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Research and Legal Strategy Update December 1999

Some of our employers are receiving a major cash windfall as a result of “demutualization” by five of the largest life insurance companies in Canada. What this means is that the ownership structure of the companies is changing from a model where policy holders were considered co-owners to one where shares are widely held and publicly traded on the stockmarket. This change in ownership structure is commonly known as “going public” with a company.

To compensate for the change in ownership, the insurance companies are offering policy holders shares in the company or cash. This is leading to the payment of large cash sums to policy holders, including our employers. In the Ontario hospital sector, the amount payable was in excess of $16 million.

Many of our local unions have negotiated group insurance benefits providing life insurance, long term disability (LTD), or extended health benefits. This has meant a contract or policy was signed with one of these insurance companies. Because our employers are technically the policy-holder (in most cases) the cash is flowing - or about to flow - to them.

Joint Benefit Trust situations are different. Here a separate entity is set up by the local and the employer to administer the benefits. In these cases, the monies are payable to the trust as the holder of the policy.

Remember, this is plan member money, the result of premium payments made either by us or on our behalf. In order to negotiate these benefits, we have sacrificed other parts of our compensation. Just as with our pension surpluses, the money belongs to plan members.

There is a strong need to make sure that this money is applied to help pay for improvements in our benefits, given the terrible attacks on our group benefits plans and the rising cost of drugs and other aspects of extended health care coverage. This demutualization windfall should go to pay for benefits and help plan members enjoy better coverage from this unforeseen development.

Some CUPE members have already shown the way on demutualization. CUPE Local 182 (Calgary Regional Health Authority, Region 4) has just successfully negotiated control over a demutualization windfall to the tune of more than $200,000. After learning about the issue, this Local raised it directly with their employer - and insisted that the cash windfall from demutualization not be absorbed into the employer’s budget. It worked - and now the utilization of this money will be subject to negotiation with the Local.

Another positive step was taken in Watrous, Saskatchewan, where Local 3597 had every one of its members intervene directly in a meeting of the Town Council in order to make it clear that they expected this cash windfall to be used for plan members’ benefits. While no final decision has yet been made, the Local has certainly had its say - and indicated that they will not back down.

In order to ensure that demutualization works in our interest, we should be prepared to answer a number of questions.

Click here to download a copy of CUPE’s de-mutualization check list.
  1. Who owns this “windfall” resulting from demutualization?

    CUPE Locals have consistently approached questions about surplus ownership from a principled perspective - surpluses belong to the plan members or on whose behalf all premiums were paid. They are the ones that sacrificed other things to get the premiums paid. In many cases, they are the ones who actually paid the premiums (as in many LTD plans). This principle is, however, best underlined by strong collective agreement language which actually specifies that any surpluses, rebates, premium holidays, or other monies that become payable to our employer as a result of the benefit plans being in place will be considered plan member money.

    In some circumstances, there may be plan text language which specifically answers the question about who owns these kinds of surpluses. If there isn’t any clear collective agreement or plan language then the question of who is the technical or legal owner is unclear. There are no decided cases on this kind of pay-out because of the unique circumstances involved. Some employers will try to use pension plan analogies and have us argue whether a “trust” was created or not and whether it applies to this windfall (surplus). If a trust is found then the windfall (surplus) must be used for the benefit of the members of the local in general. If no trust is found, the employer will argue the funds are theirs. Under this trust analogy, the employer may not be prevented from using the windfall (surplus) or a portion thereof to fund, for example, a premium holiday.

    CUPE is presently reviewing these questions to determine whether a strategic legal challenge to an employer or joint benefit trust that tries to take this cash either as their own or based on a premium contribution basis is both feasible, practical and cost-effective. Each case will be dependent on the particular collective agreement and plan text or trust agreement language.

    In the interim, all of us facing this issue should initially examine our collective agreements and plan texts. Those locals involved in a joint benefit trust should examine the trust agreement setting up the trust to determine if the parties have anticipated this kind of payment. This type of problem will also have to be dealt with on a case by case basis depending on the specific agreements negotiated for each collective agreement or trust. Thus, until such a case is advanced, our claim can best be supported by membership education, mobilization, and bargaining. This should also be a reminder to all Locals that collective agreement language dealing with benefits plans - including utilization of premium rebates - must be negotiated and improved.

  2. What can we do to negotiate with our employer over the demutualization windfall?

    If your local is close to bargaining, this matter should be brought to the negotiation table. If bargaining is not happening, all locals should determine whether a demutualization cash windfall may be payable (or already has been paid). The five companies that have either demutualized or are planning to are:

    • Mutual Life Assurance Company of Canada

    • Manufacturer’s Life Insurance Company

    • Sun Life Assurance Company of Canada

    • Canada Life Insurance Company

    • Industrial-Alliance Life Insurance Company

    Find out if any of these companies are the underwriter or carrier for any of your policies and whether this has resulted (or will result) in demutualization cash being paid. To assist you with these questions, we have included a draft checklist for you to use and complete for review by the local or your servicing representative. Also included is a draft demand letter that can be sent to the employer or joint benefit trust requesting this information and putting them on notice about our right to these funds.

    Remember, the money can come in cash, shares in the company, or a combination. In most cases, it is likely that any employer that has a choice will choose the cash and simply pocket it - without even informing the plan members on whose behalf it was created in the first place.

    If it is confirmed that a demutualization windfall has been paid or may be paid in the future, every effort should be made to establish a negotiation or other process with the employer which will ensure that this money is used for the benefit of the members. This might involve co-ordination with other unions or bargaining units in order to combine our strength. There may be pressure placed on us to accept some form of “sharing” the surplus, with the suggestion that shared premiums should lead to shared benefits. This argument is flawed. The premiums paid towards benefits coverage is a part of our earned wage at the time it is paid - for a refund to flow to anyone but the members would be like them dipping into our bank account. This should not be allowed. Employers do not have a moral or clear legal right to these funds.

  3. What if the employer has already “spent” the cash?

    In the event the employer claims that the money has been received and spent by them, a local should try to negotiate anyway, and point out that is was not money that they had planned to receive (and spend). This money, therefore, constitutes a “surplus” somewhere in their accounting. Point out that the amount of money paid to the employer has been calculated on the basis of the amount of premiums paid either by our member or on their behalf. It is our view that our members are entitled to benefit from the money that was paid in lieu of the shares. If the employer resists, then the local must decide whether they are able to grieve the matter under its collective agreement or, failing that, consider legal action as a means of securing some or all of the amount paid to the employer. No matter which route you choose, you should contact your servicing representative with the information in the attached draft checklist.
The information required, at a minimum, is the:

  • collective agreement;

  • the LTD/life insurance plan/extended health care plan or policy; and,

  • the response to your inquiry about whether the employer has received or will receive a windfall.

The servicing representative should review the information to determine if a grievance can be filed or whether another option, including legal action should be taken. Your servicing representative should consult with the Legal Representative assigned to your region for advice on whether or not to consider legal action or other alternatives.
Informing and mobilizing the membership to demand that any windfall from demutualization goes into benefit improvements is key. Some CUPE locals have shown that this in itself can bring sufficient pressure to bear for some employers to concede. It strengthens any grievance or legal challenge. And it may be important to build an expectation that at the next round of bargaining we will demand improvements to our group insurance over and above other benefit issues that would have been on the table anyway.


More than ever, our group benefits are under attack. We must prepare to mobilize our memberships, educate ourselves, and prioritize the protection of all our group insurance benefits. The benefit levels are rarely high enough, and so there is always a need to allocate “new-found money” to benefit improvements. This is why we must prevent our employers from pocketing the cash proceeds of demutualization, and do whatever we can to have them applied to benefit improvements. This money belongs to us. Let’s make sure that the employer is accountable to us for it.

Jane StinsonShaun Hennessy
Director, Research Branch Director, Legal Branch

opeiu 491
cc: J. Darcy,G. McGuire, M. Ballantyne, National Executive Board