In a ruling that brings closure to a lengthy dispute between the Canadian Union of Public Employees (CUPE) Local 27 and the Greater Essex County District School Board (GECDSB), an arbitrator has dismissed a policy grievance seeking damages and legal costs over the taxation of settlement funds.
The grievance stemmed from a 2017 settlement agreement involving post-retirement benefits (PRBs) for employees and retirees, which followed a 2016 decision by the Ontario Superior Court that found Ontario’s Putting Students First Act had violated the constitutional rights of unions, including CUPE. As part of the resolution, the Crown provided compensation to affected employees, but the school board withheld $2.3 million in taxes, which it remitted to the Canada Revenue Agency (CRA). CUPE argued that the funds should have been distributed to members without any tax deductions.
The arbitrator, James Hayes, dismissed the grievance on several grounds, including CUPE’s request for additional interest payments, legal costs, and general damages. “At the end of the day, I have concluded that—even if the Union were to be successful on the merits—I am not prepared to grant the relief sought,” Hayes wrote in his decision.
Background of the dispute
The dispute dates back to 2012, when Ontario passed the Putting Students First Act, which froze wages and curtailed bargaining rights for teachers and education workers. A ruling by Justice Lederer in 2016 found that the legislation violated Section 2(d) of the Canadian Charter of Rights and Freedoms, which protects freedom of association. The decision led to settlements between the provincial government, school boards, and unions, including CUPE.
CUPE Local 27, representing workers at the GECDSB, reached a settlement with the board in 2016, which included compensation for the loss of PRBs. The funds were intended to be distributed to eligible employees, but the board withheld tax payments out of concern for potential liability if the CRA deemed the payments taxable.
The grievance and legal arguments
CUPE filed a grievance in January 2017, alleging that the board violated the collective agreement by withholding taxes and sought damages for the delay in the release of the funds. The union also requested compensation for legal costs incurred in seeking tax advice and general damages for its members.
In response, the GECDSB sought clarification from the CRA on whether the funds were taxable. Although the CRA initially declined to issue a formal ruling, it ultimately confirmed in 2019 that the settlement funds were not taxable. The board then returned the withheld funds to employees, along with interest.
Despite the resolution of the tax issue, CUPE pursued the grievance, seeking further compensation for what it described as unnecessary delays and financial losses to its members.
Arbitrator’s decision
In his decision, Hayes acknowledged the complexity of the case and the prolonged timeline, which spanned from the original settlement in 2016 to final arguments in July 2024. He noted that both parties acted in good faith and took appropriate steps to resolve the tax issue, including seeking advice from tax experts.
“Both parties have been convinced throughout that they were on the ‘high road’ on the issue in dispute,” Hayes wrote. While CUPE believed the settlement agreement meant the board was obligated to pay the full amount without deductions, the board was unwilling to risk potential liability without CRA approval. “The Board was not prepared to put over $2M at general taxpayer risk without CRA approval,” he added.
Hayes rejected CUPE’s request for additional interest payments, stating that the interest already paid by the board was sufficient. “However annoying and inconvenient the tax withholding may have been, the fact is that the funds were returned to employees with interest calculated as is customary,” he wrote.
The arbitrator also declined to award legal costs, emphasizing that it is standard practice for both employers and unions to bear their own costs of representation unless otherwise agreed. “The Union may have been more than offended by the Board’s decision to withhold, but I do not see that there are compelling grounds to dislodge normal practice,” Hayes stated.
Finally, Hayes dismissed the request for general damages, concluding that there was no valid labour relations purpose in granting the request. He noted that the case was unique and unlikely to recur, making further comment on the matter unnecessary. “I also see no reason to revive historical labour relations acrimony by, for example, making findings of credibility between (now retired) spokespersons years after the event without good reason to do so,” he added.
After years of legal wrangling, the arbitrator’s decision effectively ends the dispute between CUPE Local 27 and the GECDSB over the taxation of settlement funds. “It is well beyond time for this saga to be ended,” Hayes concluded.
For more information, see Greater Essex County District School Board v Canadian Union of Public Employees Local 27, 2024 CanLII 89654 (ON LA).
