NOVA SCOTIA WORKERS COMPENSATION APPEALS TRIBUNAL

Transcription

1 NOVA SCOTIA WORKERS COMPENSATION APPEALS TRIBUNAL Appellant: [X] (Employer) Participants entitled to respond to this appeal: [X] (Worker) and The Workers Compensation Board of Nova Scotia (Board) APPEAL DECISION Representatives: Form of Appeal: WCB Claim No.: [X] Oral Hearing held on October 4, 5, and 6, 2011 in Sydney, NS [X] Date of Decision: February 10, 2012 Decision: The appeal of the April 7, 2011 Board Hearing Officer decision is denied, according to the reasons of Appeal Commissioners Louanne Labelle, Sandy MacIntosh and K. Andrew MacNeil.

2 2 OVERVIEW: The Worker*is an electrician by trade. He began working for the Cape Breton Development Corporation in the mining industry in Cape Breton in 1977 and was employed until the closure of the mines in When mining operations ceased in 2001, the Worker was eligible to apply for benefits under an Early Retirement Incentive Program [ERIP]. He opted to take the benefits and began receiving an ERIP in April Effective December 31, 2009, the Cape Breton Development Corporation was dissolved and all of its assets and liabilities were transferred to Enterprise Cape Breton Corporation [hereinafter referred to as the Employer]. The Employer appeals from a decision of a Hearing Officer dated April 7, In that decision, the Hearing Officer found that the Worker s ERIP benefits should not be included in the calculation of the Worker s post injury earnings for purposes of determining the Worker s Temporary Earnings Replacement Benefit [TERB] payment. The appeal was heard by a Panel of three Appeal Commissioners. The Panel has concluded that the ERIP payments received from the Employer cannot be included in the Worker s post injury earnings profile for the purpose of calculating his TERB. Therefore, we have denied the appeal for the reasons that follow. CLAIM HISTORY AND APPEAL PROCEEDINGS: In 1995, the Worker suffered a compensable right knee injury. He underwent arthroscopic surgery in July of 1995 and, after a period of therapy, was able to resume his employment. He was paid temporary benefits until his return to work but no permanent medical impairment was identified at the time of the claim closure. The Worker s knee, however, continued to be symptomatic. Eventually, the Worker was assessed for a permanent medical impairment by a Board Medical Advisor in November The Board Medical Advisor found that his residual knee impairment justified a 5% rating under the Board s PMI Guidelines effective 6 months after the date of injury. This recommendation was accepted and implemented by a March 18, 2007 Case Manager decision awarding the Worker a lump sum permanent impairment benefit. After the mines closed, the Worker was able to find alternate employment due to his *This decision contains personal information and may be published. For this reason, we have not referred to the Worker by name nor have we identified the witnesses by name.

3 3 relatively young age and his specialized trade. This work was primarily off Cape Breton Island and as far away as Fort McMurray. In recent years, from 2007 to 2009, he was employed in Ontario at a power plant for parts of the year, returning home during periodic lay offs. In 2008, he required further surgery on his right knee. Dr. K. Orrell performed a scope and major debridement in September This was followed by a total knee replacement in December He has been unable to return to his employment as an electrician after his most recent surgery. At the time of the hearing, he was still off work and in receipt of TERB. This period of lay off and re opening of the Worker s claim has led to a number of decisions culminating in the appeal now before this Tribunal: 1. In a May 17, 2010 decision, a Board Case Manager found that the Worker s time loss commencing February 8, 2010 (the date the Worker was due to resume employment) was related to his February 1995 right knee injury. The Worker s weekly income from his power plant employment, expressed as an annual amount, exceeded the maximum insurable earnings for Therefore, the Case Manager determined the amount of the weekly TERB payment based on s. 48 of the Workers Compensation Act, S.N.S , c.10, as amended (the Act ), which provides that for the first 26 weeks, the total amount of compensation payable is limited to 75% of the Board s maximum insurable earnings. The initial rate was based on the maximum insurable earnings for 2010 as the Worker was earning in excess of this amount at the time of his loss of earnings. She added that, after 26 weeks, a long term rate would be determined. 2. On August 26, 2010, the same Case Manager issued a decision amending the May 17, 2010 decision to include references to payments made on May 17, 2010 and specifying the amount of gross annual maximum earnings used to calculate the TERB payment which, as mentioned, was less than the Worker s actual gross earnings at that time. 3. On August 26, 2010, the Case Manager also issued a decision setting the long term rate for the calculation of the Worker s weekly TERB. She considered the Worker s earnings for a three year period prior to his loss of earnings and chose 2009 as the appropriate earnings to use but, again, found that the Worker s rate should be based on the maximum annual insurable earnings for 2010 as the Worker s earnings far exceeded this sum. The Case Manager also considered, for the first time, the amount of the Worker s ERIP benefits in the pre injury earnings and post injury earnings profile. This amount had no

4 4 impact on his pre injury earnings as the Board s maximum insurable earnings for 2010 was used as pre injury earnings; however, it had a considerable impact on post injury earnings and, therefore, on the resulting amount of weekly TERB benefit. 4. On October 18, 2010, the Case Manager reversed her earlier decision and stated that ERIP income would not be considered post injury earnings and would no longer be deducted from the Worker s weekly TERB payment. 5. On January 31, 2011, a Hearing Officer issued a decision denying the Employer s appeal from the October 18, 2010 Case Manager decision. The Hearing Officer found that ERIP benefits were appropriately excluded from post injury earnings when calculating the TERB rate. 6. On February 4, 2011, the Hearing Officer s Manager rescinded the January 31, 2011 decision as it was issued without considering the Employer s submissions (which were delivered to the Board by the end of the business day on January 31, 2011, the submission deadline). 7. On April 7, 2011, the Hearing Officer issued a decision varying the October 18, 2010 Case Manager decision. The Hearing Officer confirmed that the Worker s ERIP benefits were properly excluded from post injury earnings when calculating the TERB rate. She also found that ERIP benefits were improperly included in pre injury earnings when calculating his TERB rate. The Case Manager was directed to recalculate the Worker s pre injury earnings excluding his ERIP benefits. [This finding had no impact on the TERB payment because maximum insurable earnings continued to be used as pre injury earnings.] The Employer appealed the April 7, 2011 Hearing Officer decision to this Tribunal seeking a finding that the Worker s ERIP benefits were improperly excluded from the calculation of post injury earnings when determining the Worker s TERB rate. The appeal proceeded by oral hearing before a Panel of three Appeal Commissioners. Prior to the hearing, there were several pre hearing conference calls to deal with requests by Counsel for the Employer for disclosure by the Board of documentation relating to the Board s change of practice and policy on the treatment of ERIP benefits. As a result, the Board made the following disclosures: 1. Letter dated July 14, 2011 from Board Counsel with attachments totaling 32 pages including an Executive Committee Issue Brief dated Nov 4, 2009 and a Benefit Comparison Chart dated September 17, 2010 prepared by Board policy analyst, N.S., who would testify to these documents at the hearing.

5 5 2. Letter dated July 21, 2011 from Board Counsel with attachments totaling 8 pages and comprised of e mails and speaking notes pertaining to the change in practice and policy on the treatment of ERIP benefits. 3. Letter dated September 12, 2011 from Board Counsel with attachments totaling 75 pages and including communications and meeting notes between November 11, 2009 and September 7, 2010 relating to the treatment of ERIPs. 4. Letter dated September 30, 2011 from Board Counsel providing N.S s curriculum vitae as well as copies of Board operating procedures and approved on September 28, 2010 relating to the treatment of severance payments including ERIPs. Pre hearing submissions, authorities and book of documents were filed by the Employer s counsel on August 22 and 23, Pre hearing submissions and authorities were filed by the Worker s counsel on September 29, The Board participated in the proceedings in a limited way and took no position regarding the merits of the appeal. Board counsel was present for the first day of the hearing for the testimony of Board policy analyst N.S.. The Employer called four witnesses, B.C., G.S., G.L. and R.M.. The Worker provided brief testimony. Counsel for the Employer and the Worker made oral submissions at the conclusion of the oral testimony. The Panel gave counsel an opportunity to file post hearing submissions to address issues relating to the effect of Regulation Submissions were filed by counsel for the Employer on October 28, 2011; by counsel for the Worker on November 14, 2011 and by counsel for the Board on November 25, The Panel has also considered, under s. 246 of the Act, the relevant material in the Worker s Board claim file; while we have considered all of the testimony, documentation and submissions, we will only refer to the more relevant material and argument in our decision. ANALYSIS: Are the Worker s ERIP benefits earnings under the Act and should they be included in pre injury and post injury earnings when calculating the Worker s TERB rate?

6 6 The issue on appeal is essentially a question of law, that is, a question of interpretation of the relevant legislative provisions dealing with the calculation of the Worker s loss of earnings. The Worker was a federal employee. Section 4(2) of the Government Employees Compensation Act, R.S.C. 1985, c. G 8 provides that compensation for federal employees in Nova Scotia is to be determined at the same rate and under the same conditions as is provided under the Act. The relevant Nova Scotia legislative provisions include ss. 37, 38, 39 and 42 of the Act, s. 20 of the Workers Compensation General Regulations, NS Reg. 22/96 as amended and Board Policy 3.1.1R2. Only relevant portions of these provisions will be referred to herein. They may be paraphrased for ease of reference. The statutory framework Under s. 37 of the Act, the amount of the earnings replacement benefit payable to a worker is seventy five per cent of the worker's loss of earnings less the amount of any permanent impairment benefit payable; after twenty six weeks, the amount is increased to eighty five per cent of the worker's loss of earnings less the amount of any permanent impairment benefit. The loss of earnings is calculated in accordance with s. 38. Section 38 provides that: For the purpose of this Part, the loss of earnings of the worker is the difference between (a) the worker s net average weekly earnings before the loss of earnings commences; and (b) the net average weekly amount that the Board determines the worker (i) is earning (ii) is capable of earning in suitable and reasonably available employment, (iii) is receiving or is entitled to receive as a periodic benefit pursuant to the Canada Pension Plan or the Quebec Pension Plan, in which case, the Board shall include fifty percent of the benefit, after the loss of earnings commences. Under s. 39 of the Act, the net average earnings of a worker are the gross average earnings calculated in accordance with s. 42, less the probable deductions for income tax, Canada Pension Plan premiums or Quebec Pension Plan premiums payable by the worker, unemployment insurance premiums; and any other type of deduction the Board

7 7 may prescribe by regulation. Under s. 42 of the Act, a worker's gross average earnings are regular salary or wages; and any other types or amounts of income as the Board may prescribe by regulation, calculated over a period up to three years immediately preceding the commencement of the loss of earnings, expressed as a weekly amount. Also relevant are the provisions of s. 20 of the General Regulations as amended as well as in its previous form. Currently, s. 20 (1) states as follows: 20 (1) A worker s gross average earnings are the total of (a) the worker s regular salary or wages; and (b) after the first 26 weeks of earnings replacement benefits or for purposes of benefits other than earnings replacement benefits and extended earnings replacement benefits, income from (i) overtime that is not regular salary or wages, and (ii) federal employment insurance benefits other than those payable as maternity or parental leave benefits. (2) For the purposes of calculating net average earnings under subsection 39(1) of the Act, earnings related expenses shall be deducted from gross average earnings. Section 20 was amended by O.I.C , N.S. Reg. 195/2000, effective December 1, Previously, section 20 included the following: 20. A worker s gross average earnings are the total of (a) (b) (c) the worker s regular salary or wages, less earnings related expenses; for the first 12 weeks of temporary earnings replacement benefits, income from overtime; and after the first 12 weeks of temporary earnings replacement benefits, and for purposes of benefits other than temporary earnings replacement benefits, income from (i) overtime, (ii) commissions, (iii) bonuses, (iv) vacation pay, (v) federal unemployment insurance or employment insurance benefits, excluding benefits payable for maternity or paternity leave, (vi) a profit sharing arrangement with the worker s employer, (vii) tips and gratuities, if reported on a worker s T4 income tax slip, (viii) other types of employment income allowable on the Employment Income and Other Employment Income lines of an individual tax return. Board Policy 3.1.1R2, which has been in effect since December 1, 2000, provides for the

8 8 calculation of gross earnings for both short term and long term benefits. It provides for the determination of an initial earnings profile for the first 26 weeks of a worker s TERB and also for a long term earnings profile effective week 27 (which also applies to long term benefits): 1. Where a worker's loss of earnings results from an injury, the 'pre LOE' average weekly gross earnings will initially be calculated based on the normal weekly earnings. 2. Normal weekly earnings means the worker's normal rate of pay prior to the injury, as calculated over the worker's normal pay period. This initial earnings profile will be used during the first 26 weeks the worker receives a Temporary Earnings Replacement Benefit (TERB). 3. Normal weekly earnings includes the worker's regular salary or wages, less earningsrelated expenses. Regular Salary or wages includes the following: i) regular overtime, ii) commissions, iii) bonuses, iv) vacation pay, v) a profit sharing arrangement with the worker's employer, vi) tips and gratuities vii) taxable benefits, if reportable on a worker's T4 slip, and viii) other types of employment income allowable on the "Employment Income" and "Other employment Income" lines of an individual tax return. Note: Taxable benefits are included in the worker's earnings profile only for injuries occurring on or after January 1, For greater certainty, the types of income listed in clause #3 will be included in the initial earnings profile if they form part of the worker's regular pay. The Policy also provides that, for the purposes of establishing a long term earnings profile, the average weekly gross earnings will be calculated based on a worker s actual preaccident earnings. A worker s pre accident earnings will include all regular salary or wages, as listed in clause 3, plus federal employment insurance benefits, and overtime which is not regular salary or wages. Although Policy 3.1.1R2 applies to the calculation of pre injury average weekly gross earnings, it has been the Board s practice to consider the types of payments that comprise earnings in Policy 3.1.1R2, when received post accident to be the amount a worker is earning post accident. This fact was acknowledged by Counsel at the hearing and noted in the Issue Brief prepared by Board Policy Analyst, N.S.. It is apparent that the effect of the amendment to the Regulations in December 2000 was to move a list of specific income items included in the calculation of a worker s gross average earnings from the General Regulations to a list of income items included in regular salary or wages under the Policy.

9 9 The Board s treatment of ERIPs and interpretation of earnings. Many of the documents filed by the Board in response to requests for disclosure by the Employer dealt with the Board s response to Tribunal decisions following the Court s decision in Canada Post Corporation v. Nova Scotia (Worker s Compensation Appeals Tribunal), 2009 NSCA 41 [Almon]. Although, as argued by Counsel for the Board, the response, and process surrounding the response, are not relevant to the determination of the issue on appeal, we will refer to the process as it is part of the adjudicative background of the decisions that culminated in the appeal to the Tribunal. Historically, the Board has viewed ERIPs as well as compassionate disability pension benefits [CDPs], another benefit payable by the Employer to certain former employees, as earnings for purposes of calculating pre and post injury earnings. They are other types of employment income allowable on the Employment Income and Other Employment Income lines of an individual s tax return under the provisions of Policy 3.1.1R2. The Board changed its practice effective December 15, This is reflected in the Board s decisions in the Worker s claim. In fact, the adjudication of the Worker s claim in 2009/2010, and the calculation of his TERB, was intertwined with the Board s consideration of a broader issue dealing with the treatment generally of severance payments following the Almon decision from the Nova Scotia Court of Appeal and subsequent Tribunal decisions. The Court in Almon found that disability payments payable to a worker under her employer s pension and disability plan were not earnings under the Act. The plan paid disability benefits according to a defined benefits formula. Both employees and Canada Post contributed amounts needed to fund the plan s benefits. Canada Post argued that Ms. Almon s disability benefits under the plan were amounts that she was earning under section 38(b)(i) and should reduce her loss of earnings under section 38(a). Justice Fichaud, writing for the Court, noted the words is earning in section 38(b)(i) are not defined in the Act. He referred to a dictionary definition of earning which defined earning as something earned as compensation for labour or as return for work done or services rendered. Justice Fichaud found that Ms. Almon s continued disability did not earn the disability payment in the sense intended by section 38(b) but rather a continuing disability was an eligibility condition for receipt of a benefit derived from contributions that she earned by her service before disability. He also found that he could not read regular salary and wages in Regulation 20(1)(a) as including a disability benefit paid by a trustee or insurer after the employee ceases employment due to disability.

10 10 He found that nothing in sections 38(a), 39(1) or 42 or Regulation 20 suggested that a disability benefit further to an employer plan is included in gross earnings. He did not apply Board Policy 3.1.1R2 in interpreting the meaning of earnings. The finding by the Court that Ms. Almon s disability benefit was not earnings was considered in subsequent decisions made by this Tribunal. In Decision AD (NSWCAT July 29, 2009), the Tribunal found that severance payments received by workers after a plant closure were not earnings under section 38(b)(i) of the Act. Applying the Court s view of the legislative scheme, the Tribunal found that the only way that the worker s severance payments could be considered earnings based on the legislative context would be if they were set out in the Act to be, prescribed by regulation to be, or included within the term regular salary or wages. The Tribunal concluded that nothing in sections 38(a), 39(1), 42 or Regulation 20 suggested that severance payments were included in gross earnings. The Board had submitted that Policy 3.1.1R2, which sets out what is to be included by the term regular salary or wages, supported the conclusion that the worker s severance payments would fall within the meaning of the term. The Board indicated it had always taken the position that if Revenue Canada considered the income to be employment income or other employment income, then the Board would consider it earnings for the purpose of calculating both pre and post injury loss of earnings. The Tribunal concluded that the Act and Regulations did not provide for the inclusion of a worker s severance payments in gross earnings. An inconsistency would result from their inclusion by policy or Board practice. The Tribunal held that, while what Revenue Canada considers a taxable benefit, reportable on a T4 slip, is of assistance to the Board on these types of questions, it cannot be seen as a substitute for what is mandated by a reasonable interpretation of the Act and the Regulations. The Almon decision and the subsequent Tribunal decisions applying the same principles to severance payments had broad implications for the Board s approach in determining post injury earnings. The Board, therefore, conducted an extensive analysis of the issue. Board Policy Analyst N.S. prepared an Executive Committee Issue Brief dated November 4, 2009 detailing options and recommendations on how to proceed. These recommendations were provided to the Board s Executive Committee which accepted one of the options set out in the brief, specifically not to proceed with an appeal of the Tribunal decisions but to revise its practice in calculating post injury earnings; that is, to not include severance payments in

11 11 pre and post accident earnings. The Board changed its practice, on a prospective basis, effective December 15, 2009, after communicating the change internally to its staff. The Issue Brief outlined the Board s practice when calculating workers pre injury and postinjury earnings. It stated that the Board generally applies the requirements of Policy 3.1.1R2 to this calculation. It added that the Policy specifies that earnings are the amounts allowable (where they form part of the worker s regular pay) on the Employment Income and Other Employment Income lines (101 and 104 respectively) of a CRA individual tax return. The Issue Brief dealt with severance payments and asked the questions: What is severance pay? What is pay in lieu? It referred to ERIPs when it reviewed the historical developments relating to earnings and/or severances. The key historical developments included the Board s determination in May of 1999 that the Employer s injured workers ERIP benefits were to be considered post accident earnings, while the lump sum severance payments received would not be considered post accident earnings. The Policy Analyst noted that the Board advised the Employer that severance payments would not be considered pre or post accident earnings because they were lump sum payments based upon past employment activity and because they were included in Box 26 (non eligible retirement allowance) or Box 27 (eligible retirement allowance) of a T4A slip. Alternatively, ERIP benefits were considered pre and post accident earnings. This was because ERIP benefits were a form of periodic salary continuation (bridging benefit) payable until age 65 and would be included on line 101 of an income tax form. The Issue Brief outlined the advantages and disadvantages of the different options and recommended that the Board revise its practice to reflect the Tribunal s decisions. This recommendation was accepted by the Board s Executive Committee (it appears by means of e mail correspondence in mid November 2009). There was testimony, discussion, and argument at the hearing of this appeal about how this change was implemented and communicated both within the Board and with outside stakeholders. There is evidence that the decision to change the Board s practice was not well communicated within the Board, although the documentation filed by the Board indicates that the change in practice was discussed at an operations committee meeting in December Board Counsel, in post hearing submissions, acknowledged that there were deficiencies with respect to the Board s communication of the change in practice to the Employer. Further, the Board conceded that communication to its front line adjudicators of this change in practice was less than perfect. There were inconsistent decisions in the post December 2009 time period relating to treatment of ERIPs. However, it is the position of the Board that the decision in relation to treatment of ERIPs was made, and was effective,

12 12 as of December 2009: ERIP benefits were not to be included in pre and post accident earnings. The Case Manager, who was adjudicating the Worker s claim, and her Unit Manager were unaware of the change in practice when, in July and August 2010, the Employer s representative, R.M., began contacting Case Managers and requesting that ERIPs be considered in the calculation of the loss of earnings. The Employer had become aware of decisions made without considering ERIPs. Subsequently, the Worker s ERIP benefits were considered by the Case Manager in her August 26, 2010 decision. However, this issue generated discussion within the Board. The Unit Manager obtained clarification regarding the Board s new practice as evidenced by e mail correspondence of late August/early September Furthermore, this change in practice was not raised with this Employer until September and October 2010, when conversations and meetings occurred between representatives of the Board and the Employer. Confusing matters further, members of the Executive Committee (who made the decision to change the practice in the fall of 2009) indicated during a June 23, 2010 meeting with the Employer s representatives that ERIPs would continue to be considered as post injury earnings. The Board s Policy Analyst prepared a chart dated September 17, 2010 entitled Comparison of [Employer] ERIPs and CDPs to the Almon and [Tribunal] Decisions. This chart compares the disability payments in the Almon decision with the severance payments considered in the Tribunal decisions and the Employer s ERIP and CDP payments. This, of course, came to the fore in the context of the adjudication of the Worker s claim and the calculation of his TERB rate. The Board s position was implemented in the Worker s claim. His TERB rate was recalculated without considering his ERIP in his post injury earnings in the October 18, 2010 decision which reversed the previous August 26, 2010 decision. What are ERIPs? The Panel concludes, after reviewing the evidence below, that ERIPs are monthly income replacement benefits payable by the Employer until age 65. They are not pension, disability or retirement benefits payable under a defined or contributory plan, but they are payable after the employment relationship ceases in relation to the loss of employment. They also differ from severance payments as they are a bridge benefit designed to provide the older worker with a revenue steam until they reach 65. The Employer s witnesses spoke to the historical background in the development of ERIP

13 13 programs for miners who lost employment when mines were downsized or closed in Cape Breton. This historical background is relevant to the extent that it helps to understand the terms and types of payments called ERIPs (and CDPs). Early retirement incentive payments have been paid by the Employer and its predecessor for many years, practically since 1969 when they took over the mining operations in Cape Breton. Although the reasons for offering the early retirement incentive payments and the conditions for eligibility may have changed over the years, it has always been a form of partial salary continuation or a bridging benefit payable until the worker reaches the age of 65. It was not a pension, nor was it a severance payment. Compassionate disability payments have also existed for many years. It is a disability payment to a worker based on medical evidence for a disability that may, or may not, be work related. The benefit was considered part of the Employer s pension plan. It was paid until a worker turned 65. B.C. gave evidence on behalf of the Employer. He became Director of Human Resources in 1996 and was the Vice President in charge of Human Resources when several of the ERIP packages were developed. He indicated that under the Canada Labour Code, if a downsizing affected more than 50 employees, the Employer was required to develop an adjustment program with the help of a joint planning committee involving union and management representatives. An ERIP program was developed following a fire in 1984 which affected mining operations. One was also developed later on in 1993 to encourage older workers to leave the workforce but the two main programs that are related to this appeal are the ones developed in 1999 and In 1999, one of the mines was closed; by 2001, all the mining operations were to cease. These closures also led to arbitration awards [the Outhouse and Ashley awards] as, under the legislation, if there remained some issues that were unresolved by the joint planning committee, they were submitted to arbitration. A document filed by the Employer entitled Early Retirement Incentive Programs and Severance Packages was prepared prior to the Outhouse arbitration hearing. It contains a chart which compares the early retirement incentive programs from 1987 to the 1999/2000 package. The Ashley arbitration award was handed down on October 12, 2001 and it dealt with the second stage of terminations regarding the final closure of the mines. Under the Ashley award, an ERIP would be offered to all employees regardless of age who have completed at least 25 years of service as of December 31, The monthly benefit was pro rated based on the employee s age below 50. The terms would be the same as those in the Outhouse award of June 2, 2000.

14 14 For employees not eligible for an ERIP, there were severance payments available. A document filed by the Employer entitled Review of Accrued Obligations... as at October 2002, summarizes the terms and obligations under the ERIP programs from Of note, the Outhouse award affected 586 potential employees and the Ashley award, 97. G.L. testified on behalf of the Employer. He has been Manager of Payroll and Accounts Payable for the Employer since January 1999 and managed all ERIP payments. He explained how ERIPs were treated for the purposes of payroll. While severances were paid in one or two lump sums, ERIPs were paid on a monthly basis out of a separate payroll with the normal statutory deductions for income tax and CPP as they were considered pensionable income (but not EI as ERIP benefits were not considered insurable earnings). Deductions for the group medical plan continued, as well as other deductions such as donations for the church, or payments for coal. ERIP benefits are payable to age 65 or death, whichever occurs first. Group health benefits remained in force until age 65, and life insurance coverage was fixed at $22,500 until age 65. There are approximately 650 former employees currently receiving ERIP benefits. From the documents filed by the Employer, it is apparent that many of the conditions of the ERIP programs were subject to negotiation between union and management. The benefit levels were not dependant on an individual s earnings, but were a fixed amount subject to indexing to the age of 65. Before receiving any benefit under the ERIP, all applicants were required to apply for, and to exhaust, all employment insurance benefits to which they were entitled. Also, if a worker was eligible for CPP disability benefits, the worker was required to apply for these and the disability benefits were deducted from the ERIP benefits. However, the ERIP payments were not reduced by the amount of early retirement benefit under the Canada Pension Plan, for example, if taken at age 60. The Employer was concerned that employees not stack benefits, that is, receive both workers compensation benefits under automatic assumption and ERIPs. B.C. testified that neither the union nor the Employer wanted employees to be making more money staying at home than they would be if they were working. Therefore, employees entitled to ERIPs had their benefit reduced for any automatic assumption payment received in excess of $250 per month. These ERIP requirements are evident in the particular documents relating to the Worker in this appeal.

15 15 The Worker received a letter from the Employer dated the October 30, The letter offered him the one time opportunity to participate in the early retirement incentive plan based on his age and service criteria. This was in light of the May 16, 2001 announcement by the Government of Canada on the future direction for the operations of the Employer and the October 12, 2001 decision of arbitrator Ashley. The conditions attached to the offer included that, once the Worker ceased working, he would take his vacation entitlement and then he would be expected to apply for employment insurance benefits and, after exhausting all these benefits, he would receive the early retirement incentive plan monthly payment. The Worker completed the application form on October 31, 2001, thereby accepting the terms and conditions of the plan. He agreed to advise the Employer if he began to receive the CPP disability benefit in the future. The application indicated that, once he accepted the application, he would no longer be an employee of the Employer for any purpose and would receive only the benefits set out under the ERIP. On February 22, 2002, the Worker signed a declaration saying that he was a successful applicant for the early retirement incentive plan, that he was no longer eligible for employment insurance benefits, that he was not in receipt of current workers compensation benefits, the Employer s weekly indemnity insurance benefit or the long term disability benefit. He agreed that if he became disabled, while in receipt of the ERIP benefit, he must apply for Canada Pension Plan disability benefits. A letter dated April 29, 2002 from the Manager of Group Benefits and Pensions indicates that the Worker was paid an ERIP effective April 21, His last paid EI date was April 18, He had no vacation entitlement. The amount of a medical deduction was also identified in the document. The Worker s T4 for Revenue Canada for the year 2010 evidences that his amount of ERIP is found in Box 14 of the T4. It also evidences income taxes deducted and employee s CPP contributions, but no EI contributions. There was evidence from the Employer s witnesses as to discussions with the Board regarding its treatment of ERIPs for the purposes of calculating pre and post loss of earnings. B.C. indicated that after the coming into effect of the Act in 1996, around the year 1999 when the major ERIP plans were being developed, it came to the attention of the Employer that there were some wage loss payments being made which did not take into consideration the payments made by the Employer under the ERIP plans. On May 7, 1999, B.C. wrote to the Board s Chief Financial Officer indicating concern in regards to the payment of wage loss benefits to former employees of the Employer who were in receipt of ERIP benefits.

16 16 On May 21, 1999 the Board s General Counsel wrote the President of the United Mine Workers of America about the early retirement incentive program, particularly with regard to the impact of the ERIP on workers receiving, or eligible to receive, extended earningsreplacement benefits under the Act. The General Counsel noted that ERIPs would not affect the workers who were currently receiving clinical rating schedule pensions for a pre March 23, 1990 accident, or any workers receiving pre March 23, 1990 automatic assumption claims other than AA amounts in excess of $250 being deducted by the Employer from ERIP payments. ERIP payments would affect those in the earnings loss system for accidents on or after March 23, In particular, the 35 workers who currently received an EERB would be affected as the Act indicated that the Board should treat the ERIP payments as post accident earnings when the Board conducted its 36 month reviews pursuant to s. 73 of the Act. The Board s General Counsel, in her letter, added that Revenue Canada considered ERIP payments to be employment income on Line 101 of an income tax return. She referred to ss. 38 and 42 of the Act as well as former clause 20(c)(viii) of the Workers Compensation General Regulations which included as earnings other types of employment income allowable on the employment income and other employment income lines of an individual tax return. [Our emphasis] She indicated further that if Revenue Canada was going to consider ERIP payments as earnings in any given year, section 20 of the Regulations suggested that the Board should take the same approach regardless of whether they were talking about calculating preaccident gross average earnings or post accident gross average earnings. This letter was copied to B.C.,the Director of Human Resources. B.C. testified that, because the treatment of ERIPs by the Board seemed to be a settled issue, it was not the subject of any discussions before the arbitration hearings, as only unresolved issues were considered by the arbitrators. A July 7, 1999 legal opinion procured by the Employer, basically confirms the opinion of the Board s General Counsel that ERIP payments should be treated as post accident earnings, again citing clause 20(c)(viii) of the General Regulations. In a letter dated May 23, 2000 from the Regional Manager of the Board s Cape Breton Unit to B.C., the Board confirmed that the monies payable to a worker for the ERIP would be deducted from EERB benefits paid to the worker. He also indicated that the policy committee was reviewing the issue with regard to severance payments, and that the Board had not, in the past, considered compassionate disability pension income as post accident earnings. The Board changed its treatment of compassionate disability pension income after a Tribunal decision in 2001, Decision AD (NSWCAT, July 11, 2001). [The Panel

17 17 notes that the basis for the decision was that Regulation 20 (c) contained a list of income sources besides regular salary or wages that were included in gross average earnings, that being other types of employment income allowable on the Employment Income and Other Employment Income lines of an individual s tax return; therefore as CDPs were reported as Other Employment Income, they were earnings. It appears that the Appeal Commissioner was unaware of the amendment to Regulation 20.] G.S., Manager of Safety for the Employer in the year 2001, related in his testimony the difficulty he experienced in ensuring the Board consistently considered the payment of ERIPs when calculating loss of earnings, particularly EERBs. He is now Director General of Property Management. He has provided the Board, over the years, with lists of employees who are in receipt of CDPs as well as ERIPs. He has always tried to ensure that the Board reviewed the lists and also that they asked for updated figures, because these amounts were subject to indexing. G.S. testified that when the Board s Transitional Services Team began processing the chronic pain claims, it came to the Employer s attention that the adjudicators did not have a list of the employees receiving such benefits. Both G.S. and R.M. (who presently handles the workers compensation claims on behalf of the Employer), gave testimony about their conversations with the Board in relation to the change of practice regarding the treatment of ERIPs. On December 31, 2009, the Employer took over all of the assets of the former Cape Breton Development Corporation and there was a suggestion that the new executives meet with the senior executives from the Board to discuss ongoing issues. This meeting occurred on June 23, One of the items on the agenda was retroactive payments to workers as the Employer had suggested and insisted over the years that it be advised before any payment over $20,000 was made, in order for it to ensure that any ERIP payments or CDP payments were taken into consideration. As part of this meeting, the treatment of ERIPs was discussed. It was suggested that the Board actually adopt a policy to the effect that Case Managers had to use the list and had to call the Employer before a payment of over $20,000 was made. Senior executives agreed that this would be done by practice, instead of by policy. No one suggested there had been a change in the Board s approach to the treatment of ERIPs (although these senior executives were the ones who had earlier endorsed the recommendation made by policy analyst, N.S.). In September 2010, the VP of Service Delivery called the Employer and spoke to G.S.. R.M. was also present and confirmed that the Employer was first advised, at that time, that

18 there was a change in the Board s practice because of the Almon decision. 18 The Employer subsequently appealed the October 18, 2010 Case Manager decision. Argument and Submissions Employer s position The Employer appeals from a finding by the Board that the Worker s ERIP benefits are excluded from the calculation of the Worker s post injury earnings so that ERIP benefits are not deducted from the Worker s temporary benefits. The Employer argues that ERIPs are earnings under s. 38(b) as they are regular salary or wages, which the Employer says, includes income items classified as Other Employment Income on a worker s tax form. The Employer argues that these payments are unique, citing the social context in which the early retirement incentive programs were developed. The Cape Breton Development Corporation was set up to help the Cape Breton economy transition from a dependence on the coal mining industry. Essentially, the federal government stepped in to ensure an orderly closing of the mines, providing some measure of protection to the people of Cape Breton against the economic impact of these closures. From 1967 to 1998, the number of individuals employed by the Employer fell from 6,278 to approximately 1,738. These reductions were accomplished by periodically offering ERIPs. ERIPs were the mechanism by which the Government of Canada could fulfill its statutory obligations under the CBDC Act, particularly under section 17(4)(b) of the original CBDC Act. There was significant funding provided in the years 1999 to 2001 to meet these statutory obligations when the coal operations were wound down. The Employer s Counsel point out that ERIPs are not comparable to other types of income that individuals typically receive when their employment comes to an end. The terms of the ERIPs changed little over time. They were offered to both unionized and nonunionized employees, and usually the terms were arrived at through a joint management union committee. Counsel noted that ERIPs were structured so as to avoid the stacking of benefits. Counsel also highlighted the difference between ERIPs and severances. ERIPs were designed with older workers in mind who were less likely to find other work, and were a form of reduced salary continuance to see them through to retirement age, whereas workers in receipt of severance would be more likely to find new employment. In the particular circumstances of this claim, the Employer s Counsel note that, as of 2010,

19 19 the Worker s gross annual ERIP benefit was $28, The effect of the exclusion of ERIPs on the payments to the Worker resulted in the Worker s weekly benefit increasing from $ per week to $ per week. The Worker will receive an annual net income of $52, commencing October 24, 2010 from ERIP and workers compensation benefits. The Employer is self insured and therefore the full cost of both workers compensation and ERIP benefit payments are paid by the Employer. The Employer submits that a correct interpretation of the statutory scheme leads to the conclusion that ERIP benefits, given their particular characteristics, are post accident earnings. It is acknowledged that ERIP benefits clearly fall under sub clause (viii) of the former s. 20 (c) of the Regulations as they are reported by the Employer on Box 14 of the T4 slip and included on Line 101 of the Worker s tax return. Counsel note that, effective December 1, 2000, section 20 (c) was amended pursuant to a November 30, 2000 Order in Council. Sub clauses (ii), (iii), (iv), (vi), (vii) and (viii) were removed. They refer to the Report and Recommendation to Executive Council which stated that the changes were designed to eliminate redundancy as the income listed in sub clauses (i) to (iv), and (vi) to (ix), is income which is normally included in regular wages or salary. Counsel suggest that the amendment was not intended to restrict the types of income to be included in the calculation of gross average earnings. Counsel argue that it does not appear that those who decided Almon, nor the WCAT severance decisions, had the legislative history of section 20 of the General Regulations including the intent of the amendment being to eliminate redundancy. Counsel for the Employer submit that the Report and Recommendation assists with the statutory interpretation of the phrase is earning. It makes it clear that the legislation did not intend to limit the types of income considered earnings under the Act. Counsel suggest that the terms income and earnings are used interchangeably in the Act and that general income tax principles apply when determining earnings pursuant to section 38 of the Act. Counsel note that Policy 3.1.1R2 mirrors the original section 20 of the General Regulations. Counsel suggest that Justice Fichaud in the Almon appeal did not apply Policy 3.1.1R2 or income tax principles because of the evidentiary record before him. Nor did Justice Fichaud have any evidence of the income tax treatment of the disability payments in question. Counsel argue that the Report and Recommendation confirms that Policy 3.1.1R2 is

20 20 consistent with the underlying legislative intent of section 20 of the General Regulations. It is the Employer s position that Policy 3.1.1R2 is consistent with the Act and General Regulations and is determinative of the appeal. Counsel suggest that in the statutory context, references to general income tax principles appear throughout the Act, General Regulations, Board policies and Tribunal jurisprudence. The Employer submits that the long standing acceptance of income tax principles should not be discarded in favour of a dictionary definition of earnings. Counsel argue that the Board did not consider the particular facts of this case when it applied the Almon and the WCAT severance decisions, as ERIPs are not akin to severance payments, long term disability benefits or pensions. Counsel for the Employer argue that by failing to include the Worker ERIP benefits in the calculation of post injury earnings, the Board does not take the Worker s actual loss into consideration. The purpose of earnings replacement benefits is to replace lost earnings. The Employer submits that the Board s original approach to ERIP benefits, as set out by its General Counsel in 1999, is correct and a review of the legislative scheme and of its purpose and intent confirms that the Board s original interpretation of post injury earnings is correct and should continue to apply to ERIPs. Because ERIPs are different than other types of employee benefits, it is open to the Tribunal to find that the appeal is distinguishable from the Almon decision and the WCAT severance decisions. Worker s position The Worker argues that only earnings and other types of income expressly identified in the Act and Regulations can be used in the determination of a worker s entitlement to workers compensation benefits. Counsel argue that whether ERIP benefits are characterized as a pension, severance, indemnity or a hybrid form of payment, the key point is that they are paid in replacement of regular salary or wages lost because the employment has ended. They are not earnings because they are payable as post employment income, and they are not paid as remuneration for employment services actually and actively performed for an employer. Furthermore, Counsel argue that there is no provision in the Act or the Regulations authorizing ERIP benefits, as a form of income other than earnings, to be used to reduce earnings replacement benefits payable under the Act. Counsel argue that the understanding and intention of the Employer, unions, workers and others leading to the setting up of ERIPs is irrelevant.

21 21 The Worker s counsel refer to Boyle v. Workers Compensation Board NS 2004 NSCA 88 for the proposition that as provided by this part in s. 10(1) of the Act qualifies compensation by restricting its meaning to categories specified in the Act, the Regulations or policies authorized by the Act. The Act is a comprehensive scheme and complete code with a self financing system of no fault insurance. Entitlement to compensation must be found in the Act, Regulations or policies authorized by the Act. Counsel add that if the receipt of ERIP benefits can be used to reduce entitlement to earnings replacement benefits, the legal authority for this reduction must be found in the Act or Regulations. The Worker s counsel refer to several court decisions dealing with the meaning of wages, remuneration, earnings and income and suggest that earnings, including regular salary and wages means income derived from being an active employee in active employment, that is, a person engaged in actually and actively performing services or doing services for remuneration for an employer. Counsel also point to a difference with the New Brunswick legislation which provides that a calculation for loss of earnings takes into account earnings plus any other type of income a worker receives from an employer or employment related source. Counsel for the Worker also refer to the Court s decision in Cohen v. Nova Scotia (Workers Compensation Board) 2007 NSCA 118 in which an inconsistency between a policy and a regulation was considered by the Court. Similarly in that case, Justice Fichaud gave little weight to a letter from a senior government official trying to confirm what the intention of the legislature was in passing the regulation. Counsel for the Worker suggest that the amendment to section 20 makes it clear: that only earnings, meaning a worker s remuneration for actual and active service provided to an employer plus federal employment insurance benefits, are to be included. Counsel for the Worker disagree with the suggestion of the Employer s counsel that earnings and income are used interchangeably in the Act. In fact, they suggest that earnings has a narrower meaning than income, which is consistent with a well accepted legal distinction between the two words. Section 42 refers to earnings and then to any other types or amounts of income as may be prescribed by regulation. Counsel for the Worker suggest that income tax principles are not determinative under the Act and the Regulations. Counsel for the Worker also suggest that Policy 3.1.1R2 can be interpreted and applied in a way that is consistent with the Act and Regulations. To the extent that employment income and other employment income constitutes normal weekly earnings, then it should be included as post loss of earnings earnings. However, simply because a worker has income on these lines of the tax return does not mean that the Board automatically assumes that it is income that is normal weekly earnings. The Board can look behind the income to determine whether, under the Act and Regulations, it should actually be used to determine entitlement to earnings replacement benefits. The