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Ontario regulatory form regarding pension plan contributions: comply!

Trustees and administrators of Ontario registered pension plans: beware of Form 7.

That’s the form that administrators of registered pension plans must complete, and send to their pension fund trustees, that summarizes the estimated employer and employee contributions that will be due to be made to the pension plans in future. The form must be provided by the registered administrator of every Ontario registered pension plan to the trustee, at least annually.  If there’s a change to the estimated future pension contribution requirements, the administrator must send a revised Form 7 to the pension fund trustee within 60 days of becoming aware of the change.

Trustees of pension plans (which for this purpose include insurance companies) are not required to complete Form 7’s. But trustees have an important, independent legal obligation to notify the Ontario Superintendent of Financial Services if they do not receive the required Form 7.  Further, if contributions to the pension plan are not received by the trustee in accordance with the estimates in the Form 7 received by the trustee, the trustee must notify the Superintendent.  There are prescribed time limits for all of these requirements.

In essence, the Form 7 rules require pension fund trustees to police timely plan contributions. The law requires trustees to blow the whistle if a plan administrator is not making contributions on time.

In 2013 a trustee was prosecuted in Ontario for failing to report the non-filing of a Form 7 with respect to a plan administrator who eventually filed for bankruptcy protection from its creditors. The trustee plead guilty and was fined $50,000.

The gravity of compliance with Form 7 rules was recently emphasized by the Ontario pension regulator in an announcement that can be found here.  A few days ago, the regulator released a revised Form 7 that can be found here, as well as a comprehensive User Guide that can be found here, to assist plan administrators in completing Form 7.  It also released two new standardized templates, to be used by pension fund trustees to report to the Superintendent when a plan administrator fails to submit a Form 7, or fails to make the contributions as summarized in a Form 7.  The templates can be found here.

Although Form 7 is a prescribed form, it does not have to be filed with the Ontario pension regulator. It is simply a required communication from plan administrators to pension fund trustees.  Do not take this as an indication that the Ontario pension regulator is indifferent about compliance with the Form 7 rules.  It has clearly demonstrated that it requires compliance, and it has provided a guide and templates to assist the pension industry with the rules.

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Ontario regulatory form regarding pension plan contributions: comply!

Witness the Creation of Ontario’s Modern Pension Regulator

To remain relevant and effective, industry regulators need to stay current. They must be attentive to economic realities, adapt to new technology and evolve with the industries they regulate. Ontario’s pension regulator is overdue for a major overhaul that will bring it into the 21st century.

Ontario’s Fall 2016 Economic Statement announced that government’s intention to introduce a new financial services regulator which will be known by the acronym FSRA (Financial Services Regulatory Authority). The FSRA announcement came shortly after the release of the Final Report, of the Ontario Expert Advisory Panel mandated to examine the Financial Services Commission, Financial Services Tribunal and Deposit Insurance Corporation.

The March 31, 2016, cover letter that accompanied the Panel’s Final Report stated that its recommendations for a ‘world-class regulatory system’ were prepared with “both the present and future in mind, and in light of industry and regulatory trends here and around the world.” It also recognized the rapid pace of change in the financial and pension sectors and concluded that the agencies under review had to be modernized and sufficiently independent, flexible, innovative and expert to facilitate the changes in governance, structure and accountability necessary to achieve the desired result.

Panel recommendations of particular relevance to the pension industry include:

  • FSRA should operate as an integrated financial services regulator with responsibility for, among other things, consumer protection (referred to as ‘market conduct’), prudential oversight and pension plans;
  • FSRA should be directed to protect beneficiaries while promoting a strong sustainable pension system that would operate in an efficient and fair manner, balancing the interests of all parties;
  • FSRA’s mandate should require it to use its authority to adequately, firmly and consistently discourage fraudulent activities or behaviours that mislead or harm consumers and pension plan beneficiaries;
  • FSRA’s mandate should require that it undertake its activities in a proactive manner;
  • to remain relevant and flexible, FSRA’s mandate should include a commitment to innovation and transparency – to stay abreast of those issues that could compromise its ability to satisfy its mandate;
  • the existing Financial Services Tribunal, which is housed within the current Financial Services Commission and, therefore, subject to potential conflicts, should be established as an independent tribunal with its own budget funded by government; and
  • the Financial Services Tribunal should have authority to adjudicate matters clearly articulated in its enabling statute, including appeals from certain decisions of FSRA.

Bill 70, Building Ontario Up for Everyone Act (Budget Measures), 2016, was introduced by the Ontario government on November 16, 2016, and passed ‘First Reading’ in the Legislative Assembly. Among other things, this omnibus legislation would:

  • enact legislation establishing FSRA, replacing both the Financial Services Commission and Deposit Insurance Corporation; and
  • amend the Pension Benefits Act (Ontario) (PBA) to provide the Superintendent of Pensions with authority to impose significant administrative penalties for contravening or failing to comply with the PBA.

It is too soon to tell whether all aspects of the Panel’s recommendations will be implemented by the Ontario government. The proposed legislation is bare bones and creates only the framework for the FSRA. It does not set a clear mandate other than the fact that FSRA will regulate specific financial sectors of the Ontario economy.

On the other hand, proposed changes to the PBA clearly demonstrate a new regime involving administrative penalties – a hallmark of modern regulatory systems, providing the muscle to enforce compliance. If adopted, the amendments will enable the Superintendent to quickly impose meaningful administrative penalties (up to $25K for corporations and $10K for individuals) to ensure compliance with legislative requirements, orders and undertakings. As an added jolt, administrative penalties may not be paid from the pension fund of an offending administrator.

While there is a right to a hearing if an administrative penalty is proposed by the Superintendent, the process is swifter and more appropriate than current regulatory measures that require Crown prosecution under the Provincial Offences Act (Ontario). The difference between an administrative penalty and offences prosecution can be likened to the difference between a speeding ticket and a drunk-driving charge. Both involve motor vehicles, but in the former case you can pay your fine and drive away, while in the latter you’re obliged to spend time in court and will likely want a lawyer.

Bill 70 represents an initial response to the Panel’s numerous recommendations. Nevertheless, with just these preliminary changes, pension administrators and their agents should brace for more fines and greater enforcement in the future. Industry professionals expect the Ontario government to implement more Panel recommendations in 2017 and sense that they are witnessing the creation of a modern, responsive and far more dynamic pension regulatory system for Ontario.

Witness the Creation of Ontario’s Modern Pension Regulator

Environmental, Social and Governance Factors: Should Pension Plan Administrators Look to Rating Agencies for Links Between ESG and Credit Worthiness of Target Investments?

In my August 17, 2016 post (found here), I summarized Ontario’s recent changes to the Pension Benefits Act and Regulation that require a pension plan’s statement of investment policies and procedures (“SIPP”) to include information as to whether environmental, social and governance (“ESG”) factors are incorporated into the plan’s SIPP and, if so, how those factors are incorporated.  I noted that while the incorporation of ESG factors into a pension plan’s SIPP is not a statutory requirement, the question arises as to whether a failure to consider ESG factors in your pension plan’s SIPP could be a breach of fiduciary duty.  I didn’t answer the question directly but did say that many of Canada’s largest public sector pension funds have now incorporated ESG into their investment policies.

Given that provincial pension legislation requires plan administrators to exercise the care, diligence and skill that a person of ordinary prudence would exercise when dealing with the property of another person, would that exercise not, by logical extension, include investigation of the consideration of ESG factors in the assessment of creditworthiness of investee entities?

Recent announcements by some of the world’s largest credit rating agencies recognize that ESG factors can affect borrowers’ cash flows and the corresponding likelihood that they may default on their debts. S&P Global Ratings, Moody’s, Dagong, Scope, RAM Ratings and Liberum Ratings signed a “Statement on ESG in Credit Ratings” (the “Statement”) in May of this year acknowledging that ESG factors are important elements in assessing creditworthiness of borrowers and, for corporations, “concerns such as stranded assets linked to climate change, labour relations or lack of transparency around accounting practices can cause unexpected losses, expenditure, inefficiencies, litigation, regulatory pressure and reputational impacts.”

Included in the Statement are 100 investors managing US $16 trillion of assets, all of whom are signatories to the six UN-supported Principles for Responsible Investment wherein the investors affirmed their commitment to:

  • incorporate ESG factors into investment analysis and decision-making processes;
  • seek appropriate disclosure on ESG issues by investee entities; and
  • report on activities and progress towards implementing responsible investment.

Several well-known Canadian institutional investment corporations are included in the list of 100 investors.

Rating agency reports that incorporate ESG factors in the assessment of credit risk may soon form part of the statement of the valuation method process required by pension regulators.

The Fall 2016 Corporate Knights article, Credit ratings and climate change, cited a 2015 report from the Center for International Environmental Law, which accused the rating agencies of repeating their risk analysis mistakes from the sub-prime mortgage debacle when it comes to fossil fuel investments: “In assuming a business as usual scenario, rating agencies may be artificially inflating the credit ratings and financial value of companies that contribute to global warming”.  The report added that “This poses significant risks for investors, and the climate, and could expose rating agencies themselves to legal liability.” The May 2016 Statement on ESG in Credit Ratings appears to be the first step in addressing the gap in credit rating which doesn’t necessarily consider sustainability and governance factors in credit ratings and analysis.

Plan administrators should seek legal advice to ensure their fiduciary duties are fulfilled when they embark on considering ESG factors in their investment decision making process.

Environmental, Social and Governance Factors: Should Pension Plan Administrators Look to Rating Agencies for Links Between ESG and Credit Worthiness of Target Investments?

Ontario Pension Advisory Committees

If you are involved with the administration of an Ontario registered pension plan, you should familiarize yourself with new Ontario rules regarding pension advisory committees. The new rules will be effective January 1, 2017.  They give significant additional rights to plan members, and could impose extra costs and administrative burdens on plan administrators.  You can find the new rules here: Ontario Pension Advisory Committee Rules

I wrote about these new rules a few weeks ago, when draft regulations were released by the Ontario government. The regulations are now final and are described in my article here: Pension Article

It is possible that these new rules will have no impact on your plan. If unions and plan members take no action, plan administrators are under no obligation to take any action.  There will be no pension advisory committee in that case.  But if a request is made by a union, or by at least ten members of a plan (including retirees), the new rules will be triggered.  The rules set out a clear and detailed process to communicate the request with all plan members, distribute materials and conduct a vote.

If the majority of plan members decide to establish an advisory committee, the plan administrator is then required to do several things, including:

  • hold the initial meeting,
  • give the committee or its representative “such information as is under the administrator’s control and is required by the committee or its representative for the purposes of the committee”,
  • make the plan actuary available to meet with the committee at least annually if the plan provides defined benefits,
  • ensure that the committee has access to an individual who can report on the investments of the pension fund at least annually, and
  • provide administrative assistance to the committee.

The pension advisory committee will not have any legal authority to dictate how the plan should be administered. The new legislation says simply that “[T]he purposes of an advisory committee are (a) to monitor the administration of the pension plan; (b) to make recommendations to the administrator respecting the administration of the pension plan; and (c) to promote awareness and understanding of the pension plan.”

Reasonable costs related to the establishment and operation of the committee are payable out of the pension fund.

Please contact a member of the Pension, Benefits and Executive Compensation group at Dentons Canada LLP for more information about this potentially significant change to the governance of Ontario registered pension plans.

Ontario Pension Advisory Committees

Agency personnel in the healthcare sector: who is the real employer?

In recent years, the Québec Tribunal administratif du travail (the “TAT”) (formerly the Commission des relations du travail) has frequently been called on to address the legal implications involved in the hiring of temporary employees through personnel agencies in the health and social services field.

Most recently, in the case of Professionel (le)s en soins de santé unis (FIQ) and Centre intégré universitaire de santé et services sociaux de l’Est-de-l’Île-de-Montréal[1], the TAT ruled on the issue as to whether nursing and cardio-respiratory professionals who were assigned to the Montréal West Island Integrated University Health and Social Services Centre (the “Centre”) through personnel agencies were included in the Centre’s Professionnel(le)s en soins de santé unis’ bargaining unit (the “Bargaining Unit”), since the union had filed an application under section 39 of the Labour Code, CQLR, c. C-27 to have these professionals included in the said Bargaining Unit.

The union argued that its request was consistent with the principles established by the Supreme Court of Canada (the “Supreme Court”) in Pointe-Claire (City) v Quebec (Labour Court) (“Pointe-Claire”)[2] which promoted a comprehensive and flexible approach to the identification of the “real employer” in a tripartite relationship. In this context, the union emphasised the particular institutional framework of health and social services to support its contention that the true employer was the Centre and not the personnel agencies.

The issue was decided upon on August 25th 2016 by Mr. André Michaud from the TAT, who ruled that in light of the particular institutional framework of health and social services in Québec, the real employer of the temporary employees hired through personnel agencies was the Centre and not the personnel agencies. Hence, the temporary employees were included in the Bargaining Unit.

In reaching this decision, the TAT began its analysis by examining the criteria set forth in Pointe-Claire in order to identify the real employer in the tripartite relationship. The TAT held that the temporary employees assigned by the personnel agencies had to adapt to the strict working conditions of the Centre and were fully integrated into teams of different services or care units. These employees were directly under the control of the Centre. The Court added that the temporary employees had to perform the same tasks, in the same manner and under the same conditions as the permanent employees of the Centre. Furthermore, they were overseen by the same supervisors and used the same equipment in the facilities. From a patient’s perspective, no distinction could be made between both categories of employees. Finally, the TAT underlined that the purpose of using the services of said agencies was not for their nursing expertise but rather for their specific expertise in providing qualified professionals who had such expertise. The Centre communicated very specific requirements with respect to the necessary qualifications and training of the temporary employees and the personnel agencies would in turn find the appropriate candidates. As such, the Centre directly and indirectly controlled almost every aspect of the temporary employees’ hire and working conditions. For all of these reasons, the TAT concluded that the Centre was actually the real employer of the professionals who were assigned to the Centre through personnel agencies.

The implications of the TAT’s findings in this case are highly important because there may be an increase of requests under section 39 of the Labour Code to have all the professionals assigned through personnel agencies included in the employer’s pre-existing bargaining units.

It is worthy to note that this decision is currently undergoing judicial review as both the Centre and personnel agencies argue that the TAT reached its conclusions by misinterpreting the health and social services institutional framework, and without sufficient evidence on the criteria defined by the Supreme Court in Pointe-Claire such as the legal subordination, the selection, discipline and evaluation process as well as the assignment of duties, remuneration and integration into the Centre. We will follow the developments in this important matter with great interest.

[1] 2016 QCTAT 5036.

[2] [1997] 1 SCR 1015.

Agency personnel in the healthcare sector: who is the real employer?

Target Benefit Plans: A New Proposed Plan Design Option for Federally-Regulated Employers

On October 19, 2016, the federal government introduced Bill C-27 which, if passed, will permit federally-regulated employers to establish single-employer and multi-employer target benefit plans.  The bill proposes to amend the Pension Benefits Standards Act, 1985 to add target benefit plans as an alternative to the traditional defined benefit (DB) and defined contribution (DC) plan design options.  Following the steps of other Canadian jurisdictions like New Brunswick, Alberta and British Columbia, Bill C-27 addresses the perceived need for alternative pension plan designs as a way to increase and/or improve pension plan coverage in the private sector.  If you are a federally-regulated employer seeking to establish a new pension plan, or re-evaluate or re-design your current pension and retirement savings program, you may want to consider target benefit plans.

Target benefit plans contain both DB and DC plan design features. They aim to provide members with a defined monthly pension benefit at retirement, similar to a DB plan, but are funded through fixed contributions, like in a DC plan.  Depending on the funding level of the plan, benefits (including accrued benefits and future benefits) may be adjusted.

Like other provincially regulated employers, federally-regulated employers (such as banks, airlines, railways and telecommunications companies) are seeking ways to control the volatility of pension contributions and the often corresponding negative impact on their balance sheets associated with DB plan designs. The ability to create target benefit plans would offer employers with an opportunity to provide sustainable and predictable pension benefits with more cost certainty and without the solvency liability risk associated with traditional DB plans.

While many details regarding the federal target benefit plan framework will be set out in regulations that have yet to be released, some of the main features being proposed include the following:

  • Target benefit plans must be created as new plans.  Converting an existing pension plan into a target benefit plan will not be permitted.  However, pension benefits under an existing pension plan may be surrendered by members in exchange for pension benefits under a target benefit plan with the member’s informed consent.
  • Target benefit plans must be administered by a board of trustees or other similar body.
  • A written governance policy must be established for the plan, in accordance with the regulations.
  • A funding policy must be established for the plan.  The funding policy is required to include, among other things, the rate of employer and, if applicable, employee contributions; the objectives of the plan with respect to pension benefit stability; a deficit recovery plan; and a surplus utilization plan.
  • Once a target benefit plan’s objectives regarding pension benefit stability are established, they cannot be amended.  In addition, an amendment reducing accrued benefits is void unless it complies with the plan’s funding policy.
  • If DB benefits under an existing pension plan are surrendered and transferred to a target benefit plan and the target benefit plan is terminated within five years of the transfer, members will be entitled to the greater of the benefit under the original pension plan and the target benefit plan.

The introduction of Bill C-27 is a positive step towards providing more choice to employers in pension plan design options which will hopefully encourage more employers to offer, and continue to offer, pension plans as part of their employee benefits package.

We will keep you posted on any new developments regarding target benefit plans and the proposed federal legislation.

Target Benefit Plans: A New Proposed Plan Design Option for Federally-Regulated Employers

Flexible Work Arrangements Proposed by the Government of Canada

The Government of Canada recently completed a consultation with employers, employer associations, union and labour organizations, and advocacy groups as part of its pledge to amend the Canada Labour Code to allow workers in federally regulated sectors to formally request flexible work arrangements from their employers.

What Are Flexible Work Arrangements?

Flexible work arrangements are alternative arrangements to the traditional working week. The most common forms allow an individual employee to alter, on a temporary or permanent basis, his or her work schedule, the number of hours worked or the location where work is done, or to take time off to meet specific responsibilities. Some examples include:

  • Flexible start and finish times;
  • The ability to work from home;
  • Compressed work weeks: working for longer periods of time per day or shift over a defined period of time in exchange for a day off;
  • Split shifts;
  • Time swaps: An employee requests time off for personal reasons and offers to make it up by working longer than usual hours on another day; and
  • Time off in lieu: Overtime can be compensated by time off with pay at the rate of 1.5 hours per overtime hour worked.

According to Employment and Social Development Canada (“ESDC”), flexible work arrangements would help Canadians balance work and family or other personal responsibilities.

Who Will This Affect?

The proposed changes will apply only to federally regulated enterprises which fall under the Canada Labour Code. Some examples include businesses and industries such as banking, marine shipping, ferry and port services, air transportation, railway and road transportation that involves crossing provincial or international borders, telephone and cable systems, radio and television broadcasting, many First Nations activities and most federal Crown corporations. Approximately 11,450 employers and 883,000 workers would be captured by any flexible work rules enacted.

Businesses that follow provincial employment standards legislation would not be affected by the proposed changes. However, these employers are still able to offer flexible work arrangements to their employees provided that the arrangement does not violate provincial employment standards legislation.

No date has been set for when the proposed changes are expected to come into force.

Scope of the Right

ESDC has acknowledged that the proposed changes will not create a right to a flexible work arrangement. Rather, employees would have the right to request a flexible work arrangement. Employers may have legitimate business reasons for denying such a request. Currently however, the grounds for refusing such a request have not yet been set out.

Things to Consider

Flexible work arrangements have potential benefits for employers such as improved employee retention rates, improved productivity, increased job satisfaction, reduced absenteeism and lateness, and being able to schedule work over longer portions of the day.

However, flexible work arrangements may have negative impacts, particularly on the operations of small businesses due to their generally more limited resources to deal with additional administrative burdens. Other concerns raised by employers include potential additional costs, disruptions due to having to reorganize work amongst existing staff, insufficiency of work during the periods the employee proposes to work and problems recruiting additional staff.

The extent to which these potential benefits and drawbacks will affect employers will depend on what changes are made to the Canada Labour Code as well as each employer’s business characteristics.

We will continue to monitor developments to the government’s proposal and provide updates as more information about the proposed changes to the Canada Labour Code become known.

Flexible Work Arrangements Proposed by the Government of Canada

Federal Pay Equity Legislation Promised

Legislation coming to the Federally Regulated Employment Sector (and possibly provincially-regulated employers enrolled in the Federal Contractors Program)

The Canadian pay equity model requires employers to assess the value of female-dominated jobs and male-dominated jobs within an organization by evaluating the value of the jobs on the basis of skill, effort, responsibility and working conditions. Female-dominated jobs which are paid less than male-dominated jobs of the same or comparable value need to be paid the same.  This type of job evaluation permits jobs with entirely dissimilar job functions to be valued. The Equal Wages Guidelines, 1986 under the Canadian Human Rights Act was arguably the first piece of pay equity legislation in the country.  This was followed by private sector pay equity laws in Ontario and Quebec.  However, the provincial laws do not simply rely on employee or union complaints and, instead, set out a proactive compliance regime with various milestones and deadlines.  The Equal Wages Guidelines, 1986, on the other hand, are complaint-based and have a history of spawning notoriously lengthy litigation.

The Special Committee on Pay Equity tabled its First Report to Parliament on June 10, 2016. Among its 31 recommendations, the Special Committee recommends that the Government of Canada draft proactive gender pay equity legislation within 18 months of the tabling of the Report to apply to the federal public service, Crown corporations,  federally regulated companies with 15 or more employees, and companies participating in the Federal Contractors Program.  Federally regulated employers in Ontario and Quebec which can provide evidence of compliance with the provincial legislation would be exempt from the federal pay equity plan, monitoring and reporting requirements.

The Report recommends the creation of a pay equity commission and a pay equity tribunal. The legislation would require both unions and employers to be responsible for modeling, implementing, monitoring and maintaining pay equity plans and would prohibit unions and employers from negotiating collective agreements that would contravene the pay equity legislation.  In fact, it was recommended that the legislation should stipulate that any pay equity agreement would supersede a collective bargaining agreement.  A female-dominated job class would be one with at least 60% female incumbents for job classifications with 100 or more employees, or at least 70% female for job classifications with fewer than 100 employees.

The federal government announced in October 2016 that it first plans to consult with stakeholders and experts and then table proactive pay equity legislation by 2018. The legislation will cover 874,000 employees and 10,800 employers in the federal jurisdiction.  There has been no comment from the Government on the Report’s recommendation to extend the requirements to provincially-regulated private sector employers participating in the Federal Contractors Program.   The government has faced criticism from unions and from the NDP for delaying pay equity to 2018.

We will keep you posted.

Federal Pay Equity Legislation Promised

Canada Pension Plan enhancements: it’s happening

Yesterday the federal government tabled Bill C-26, which will implement changes to the Canada Pension Plan that were announced in June, 2016.  All provinces other than Quebec are now on board, in support of increased employer and employee contributions, and higher benefits.  The higher contribution rates will not apply until January 1, 2019.  They will be phased in gradually over seven years (from 2019 to 2025).

Commentators refer to these changes as “historic”.  It has been decades since significant changes were made to the CPP.  The reality is that the Canadians who should be happiest about these changes are teenagers, since it will be many years until significantly higher benefits are paid from the CPP.

We will be providing more details about the CPP changes in the coming weeks.

 

Canada Pension Plan enhancements: it’s happening

British Columbia Arbitrator Reinstates Firefighter Convicted of Possession of Stolen Boat

In a recent grievance decision, Re Prince George and Prince George Firefighters, Local 1372 (Williams), 2016 CarswellBC 2591, a labour arbitrator reinstated a firefighter whose employment was terminated after being found guilty of possession of a stolen boat and trailer.

The arbitrator concluded that in order to justify terminating a unionized employee, there must be a sufficient nexus between the employee’s misconduct away from work, and his employment duties.

Facts

The Grievor had been a firefighter for 11 years with a pristine work record. There were no concerns with his honesty or work.  In 2012, he purchased a boat and trailer for $9,500 from a fellow firefighter.  The boat, reportedly worth approximately $30,000, had been stolen.  The state of the Grievor’s knowledge when he purchased the boat was disputed.

The Grievor was arrested in 2013. The RCMP phoned the Grievor and asked to attend his property to investigate a tip that a stolen boat was located on his property.  Within minutes of the call, the Grievor hooked the boat and trailer up to his car and began towing it away from his property.  However, the Grievor’s property was under surveillance and he was arrested.

The Grievor lied about his acquisition of the boat and trailer in his initial statement to police, providing a story about how he purchased the boat, and three different purchase prices. He later admitted to the RCMP that he bought the boat from a fellow firefighter for much less, but he did not admit to knowing the boat was stolen.  However, he made some comments that he had doubts about the deal, and suggested he “had an inkling in the pit of his stomach” about it.

The employer investigated and the Grievor reluctantly admitted to the arrest. The Grievor was placed on leave, but the employer did not initially ask if he knew the boat was stolen.  When asked in a subsequent interview, the Grievor said it was a “grey area”.  He also advised the employer of his attempt to flee with the boat.  The employer allowed the Grievor to return to work with conditions, accepting that he was being forthright.

In the criminal proceedings, the court did not accept the Grievor’s evidence, and he was found to have known the boat was stolen. The trial was widely reported in the local media.

Upon learning of the verdict, the employer terminated the Grievor’s employment. The employer’s reasons, as stated at arbitration, included: the comments made by the judge regarding the non-acceptance of the Grievor’s evidence and his credibility, dishonesty and lack of judgment; the media reports and negative publicity; and concerns about the Grievor’s honesty during the employer’s investigation.

Arbitrator’s Reasons

The arbitrator found it difficult to reconcile evidence regarding the Grievor’s police statement and his evidence at trial and arbitration that he had no concern the boat was stolen. She noted that she had “grave doubts” as to his understanding of the underlying issue of his honesty.  Nevertheless, she proceeded to consider the question of whether termination was excessive in the circumstances.

To this end, relying on Millhaven Fibres Ltd. and OCAW, Local 9-670, Re, [1967] O.L.A.A. No. 4 (Ont Arb), the arbitrator noted that in determining whether the Grievor’s conduct away from the place of work was a justifiable reason for discharge, there was an onus on the employer to show that:

  1. The conduct of the Grievor harms the employer’s reputation or product;
  2. The Grievor’s behaviour renders the employee unable to perform his duties satisfactorily;
  3. The Grievor’s behaviour leads to refusal, reluctance or inability of the other employees to work with him;
  4. The Grievor has been guilty of a serious breach of the criminal code and thus rendering his conduct injurious to the general reputation of the employer and its employees;
  5. The conduct causes difficulty in the way the employer properly carries out its function of efficiently managing its works and efficiently directing its working force.

The arbitrator found there was no direct link between the misconduct and the Grievor’s duties. There was no suggestion he could not be trusted to do his firefighting duties. The arbitrator accepted that it was an isolated incident by an employee with a pristine work record, not likely to be repeated.  Moreover, he was not in a fiduciary position, and his duties did not expose him to the temptation of greed.

In short, the arbitrator concluded that there was an insufficient nexus between the Grievor’s misconduct and his duties to warrant termination. Accordingly, the arbitrator reinstated the Grievor, but declined to award wages, seniority or benefits from the date of termination to the date of reinstatement.

Take Away

Criminal convictions in and of themselves may not justify termination of an employee on the basis of dishonesty and lack of trust. Despite findings of misconduct in criminal proceedings, employers terminating for cause must establish that the misconduct actually relates in more than a general manner to the duties to be performed by the employee.

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British Columbia Arbitrator Reinstates Firefighter Convicted of Possession of Stolen Boat