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COMPREHENSIVE REVIEW OF NEW BRUNSWICK WORKERS COMPENSATION LEGISLATION – PHASE II CONSULTATION PROCESS
SUBMISSION TO CONSULTATION COMMITTEE
ON BEHALF OF THE COALITION OF NEW BRUNSWICK EMPLOYERS
September 2015
Background on the Coalition of New Brunswick Employers
The Coalition of NB Employers is an informal alliance of ‘major’ employer associations in the province. The group was formed two decades ago to make representation on labour relations issues, which were particularly ‘difficult’ at the time. Since then the Coalition has taken positions on such major issues as workers’ compensation reform and reform of the provincial electricity and energy markets. Such action was necessitated by the common, and crucial, impact they could have on the employer community, and prosperity of the province.
Canadian Manufacturers & Exporters (CME) has ‘traditionally’ acted as the secretariat for the group. However, the Coalition has no formal structure, nor by-laws. The Coalition always strives to find consensus on various issues. Predictably, this is not always possible, and member organizations have no obligation to lend their support to a particular position. Hence, member organizations that concur with a particular stance are listed under the Coalition’s ‘banner’.
The Coalition of NB Employers typically only comes together to deal with issues of major importance, which is an indication of the seriousness that the associations’ members attach to these issues. The provincial legislative review of workers' compensation enacted under The Worker’s Compensation Act is one such issue. The Coalition members that contributed to this submission is shown in Appendix A.
Overview
As the employers of more than two-thirds of the New Brunswick private-sector workforce, the Coalition has a vital stake in the workers’ compensation system in the Province. As the funders of the system, the members of the Coalition are directly impacted by any changes in the system that may affect the cost of providing benefits to injured workers.
It is our view that the Committee should understand the issues which it is considering in the broader context of the New Brunswick economic situation and not consider them in isolation.
Before proceeding further, it should be clearly understood that the Coalition fully supports the principles upon which our workers’ compensation system is based – the Meredith principles which include:
· No-fault compensation: workers are paid benefits regardless how the injury happened.
· Security of benefits: a fund is established to guarantee funds exist to pay benefits.
· Collective liability: covered employers, on the whole, share liability for workplace injury insurance.
· Independent administration: organizations that administer workers’ compensation insurance are separate from government.
· Exclusive jurisdiction: only workers’ compensation organizations provide workers’ compensation insurance.
In our submission these principles have well-served both workers and employers for more than 100 years and we see no reason to deviate from them at this point.
It is the Coalition’s submission that the current New Brunswick workers’ compensation system, as administered by WorkSafeNB, is an excellent example of an affordable, sustainable system that provides an appropriate level of benefits to injured workers at a reasonable cost to employers.
In our submission, decisions as to the appropriate level of benefits should not be made on the basis of the funding status of WorkSafeNB at any given point. Benefit levels should drive the funding of the system; funding levels at any point should not drive the benefits available. When the system has deficits, it is not appropriate to reduce benefits to injured workers. Equally, it is not appropriate to increase benefits, simply because the system happens to be in a surplus.
When the level of benefits provided to injured workers by the New Brunswick system is compared with other jurisdictions across Canada, it is evident that our system provides comparable levels of benefits in a manner which is both affordable and sustainable.
It is important to understand that the costs of benefits should be borne by the employers whose workers are receiving or who will receive benefits. This raises issues of inter-generational equity. If WorkSafe NB fails to maintain adequate funding levels, then it is future employers who will be obliged to pay the costs incurred today. This penalizes the “good” employers who are in business for the long term.
The promise of future benefits to injured workers is no different than a defined benefit pension plan – the risk of there not being adequate funding at a future point in time to provide the promised benefits, and the responsibility to provide the funding for any shortfall, falls entirely on the employer community.
Public policy in New Brunswick has moved away from employers (including government employers) from bearing the entire risk of such future promises. The recently experienced pension crisis was caused primarily by Income Tax Act rules that prohibited pension funds from accumulating sufficient surpluses to weather the inevitable economic downturn. This resulted in imprudent decisions being made by many pension funds, so as to avoid being off-side these arbitrary guidelines. Typically, this involved increasing benefits. We have seen the effect of this in New Brunswick where many private and public-sector pension plans are significantly under-funded. Care should be taken to avoid making similar mistakes with the WorkSafeNB Accident Fund, and the focus should be on the responsible, future focused funding of obligations to pay.
The New Brunswick experience compares very favourably with other jurisdictions. From 1996-2006 the funding ratio for the Accident Fund in New Brunswick ranged from a low of 92% in 2002 to a high of 111% in 2006. However, in 2008 the financial crisis and resulting effect on the Fund’s investments resulted in a drop to 87.7% (2007 – 105.4%). Fortunately, the Fund has gradually recovered. However, these significant swings in the economy (and thus the funding ratio) will occur in the future; it is only a question of when. Therefore, we need to act prudently to protect against the effects of such volatility in the future.
What this means is that NB is well-positioned to meet its promises to injured workers without burdening the employers of today and future employers with huge unfunded liabilities. By way of comparison, the Nova Scotia Workers’ Compensation Board had an unfunded liability of $454.4 million at the end of 2014.
The fact that NB has maintained a fully funded position for most of the past 20 years has allowed NB to maintain stable and affordable assessment rates. The importance of this during challenging economic times cannot be overstated.
Again, by way of comparison, the average assessment rate in NS is $2.65 per $100 of assessable payroll (where it has been for the past number of years) while in NB the average rate was $1.21 per $100 of payroll in 2014 and $1.11 in 2015. This provides NB with a significant competitive advantage. We strongly urge the Committee to resist the temptation to eliminate this significant competitive advance.
When the Independent Review Panel conducted its review in 2007-2008, there was significant pressure from some stakeholders to increase benefits, due to the favourable funding ratios that had been experienced. Fortunately, this did not occur, as the financial crisis put the Accident Fund into a negative position.
One only has to look at the experience of defined benefit pension plans in the public sector and elsewhere to realize that increasing benefits when times appear good, can only lead to significant unfunded liabilities in the future with a commensurate burden placed on future employers.
Therefore, any changes to the system need to be carefully considered, costed, and the long-range implications carefully considered before they are recommended or implemented.
We also wish to address the submission made by the provincial Ombudsman which has been widely publicized. In our view, his submissions are unfounded and uninformed and fail to address the issues under consideration by this Committee. When his remarks are closely examined, he seems to be advocating the abandonment of the Meredith principles upon which our system is based when he asks “If Worksafe did not exist and we were to build it from scratch today, how would we proceed?” However, aside from advocating for an undefined notion of “equity” he fails to identify what principles a new system would be based upon. He also fails to recognize the true nature of the historical trade-off which was the basis of the original Meredith report – the fact that injured workers are entitled to benefits regardless of fault. This is at the core of the system, but it fails to even receive a passing mention from the Ombudsman. He also refers to WorkSafeNB as the “Corporation” in a derogatory manner. Again, he fails to recognise that it is an organization controlled by the two principle stakeholders – workers and employers. Finally, he advocates for a system which costs employers more, without providing any justification for such expenditure, other than his personal view of “equity” unconstrained by any benchmarks or guidelines against which this could be measured. Importantly, he fails to recognize the role of the organization in reducing the frequency and severity of workplace injuries in the first place.
The Committee is well-aware that the Ombudsman’s comments fail to address the issues which are before it for consideration and we ask that you refuse to be drawn in to the philosophical discussion which the Ombudsman wishes to pursue. If, however, the Committee is attracted to the notion of jettisoning the Meredith principles and starting from scratch, the Coalition would be happy to provide its views.
GOVERNANCE
A number of specific issues have been identified for discussion in the Discussion Paper on Governance at page 8. Our focus will be on Board composition, appointment, quorum, and decision-making.
Board size and composition;
Our view is that the current Board size is adequate and should not be increased. The legislation should provide for four (4) employer and worker representatives, not four (4) or more. Our view is that a larger Board becomes unwieldy and is not as effective as a more streamlined group. This opinion is buttressed by discussions with previous and current Board members.
Given the complexities of the issues under consideration by the Board, we support the appointment of Board members for four (4) years, with the possibility of being re-appointed for one (1) further four (4) year term. The complexity of the organization and the issues which it faces justified having members appointed for a four (4) year term, with the possibility of serving for an additional four (4) years.
We support staggered terms to provide for continuity and institutional memory, but again note that there should be congruity between the staggered terms of stakeholder representatives.
Appointment of directors;
The Coalition believes that directors should be nominated by the stakeholders and appointed by government. In our view, it is appropriate that the stakeholders identify those individuals whom they believe will best represent their point of view. Government’s role is to select those individuals whom it deems appropriate, given the other members of the Board, and considering other factors such as skills and diversity.
The Coalition views WorkSafeNB as different from other agencies, boards and commissions, as it is not publically funded and is focused on providing benefits and services to its stakeholders.
The Coalition therefore recommends:
► Continue to ensure equal representation between members representing employers and workers.
► Improve the member selection process to ensure a proper period of time (minimum of 30 days) is allotted to prepare and submit a nomination.
► Ensure that nominations are free of political interference or conflict of interest.
Modern corporate governance typically utilizes a skills matrix and selection criteria for Board members; this is appropriate. However, it should be recognized that the Board must maintain a balance of representation between employers and workers. The overriding criteria for appointment should be the ability of the individual to fulfill that representative role appropriately.
It is appropriate that appointments be subject to revocation in appropriate circumstances, but measures need to be taken to ensure that this does not result in unbalanced representation on the Board.
Modern corporate governance includes regular Board self-review and member evaluation. The Coalition supports putting such processes in place.
The role of directors;
Directors are the representatives of the stakeholders and their collective decisions on policy, including recommendations as to improvements in benefits, should be given great weight by Government. Equally, as noted previously, Government does not fund WorkSafe and therefore its role should be limited to appointing Board members. Government should also act on Board recommendations as to changes to the governing legislation.
In the Coalition’s submission, it is inappropriate for Government to make decisions that impact the organization (and its financial stability) without the approval of the stake-holders. Recent decisions on the three day waiting period for fire and police personnel and presumptive legislation for firefighters come to mind as examples of Government going beyond its appropriate role.
Good decision making at the Board level requires a full discussion and consensus by the stakeholders. The rules under which the organization functions should support this. The definition of a quorum of the Board is important in this process. Currently a quorum is determined as follows:
9(10) The quorum for a meeting of the board of directors shall be one-half of the number of members, at least one of whom shall be a member representative of workers, at least one of whom shall be a member representative of employers and one of whom shall be the Chairperson of the board of directors or in the absence of the Chairperson of the board of directors the Vice-Chairperson.
We are of the view that a quorum should be an equal number of employer and worker representatives and that where there is an unequal number, only an equal number of votes may be cast. This will ensure that both stakeholders support any particular decision of the Board and will support the consensus decision-making model. While this has been informal Board practice, we recommend that the legislation reflect this.
We support the consensus decision-making model that the Board has employed over the past number of years and urge the Board to take appropriate measures, such as Board member orientation, training, evaluation and feedback to assist Board members in meeting their fiduciary obligation to act in the best interests of the organization.