GSB# 2004-3505

UNION# 2004-0999-0023

IN THE MATTER OF AN ARBITRATION

Under

THE CROWN EMPLOYEES COLLECTIVE BARGAINING ACT

Before

THE GRIEVANCE SETTLEMENT BOARD

BETWEEN

Ontario Public Service Employees Union (Union Grievance)

Union

• and -

The Crown in Right of Ontario (Ministry of Government Services)

Employer

BEFORE

Ken Petryshen

Vice-Chair

FOR THE UNION

Richard Blair Ryder Wright Blair & Holmes LLP Barristers and Solicitors

FOR THE EMPLOYER

Sean Kearney Senior Counsel Ministry of Government Services

HEARING

May 26, 2006.

Decision

In a grievance dated December 21, 2004, the Union claims that “The insurance company is holding an excessive amount of employee’s funds in the employee’s Guaranteed Unrestricted Deposit Account (GUDA); and the insurer and the employer have failed to confirm in writing the ownership of these funds by bargaining unit employees.” The remedy the Union requests in its grievance is as follows: “Confirmation in writing that bargaining unit employees have ownership of these funds, a copy of the Underwriting Document, disclosure of the calculation of the minimum reasonable amount to maintain in the GUDA, and application of the balance to create a contribution holiday for bargaining unit employees on other appropriate benefits; and/or any other remedy the Board deems just.” The Employer takes the position that this grievance is not arbitrable.

The circumstances giving rise to this grievance are not in dispute. The Collective Agreement sets out certain benefits that are available to bargaining unit employees and indicates that these benefits are provided by means of insured benefit plans. The Employer has contracted with an insurer to provide group insurance benefits. There are some insured benefits for which employees will pay all of or a part of the premiums. Although I was referred to a number of the benefit provisions in the Collective Agreement, the focus of the Union was on Article 38. Pursuant this provision, employees have the option of purchasing supplementary life insurance and dependant life insurance. The employee pays the full premium for these two insured benefits. The premiums are deducted from earnings and are deposited into the Guaranteed Unrestricted Deposit Account (“the GUDA”), which is held by the insurer. As one would expect, it is from the GUDA that claims are paid.

As its wording indicates, the grievance relates to the GUDA and, more particularly, its focus is on the surplus in the GUDA attributable to premiums paid by bargaining unit employees for supplementary and dependant life insurance. Over time, the surplus has developed because the claims against the account are less than the amount contributed in premiums. In December of 2004, the surplus attributable to employee premiums was estimated to be $11.1 million.

Beginning in June of 2003, through Ms. Marcia Gillespie, a Union representative on the Joint Insurance Benefits Review Committee (“JIBRC”), the Union expressed its concern that the surplus was unduly high and that the premiums for supplementary and dependent life insurance were to high in that they far exceeded the amount required to satisfy claims. The Union sought disclosure of the underwriting documents. The Employer was not prepared to produce these documents, including the contractual documents between the Employer and the insurance company, Manulife. At a JIBRC meeting with Manulife representatives on December 9, 2004, Ms. Gillespie again raised the question of the surplus. Among other things, the Union asked about the ownership of the surplus attributable to member premiums as well as what would happen if the tendering process resulted in a new insurance carrier. Ms. Gillespie expressed the view that the surplus should be returned to the membership by way of a premium holiday, but that the documents the Union had requested were required in order to determine the feasibility and length of a premium holiday. When the Employer continued to refuse to provide the documents requested by the Union and, in the Union’s view, failed to respond satisfactorily to the Union’s issues about the surplus, the Union filed the instant grievance.

As reflected by the remedy requested in the grievance, the Union seeks a determination of the ownership of the surplus funds in the GUDA and it wants the Employer to address the issue of the surplus. It is still of the view that a premium holiday may be appropriate. However, counsel for the Union indicated that it was premature to be precise about the appropriate remedy until the Union has had the opportunity to review the underwriting documents and the relevant insurance policies. He submitted that it was only upon reviewing the documentation that the Union would be in a position to determine how best to address the issue of the surplus attributable to employee contributions to the GUDA.

During the course of their submissions on arbitrability, counsel referred to certain provisions in the Collective Agreement. As noted previously, reference was made to Article 38. From the Union’s perspective, what is noteworthy in this provision is simply that it provides an obligation on employees who elect to purchase supplementary and dependent life insurance to pay the full premium cost of the benefits. Counsel also referred to Appendix 4 of the Collective Agreement, which is entitled the Joint Insurance Benefits Review Committee. They referred to the following sections of Appendix 4:

2. Purpose of Committee

The purpose of this Committee is to facilitate communication between the Employer and OPSEU on the subject of Group Insurance, including Basic Life Insurance, Supplementary Life Insurance, Extended Health Insurance, Long Term Income Protection Insurance, and such other negotiated benefits as may, from time to time, be included in the Group Insurance Plan.

It is understood that the Group Insurance benefits to be provided to employees and the cost sharing agreements between the Employer and its employees shall be as set out in any applicable collective agreement or arbitration award, and the matters for consideration by this Committee shall be only as set out in these terms of reference.

3. Composition of Committee

The Committee shall be composed of an equal number of representatives from the Employer and from OPSEU, with not more than eight (8) representatives in total. At meetings of the Committee, each party may be accompanied by an Actuary to provide technical advice and counsel.

4. Duties of Committee

The duties of the Committee shall consist of the following:

(i) Development of the specifications for the public tendering of any

negotiated benefits which may be included in the Group Insurance Plan

(to cover the bargaining unit only);

(ii) Determination of the manner in which the specifications will be made

available for public tendering;

(iii) Consideration and examination of all tenders submitted in response to the

specifications for tender and preparation of a report thereon;

(iv) Recommendations to the Government of Ontario on the selection of the

insurance carrier or carriers to underwrite the Group Insurance Plan;

(v) Review of the semi-annual financial reports on the Group Insurance Plan;

and

(vi) Review of contentious claims and recommendations thereon, when such

claim problems have not been resolved through the existing

administrative procedures.

The specifications for tender will describe the benefits to be provided, the cost

sharing arrangement between the Employer and its employees, the past

financial history of the insurance plans, the employee data, the format for the

retention illustration for each coverage and the financial reporting

requirements. Tenders shall be entertained by the Committee from any

individual insurance carrier acting solely on its own behalf. This shall not

preclude such carrier from arranging reinsurance as may be necessary.

The basis for recommendation of an insurance carrier(s) will include the

ability of the carrier(s) to underwrite the plan, compliance with the carrier’s

quotation with the specifications for tender, the carrier’s service capabilities

and the expected long term net cost of the benefits to be provided.

5. Experience Review

The Committee will also meet every six (6) months to review the financial experience under these coverages. The specification for tender will describe the information to be included in the semi-annual financial statements to be prepared by the insurance carrier(s). The statements will include paid premiums, paid claims, changes in reserve requirements for open and for unreported claims, incurred claims, the retention elements of commissions, taxes, administrative expenses, contingency reserve charges and interest charges on claims and other reserves. The insurance carrier(s) will also be required to report on the level and method of administering the Employer’s and employees’ deposit accounts.

The Committee shall request the insurance carrier(s) to provide such

additional information for the Committee’s consideration as may be required

by either the Employer or OPSEU.

If the Joint Insurance Benefits Review Committee fails to agree on a

recommendation to the Government of Ontario on the selection of the

insurance carrier(s) to underwrite the group insurance plan, the members of

the said Committee nominated by the Employer and OPSEU may each make a

recommendation in writing to the Government on the selection of the

insurance carrier(s) supported by reasons for their respective

recommendations.

It is understood that the Government at all times retains the right to select

what ever carrier(s) (to underwrite the Group Insurance Plan) it may consider

would best serve the “public interest” and, in doing so, is under no obligation

to select a carrier(s) that may be recommended by the Joint Insurance Benefits

review Committee.

Counsel for the Employer noted that the Group Insurance Plan and the insurance

policies are not incorporated into the Collective Agreement. The Union did not take issue with these assertions. Employer counsel also advised that the Group Insurance Plan does not address what should occur when a surplus arises. It appears that the only reference to employee deposit accounts is in paragraph 5 of Appendix 4, which provides that “The insurance carrier(s) will also be required to report on the level and method of administering the Employer’s and employees’ deposit accounts.” There is no provision in the Collective Agreement which refers specifically to the GUDA and how it will be administered.

As the submissions disclosed, each party appreciates that the subject matter of the dispute between them must fall within the ambit of the Collective Agreement. The issue before me is whether this dispute is one which involves the interpretation, application or administration or an alleged violation of the Collective Agreement. The parties have different perspectives on whether the essential character of this dispute concerns a subject matter that is covered by the Collective Agreement.

The Union submits that it has several interests at stake arising from the Collective Agreement. One of them is in the ownership of surplus in the GUDA that has arisen from direct employee contributions. The Union takes the position that these funds belong to employees and that the Employer, in contracting with the insurer, is an agent or trustee for the employees. The Union argues that as the bargaining agent it has a duty to monitor the use of the funds and that it is entitled to the disclosure of the documents it has requested. It submits that it is entitled to make claims about the surplus because of provisions in the Collective Agreement dealing with the payment of premiums by employees.

The Union asserts that another interest it has arises out of Appendix 4. It argues that a review of Appendix 4 illustrates that the Union has a “robust role” in the tendering process and a general oversight obligation relating to the group insurance plans. The Union submits that the financial and underwriting documents it has requested are necessary for it to make its role operational and complete. It argues that to play the monitoring role provided for it under Appendix 4, it is necessary for it to obtain the information about how the insurer operates with the Employer in relation to employee funds.

Counsel for the Union specifically noted that the Union is not basing its claims on the management rights provision in the Collective Agreement. Rather, it argues that its claims about the surplus are related to specific provisions in the Collective Agreement, namely those that require employees to pay premiums and Appendix 4. Counsel conceded that on its face the Collective Agreement does not provide the explicit answers to all of the issues involved in this dispute. However, he submitted that the claims made by the Union in the grievance can be tracked back to the provisions in the Collective Agreement that the Union relies on, making the grievance is arbitrable.

Counsel for the Union relied on Weber v. Ontario Hydro, 1995 CanLII 108 (SCC), [1995] 2 S.C.R. 929

and Re Capital Health Authority and United Nurses of Alberta, Locs. 32, 33, 62, 85, 196, 301 (2002), 2004 CanLII 94708 (AB GAA), 133 L.A.C. (4th) 385 (Tettensor). In Weber, the employer suspended an employee for abusing his sick leave benefits after it determined that he was malingering based on a report from private investigators. The suspension grievance was resolved at arbitration. The employee claimed damages in a Court action based on tort and a breach of the Charter. The Supreme Court of Canada determined that the employee could not proceed with the Court proceeding because an arbitrator had exclusive jurisdiction. The majority noted that “The question in each case is whether the dispute, in its essential character, arises from the interpretation, application, administration or violation of the collective agreement.”

In Re Capital Health, the Union claimed that it had an interest in all or a portion of the proceeds arising out of the demutualization of Sun Life. The employer had obtained a group life and disability insurance policy from Sun Life to provide benefits under the collective agreement. The employer received cash from the demutualization process which it intended to apply to the deficit in the benefit plan. The union alleged a breach of trust and a breach of fiduciary obligation and submitted that an ownership interest arises from the payment of premiums. The employer argued that the union’s claim was not tied to the collective agreements. The majority of the arbitration board concluded that “The essence of the dispute here is rooted in the rights and obligations arising primarily from Article 21, which sets out the Employer’s obligation to provide the plan and the allocation of premium costs.” The board also noted that “The Union’s claim is not about benefits, entitlement to which would be governed by the policy; it is about beneficial ownership, based upon the obligations of the parties under the Collective Agreements.” It appears from Article 21 that in that case the group insurance plans were

incorporated into the collective agreements.

In arguing that the grievance is inarbitrable, the Employer simply asserts that there are no provisions in the Collective Agreement upon which the Union can ground the claims arising from the grievance. Counsel for the Employer submits that the essence of this dispute is about whether the Union can participate in monitoring and in administrating the surplus in the GUDA. Counsel observed that the parties could have negotiated language entitling the Union to play such a role and argued that they clearly did not do so here. Counsel submitted that the provisions in the Collective Agreement obliging employees to pay premiums for some insured benefits does not invite the kind of participation the Union seeks through the grievance. He argued that the issues of the ownership of the surplus and whether the Employer has fiduciary or trust obligations in relation to the surplus do not assist the Union in these circumstances because of the absence of any explicit or implicit language giving the Union the right to affect the GUDA funds.

Counsel also submitted that Appendix 4 does not assist the Union. Counsel argued that the role of the Union as set out in Appendix 4 is essentially limited to the tendering process. Counsel noted that in this process the ultimate decision of selecting an insurance carrier belongs to the Employer. He submitted that Appendix 4 specifies the documentation the Union is entitled to during the tendering process and for the twice yearly review process and that there is no indication that it is entitled to the kind of documents it is claiming pursuant to the grievance. Counsel submitted that Appendix 4 does not address the ownership of funds, nor does it address the right of the Union to monitor funds or to participate in determining what happens to the surplus. Counsel noted as well that the Group Insurance plans and the insurance policies are not incorporated into the Collective Agreement. Counsel submitted that there can be no breach of the Employer’s obligations in this instance because the essence of the dispute is not covered by the Collective Agreement.

Counsel for the Employer referred me to the following decisions: OPSEU (Ashley et al.) and Ministry of Community, Family and Children’s Services (2003), GSB No. 2001-1700 et al.(Abramsky), OPSEU (Cherwonogrodzky et al.) and Ministry of Finance (2004), GSB No. 2002-0994 et al. (Gray), OPSEU (Anthony et al.) and Ministry of Labour (2004), GSB No. 1999-1977 et al. (Abramsky), Re York Region Catholic Separate School Board and Ontario English Catholic Teacher’s Association (1995), 1995 CanLII 18420 (ON LA), 52 L.A.C. (4th) 285 (Kaplan) and Re Carlton Board of Education and Teachers’ Federation of Carleton (1991), 23 C.L.A.S. 285 (Thorne). In the first four decisions, the arbitrators concluded that the subject matter of the dispute was not covered by the collective agreement. In the Ashley et al. matter, for example, the grievors alleged that the employer failed in a number of respects to inform employees about the opportunity to “buy-back” service for pension purposes during a “buy-back” window. The Vice-Chair agreed with the employer’s position that the essence of the dispute related to settlement agreements and a statute that were not a part of the collective agreement. Counsel relied on the Carleton Board of Education decision to illustrate the kind of language one would expect to find in a collective agreement if the parties intended the union to play a role in determining how surplus funds arising in a benefit plan would be utilized. In that instance, the surplus arose in the group life insurance plan. The collective agreement provided that the employer would pay 90% of the premiums, with the employees paying the remaining 10%. Given a significant surplus, the employer implemented a premium holiday for a period of seven months, which meant that the surplus was used to eliminate premiums that would otherwise be payable by the Employer and the employees. The union took the position that the employer was not entitled to decide unilaterally how the surplus would be used. Arbitrability was not an issue in this case, presumably because the collective agreement did contain provisions which gave the union a role with respect to surplus funds. The arbitrator concluded that the employer had a fiduciary duty to ensure that the funds attributable to employee contributions were used in a way required by the collective agreement. He concluded that there was no violation of the collective agreement because, in implementing a premium holiday, the employer continued to meet its obligation by using the surplus premium funds to pay premiums.

The circumstances in this case are not similar to the facts in either the Carleton Board of Education decision or the Capital Health Authority decision. This is not a case where the Employer has unilaterally decided to use the surplus in the GUDA to implement a premium holiday. This is not a case where the ownership of surplus funds is the only issue, as was the case in the Capital Health Authority matter, which arose out of demutualization. This is also not a case where the Union is claiming that an employee has been improperly denied an insured benefit. Given the wording of the grievance, this is a case about whether the Union has the right to assert an interest in funds in an employee deposit account held by an insurance carrier and make claims in relation to this employee account. The funds at issue arise from the payment of premiums that are referenced in the Collective Agreement. One of the elements central to the dispute concerns what the grievance describes as the ownership of the employee funds in the GUDA, thereby raising an issue about the Employer’s and the insurer’s obligations in relation to these funds. The question that arises is whether the Employer has a fiduciary or trust obligation with respect to funds in employee deposit accounts.

The payment of premiums by employees under a collective agreement may create fiduciary or trust obligations for the Employer. It appears that the determinations in the Carleton Board of Education and Capital Health Authority decisions that the payment of premiums by employees can create at least a fiduciary obligation for an employer with respect to such monies may be applicable in this case. I agree with the Union’s submission that these issues arise from the obligation on employees to pay premiums for certain insured benefits.

The Supreme Court of Canada has indicated that the subject matter of a dispute may arise implicitly from the collective agreement. In Regina Police Assn. Inc. v. Regina (City) Board of Police Commissioners, 2000 SCC 13, 183 D.L.R. (4th) 14, at para. 25, the Court commented on this subject as follows:

…Upon determining the essential character of the dispute, the decision maker must examine the provisions of the collective agreement to determine whether it contemplates such factual situations. It is clear that the collective agreement need not provide for the subject-matter of the dispute explicitly. If the essential character of the dispute arises either explicitly, or implicitly, from the interpretation, application, administration, or violation of the collective agreement,

the dispute is within the sole jurisdiction of an arbitrator to decide.

It is my conclusion that the subject matter of this dispute arises at least implicitly from the requirement in the Collective Agreement, contained in provisions such as Article 38, that employees pay premiums for insured benefits. In my view, the interest the Union is asserting on behalf of employees who pay premiums flows from the relevant benefit provisions of the Collective Agreement. One concern the Union has expressed is that the premiums are too high and that this at least has contributed to an excessive surplus. One would think that it would be implicit in the requirement to pay premiums that the amount of the premium will reflect an appropriate cost for the benefit. Surely, a concern about the size of the premium paid by employees arises out of the requirement to pay premiums set out in the Collective Agreement. Whether the Union can succeed with all or any of the claims it intends to pursue will depend, of course, on their merits. Given the conclusions set out above, it is unnecessary to address whether the subject matter of this dispute is also captured by the language in Appendix 4.

Accordingly, it is my conclusion that the essential character of this dispute is covered by the Collective Agreement and that the Union’s grievance dated December 21, 2004 is arbitrable. This matter can proceed to a hearing on the merits of the Union’s claims. Either party can contact the Board for the scheduling of further hearing dates.

Dated at Toronto, this 6th day of October, 2006.