Canadian Lawyer InHouse

Dec/Jan 2012

Legal news and trends for Canadian in-house counsel and c-suite executives

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By Henry Dinsdale and Jeff Goodman Employers as insurers Mandatory retirement leaves big question about workers over the age of 65. A n unexpected conflict arose on Dec. 12, 2006 when, on the one hand, Ontario joined a grow- ing list of jurisdictions that abolished mandatory retirement. But on the other, the amending bill left provisions in the human rights code untouched that have long permitted insurance, benefit, and pension plan pro- viders to differentiate in coverage based on age. This means that older workers who continue to work past the age of 65 may lawfully receive diminished benefits compared to their younger peers. In a recent arbitration, the Ontario Nurses' Association unsuccessfully chal- lenged the constitutionality of these provisions. The grievance challenged an employer-sponsored plan that substan- tially reduced, and in some cases elimi- nated, benefits to employees aged 65 and older. Because the decision dealt with a fully-insured plan, however, no comment was made about whether self-insured plans containing age-based distinctions could also claim protection under the code. A review of case law indicates that self- insured employers may claim the same code protection available to pension and insurance companies provided two cri- teria are met: first, that the employer bears the risk of paying out the insur- able amounts owed; and second, that the age-based distinction was adopted honestly, in the interest of sound and accepted business practice, and not for the purpose of defeating protected rights under the code. If both criteria are met, a self-insured employer may be deemed an "insurer" for the purposes of the code, thereby granting it immunity from discrimina- tion claims made in respect of age-based distinctions in a benefit plan. Among the variety of benefit plan and employer-insurer relationships, case law has consistently held that the question of "who is the insurer?" is answered by determining "who bears the risk of liabil- ity to the beneficiary?" The insurer's iden- tity is a matter of substance and not form. This question often arises in situations tension between commercial realities, duties under the human rights code, and the precariousness of employment, however, the court noted that other- wise-unlawful policies could only be justified if the employer can establish they were adopted in good faith and in connection with sound actuarial busi- ness practices. Although Zurich involved an insur- ance company and not a self-insured employer, subsequent cases have affirmed that the same standard applies to self-insured employers. The hurdles a self-insured employer must overcome before it may claim protection under the code create a number of practical issues. The hurdles a self-insured employer must overcome before it may claim protection under the code create a number of practical issues. where an employer has retained an insur- ance company to advise on, assist with processing, or adjudicate claims under a self-insured plan, but remains responsible for paying benefits. The fact that an employer may be deemed an "insurer" is not, in and of itself, determinative of whether it may rely on the code's exemptions. Rather, it must show the distinction was adopted honestly, for accepted actuarial pur- poses, and not to defeat rights under the code; in other words, the employer must show "good faith." In Zurich Insurance v. Ontario Human Rights Commission, the Supreme Court of Canada in 1992 explained that employee group insurance plans could differentiate based on age pro- vided that an actuarial basis existed for the distinction. This was because in the absence of individualized assessments, insurers must rely on the degree of risk posed by groups sharing characteristics material to that risk. Recognizing the First, many small self-insured employ- ers lack the resources to show their plan's age-based distinctions are justified on the requisite standard. Although the dis- tinctions may be adopted in good faith, an unsophisticated employer may have trouble demonstrating how the differ- ential treatment is actuarially justified. The broad remedial powers available to arbitrators and human rights tribunals pose additional concerns if the standard cannot be met. Similarly, many self-insured plans offer little in terms of detailed documen- tation. In contrast, fully-insured provid- ers set out their plans' terms in a booklet outlining when older workers will receive differential treatment. Against this norm, self-insured employers are disadvantaged when seeking to justify any age-based distinctions in their policies. IH Henry Dinsdale and Jeff Goodman are labour and employment law partners with Heenan Blaikie LLP in Toronto. INHOUSE DECEMBER 2011/JANUARY 2012 • 9

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