Canada’s workforce is aging. With the abolition of mandatory retirement, employees are often working well past age 65, bringing invaluable experience and talent. However, many employer benefits plans were designed for a different era, automatically reducing or cutting off benefits such as life insurance, long-term disability (“LTD”), and health coverage at specific ages. This disconnect creates significant legal and operational risks.

Is your organization’s benefits framework a liability or an asset in attracting and retaining this crucial talent segment? This article will give you what you need to know.

Why are age-based benefit distinctions under scrutiny?

Human rights legislation across Canada generally prohibits age discrimination, but exceptions under human rights legislation generally exist for benefit plans. However, these exceptions  are now challenged more frequently under the Canadian Charter of Rights and Freedoms (the “Charter”) .

In the first stage of a Charter analysis, the issue is whether an age-based distinction (e.g. ceasing LTD eligibility at age 65) creates a contravention of equality rights, which are guaranteed under section 15 of the Charter. For a contravention to exist, a simple age distinction (clearly present with this example) is not enough. The distinction must also perpetuate prejudice or stereotypes. 

Even if a distinction is found to be discriminatory under section 15 of the Charter, courts or arbitrators must then move to the second stage under section 1, to ask whether the distinction can be “demonstrably justified” as a reasonable limit in a free and democratic society. In this context, the multi-part analysis usually focuses on the following factors:

(a) whether there is a rational connection between the distinction and the objective;

(b) whether the distinction at issue minimally impairs the Charter right; and

(c) whether there is proportionality between the purpose of the distinction and its effects.

Although every situation is unique, relying on outdated practices with respect to benefits plans is risky.

Client takeaway: Automatic age-based cuts are a high-risk strategy. The legal justification for these distinctions must be robust and well-documented.

When are age-based benefit cut-offs justified?

Recent arbitration and court decisions have identified key factors that determine whether a benefits cut-off will be upheld:

  • Long-term disability: Cut-offs at age 65 are often upheld. The rationale is that LTD is designed to replace employment income until retirement, and age 65 is considered a “rational proxy” for the normal retirement age. Crucially, overwhelming evidence shows that obtaining LTD coverage for employees over 65 is virtually impossible in the current insurance market.However, the market is slowly evolving, with at least one insurer now offering a two-year LTD product for workers aged 65 to 70.
  • Life and supplementary health insurance: Cut-offs for these benefits are far less likely to be justified. Unlike LTD, these benefits are often not tied to retirement income and can frequently be obtained for older workers without a material cost difference. If the cut-off is only found in an insurer’s policy document and not mirrored in the collective agreement or employment contract which otherwise provides benefits, the challenge is much more likely to succeed. Courts also consider the “group allocation of resources,” asking if the distinction is a reasonable way to balance the interests of all employee groups.

Client takeaway: The strength of your legal position depends on:

(a) the type of benefit;

(b) how any age-based distinction is justified based on market factors; and

(c) how it is reflected in the applicable contractual arrangements with those affected.

In general, LTD cut-offs are usually more defensible than life or health insurance cut-offs.

How should employers prepare for the future?

The demographic shift is not slowing down. To mitigate risk and become an employer of choice for experienced workers, a proactive review is essential.

  1. Audit your plans: Identify all age-based distinctions in your benefits plans, group insurance policies, and summary documents.
  2. Review governing documents: Ensure that any age-based restrictions are explicitly and clearly set out in the collective agreement or individual employment contracts, not just in the insurer’s policy.This is a critical factor in the legal “proportionality” analysis.
  3. Assess market factors: For each benefit, understand the cost and availability of coverage for employees over 65. This evidence is critical for defending a legal challenge.
  4. Consider the opportunity: View this as a strategic talent management issue. Adapting your benefits to support an aging workforce can be a powerful tool for retention and knowledge transfer.

Don’t wait for a human rights complaint. A strategic review of your benefits plan is necessary to manage legal risk and leverage the full potential of your multi-generational workforce.

Supporting an aging workforce requires a modern approach to benefits that aligns with both legal obligations and talent strategy. Proactive planning is your best defence against legal challenges and your greatest opportunity to build a resilient organization. To discuss a review of your benefits plans, for advice on navigating these complex issues or to spark an insightful conversation, contact our Labour & Employment Group.