The Canadian Source Of Employee Pension Fund Investment And Benefits Plan Management

Back Issues

When Is A Premium Really A Tax?

By: Mary Gleason

Judicial reviews filed over the question of whether employers are responsible for paying the Ontario Health Premium are now handing down their decisions. Mary Gleason, of Ogilvy Renault, reviews what these early decisions are saying.

The first of several judicial review applications filed on the question of whether the new Ontario Health Premium (OHP) falls within collective agreement provisions that previously applied to the now-defunct Ontario Health Insurance Plan (OHIP) premiums, requiring employers to defray all or part of the cost of such premiums, was recently decided by the Divisional Court. However, the court’s decision in Lapointe-Fisher Nursing Home and United Food and Commercial Workers International Union, Local 175/633 is at odds with the majority of arbitral awards made so far and further muddies the waters.


Effective July 1, 2005, the OHP was rolled into the tax tables applicable to Ontario employers and began to be deducted from employees’ wages in the province. The OHP is an amendment to the provincial Income Tax Act and, like income tax, is calculated based on each taxpayer’s taxable income. This year, the maximum OHP payable is $900 per individual.

The Budget Measures Act that introduced the OHP terms this new levy a “premium.”

Further, the provincial government has indicated that it intends to utilize the funds generated by the OHP for health issues generally, including several initiatives that are not financed by the OHIP.

Many collective agreements in the province still contain provisions that require employers to continue to contribute towards OHIP premiums on employees’ behalf. These provisions ceased to have any practical application when the province abolished OHIP premiums in 1990 and replaced them with a payroll tax – the Employer Health Tax (EHT).

With the advent of the new OHP, many unions that are parties to such collective agreements have argued that such provisions require employers to treat the new OHP as an OHIP premium and defray it to the extent provided for in the collective agreement.

Not A Premium

Employers have refused to do so and have argued that the new OHP is not a premium at all but, rather, a tax, citing as support for this position the many differences between the OHP and the former OHIP premiums. These include the fact that OHP is not a flat rate premium, it is dependent on each employee’s income (from all sources) and individualized deductions. As well, it is in no way tied to the provision of insured services under the OHIP. (Payment of the old OHIP premiums was required to access insured services under the OHIP.)

premium tax

Additionally, Ontario employers are still required to pay the EHT, which is much more costly than the old OHIP premiums ever were.

At stake in the many grievances and judicial review applications pending on the subject are tens to hundreds of millions of dollars annually. Ironically, one of the largest claims has been made in the healthcare sector itself, with provincial hospitals potentially on the hook for millions each year if the unions’ grievances are upheld.

To date there have been several arbitral awards on the issue. The vast majority of them have been decided in the employers’ favour.

In the Lapointe-Fisher case, the employer argued that the collective agreement’s provisions for payment of OHIP premiums did not apply to the new OHP because the new OHP is really a tax. This, the employer argued, makes the OHP different from the former OHIP premiums which was not contemplated by the parties when they agreed that the employer would pay for OHIP premiums.

Arbitrator Anne Barrett rejected this argument. She held that the purpose for which the money is used is a more important consideration than its characterization as a tax or a premium. She concluded – incorrectly – that the OHP is directed solely to the OHIP and “pays for insured services on behalf of insured persons.” Thus, she found that the new OHP was “an OHIP premium” within the meaning of the parties’ collective agreement.

Little Reasoning

On judicial review, the Divisional Court, with very little reasoning on the point, decided that the applicable standard of review of her award was “patent unreasonableness” and, therefore, determined that it would not quash the award unless it was patently unreasonable (or clearly irrational). The court found that Arbitrator Barrett’s award was reasonable. Justice O’Driscoll, writing for the court, cited extensively from a subsequent award on the issue penned by Arbitrator Kenneth Swan in Ontario Power Generation Inc. v. Power Workers’ Union, another case for which a judicial review application has been filed.

In that case, Arbitrator Swan concluded that “the distinction between premiums and taxes has little bearing on the interpretation of a collective agreement.”

Justice O’Driscoll found the reasoning of Arbitrator Swan to be “logical, reasonable, and compelling.” This conclusion, in turn, supported the findings of Arbitrator Barrett in Lapointe-Fisher and the application for judicial review was consequently dismissed.

Stark Contrast

Arbitrator Swan’s reasoning in the Ontario Power Generation Inc. award is in stark contrast to that of the majority of other arbitrators who have ruled on the point. At last count, at least 25 arbitral awards have been decided, 19 of which have been decided in the employer’s favour. Ten further judicial review applications are currently pending before the Divisional Court.

Most of the arbitrators who have ruled on the issue have rejected the unions’ claims for payment by employers of the new OHP. Many of these arbitrators have found that the OHP is a tax and not a premium and that it is incorrect to infer an intent to require an employer to pay all or part of its employees’ taxes.

The decision of the Divisional Court in Lapointe-Fisher is certainly not the last word on this subject. As millions of dollars are riding on the issue and many of the decided cases are irreconcilable with the award in Lapointe-Fisher, it’s very likely that the issue will end up in the Court of Appeal.

Mary GleasonMary Gleason is a partner at Ogilvy Renault LLP and the chair of the firm’s Employment and Labour Law Group in Ottawa.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Subscribe to Daily News Alerts

Subscribe now to receive industry news delivered to your inbox every business day.

Interactive issue now onlineSubscribe to our magazinePrivate Wealth Online