Benefits After 65: Arbitrator Dismisses Grievance Challenging Age 65 LTD Cut-off but Awards Life Insurance Coverage Based on Collective Agreement


Benefits After 65: Arbitrator Dismisses Grievance Challenging Age 65 LTD Cut-off but Awards Life Insurance Coverage Based on Collective Agreement

Date: September 20, 2022

An Ontario labour arbitrator has upheld a grievance challenging the reduction of life insurance coverage for employees who die after having reached age 65, finding that the relevant provision of the insurance policy had not been incorporated into the collective agreement. In the same decision, the arbitrator dismissed two policy grievances challenging the termination of long-term disability (LTD) insurance at age 65, finding that the carve outs for age-based distinctions in provincial employment and human rights legislation are reasonable limits on employees’ rights to equal treatment under the Canadian Charter of Rights and Freedoms (Charter).


In Rayonier v Unifor, Locals 256 and 89, Arbitrator Paula Knopf considered a union’s allegations that the employer had violated the collective agreement and that its LTD and life insurance policies were discriminatory on the basis of age.

The employer operates pulp and paper mills in northern Ontario, which involves skilled and physically demanding labour. Few employees delay retirement past age 65. The collective agreement between the employer and its unionized workforce provided for both LTD and group life insurance coverage, as well as a defined benefit pension plan and other employee benefits.

The union brought an individual grievance on behalf of an employee who died at age 66 while in active employment. The collective agreement provided for a life insurance benefit of two times annual earnings “for all active employees,” while also providing that employees who had reached age 60 and had five years of continuous service would receive a $5,000 life insurance benefit; the employer’s group life insurance policy indicated that the life insurance benefit was reduced to $5,000 at age 65.

Additionally, the union brought two policy grievances—each on behalf of a different local representing members employed by the company—against the cut-off of LTD benefits at age 65. While acknowledging that both the Ontario Human Rights Code (Code) and Employment Standards Act, 2000 (ESA) create carve outs from the prohibition on age-based discrimination for group insurance plans, the union argued these provisions contravened the right to equality found in section 15(1) of the Charter.

Life Insurance Coverage for all Active Employees Regardless of Age

Arbitrator Knopf upheld the individual grievance, finding that the collective agreement provided for a continuation of life insurance coverage at the rate of two times annual earnings for “all active employees” regardless of age. Although the collective agreement also provided a flat benefit for employees who reached age 60 with five years of continuous service, it was not explicit that such employees who remained in active employment would also cease qualifying for the more generous salary-based benefit.

While the employer’s insurance contract contemplated a reduction to a flat rate at age 65 and termination upon retirement, the arbitrator found that the policy had not been incorporated into the collective agreement. Although the reduction was described in a booklet and on the insurer’s website, there were questions about the availability of those materials and a separate pamphlet did not mention the reduction.

Arbitrator Knopf found that, with the abolition of mandatory retirement at age 65, “[a]ny [age-based] differential had to be found in the wording of the contract.” While the employer claimed the parties had always understood that the employer would provide insurance coverage in accordance with the insurer’s policy, and while the word “plan” had been capitalized in the collective agreement, this was ultimately not sufficient to incorporate the terms of the insurance contract.

The employer argued that the union should be estopped from challenging the reduction after having failed to do so in the previous two decades. The evidence established that the issue had never arisen before the grievor fell ill. Further, the arbitrator noted that while someone may have discovered the provision creating a reduced payout at age 65, an employee would have had to “dig” to find the reduction language. Therefore, Arbitrator Knopf found that union officials had been unaware of the reduction at the relevant times, and therefore rejected the employer’s estoppel claim.

Ultimately, Arbitrator Knopf found that the estate of the deceased employee was entitled to a life insurance benefit payment equal to two times the employee’s annual salary.

LTD Cut-off at Age 65 Reasonable

With respect to the LTD issue, the collective agreement provided that LTD benefits terminated “on the earlier of retirement or age 65.” While creating a distinction based on age, the provision was not inconsistent with the Code and ESA, which together permit insurance plans to make certain age-based distinctions including ceasing benefits at age 65. However, the union challenged the enforceability of the legislated exemptions under the Code and ESA, arguing that these exceptions to the bar on age discrimination contravened section 15(1) of the Charter (i.e. the right to equality) and should therefore not apply.

Arbitrator Knopf found the termination of LTD coverage at age 65 to be a prima facie contravention of section 15(1) of the Charter, as it left older active employees without a benefit that was available to their younger colleagues. The arbitrator then considered whether the infringement was justified under section 1 of the Charter, which permits “reasonable limits” on Charter rights.

While the Ontario Human Rights Tribunal, in Talos v. Grand Erie District School Board, found that the legislative carve outs under the Code and ESA in respect of health, dental and life insurance benefits were not reasonable limits on the Charter right to equality, Arbitrator Knopf noted that that decision expressly did not apply to LTD and pension benefits. Instead, the arbitrator followed the earlier arbitral decision in Chatham-Kent (Municipality) v. Ontario (Attorney General)—which upheld a number of age-based distinctions in the availability of benefits including LTD—along with a “long line of cases” that followed it justifying carve outs for pension as well as LTD benefits under section 1 of the Charter. Citing the award in Chatham-Kent, Arbitrator Knopf noted that, “‘age is different’ from other prohibited grounds of discrimination because aging is a shared experience by everyone.”

An expert witness for the union testified on the role of “ageism.” The union’s expert challenged the notion that older workers are more susceptible to injury or illness or have greater instances of disability, and suggested that expecting employees to retire at age 65 was “ageist.”

The employer’s expert witness, an actuary with experience pricing LTD plans, testified that the optimal LTD design would cease disability benefits at a certain age because LTD benefits are designed to replace employment income, and most people do not work until they die. The employer’s evidence indicated that age 65 was an appropriate cut-off that works in conjunction with Canada Pension Plan (CPP) and Old Age Security (OAS) benefits and the employer’s own defined benefit pension plan, which provides unreduced retirement benefits at age 65 or earlier in some cases.

The employer also submitted evidence on the significant cost of providing LTD to older workers. The employer’s expert testified that the cost of insuring a 60-year-old worker for life would be approximately 129% more than if payments stopped at age 65 (and would increase the cost of LTD coverage for all employees). Another witness indicated that it would be exceedingly rare for an insurer to offer LTD coverage past age 65. Only one insurer was willing to provide a quote for such coverage, and only for two additional years, with a cap at age 70. The insurer advised that any further LTD coverage would be “cost prohibitive.”

The employer’s own workforce demographics also supported an age 65 LTD cut-off. The average retirement age of the employer’s workforce was 60, and the vast majority of retirements in the relevant period were commenced before age 65.

Arbitrator Knopf found that the termination of LTD (i.e., income replacement benefits) at age 65 was a justifiable infringement of section 15(1) of the Charter. It was “rationally connected” to and consistent with the age at which unreduced public retirement benefits and the employer’s defined benefit pension were available. Given that other income benefits were available to employees after age 65, including the defined benefit pension, the LTD cut-off was minimally impairing (in fact, the arbitrator noted, an active employee cut off from LTD coverage at age 65 would be able to receive a full lifetime pension instead of disability benefits). Finally, the limit on LTD coverage was proportional to other considerations; namely, the economic and social value of respecting the terms that were agreed upon through collective bargaining (which is itself connected to a Charter right).

Key Takeaways for Employers

The decision to award full, unreduced life insurance benefits after age 64 serves as a reminder to employers of the importance of reflecting the limits of insurance policy coverage in the collective agreement itself, as well as of the need to clearly communicate such limits with employees and their unions. Where the underlying insurance contract provides for less extensive coverage than what an employer has agreed to provide, the employer could find itself responsible for the difference. In the context of life insurance benefits, this liability can be particularly significant.

The decision to uphold a cut-off of LTD at age 65 will give some comfort to employers that the reasoning in Talos—which found that the legislative carve outs permitting age-based distinctions in health, dental and life insurance benefits were contrary to the Charter—does not necessarily apply to LTD coverage. This is a helpful decision for employers with similar ongoing complaints or grievances. However, the decision highlights the importance of presenting strong evidence in support of the distinction, including details of the circumstances of the particular workplace.

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