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HomeMy WebLinkAbout1993-1582.Sikand.97-05-30 ~ _. ~ ONTARIO EMPLOYES DE LA COURONNE j CROWN EMPLOYEES DE L'ONTARIO GRIEVANCE COMMISSION DE 1111 SETTLEMENT REGLEMENT BOARD DES GRIEFS 180 DUNDAS STREET WEST, SUITE 2100, TORONTO ON M5G 1Z8 TELEPHONErrELEPHONE (414) 328-1388 180, RUE DUNDAS OUEST, BUREAU 2100, TORONTO (ON) M5G 1Z8 FACS/MILE/TELECOPIE (414) 328-139tS GSB # 1582/93, 1583/93, 1779/93 OPSEU # 93G237, 93G238, 93G348 IN THE MATTER OF AN ARBITRATION Under THE CROWN EMPLOYEES COLLECTIVE BARGAINING ACT Before THE GRIEVANCE SETTLEMENT BOARD BETWEEN OPSEU (sikand) Grievor - and - the Crown in Right of Ontario (Metropolitan Toronto Housing Authority) Employer BEFORE F.D. Briggs Vice-Chair FOR THE M cornish GRIEVOR Counsel Cavallusso, Hayes, Shilton, McIntyre, & Cornish Barristers & Solicitors FOR THE M. wilson EMPLOYER Counsel Legal Services Branch Management Board Secretariat HEARING October 29, 1996 -, ~..- ( , I The partIes medlate<;l a settlement of a vanety of gnevances filed by Kaplla Sikand on January 31, 1996 As agreed, I remamed selZed of any problems regardmg the settlement and dus award deals WIth such a matter The memorandum of settlement stated, m part: l(a) The parbes hereto agree to settle the above-noted gnevances filed on behalf of the gnevor, Kaplla Sikand on the terms set out 1il dus Memorandum of Settlement. (b) The partIes agree that the GSB and Vice Charr Bnggs m partIcular, so long as she remams appomted remams selZed of this matter In the event of a dispute regardmg or ansmg from the unplementatlOil or enforcement of these mmutes of settlement. 3 The Employer agrees to place the gnevor on a fully paId leave of absence WIth full benefits under the collectlve agreement from February 1, 1996 until the date she IS ehgible to retIre under the Factor 80 program wInch the partIes agree IS June 1, 1997 The rate of pay to be paId tIll June 1, 1997 IS the gnevor's current rate of pay, approxnnately $40;969 ) 7 The gnevor will WaIve her nght to all severance entlt1ements under the collectlve agreement or the Employment Standards Act and any current or future vacatlon entltlement. 8(a) The grlevor shall be paId no later than February 16, 1996 the sum of $30,000 wInch will be paId drrectly mto thegnevor's RRSP as drrected by her ( Subsequent t9 the slgnmg of tllli-iilemorandum of settlement, the partIes encountered a difference regardmg the payment of the $30,000 referred to mparagraph 8(a) above Accordmgly, a heanng was held wherem it was agreed that the parbes would compile an agreed statement of facts and make wntten SUbIll1SSIOnS for a determmatlon on the outstandmg Issue The agreed statement of facts were as follows 1 The partIes executed a Memorandum of Settlement dated January 31, 1996 Attached as Appendix 1 IS a copy of the Memorandum of Settlement. 2 By correspondence dated February 7, 1996 from Mary COrnIsh to Malliha -- I __ -~---- --- -. (-; ., 2 Wilson, Ms. Cormsh confmned that Ms. Sikand had arranged for her bank to send to the MTHA drrectly the appropnate TD F onn for the payment of the retmng allowance mto her RRSP 3 B~low are a number of paragraphs whIch refer to adVIce whIch the MTHA receIved concemmg the RRSP payment. OPSEU's po SInon IS that thts adVIce was maccurate as It was based on an mterpretatIOn of secnon 248( 1)( a) of the IncQmeTax Act. It IS MTHA'sposInon that the adVIse was based on the entrre defImnon found m sectIOn 244( 1) 4 On or about February 9, 1996, Emth How was adVIsed by the MTHA Fmance )3ranch that the $30 000 Settlement payment co~ld not be drrected to Ms SIkand's RegIstered Retrrement Savmgs Plan Account. PatrICIa Moreau, Manager ofFinancIalSefVlces, demed the request to drrect the $30,000 to the gnevor's RRSP as It was her opmIOn that the payment dId not qualIfy as a "retrrmg allowance" and, therefore, was mehgible for drrect transfer by the employer to an RRSP wIth the applIcable mcome tax deferral for the gnevor 5 In support oftlus~posInon, the Finance Branch reVIewed Secnon 248(1) of the Income Tax Act wInch defInes "Retmng Allowance" as follows "Retmng allowance" - "retrrmg allowance" means an amount (other than a superannuanon or penSIOn benefit, an amount receIved as a consequence of the death of an employee or a benefit described m subparagraph 6(1)(a)(Iv) receIved (a) upon or after retrrement ofa taxpayer from an office or employment m recogmtIOn of hIs long seTVlce, or (b) ill respect of a loss of an office or employment of a taxpayer, whether or not receIved as, on account or It heu of payment of, damages or pursuant to an order or Judgment of a competent tribunal '\ , by the taxpayer or, after hIs death, by a dependant ora relatIOn of the taxpayer or by the legal representanve of the taxpayer Further, the Fmance Branch referenced Revenue Canada's InterpretatIOn Bulletm IT -3337R2 whIch states "3 To be a retmng allowance, the payment mll;st be receIved upon or after retrrement or be paId m respect of a loss of an office or employment. (Subject to 4 below, the department accepts the cessatIOn of ~ 3 employment for any reason as bemg retIrenient or loss of employment." SectIOn 4 of the.saId InterpretatIOn Bulletm IS not apphcable to the Issue before the memator but does set out certaui clfcumstances wluch the retlrement or loss of employment do no mclude 6 It was the opmIOn of the Fmance Branch representatIves that the above defimtIons confirmed that the employer/employee relatIonslup must be tennmated m order for the payment to be consIdered a "retmng allowance" GIven that Paragraph 3 of the Memorandum of Settlement requlfed the employer to place the gnevor on a fully paId leave of absence WIth full benefits untIl June 1, 1997, the ehgible Factor 80 date to wluch the partles agreed, the Fmance Branch were of the oprmon that payment made to an employee currently on the MTRA payroll was, therefore, not a "retmng allowance" WIthIn thedefrmtIon of Secuon 248( 1) of the Income Tax Act. 7 The Fmailce Branch also consulted the Canaman Payroll AssocIatIon's Pay source Manual wluch states m part of sectIon 1 ~,OOO " .Before a retmng allowance can quahfy as such, the employer must establIsh that the employer/employ~e relatIonslup has been severed. " "\ The Fmance Branch concluded that .the Pay source Manual also fully supported thelT mterpretatlon of the Income Tax Act defimtIon m Issue and the InterpretatIon.Bulletm as referenced. At the time of settlement, the gnevor was recelYmg regular salary payments from MTRA and was put on a fully paId leave of absence With benefits from February 1, 1996 until she was ehgible to retJ,fe on June 1, 1997 pursuant to the terms of the saId Memorandum of Settlement. The gnevor IS not prOVIdIng any sefV1ces to the employer dunng tlus penod. 8 On or about February 23, 1996, counsel for the gnevor was adVIsed that there was a problem WIth the legahty of the RRSP transfer Correspondence dated February 23, 1996, was sent from Mary Cormsh to Malliha Wilson regardmg the gnevor's concern about the faIlure of the employer to comply WIth the obhgatIOn. to make the $30,000 payment to the RRSP by February 16, 1996 The saId correspondence makes reference to a conversatIon between Ms SIkand's representatIve from the Fmanclal PHmnmg Group and EdIth How, Human Resources AdVIsor, at wluch tune Ms How IS alleged to have confirmed that the payment was an Issue bemg revIewed by the Fmance Branch and the Legal branch r~spectIvely 'the employer states and the fact IS - - '- -, ---_.- "::"'" C 4 'that Ms. How fud not have a conversa11on With Ms. Sikand's Fmanclal Planner on thIS date or at any other tune. Ms COrnIsh also states m the correspondence "I do not understand why there IS any Issue about the makIng of the payment. The settlement terms are very clear on tlus pomt. " (Correspondence attached) 9 Further correspondence dated March 11, 1996, (AppendIx 3) was sent from Mary COrnIsh to Barbara Nawrockt, MTHA Legal ServIces Branch, referencmg the vOIce-matI message left by Ms. Nawrockt concermng the ongomg problem m depOSItIng the $30,000 payment mto Ms. Sikand's RRS.P In tlus correspondence, Ms. COrnIsh suggests that an alternate way of dealmg WIth the Issue IS for MTHA IS to hold the momes m trust unnl J~e 1997 when the momes could be patd mto an RRSP and the partIes coul~ then agree on the mterest rate Ms COrnIsh also adVIsed. "Ms. Sikand' IS currently seekIng financIal adVIce on the matter As 1 am away on vacanon from March 9, 1006 to March 17, 1996, 1 WIll adVIse you on my return of our pOSl'tIOn on tlus Issue " 10 Between March 4 and March 11, 1996 Barbara Nawrockt had several conversanons WIth PatrIcIa Moreau mFmance Branch to venfy theIr ; understandIng of the Secnon 248(1) deftmnon of "retmng allowance" and Its nnpact on the settlement momes. At all matenal tunes, she was adVIsed that severance of the employment relanonslup was a prereqUISIte to any such payment. 11 The Employer's posI11on With regard to thIs statement IS that tlus pracnce does not accord With the apphc~ble laws and prac11ces WIth regard to taxanon The gnevor's finanCIal adVIsor, Mr Vitug adVIsed the gnevor m March, 1996 that he had been mvolved m many cases where money has been paId by employers mto a RRSP while the employee IS s1111 technIcally an employee 12 On. or about Apnl 2, 1996, Ms COrnIsh spoke to Ms N awrockt and adVIsed her that MTHA, OPSEU and the gnevor had negotIated an agreement to pay the retmng allowance, that the gnevor's fmanclal adVIsor supported the appropnateness of the transfer and the deftrutIOn m the Income Tax Act dId not prevent It and referred Ms NawrockI to sectIOn 248( 1) (b) of the Income Tax Act. She adVIsed Ms COrnIsh that she would reVIew the sectIOn and get back to her 13 On or about Apnl 9, or 10, 1996, Barbara Nawrockt spoke to Mary Cormsh I regardmg several outstandmg Issues, mcludmg- the charactenzatIOn of the :;:. _. ! --------------- 5 retlnng allowance for the purposes of Revenue Canada, Agreement was reached at thts tune regardmg schedulmg a future date to purge Ms. Sikand's personnel file, as requrred pursuant to Paragraph 8( c) of the Memorandum of Settlement; however, no agreement was reached With respect to the RRSP payment Issue It is the gnevor's position that Ms. Nawrocki adVIsed Ms COrnIsh that it was MTHA' s VIew that the retmng allowance could not be paId smc~ it was not "upon or after retrrement" as referred to m section 248(1)(a) of the Act and that Ms. COrnIsh adVIsed Ms. Nawrockt OPSEU was relymg on section 248(2) of the Act whIch referred to the payment bemg made m respect of "loss of employment" It is MTHA's position that the entIre deflmtion of retmng allowance m section 248( 1) of the Act was rehedon. Ms. COrnIsh adVIsed Ms. Nawrockt that the payment to her of the $30,000 was bemg paId precIsely to compensate Ms. Sikand for her agreemg to. the loss of her employment through an earher retrrement that she would otherwise have contemplated. Ms. Nawrockt was adVIsed by Mary COrnIsh that IS was Ms. Sikand's accoWltant's adVIse that thts was done "all the tune" Ms. Nawrockt states that she suggested that the gnevor obtam a rulmg from Revenue Canada, whIch would satisfy MTHA' s concern about charactenzation of the payment m the matter requested as well as its obhgations to Revenue Canada, such that MTHA would not be met With an argument from the gnevor that the momes had attracted mcome tax. It IS the gnevor's posItion that Ms. N awrocla stated that she would check With her fmancial department and get back to Ms. COrnIsh but that It was possible that MTHA may reqwre a letter from Revenue Canada. 14 At the memation seSSiOn With Ms Bnggs on Apn116, 1996, MTHA states it agreed to mvestlgate the possibility ofplacmg the money m an mterest beanng account at a reasonable rate of mterest calculated from February 16, 1996, -- wtil the gnevor's formal retIrement on Jwe 1, 1997 at whIch tune the money would be transferred mto her RRSP OPSEU stated that It was adVIsed by Ms. Bnggs that the MTHA had agreed to put the money m an mterest beanng account at a reasonable rate of mterested calculated from February 16, 1996 at whIch tune the money would b~ transferred mto,her RRSP 15 By letter dated May 7, 1996, from Ms COrnIsh to Ms. How, a copy of whIch ( IS attached as Appendix 4, Ms. Cormsh asked for confrrmation that these arrangements had been made When no reply was receIved to thIs letter, a fwthe:t: letter was sent to Ms. How by Ms. COrnIsh dated May 17, 1996, a copy of whIch IS attached at Appendtx 5 Agam, when no reply was receIved to thIs letter, a further letter dated May 28, 1996, from Ms Conush to Ms How -'- req,uestmg a reply to May 7, 1996, letter was sent and is attached at ~ppendlx - ~ ~._..- - 6 6 MTHA was explonng With Its fmance branch the feasibIlItY of placmgth1s money m an mterest beanng account. 16 On or about June 4, 1996, Ms. How contacted Ms Conush and advIsed that she was mvestIgatmg the possiblhty of placmg the money m a trust account. ThIs conversatIon was confmned m Ms Conush's letter to Ms. How dated c June 11, 1996, a copy Qfwluch IS attached at Appendix 7 17 On or about June 17, 1996, (appendIx 8) correspondence was sent from EdIth How, Human Resources AdVlsor, to Mary Conush regardmg certam outstandmg matters, at wluch tlme Ms. How confmned that MTHA was still m the process of mvestIgatmg whether or not the MTHA had the legal authonty to establish a trust account. 18 In the month of June 1996, Edtth How also spoke to Mary Conush about the possibihty"of proVldmg a post-dated cheque for the full pnnclpal amount of $30,000 WIth mterest calculated at 4% bemg the annual 12 month GIC rate, and wluch could be proVIded to Ms. COrnIsh to be held over until the operatIve date of June 1, 1997 19 Further correspondence dated June 21, 1996 was sent from Mary Conush to EdIth How (AppendIx 9) 20 On or about June 28, 1996, correspondence was sent from Edtth How to Mary Conush (AppendIx 10) 21 In addttIon, Barbara NawrockI had reVlewed WIth Ron Wasenda, Drrector of Fmance Branch, and vanous prOVISIOns m the Ontano Housmg CorporatIOn Manual regardmg bank accounts and was adVlsed that the proVlsIOns of the Manual standardIzed the treatment of cash receIved and expended throughou~ Ontano Housmg CorporatIOn as well as the Local Housmg AuthontIes controlled by OHC She was adVIsed that bank accounts were set up m the name of Ontano Housmg CorporatIon. It was Mr Wasenda's oprmon that MTHA dId not have theablhty to set up ItS own trust account. Tlus was further borne out by OHC Legal Counsel, Robert Stupart, and lus adVIce to EdIth How 22 Correspondence dated July 4, 1996 was sent to Mary CornIsh to EdIth How (AppendIx 11) 23 On or about July 9, 1996, Ms Nawrocla left a VOIce mall forMs Corrush -- - - 7 adVIsmg that she had dIscussed the trust account Issue WIth Ms. Wilson and that It was not possible for the MTRA to set up the trust account gIven therr structure and suggestIng that the money be paId mto Ms. COrnIsh's trust accountand that Ms. COrnIsh would dtsbW'se the money m June, 1997 As Ms. CornIsh was gomg on vacanon at that pomt, she left the matter WIth her { assocIaf!,on Sean FItzpatrIck -_. 24 Ms. How sent a letter to Ms COrnIsh dated July 24, 1996, a copy ofwluch IS attached as AppendIx 12. 25 Between July 25 .and August 8, 1996, VarIOUS VOIce mail messages were left between Sean FitzpatrIck, on behalf of Mary COrnIsh, and Barbara NawrockI regardmg tlus matter On or abQut July 30, 1996, Mr FItzpatrIck suggested to Barbara NawrockI that the momes be paId m trust by MTRA to a law fInn whICh the government used for employment law matters and thereafter paId out on the operanve date to the RRSP Tlus opnon was reVIewed and Ms. NawrockI subsequently spoke to Mr Fitzpatnckand suggested that the momes be paId to Mary COrnIsh's fIrm m trust. 26 On or, about August 13, 1996, Ms. Conush contacted Mr NaWrockI for a reply conceimng the proposal to have Ms Wilson hold the money and was adVIsed that thIS was not possible and the MTRA wanted Ms. COrnIsh to hold the money Ms COrnIsh mdtcated that tlus was not possible, because as Ms SIkand's counsel, It could Jeopardtze the abihty of Ms Sikand to clarm tax rehef as momes had to be paId drrectly by the employer to the RRSP 27 Thereafter, the partIes agreed that a meetIng would be scheduled for September 5, 1996, before FehcIty Bnggs, MedIator, m order to deal WIth the resolutIOn oftlus Issue. ThIs date was subsequently rescheduled to October 29, 1996 \ 28, On or about September 6, 1996, Malliha Wilson counered to Mary COrnIsh correspondence enclosmg the cheque for $30,000 .statIng tlus completed the obhganons of MTRA m tlus matter, a copy of whIch IS attached as appendIX 13 On or about September 9, 1996, Mary COrnIsh faxed correspondence to Malliha Wilson statIng that the $30,000 cheque dId not sansfy MTHA's I obhgatIOns under the Memorandum of Agreement as her chent was not able to achIeve any tax saVIngs by puttIng the money mto an RRSP and that the payment dId not deal WIth the mterest Issue, a copy of whIch IS attached as apperidtx 14 Mary COrnIsh fOlwarded the cheque and $30000 to Ms Fehclty Bnggs WIth a r~quest to hold the momes pendmg the rescheduled medIatIOn -,- ---.-- '1 8 meetIng, a copy o(the corres,pondence IS attached as appendix 15 29 As .noted above, by letter dated June 21, 1996, counsel for the gnevor requested that the MTHA pay to the gnevor mterest on the $30,000 for the penod February 16, 1996 to the date of her retrrement on June 1, 1997, m the amountof 18%. ThIs figure was based on the average mterest rates set out m a letter from the gnevor's fmanclal adVIsor, Mr J C PhilIp Vitug, C.E.P of the FinanCial Planmng Group, dated June 21, 1996, a copy of whIch IS attached at AppendiX 16 30 Mr Vitug's lettet,dated June 21, 1996, states as follows a. The gnevor IS not a conservaove mvestor and would not have chosen a guaranteed mvestment product With such a low rate of return as the 4% GIC rate proposed by the MTHA. \ b The gnevor's mvestment strategy m her RRSP mvolves usmg eqmoes and she would normally mvest these proceeds mto tlns type of market, makmg full use of the foreign content she IS allowed. c As of Ju~e 21, 1996, the TSE 300 has made gams of 20 60/0 and the Morgan Stanley World Index has made gams of 1550/0. d. The gnevor belIeves she should be compensated for the difference between the offered rate of 4% and the opportunIty costs lost by not havmg the freedom to make mvestments as per her own personal comfort zone and mvestment strategy 31 Thegnevor states that she asked her financial adVisor Mr Vitug to proVIde her With mformaoon to assist the mediator/arbitrator to tlns matter to determme the rate of return m Ms Sikand's RRSP dunng the-penod of 1996 Attached as AppendiX 17 IS a copy of Mr Virug's letter dated November 15, 1996, whIch attaches hIs analysIs of the performance of the. gnevor' s RRSP portfolIo over the last year Mr Vitug states that tlns return was 16.2%. A chart prepared- by Mr Vitug showmg the value of the $1,00000 m Ms. Sikand's RRSP over the last 12 months shows that $1,00000 IS now worth $116200 UNION SUBMISSIONS ) l It was the pOSitIon of the Umon that even If MTHA IS correct m ItS mterpretatlOn of the - _. .-- , j 9 ! Income Tax Act, It must recompense the gnevor for the valQe of the benefit to the ghevor that was ongmally agreed to, that I~, the mterest wluch the gnevor would have earned m her RRSP dwmg the penod from February 16, 1996 to Jupe 1, 1997 Tlus remedy would put the gnevor the same pOSItIon that the parnes agreed to put her m. In the alternatIve, the .J mterpretatIon of the Income Tax Act as suggested by the MTHA IS mcorrect and the money could have been put mto the gnevor's RRSP Ms CornIsh, for the Umon asserted that MTHA had the benefit of both expert legal and personnel adVIce at the tIme that It sIgned- the Memorandum of Settlement and m that document It agreed to deposIt $30,000 mto the gnevor's RRSP m February of 1996, notwIthstandmg that she would actually be on a paId leave of absence until June of 1997 Both parnes executed the settlement m good faIth on the tmderstandmg that the agreement was WIthm the law The agreement, on ItS face, stated-that the gnevor would not formally retIre lUltil JlUle 1, 1997 and yet there was an express proVISIOn that the gnevor would have \ ---- $30,000 deposIted mto her ;RRSP months pnor to that date The $30,000 was referred to as a "retmng allowance" and It was clear that the gnevor's actIve servIce WIth MTHA was concluded. The Income Tax Act refers to "loss of employment" m sectIon 248(1)(b) and allows for the payment. The gnevor entered mto the agreement understandmg that she would have the $30,000 payment drrectly mto her RRSP m February of 1996 and that gIven her mvestment strategy she could shelter the money and any accrumg mterest. In the event that It IS detennmed that the MTHA could not have made the depOSIt m accordance WIth the Income Tax Act, the gnevor should not be penalized. The Umon contends that, m accordance wIth SectIOn 248(1)(b) of the Income Tax Act, MTHA could have paId the momes mto thegnevor' s RRSP The Act proVIdes that a "retmng ,- --~ - - -- _. I " - -- 10 allowance" IS an amount "m respect of a loss of an office or employment of a taxpayer" SectIOn 248( a) refers specIfically to "on or . after retrrement" of a taxpayer and seCTIon (b) does not. Therefore, there IS no requrrement under subparagraph (b) that an .employment relatIonshIp be termmated at the tIme of the payment. What IS requrred m (b) IS that there IS "a loss of an office or employment of a taxpayer" Tms only requrres a concrete decIsIOn to termInate the employment of the taxpayer and the payment must be "m respect of' that "loss" That occWTed m the Instant matter because tIle Memorandwn of Agreement specIfically states that the gnevor glVes up her employment. Indeed, the $30,000 was paId precIsely for the purpose of leavrng her employment earher than she otherwIse would have SeCTIon 248( 1 )(b)' refers to payments made whether or not It IS "receIved as, on account of or 1h heu of payment of <4unages pmsuant to an order or Judgement of a competent tribunal" Ms CornIsh subrmtted that thts means that most damages awards and out of court settlements ill respect of a loss of employment are taxed as a retmng allowance \ In the event that thts Board IS of the VIew that sectIon 248 IS not clear, the Dmon subrmts that any ambIgUIty should be resolved In favour of the gnevor Such a "purpOSIve approach" IS requrred by the Interpretation Act R.s.c. 1985 c1-21, seCTIon 12 wmch states, "every enactm'fnt IS deeme~ remedIal, and shall be gIven such farr, large and liberal construction and InterpretatIon as best .ensqres the attamment of ItS obJect" The retInng allowance IS ) deSIgned to allow a person lOSIng therr employment to defer Income tax payments to a later trme The Dmon referred to Re Johns-Manville Inc. V The Queen, {1985] 2 C T C 111 (S C C ) Estey J , whereIn It was stated. If the mterpretatIOn of a taxation statute IS unclear, and one reasonable mterpretatIOn leads to a deductIOn to the credIt of a taxpayer, and the other leaves the taxpayer WIth no rehef from clearly bona fide expendItures In the - ... ., -- --- -:..--........;; - - 11 course of hI~ busIness actIVItIes, the general rules of InterpretatIOn statutes would dIrect the tribunal to the former InterpretatIOn. RegardIng the appropnate Interest rate to order, It was the Dmon's pOSItIon that, but for the breach of the MTRA, the agreed statement of facts establIshes,. that the gnevor would have receIved a rate of return of 16 2% on the $30,000 irrespectIve of whether the $30,000 - payment could have properly made mto the RRSP, the gnevor IS entItled to receIve the value of the bargam whIch she made m the Memorandum of Settlement. The value of that bargam must be measured by consIdenng the mterest rate the gnevor would have receIved m her RRSP over the penod of tune from February 16, 1996 to June 1, 1997 I EMPLOYER SUBMISSIONS Ms Wilson, for the Employer, sublll1tted that the $30,000 does not qualIfy .as 'a "retmng allowance" accordmg to the Income Tax Act. TIns VIew IS buttressed by the Canadtan Payroll AssocIatIon's Pay source manual whIch states at sectIon 11,000 Before a retmngallowance can qUalIfy as such, the employer must establIsh that the employer/empl.oyee relatIonshIp has been severed: The gnevor was placed ona pmd leave of absence untIl June 1, 1997 m accordance WIth the , Memorandum of Settlement and therefore the relatIonshIp between MTRA and MsSikand had not been severed. Indeed, It contmued. The gnevor remamed on the payroll, receIvmg a bI-weekly pay cheque and partIcIpated m all employee benefit plans If there was no employment relatIonshIp the gneyor would not be entItled to the Factor 80 program. Surely It would.be mconsIstent to find that the,gnevor contInued to be an employee for the purposes of quahfyIng for Factor 80 and yet at the same tune fInd that there was a "loss of employment" as of February 1, 1996 Ms Wilson proVIded.an InformatIOn Crrcular dated September 1992, whIch stated ~ 12 ( With respect to the contmuatlOn of penefits, the Department has taken the posItlOnthat m a case where penSlOn benefits contmue to accrue or normal employeebenefitscontmue to be enjoyed by an mdIVldual, It IS unlikely that employment has ceased even though the mdIvIdualIs not requrred; to report to work. Amounts recelVed dunng tlus penod of leave from employment would not be consIdered a retmng allowance, nor would they quahfy for a tax-free transfer to the recIpIent's RRSP under paragraph 60(j 1) of the Income Tax Act. In a later Crrcular, dated .May 5, 1994, It was stated. Where employment IS tennmated an amount paId, m respect of loss of employment IS a "retmng allowance" WIthm the defimnon m ,subsectlOn 248(1) of the Act. "Salmycontmuance" payments may represent the payment of retmng allowance m mstallments. Where regular employment benefits contmue, however, the Department may conSIder that the employment relanonslup has not been termmated and that the payments are actually regular ( salmy or wages and taxable as such. TIns IS so even where the employee IS not requITed to report to work. I:h partlcular, penslOn benefits can only accrue to persons who are employees and, therefore, therr presence mdicates that there IS ail employment relanonslup The Employer asserted that If the gnevor beheved that the paym~nt quahfied as a retmng allowance under Secnon 248(1) of the Income TaxAct, then It was mcumbent on her to seek a rulmg from the Rulmg Drrectorate Tlus was suggested to the Dmon and ItS faIlure to act ( upon It should not be held agamst the Employer Moreover, tlus BQard lacks the expertIse requITed to make the detenmnahon sought .by the gnevor The Employer contended that to depOSIt the momes mto the gnevor's RRSP would be illegal, as such, tlus term of the contract IS VOId and severable from the remamder of the Memorandum of Agreement. The gnevor was an equal partIcIpant m the terms of the contract and therefore cannot claIm on the Illegal consIderatlOn. In tlus regard, Ms Wilson relIed upon Re Pauze v Gauvin [1954] S C.R. 16, Re Amoco Australia, and Rocca Bros. Motor Engineering [1975] P C 561, Re Bennett v Bennett [1952] 1 K.B 249 (C.A.), and Re William E. Th9mpson Associates Inc. V Carpenter (1989) 69 0 R. (2d) 545 In the ~- - - 13 negohahon of the Memorandum of Agreement at Issue, both partIes were m equal bargammg \ positIOns and properly represented. It was not the Employer's mtentIOn to enter mto a - covenant wInch would Violate the Income Tax Act Therefore, the Employer should not have to bear the sole responsibility for the illegal conslderat1on. It IS appropnate for tlus Board to sever the covenantrequmng the $30,000 payment to the gnevor's RRSP The payment of those momes would be paId drrectly to the gnevor and the employer's obbganons wIll have been met. Ms Wilson asserted that the Umon had an opportumty to seek a rulmg from the tax authontIes and chose to seek a remedy before tlus Board. The gnevor's failure to seek such a rulmg should be taken mto accoWlt as a tnltIgatmg factor m the event that tlus Board makes a fmdmg of Employer habibty Specifically, If any damages are granted they should be lnmted to the penod from Februmy 16, 1996 to July 24, 1996 On July 24, 1996, cOWlsel for the gnevor was asked to seek such a rulmg for her chent. The gnevor should not be rewarded for contmumg to aVOid a tax rulmg. In reply, the Umon urged that tlus Board does have the expertlse decide the Issue at hand and IS charged With adJudtcatIng employment dtsputes and IS mandated to do so Ms Cormsh stated that the Board would be declmmg ItS JurIsdlcnon to refer such a dtspute to the Rulmg Drrectorate Further, the MIRA cannot suggest that It met Its QbbgatIons by attemptIng to pay the $30,000drrectly to the gnevor m September 1996 because any tax shelter owmg to the gnevor would have been foregone That was not the 'agreement of the parties Regardmg the matter of severance of the portIon of the agreement dealmg With the $30,000 payment, the Umon suggested that because the partIes had agreed that the Board was seIzed of ImplementatIOn dlfficulnes It IS not necessary to apply to law dealmg With whether contract terms are VOId or severable > - -- .---- 14 DECISION I agree WIth the Dmon that I h~ve the JUflsdIcoon and the mandate to detennme th1s matter IrrespectIve of whether I could order the partIes to obtam an answer to the questIon from the Rulmgs Drrectorate as a possible remedy, I have the JUflsdIcoon to deteimme the matter of whether the payment of the $30,000 mto .the gnevor's RRSP m February of 1996 was a VIOlatIon of the Income Tax Act v After consIderatIon, I am of the VIew that the Employer's mterpretatIOn regardrhg whether the $30,000 payment IS a retliement allowance m accordance WIth the Income Tax Act IS correct. The partIes agreed m therr Memorandum of Settlement that MIRA would "place the gnevor on a fully paId leave of absence WIth full benefits under the collectIve agreement from February 1, 1996 until the date she IS elIgible to retIre under the Factor 80 program whIch the partIes agree IS June 1, 1997 The rate of pay to be paId 011 June 1, 1997 IS the gnevor's current rate of pay, apprmamately $40,969" Also stated m the agreement IS "Attached as Schedule B IS an mevocable letter of resIgnaoon" wluch stated "1, Kaplla SIkand mevocably subffilt my resIgnaoon from the MIRA effecove May 31, 1997, day end. " I am of the VIew !hat the gnevor contInues to be an employee, as consIdered under the Act untIl her resIgnatIOn becomes effecove after May 31, 1997 I am buttressed m the VIew by the VIews expressed m the September 1, 1992, InformatIon Crrcular Issued by the Rulmgs Drrectorate, wherem It was stated. You have stated m your letter that "severance pay wluch is paid m accordance With apphcable legIslatlOn or employer personnel pohcies would quahfy as a retmng allowance under the Act" In order for a severance payment to qual~fy as a retmng allowance the payment must be m recogmtlOn of long service or m respect of loss of an office or employment. With respect to the contmuatlon of benefits, the Department has taken.the pOSitiOn that m a case where pensiOn benefItscontmue to accrue or normal. employee benefits contmue to be enjoyed .- - 15 by an mdivldual, It IS unljkely that the employment has ceased even though the mdlvldualls not required to report to work. Amounts receiVed durmg tlus perIod' of leave from employment would not be conSidered aretmng allowance, nor would they qualify for a tax-free transfer to the recIpIents' RRSP under paragraph 690.1) of the Income Tax Act. ThIs VIew IS confIrmed m a sImilar crrculardated May 5, 1994, wherem It was stated. \ - Where regular employment benefits contmue, however, the Department may conSIder that the employment has not been terrnmated and that the payments are actually regular salary or wages and taxable as such. ThIS IS so even where the employee IS not required to report to work. In particular: pensIOn benefits only accrue to persons who are employees and, therefore, their presence mdlcatesthat there IS an employment relatIonshIp Havmg made that detennmatlon, 1. am left WIth the Issue of whether the Memorandum of Agreement has been breached. WithouthesItatIon, I fmd that It has. The partIes agreed after negonanons, wherem certam conceSSIOns were no doubt made, that the gnevor would receIve a retrrement allowance m February of 1996 The mtentlon of the partIes was clear The partIes agreed that the grtevor would receIve, WIthm days of the SIgmng of the agreement, tax sheltered momes wluch she could unmedIately drrect. Due to an mternal . corporate detennmatIOn that to comply WIth the Memorandum of Agreement would be contrary to the Income Tax Act, the Employer chose not meet ItS obhganons. However, that realIzatIon does not lessen or forgive the fact that the MTRA has VIolated ,the-Memorandum of Ag~eement. The next Issue to address IS what consequence, If any, results from fl.1at ) breach. Ms. Cormsh suggested m her wntten SUbmISSIOnS that both partIes were well represented by expert counsel and had access to personnel adVIce If reqUITed. Accordmg to the Dmon, any mIstake made regardmg the Memorandum must be found for the gnevor and to remedy the breach reqmres that the gnevor be put mto the pOSItIon she would have been as outhned above The MTRA argued that ItS .habihty, If any, should be restrIcted to the penod between ; when It was to pay the momes and the date that It formally told Druon counsel to take the morues mto a trust account and offered to Issue a cheque to that end. In the alternatIve, I 16 i , MTHA argued that I should sever the secnon of the agreement dealmg WIth the payment of $30,000 In the Memorandum of Agreement, the partIes agreed I would remam seIzed of ImplementatIOn problems and thIs Issue IS clearly such a dIspute. To fulfill my \. responsibIlInes to hear and detennme lffiplementatlon problems, It IS not necessary for me to sever any part of the ongmal agreement of the partIes to dIspose of thIs matter Even If I had been persuaded that severance of paragraph 8( a) was necessary or appropnate m these CIrcumstances, I would not have ordered MTHA's suggested remedy of the Employer havmg to pay the gnevor $30,000 only Such a remedy would fall very short of the partIes' clearly stated mtentIons At paragraph Sea) of the Memorandum of Agreement, the partIes proVIde that $30,000 would be put mto the gnevor's RRSP m February of 1996 It was dear that the mtentIon of the partIes IS that the gnevor would receIve $30,000, WIthm days of the agreement, whIch would be sheltered from tax and wluch the gnevor could mvest as she saw fit. GIven the eVIdence before me, I accept that she would have mvested those morues mto her current account wluch has'YIelded 162%. Pnorto the SIgnmg of the Memorandum of Agreement eIther party had every opporturuty to and could have ensured that therr stated mtentIon m paragraph Sea) was WIthout problems However, neIther d1d. I dIsagree WIth the MTHA' s SUbInlSSIOn that ItS lIabIlIty ended at the pomt where It told the Dmon that It would not comply WIth paragraph 8(a) and sent Ms Cormsh a cheque for $30,000 Those actIons dId not dIscharge Its responsibIlItIes nor dId It comply WIth the clearly stated agreement of the partIes The Issumg of $30,000 to counsel for the Dmon does not equate WIth the benefit that the gnevor would have receIved had paragraph 8(a) been carrIed out. --,-- " . 17 The partIes have suggested m therr SUbmISSIOnS that some blame be att:ached to the fallure to comply completely or m part WIth theIr agreement. In my VIew, mespectIve of whether eIther party or both IS at fault, the result of thIs Board would be the sa.nie as the ongmal agreement of the partIes That IS, that the gnevor would receIve a benefit equal to the clear mtennons of the parnes. To be clear, I am of the VIew that the gnevor should be made whole The gnevor ought not to suffer a fmancIal penalty for the events that occurred subsequent to February 16, 1997 - Often, Boards of ArbItranon are ma po SInon when they attempt to make gnevors fmancIally whole of applymg an mterest formula. In thIs most pecuhar fact sltuanon, gIVen the ongmal agreement and the eVIdence that I have been proVIded~ I am persuaded that such an applIcanon would not be suffiCIent. Accordmgly, gIven the tlffilng of thIs deCISIon, I order MTHA to comply WIth paragraph S(a) as soon as possible Further, the amoUnt to be deposIted mto the gnevor's RRSP IS to mc1ude 16.2% from February 16, 1996 to the date that the depOSIt IS made Tlus award IS not purutIve m nature toward MTHA but places the gnevor m the pOSItron she would have been, absent the breach of the Memorandum of Agreement. I remam seIZed m the event that there are problems WIth the lffiplementanon of thIs deCISIon. Dated at Toronto, thIs 30th day of May, 1997 , , \ / \ -. - ! !' ~./ ,. I I ; - , f , / i )' I - - - / FehcIty D Bnggs Vice Charr v -