Self-Insured Group Long Term Disability Benefits Violate the Charter
350 Nortel disabled former employees and their 160 dependent children are among 937,000 Canadians in self-insured group long term disability benefit plans, whose disability income is protected by the Charter of Rights and Freedoms, trust and consumer protection legislation and common law governing trusts and misrepresentations.
The Companies' Creditors Arrangement Act (CCAA) and Bankruptcy and Insolvency Act (BIA) do not have paramountcy over the Charter as these are all Federal Acts. When insolvency judges approve dramatic cuts in disability income on the so-called bedrock of equal treatment of unsecured creditors, they are failing in their duty to execute the Charter. The dramatic cutting of disability income by an insolvency judge violates S. 15(1) of the Charter by producing substantive inequality, loss of dignity, exclusion and marginalization in Canadian society. It also violates S. 7 by depriving disabled persons' rights to life, liberty and dignity, as defined in human rights documents ratified by the Federal Government, such as the International Covenant on Economic, Social and Cultural Rights (ICESC) and United Nations Convention on the Rights of Persons with Disabilities (UNRPD.) Both of these international human rights documents ratified by Canada state that States Parties must recognize the right of persons with disabilities to an adequate standard of living for themselves and their families, including adequate food, clothing and housing.
In the Nortel case, the CCAA judge approved a combined Health and Welfare Trust (HWT) and CCAA settlement at 66% of the actuarial liabilities owed to Nortel long term disabled employees for their disability income and 45% for their medical and dental expenses. The pre-bankruptcy average Nortel disability income was Cdn$30,500 and average disabled medical and dental expenses were Cdn$7,291 per year at 2010.
Remember long term disabled employees are already only getting 50% to 70% of their working income before disability (most Nortel employees opted for the higher 70% coverage paid for by employee contributions.) Nortel disability income was therefore reduced to 33% to 46% of pre-disability income. The 160 dependent children cannot help but be seriously deprived compared to their peers with parents able to work.
The Nortel LTD were unable to preserve capital from both the HWT and CCAA settlements, due to the six year delay of the CCAA settlement. The deeply compromised 38% HWT and 45% CCAA settlements’ capital was already used up by 2018 to cover the deficiencies in CPP disability income relative to reasonable basic housing, food and clothing expenses and the high medical and dental expenses during 2011 to 2017. The estimated average annual deficiencies of income over expenses have grown from $27,015 in 2011 to $33,176 in 2017. The 2017 average basic living costs are estimated at $36,135 derived from adjustments made to the Statistics Canada average household expenditures in Canada. The 2017 estimated medical and dental expenses are $12,885. Due to the settlement capital being depleted by 2018, the LTD received only CPP disability income, at a maximum of Cdn$15,763 in 2017.
S. 15(1) and S. 7 are both intended to protect the economic interests of disabled persons. The SCC has already determined under S. 15(1) that equal treatment is not the same as substantive equality, which avoids loss of dignity, exclusion and marginalization in Canadian society. The Supreme Court of Canada (SCC) in Irwin Toy Ltd. v. Quebec (Attorney General),  1 SCR 927 has invited a case to set precedent on the matter of whether S. 7 of the Charter protects economic interests of persons, while not protecting the economic interests of commercial entities. Siemens v. Manitoba (Attorney General), 2003 SCC 3 does not determine that the economic interests of persons are not protected in S. 7, rather this case adds to the jurisprudence that commercial purely economic interests, including pursuit of an occupation within a business owned by persons, is not protected by S. 7. Whether a statute`s deprivation of disability income for disabled persons is a violation of S. 7 would be a precedent setting SCC case of significant national interest.
Application of the SCC Oakes Test would determine that the dramatic cutting of disability income in insolvencies is not demonstrably justified in a free and democratic society under S. 1 of the Charter because such cuts do not serve the purpose of the CCAA. The purpose of the CCAA has not been specified in the Act or in SCC case law to be pari passu treatment of all unsecured creditors. Rather the CCAA's purpose is to facilitate the restructuring or reorganization of the corporation with a court bound compromise of creditor claims, so as to avoid the social and economic costs of liquidation. This serves the public interest by facilitating the survival of suppliers of goods or services crucial to the health of the economy and saving large numbers of jobs. The Oakes Test fails because disabled employees' creditor claims are a de minimus proportion of total creditor claims since disabled persons are less than 1% of the labour force. Such a small group cannot affect the odds of other creditors supporting reorganizations and restructurings over liquidations. More importantly, the Supreme Court of Canada has determined as an adjunct to the Oakes Test that there should be no deleterious impacts on persons from an Act, regardless of benefits to others in Canadian society. Disabled persons without the possibility of ever working again have a deleterious impact from reduced disability income, which provincial and federal social security programs do not mitigate.
Representatives of the disabled persons in self-insured group long term disability benefit plans are seeking a constitutional lawyer to carry their Charter case to the SCC.
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