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Profit Sharing and Pension Plans in Canada: a Legal Profile. Osgoode Hall Law School of York University Osgoode Digital Commons Articles & Book Chapters Faculty Scholarship 1970 Profit Sharing and ensionP Plans in Canada: A Legal Profile Daniel Jay Baum Osgoode Hall Law School of York University Source Publication: Texas International Law Forum (now Texas International Law Journal). Volume 6, Issue 1 (1970), p. 10-49. Follow this and additional works at: https://digitalcommons.osgoode.yorku.ca/scholarly_works This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License. Recommended Citation Baum, Daniel J. "Profit Sharing and Pension Plans in Canada: A Legal Profile." Texas International Law Forum 6.1 (1970): 10-49. This Article is brought to you for free and open access by the Faculty Scholarship at Osgoode Digital Commons. It has been accepted for inclusion in Articles & Book Chapters by an authorized administrator of Osgoode Digital Commons. Profit Sharing and Pension Plans in Canada: A Legal Profile* by DANIEL JAY BAUM ** CONTENTS Page 1. Introduction ................................................ 11 2. The Role of Labor Law ..................................... 11 3. Legislative Jurisdictions .................................... 24 4. History of Federal Legislative P articipation .................. : ............................. 25 5. Current Federal Legislative Participation ..................................... 28 (a) Old Age Security Act ..................................... 28 (b) Canada Pension Plan ..................................... 30 6. Provincial Regulation ...................................... 33 (a) The Pensions Benefits Act ................................. 34 (b) The Pension Benefits Standards Act ........................ 42 7- The Incom e Tax Act .......................................... 43 (a) Pension Plans ............................................ 43 (b) Profit Sharing Plans ...................................... 46 8. Other Provincial Regulation ................................... 47 (a) Quebec ............ ......................... 48 (b) Uniformity of Regulation .................................. 48 9. Conclusion .................................................. 49 * This is the first part of Prof. Baum's article. The second part will describe the factual environment and the operation of profit sharing and pension plans and will by published in the next issue. ** Professor, Faculties of Law and Administrative Studies, Osgoode Hall Law School, York University. Deep appreciation is given to Marven Yonte, L.L.B., Osgoode Hall Law School, 1969, for his assistance in the preparation of this manuscript. The study was made possible by the Lush Foundation of Canada. 19701 PROFIT SHARING AND PENSION PLANS IN CANADA 1. INTRODUCTION This article will describe the legal environment surrounding profit sharing and pension plans in Canada.' Central to this statement is a detailed summary of those legal restrictions affecting investment de'isions, and more particularly the use of monies in equity participation. 2 That is, a decision having been made to establish a profit sharing or pension plan, how may the funds flowing into the scheme be invested? Before specific legislation touching upon investment decisions can be discussed, certain primary matters must be developed. First, who has the power to decide whether and how a profit sharing or pension scheme will operate? Is management to assume an inherent right to initiate, modify, and direct the flow of monies into such schemes? In part the answers to these questions will be found in labor law, and more particularly the demands of collective bargaining. Second, management must know to whose jurisdiction it is subject. A business, operating in several provinces, implementing a single profit sharing or pension plan, might have some difficulty if it is confronted with conflicting federal and provincial legislation. Thus, it becomes necessary to examine the jurisdictional setting and federal involvement in the control over profit sharing and pension plans. A separate section will discuss the Income Tax Act. The tax treatment of pension funds will be contrasted with that of profit sharing plans. Apart from differences in definition, the tax alternatives for either choice will be presented. Finally, provincial regulation is set forth. Primary emphasis is given to Ontario legislation not merely because it has served as a model for many other provinces, but also because of its industrial strength. The law of Quebec, under which a somewhat different 3 environment has been created, also is included in this presentation. From a practical view, an effort is made to answer that most important question: Is there uniformity of regulation? 2. THE ROLE OF LABOR LAW Profit sharing and pension plans possess certain common characteristics. Both generally are addressed to employees. Each, offering a form of compensation, can induce employee loyalty, tenure, 1. The term "pension funds" is meant to refer to private pension plans. Those plans pursuant to Special Acts of the Federal or Provincial Parliaments are to be distinguished. 2. The term "pension fund industry" also refers to the industry of private pension plans. 3. The Quebec Pension Plan and the Supplemental Pension Plans Act, infraat 48. TEXAS INTERNATIONAL LAW FORUM [Vol. 6:1 and, perhaps, efficiency. Yet there is no necessary assurance that all or any of these characteristics will come into being. For that matter, there is even the possibility that the characteristics might not harmonize with each other. Is it not possible to have an industry where high employee turnover is desirable and efficient? Indeed, is it not possible to have an industry where the youngest, those with the least seniority, might represent not only the cheapest labor, but also the most productive? If so, a profit sharing or pension plan geared to pass greater rewards to those possessing the most seniority from management's view, could be self-defeating. Nevertheless, whatever management's view, whatever the goals of a profit sharing or pension plan, there is an overriding consideration: What will the law allow? Any plan, any exercise of business judgment, must comport with public policy as expressed in law. The thrust of this paper is to state clearly that policy. In doing so, it would be desirable if there were a single, well-stated law, called the public policy of profit sharing and pension plans. There is not. There is instead multiple legislation at federal and provincial levels designed to achieve diverse ends. A beginning point could be the developed law governing labor disputes. In 1968 the Ontario Royal Commission Inquiry Into Labour Disputes, terming the strike device "a residual of the primordial struggle," called profit-sharing "theoretically, and . practicably, the most effective" way of achieving industrial peace. To the Royal Commission profit sharing results in: giving the employee a sense of genuine participation in what is viewed as a life work. The employee, as part owner, feels that interest, the spur to increased efficiency and gradually increasing return. With expanding administrative consultation, these plans offer both an attitude towards and a broadened view of the employer-employee relations that exist today; and experience shows that these schemes are not incom- 4 patible with unionism, labour's security. The Ontario Royal Commission made proposals outside the ambit of labor legislation. The comment on profit sharing had little to do with the statutory scheme of industrial government. That scheme is designed not to regulate, but rather to allow groups of individuals to band together for the purpose of selecting a representative empowered 4. REPORT OF THE ROYAL COMMISSION INQUIRY INTO LABOUR DIsPUTEs (The Rand Report) 42-44 (Queen's Printer, 1968). 1970] PROFIT SHARING AND PENSION PLANS IN CANADA to bargain as of right with management.5 The law imposes, in this regard, an affirmative duty on management to bargain in good faith: The intent of the statute is to provide a vehicle whereby labor 'and management can resolve their differences in an orderly, mutually protective manner to the extent that where the differences are a legitimate and honest stand on the part of each party, and all reasonable efforts to resolve them have been exhausted, then the right to strike or lockout comes into effect. The test as to reasonableness and honesty or good faith 6 of a party is an objective one. At the extremes, good faith bargaining and objectivity can be measured, and the law can recognize and condemn those blatant attempts of refusal to bargain, coupled with employee wage bonuses, all aimed at destroying the union. This was done in Regina v. DaridsonRitbber Co., IAc., where the court stated: The Company through its representatives and their take it or leave it attitude, their reluctance to meet with the Union representatives to negotiate an agreement, their dealing directly with employees with full knowledge of the certification of the Union as sole bargaining agent, all went beyond the realm of tough bargaining and were a deliberate attempt on the part of the Company to undermine and destroy the Union as a force within the plant .... 5. CANADIAN INDUSTRIAL RELATIONS, THE REPORT OF THE TASK FORCE ON LABOUR RELATIONS 117 (Privy Council Office, 1968): One cannot assume a correlation between the results of collective bargaining and any particular concept of equity. Collective bargaining is basically a power struggle; the outcome is more a reflection
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