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Employers, unions battle over payment of health premiums

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TORONTO—Ontario employers with unionized workforces are engaged in legal battles against unions over costly health care premiums that the unions claim employers must pay under their labor agreements.

Since the premiums were introduced more than three years ago, several Ontario employers have been forced by labor arbitrators to pay the premiums on behalf of their unionized employees, although most companies have successfully avoided that obligation.

The Supreme Court of Canada recently declined to enter the fray, essentially deferring to the judgment of individual arbitrators in the labor disputes, a move lawyers predict will lead to more legal confrontations between employers and unions.

The situation "has fostered a lot of litigation," said Harold Goldblatt, a senior partner with Toronto-based Sack Goldblatt Mitchell L.L.P., which represents unions and employees.

On July 1, 2004, the provincial government introduced the Ontario Health Premium, an individual income tax that is used to fund improvements in Ontario's health care system (see box). That triggered a wave of arbitration grievances filed by unions on behalf of their members, arguing that collective agreement language mandated that employers pay any such premiums. About 28% of Ontario's workforce belongs to a union, according to Statistics Canada, the federal government's research agency.

Of the almost 50 arbitration cases considering the employer's obligation to pay the premium on behalf of its employees, employers have lost eight and won the rest, according to a 2006 report by Toronto-based Filion Wakely Thorup Angeletti L.L.P.

Although the disputes began at the arbitration level, the Supreme Court in June dismissed requests by two employers to review their claims that Ontario courts applied the wrong standard of review to the decisions of the arbitrators and erred in not quashing the arbitration awards, particularly in light of the inconsistent decisions regarding the employers' obligation to pay the premiums.

The arbitrators in these two cases ruled that labor contracts mandated the employers--the Toronto Transit Commission and National Steel Car Ltd.--pay the premium on behalf of their employees.

The TTC has begun paying the premium on behalf of its 8,000 unionized employees at a cost of about $6 million Canadian ($5.7 million) per year, according to a spokeswoman.

Hamilton, Ontario-based National Steel Car could not be reached for comment.

In declining to review the two cases, the Supreme Court essentially upheld the Ontario Court of Appeal's December 2006 ruling that the right standard of review was applied to the decisions of the arbitrators--namely, whether their decisions were "patently unreasonable."

"That's a pretty high threshold to meet," said David Elenbaas, a Toronto-based partner and head of the employment and labor relations practice of McMillan Binch Mendelsohn L.L.P.

In addition, the Ontario Court of Appeal rejected an argument made in the National Steel Car case that it should intervene on behalf of the employer because more than 75% of the arbitration decisions sided with the employers.

The courts will "defer to whatever the arbitrators determine," Mr. Goldblatt said.

The arbitration cases pivot on the specific wording of the collective agreements and the arbitrator's interpretation of the wording, labor lawyers say. "The language is all over the map," said Mr. Elenbaas, whose firm represents employers.

For example, an arbitrator overseeing a dispute between the City of Hamilton and the Hamilton Professional Firefighters Assn. found that the city was responsible for the premiums because the specific language featured in the collective agreement signaled an intention that the employer's obligation would extend to any form of government-funded or provided health care benefits.

According to an argument commonly advanced by unions in these disputes, employers are responsible under labor agreement language that required them to pay premium contributions under the Ontario Health Insurance Plan, the previous regime for collecting contributions for health care coverage. The OHIP was eliminated in 1990 and replaced by an employer payroll tax.

Employers have refused to reimburse employees for the Ontario Health Premium, arguing that unlike the OHIP, the OHP is a tax rather than a premium and reimbursement is not mandated by the labor agreements.

Some arbitrators have accepted this argument, while others have said that the OHP and the OHIP are essentially similar, making employers liable for the tax. This has led to a frustrating situation for employers who have lost their cases because they are responsible for paying both the employer payroll tax as well as the OHP on behalf of their employees, observers note.

"In essence, employers have gotten hit twice," said Keith Morrallee, a Toronto-based partner with consulting firm Morneau Sobeco.

Depending on the employer, the cost of paying the premium could increase total compensation by 1% to 2%, Mr. Morrallee said.

The only recourse for employers found liable for the premiums is to negotiate during the collective bargaining process, but their success in removing their obligation to pay depends on their bargaining power, Mr. Elenbaas said. "I don't think there's much else employers can do other than bargain over the issue," he said.