|
Citation: 2009 TCC 198
|
|
Date: 20090421
|
|
Docket: 2008-1378(CPP)
|
|
BETWEEN:
|
|
TORONTO TRANSIT COMMISSION,
|
|
Appellant,
|
|
and
|
|
|
|
THE MINISTER OF NATIONAL REVENUE,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Weisman
D.J.
[1] Nancy Murphy and Herschell Green were both permanently disabled in
2006 while employed under contracts of service by the Toronto Transit
Commission (the “TTC”). Fortunately, the TTC had long term disability income
plans in place that assured the two employees of a percentage of their earned
income when their monthly disability benefits began.
[2] The Minister of National Revenue (the “Minister”) has decided that
these monthly payments constitute remuneration for pensionable employment, and
as such are subject to employer’s contributions under the Canada Pension
Plan
(the “Plan”). The TTC now appeals that determination.
[3] The TTC funds one plan for its unionized employees, and another for
its non-unionized staff. The union plan specifically provides that disability
benefits are provided to eligible employees by way of indemnity for lost future
income. The staff plan is to the same effect, as it authorizes the TTC to
deduct from disability benefits otherwise payable, any damages awarded to
employees against third parties for loss of future income, and any disability
benefits received under the Plan.
[4] TTC policy manuals confirm that while receiving disability payments,
workers are on personal leaves of absence and remain employees. They are
transferred to inactive status, and may be replaced temporarily or permanently,
or reinstated. Their seniority is not affected by being on inactive status; their
disability benefits are subject to a cost of living adjustment; their
healthcare and dental benefits are maintained; and they are still entitled to
retain their transportation privileges.
[5] While the plans are funded by the TTC, they are administered by a
life insurance company as agent for the TTC and not as an insurer. Although the
insurance company makes the actual disability payments, it is reimbursed by the
TTC, which retains the right to make the final determination of any dispute
concerning a person’s eligibility or his or her coverage under the plan or
right to receive benefits; any situation where a person has disputed the amount
due; and generally any controversial matter or non-routine matter arising out
of the administration of the plan.
[6] The TTC bases its appeal upon subsections 2.(1), 6.(1) and 9.(1),
under the Plan, which provide in part as follows:
2.(1) In this Act,
…
"employer" means a person liable
to pay salary, wages or other remuneration for services performed in
employment, and in relation to an officer includes the person from whom the
officer receives his remuneration;
"employment" means the
performance of services under an express or implied contract of service or
apprenticeship, and includes the tenure of an office;
…
6.(1) Pensionable
employment is
(a) employment in Canada that is not excepted
employment;
(b)
employment in Canada under Her Majesty in right of Canada that is not excepted employment; or
(c)
employment included in pensionable employment by a regulation made under
section 7.
9.(1) Every
employer shall, in respect of each employee employed by the employer in
pensionable employment, make an employer's contribution for the year in which
remuneration for the pensionable employment is paid to the employee …..
[7] The TTC takes comfort in the fact that the definition of “Pensionable
employment” in subsection 6.(1) is set out in three parts, all of which begin
with the key word “employment”. Subsection 2.(1), clearly requires the
performance of services under a contract of service for there to be employment.
Subsection 9.(1) further requires that there be remuneration. While the TTC
admits that contracts of service still exist while the two employees are on
inactive status, it points out that no services are being performed, and no
remuneration is being paid; rather the employees are being indemnified for loss
of future earnings and wages.
[8] The TTC also finds some authoritative support for its position in
two cases: Re. Minister of National Revenue and
Visan (“Visan”) and Cité de la Santé de Laval v. Canada (“Cité”).
It should be noted that these cases involved the Unemployment
Insurance Act,
1971 (the “UIA”) and the Employment Insurance Act (the “EIA”)
respectively, but not the Plan.
[9] In Visan, a third party insurance company funded the employer
school board’s disability plan. It made payments to a disabled teacher who
performed no services. The Court found that the payments were not insurable
earnings because they did not constitute remuneration as required by subsection
54(1) of the Unemployment Insurance Regulations
which provided as follows:
54(1) Subject to subsections (2) and (3)
the employment with an employer in any week of a person,
(a) whose earnings are calculated in whole
or in part on time-worked or
fixed-salary basis and who is employed and remunerated for less than twenty
hours by his employer,
…
is excepted from insurable employment.
[10] Since the word “remunerated” is not defined in the UIA, the
Court looked to the dictionary definition. The Court says:
The Shorter Oxford Dictionary, 3rd ed., defines
“remunerate” and “remuneration” as follows:
... 1. trans. To repay, requite, make some
return for (services, etc.). 2. To reward (a person); to pay (a person) for
services rendered or work done.... Hence Remuneration, reward, recompense,
repayment; payment, pay.
From the definition it can be seen, I
think, that the character of the payment is determined by its nature. Applying
that test to the payments made to the respondent, it is clear that they were
not made for services rendered but, in a sense, were the opposite of payments
of that kind, viz., to compensate the respondent, in part, for the loss of payments
for services which he would have rendered had he not been prevented from doing
so by his disability.
[11] In Cité, the employees involved, who
were pregnant nurses, did not do any work while on special leave. Their
disability payments were ultimately provided by a third party insurer which was
a provincial government benefit plan. The Court applied paragraph 2.(1)(a) of
the Insurable Earnings and Collection of Premiums Regulations (“IECPR”)
which provides as follows:
2.(1) For
the purposes of the definition "insurable earnings" in subsection
2(1) of the Act and for the purposes of these Regulations, the total amount of
earnings that an insured person has from insurable employment is
(a) the
total of all amounts, whether wholly or partly pecuniary, received or enjoyed
by the insured person that are paid to the person by the person's employer in
respect of that employment, and …
[12] The Court concluded that “earnings” refers to
remuneration, salary, income or money received for a service or work. It
decided that the amounts in issue were not insurable earnings for four reasons.
First, the group indemnity plan was a legislative insurance plan, and not part
of a contract of employment between an employer and its employees. Second, for
income from an employer to be earnings, it must have been paid pursuant to a
labour or employment contract. Third, the amounts received were legally
classified by the government plan as “income replacement indemnity”. Following Visan,
the Court also found that the payments were not in the nature of remuneration
and did not correspond to services, but were at opposite poles from payments of
that kind. The purpose of the payments was to indemnify a pregnant employee for
the loss of earnings that would have resulted if there were no income
replacement indemnity in place.
[13] Accordingly, while these two cases involve the
insurability of payments received by disabled workers, and not its
pensionability, they nonetheless offer some guidance since both Acts and
the Plan ostensibly require services to be performed and remuneration to
be paid. Both Courts found the benefit payments not to be insurable earnings
because no services were performed; they were funded by a third party insurer
and not by the employer, and the amounts received were not in the nature of
remuneration but were long term disability benefits or income replacement
indemnities.
[14] The Minister has a different point of view,
also supported by jurisprudence. His position rests on subsection 9.(1) above,
together with subsection 12.(1) under the Plan, as well as subsection
5(1) and subparagraph 6(1)(f)(ii) of the Income Tax Act
(the “ITA”), which provide in part as follows:
12.(1) The amount of the contributory salary and wages
of a person for a year is the person's income for the year from pensionable
employment, computed in accordance with the Income Tax Act ..…
5(1) Subject to this Part, a taxpayer's
income for a taxation year from an office or employment is the salary, wages
and other remuneration, including gratuities, received by the taxpayer in the
year.
…
6(1) There shall be included in computing
the income of a taxpayer for a taxation year as income from an office or
employment such of the following amounts as are applicable
…..
(f) Employment insurance
benefits - the
total of all amounts received by the taxpayer in the year that were payable to
the taxpayer on a periodic basis in respect of the loss of all or any part of
the taxpayer's income from an office or employment, pursuant to
…
(ii) a disability insurance plan, …
to or under which his employer has made a contribution…..
[15] Since subsection 12.(1) under the Plan
incorporates the ITA by reference, subparagraph 6(1)(f)(ii) of that Act
includes in the computation of income “an income disability insurance plan” …
“to or under which his employer has made a contribution”, prima facie
the benefit payments received from the TTC by the two workers in the matter before
me, are pensionable even though no services were performed.
[16] The Minister further contends that sections 9
and 12 of the Plan should be construed harmoniously in order to avoid
incongruous results. Amounts received could otherwise be taxable but not
pensionable, or vice versa.
[17] Finally, the Minister minimizes the significance
of the words “for a year” in subsection 12.(1) under the Plan, in answer
to the TTC’s argument that no services are being provided in the year the
employee receives his or her disability benefits. The Minister points out that
a bonus paid in one year for services rendered in prior years, are nonetheless
taxable and pensionable, even if no services are performed in the year of
receipt. He asserts that the TTC’s disability benefit payments similarly
constitute remuneration for past services performed.
[18] The Minister has brought several cases to the
Court’s attention. Unfortunately, only two of them involve the Plan. In Peters
v. M.N.R.,
the Court held that long term disability payments received by an employee from
a third party insurer over which the employer had no control, were not
pensionable because that required employment income to be paid by an employer
for services performed under a contract of service. There was no such contract
between the employee and the insurance company.
[19] In contrast, Desender v. M.N.R. held disability payments both insurable and pensionable, because
the employer University funded
the disability plan, the employees contract of service remained in effect; and
she continued to have all the rights of an employee during that time.
Unfortunately the Court’s attention does not seem to have been drawn to
subsection 1.(2) under the IECPR above, which provides as follows:
1.(2) For the
purposes of Part IV of the Act and for the purposes of these Regulations,
"employer" includes a person who pays or has paid earnings of an
insured person for services performed in insurable employment.
[20] This definition of “employer” is similar to
that in subsection 2.(1) of the Plan. Both require payment for services
performed. We cannot know if the result would have been different if this
subsection had been considered by the Court.
[21] Université Laval v. M.N.R. (“Laval”) deals with insurable earnings, but is otherwise factually very
similar to the scenario before me. The University’s collective agreement with
its employees required it to maintain a wage loss indemnity plan that it paid
for in its entirety. The plan paid benefits equal to a percentage of the
employee’s normal salary. An insurance company acted merely as the account administrator.
The workers were still employed by the University; if there was a salary
increase the benefits increased accordingly; the benefits were paid during
normal pay periods for the first 52 weeks of the disability, and the workers
did not perform any services.
[22] Unlike Desender, the Court does
consider subsection 1.(2) under the IECPR above, which defines
“employer” as a person who pays earnings for services performed as aforesaid. The
Court also refers to paragraph 2.(1)(a) under Part I of the same Regulations,
as did the Court in Cité, which found Government funded income
replacement indemnities not to be insurable earnings because, inter alia
they were not remuneration for services performed. The Appellant stressed the
fact that no services were performed as required by subsection 1.(2). The
Minister countered that as long as an employment relationship is maintained,
disability payments paid by the usual employer rather than by an insurer,
constitute insurable earnings even though services have not been performed
during the disability period.
[23] In deciding in favour of the Minister, the
Court was swayed by three considerations. First, the definition of “employer”
in subsection 1.(2) under the IECPR uses the word “includes” rather than
“means” which leads to the inference that there can be situations in which a
person other than the person for whom the worker performs the services pays the
earnings. Second, courts have consistently held that the phrase “in respect of”
found in paragraph 2.(1)(a) of the IECPR, above, is particularly broad.
Third, subsection 2.(3) sets out various payments that are excluded from being
“earnings”, most of which involve situations in which no services are being
performed. This subsection would not be necessary if the performance of
services was a condition precedent to insurability. For example, paragraph
2.(3)(d) specifically singles out for exclusion “a supplement paid to a person
by the person’s employer to increase a wage loss indemnity payment made to the
person by a party other than the employer under a wage loss indemnity plan”.
[24] Laval was explained and followed in National Bank of Canada v. M.N.R.
(“National Bank”) where no services were performed by the disabled
employee who remained subject to a contract of service; the benefits were paid
by the employer with the assistance of an insurer which merely administered the
plan; and the employer maintained the ultimate authority over eligibility for
benefits. In finding the benefits insurable the Federal Court of Appeal sets
down the following five principles enunciated by it in Laval:
(1) The expression
"in respect of" such employment, which qualifies earnings paid by the
employer and which is found in subsection 2(1) of the Regulations is
particularly broad;
(2) There can be insurable
earnings within the meaning of the Regulations even where the employee has not
performed any services;
(3) Benefits paid by an
employer under a wage loss indemnity plan constitute insurable earnings within
the meaning of the Act and the Regulations, while benefits paid by a third
party insurer are excluded from the definition;
(4) The French word
"verser", which was translated in English by "pay"
("payer") is more general than the French word "payer" to
which the Supreme Court of Canada gave a broad meaning in Canadian Pacific
Limited v. A.G. Canada, at page 687; and
(5) Wage loss benefits are
paid by an employer under a contract of employment where the following indicia
exist, which are not necessarily exhaustive: the wage loss insurance plan is
entirely paid for by the employer, the employment relationship continues to
exist during the disability, the benefits payable are increased if there is a
salary increase during the disability period, the benefits are paid by the employer
during normal pay periods for the first 52 weeks of disability and thereafter
by the insurer and lastly, the employer determines eligibility for the benefits
and signs the cheques.
[25] Neither the EIA nor the Plan is
a social welfare scheme. They are both contributory plans. The purpose of
employment insurance is to provide not only income support but employment
assistance for persons who are eligible. The Plan was designed to
provide social assistance for Canadians who experience a loss of income owing
to retirement, disability, or the death of the wage-earning spouse or parent.
The purposes of the two Acts, and the language used by Parliament in
drafting them, are sufficiently similar that I am encouraged to interpret them
in as harmonious a manner as possible, unless their provisions compel a
different approach.
[26] As aforesaid, subsection 12.(1) of the Plan
provides that “the amount of the contributory salary and wages of a person for
a year is the person’s income from pensionable employment, computed in
accordance with the Income Tax Act”. I note that paragraph 6(1)(f) of
the ITA equally includes in the computation of income for tax purposes,
both employment insurance benefits, and amounts received pursuant to a
disability insurance plan to which the employer has contributed. This not only leads
to the inference that disability payments to which the employer contributes,
are pensionable income, but has the additional effect of harmonizing the Act
and the Plan.
[27] The definition of “employment” in subsection
2.(1) under the Plan, and of “employer” under subsection 1.(2) under the
IECPR are quite similar. In the former, services must be performed under
a contract of service. In the latter, earnings must be paid for services
performed in insurable employment.
[28] We have seen that the Federal Court of Appeal in
Laval found provisions
in the EIA that obviated the requirement that services be performed, and
the question is whether the Plan does likewise.
[29] I note that the definition of “employment” in
subsection 2.(1) of the Plan apparently mandates that there be both a
contract of service and the performance of services in order for employment to
be pensionable under section 6 as aforesaid. So far as the contract of service
provision is concerned, paragraph 7.(1)(d) of the Plan provides for
exceptions:
7.(1) The Governor in Council
may make regulations for including in pensionable employment
…
(d) the performance of services
for remuneration if it appears to the Governor in Council that the terms or
conditions on which the services are performed and the remuneration is paid are
analogous to a contract of service, whether or not they constitute a contract
of service;
[30] Accordingly, under Regulation 34.(1),
for example, which deals with employment agencies, remuneration can be
pensionable even though there is no contract of service with either the agency
or its client.
[31] Similarly, the requirement in subsection 2.(1)
that there be services performed for there to be “employment” is not absolute. As
aforesaid, subsection 12.(1) incorporates by reference the ITA.
Subparagraph 6(1)(f)(ii) of that Act renders taxable, and therefore
pensionable, amounts received from a disability plan to which the employer has
contributed, even though, obviously, no services have been performed.
[32] Further, both Laval and National Bank distinguished those cases
in which the benefits are paid by the employer, from those in which they are
paid by a third party insurance company.
[33] I conclude that the benefits paid by the TTC to
Herschell Green and Nancy Murphy as indemnity for lost future income
pursuant to its long term disability plans, while their contracts of service
were still in effect, are pensionable earnings under the Plan.
[34] In this matter, the burden is upon the
Appellant to demolish the assumptions set out in paragraph 9 of the Minister’s
Reply to the Notice of Appeal. It has failed to do so. In fact, subparagraph
9(s) has been clarified to the Minister’s advantage. The TTC makes the final
determination in disputes regarding eligibility, coverage, amounts due, and
“generally any controversial matter or non‑routine matter arising out of
the administration of the Plan”.
[35] I have investigated all the facts with counsel
for both parties and have found no new facts and nothing to indicate that the
facts inferred or relied upon by the Minister were unreal, or were incorrectly
assessed or misunderstood. The Minister’s conclusions are objectively
reasonable. In the result, the appeal is dismissed and the determinations of
the Minister are confirmed.
Signed at Toronto, Ontario, this 21st
day of April 2009.
Weisman
D.J.
Email this Content