financing medical services regulated under OHIP, but the income tax legislation does not require such distribution, and it appears from the material before me, that the funds so raised may also be used for any other purposes (as some politicians have suggested,” the arbitrator said. “And whether the employer or the employee ends up having to pay the OHP, in so doing neither of them would be said to be ‘paying for a package insurance plan for employees and dependents’ that includes OHIP.”

The difference between a ‘tax’ and a ‘premium’

Simply put, the arbitrator said the OHP is a “tax” and not a “premium” and therefore not covered by the collective agreement.

“It is described like a tax and not a premium and it is collected like a tax and not a premium,” the arbitrator said. “It neither uses the language of insurance, nor is part of a scheme of insurance, even notionally. By contrast, the old OHIP premium was a fixed sum monthly levy, and the new OHP is an income-based levy.”

The arbitrator pointed out that employers would likely never agree to subsidize an employee’s income taxes, and that’s essentially would they would be doing if they were to pay the OHP. He also expressed concern about the administrative problems that would arise if the employer were responsible for paying the OHP.

“The employer would be required to solicit from the employees far more information than is currently the case,” the arbitrator said. For example, OHP is based on taxable income which would involve the employee’s income from all sources.

Even if the employer were only held responsible for the employee’s earnings at that employer, the employer would still need quite a bit of information about each employee’s personal deductions or the calculation would never be correct.

“It seems to me that the only way that such a result could actually be implemented is if the employee and the employer sat down at the end of the taxation year, with the employee’s tax return in hand, in order to figure out what proportion of the OHP obligation might be attributable to earnings from that employer as opposed to some other employer or to some other sources of income,” the arbitrator said. “The employer would then ‘reimburse’ the employee for some portion of the amount that the employee would have paid.”

Furthermore, if the employer did provide this subsidy to an employee, then it would be treated as a taxable benefit in the hands of that employee. Therefore, it would be subject to income tax, a circumstance which could even change the employee’s taxable income and thus OHP liability, and that might have to be reworked back into the calculation of the employer’s responsibility, all over again, the arbitrator said.

“Perhaps a government interested in raising revenue would be pleased to receive the OHP amount from employers, then, in addition, a portion of that amount from employees — notionally, a tax on a tax, thereby increasing government revenue,” the arbitrator said. “But it seems to me that this, too, is a curious consequence and, as such, is not one that should be lightly inferred in a privately negotiated collective agreement.”

The arbitrator was careful to point out that difficulty in administering a plan doesn’t mean the employer is off the hook if it’s the clear meaning of a contract provision. But it’s tough to read that into a contract when it’s not clear that’s what both parties intended, as is the case here.

“Finally, to be a bit colloquial for a moment, and to reflect on how collective bargaining normally works, what is the likelihood that the parties ever intended that the employer would have to subsidize each individual employee’s income taxes? Not very, I would say,” the arbitrator said. “So if employees wish to make their employer responsible for all or part of that new income tax obligation, then they will have to address that issue in the next round of bargaining.”

For more information see:

C.E.P., Local 200-0 v. PPG Canada Inc., 2005 CarswellOnt 9271, [2005] O.L.A.A. No. 684 (Ont. Arb. Bd.)

Court dismisses challenges of arbitrator’s OHP rulings

On Dec. 8, 2006, the Ontario Court of Appeal released five decisions dealing with who pays the Ontario Health Premium.

The five cases were all appeals from arbitration decisions, some that ruled the employer was responsible for paying the premium and some that ruled the employer wasn’t on the hook for it.

In dismissing all of the appeals, the Court of Appeal said none of the rulings were patently unreasonable despite the fact there hasn’t been consistency from arbitrators on whether or not employers should be paying the health premium for employees.

“There is no single, uniform collective agreement dealing with the OHP issue in play throughout Ontario,” the Court of Appeal said in National Steel Car Ltd. v. U.S.W.A., Local 7135. “This fact is exemplified by these five grouped appeals which involve five collective agreement provisions with very different wording.”

The simple message from Ontario’s top court appears to be that, because collective agreements contain different wording when it comes to the OHP, it’s not unreasonable that different arbitrators will come to different conclusions.

And, unless the arbitrator’s decision is patently unreasonable, courts aren’t likely to interfere.

For more information see:

National Steel Car Ltd. v. U.S.W.A., Local 7135, 2006 CarswellOnt 7720 (Ont. C.A.).

Lapointe-Fisher Nursing Home v. U.F.C.W., Local 175/633, 2006 CarswellOnt 7717 (Ont. C.A.).

Hamilton (City) v. Hamilton Professional Fire Fighters Assn., Local 288, 2006 CarswellOnt 7718 (Ont. C.A.).

Toronto Transit Commission v. A.T.U., Local 113, 2006 CarswellOnt 7719 (Ont. C.A.).

College Compensation & Appointments Council v. O.P.S.E.U., 2006 CarswellOnt 7729 (Ont. C.A.)

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