Ontario Court of Appeal decides arbitrability of employee benefit claims

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Can a unionized employee who has been denied benefits resolve the matter at arbitration, or must the claim be pursued in court? For many years, the answer has depended on whether the collective agreement language showed that the employer intended to be responsible for providing benefits. Now, some observers argue that the Ontario Court of Appeal has adopted an approach that will make all such disputes arbitrable.

In Pilon v. International Minerals & Chemical Corporation and London Life Insurance Co. (November 19, 1996), Victorien Pilon sued both his employer and London Life, the insurer, after the employer denied his claim for short-term disability benefits and refused to process his claim for long-term disability benefits with the insurer.

The collective agreement provided that the cost of all benefits was to be paid by the employer, with the exception of long-term disability benefits. These were to be provided by London Life through a plan administered by the employer and paid for by employees through salary deductions. The terms of the long-term disability benefits plan were contained in a handbook distributed to employees. These terms were incorporated by reference into the collective agreement.

The lower court dismissed Pilon’s claim, holding that it had no jurisdiction over a matter that arose out of the collective agreement. Pilon appealed the decision.

Before the Court of Appeal, Pilon conceded that his claim against the employer for short-term benefits must proceed through arbitration. However, he argued that his dispute with London Life arose out of a policy of insurance and was distinct from his claim against the employer.

London Life responded that Pilon’s entitlement to long-term disability benefits arose solely under the collective agreement. Under the province’s labour relations legislation, the purpose of mandatory arbitration was to provide a comprehensive mechanism to resolve disputes arising out of the collective agreement. This purpose would be thwarted, the insurer argued, if courts were to assume a concurrent jurisdiction over such matters.

COURT OF APPEAL: DISPUTE ARISES UNDER THE COLLECTIVE AGREEMENT

A unanimous panel of the court ruled against Pilon, holding that because the matter arose under the collective agreement, it could not be pursued in the courts. The court stated that the Supreme Court of Canada, in two decisions, has held that courts have no jurisdiction over matters that are properly the subject of arbitration.

The Court of Appeal cited the Supreme Court’s 1989 decision in St. Anne Nackawic Pulp and Paper Co. v. Canadian Paperworkers Union, a case in which the employer had sought to sue the union for damages caused by an illegal strike, something prohibited by the collective agreement. The “modern approach”, the Supreme Court had held, was that labour relations legislation provided a code governing all aspects of labour relations, and that this legislative scheme would be undermined if courts had concurrent jurisdiction over claims arising under collective agreements.

This approach was reaffirmed by the Supreme Court in the 1995 decision in Weber v. Ontario Hydro, the Court of Appeal noted. The court in Weber also ruled that the facts of the case, and not its legal characterization, determine whether the matter arises under the collective agreement:

“[T]he court [in Weber] held that the question of whether a particular matter fell within an exclusive arbitration clause should be answered according to the facts surrounding the dispute between the parties, rather than the legal manner in which the dispute could be framed. … [T]he court stated:

The issue is not whether the action, defined legally, is independent of the collective agreement, but rather whether the dispute is one “arising under the collective agreement”. Where the dispute, regardless of how it may be characterized legally arises under the collective agreement, then the jurisdiction to resolve it lies exclusively with the labour tribunal and the courts cannot try it.”
On this analysis, the court found that Pilon had no claim to long-term disability benefits in the absence of the group insurance scheme established by the collective agreement:
“In the case under appeal, [the employee’s] entitlement to the long-term disability benefits offered by [the insurer] arise from the collective agreement. In the absence of the group insurance scheme established by … the collective agreement, [the employee] has no claim to such benefits whatsoever.”
Pilon’s attempt to characterize the dispute as a contractual matter with the insurer, entirely separate from the collective agreement, was without merit, the court ruled. The dispute arose under the collective agreement and therefore had to be resolved by grievance and arbitration.

IN OUR VIEW

On its broadest reading, this decision may establish that any dispute over benefit denial must be pursued through arbitration if the right to benefits exists solely by virtue of a collective agreement. If so, the case may overturn a long line of arbitral jurisprudence in which collective agreement language has been closely scrutinized to determine whether the employer had in fact assumed responsibility for the provision of benefits.

However, even on the traditional approach to this question, it is well settled that where a benefits plan is incorporated by reference into the collective agreement, as was done in this case, the dispute is arbitrable. Moreover, the employer here was the administrator of the plan. Therefore, the outcome in this case is consistent with previous jurisprudence even though the Court of Appeal made no mention of either of these factors in its reasons, and chose instead to advance a labour relations policy rationale for refusing to take jurisdiction. (For more recent developments, see “Confusion over arbitrability of employee benefit claims resolved – maybe” and “Ontario Court of Appeal revisits arbitrability of employee benefit claims” on our Publications page.)

For more information on this subject, please contact Andrew Tremayne at (613) 563-7660, Extension 236.