TTC remains bogged down by benefits scam five years later
Nearly 200 employees fired but much of costly litigation could have been avoided, hearings reveal
Five years after the TTC shut down a massive fraud scheme that milked its employee benefits plan for millions of dollars, the agency and the union representing its workers are still dealing with the fallout.
Nearly 200 employees who participated in the scam have been fired, and the TTC and Amalgamated Transit Union Local113 remain entangled in costly litigation from the mountain of labour grievances filed as a result.
But according to a pair of recent labour arbitration awards, much of the current mess could have been avoided.
At hearings for the decisions, which are two of about a dozen test cases that will help decide all other grievances related to the scheme, arbitrators heard testimony that the TTC offered Local 113 a deal five years ago that would have allowed hundreds of employees who scammed the company to keep their jobs.
But according to the testimony, instead of accepting the offer, Local 113’s former president placed an angry phone call to a TTC executive in 2015 and said the union wouldn’t co-operate.
Legal experts say Local 113’s decision to not accept the deal was a colossal error that has not only cost many TTC workers their livelihoods, but left both sides entangled in litigation that has no end in sight.
The pair of arbitration decisions were released in September and October, and upheld the TTC’s dismissal of two employees who took part in a fraud scheme orchestrated by the owner of a North York orthotics clinic called Healthy Fit.
Under the scheme, the details of which have previously been reported, TTC workers would file false or inflated claims for products they had supposedly purchased at Healthy Fit but that the clinic hadn’t supplied. The employee and the clinic would split the claim payment provided through the TTC benefits plan. Some employees made repeat visits to Healthy Fit and racked up thousands of dollars each in bogus claims.
Police raided Healthy Fit in July 2015, and two years later clinic owner Adam Smith pleaded guilty to two counts of fraud over $5,000.
Although the scam was shut down, the TTC had a huge mess to clean up. Smith’s trial heard evidence that about 700 of the agency’s employees had taken part in the scheme, and a forensic accountant hired by the TTC estimated the commission’s losses through Healthy Fit at up to $6.9 million.
In addition to the financial loss, the TTC had to decide what to do with almost five per cent of its workforce who it believed took part in the fraud. Firing them all would not only leave hundreds of positions vacant but also trigger litigation that would take years resolve.
In 2015 Sean Milloy was the TTC’s acting director of employee relations. At arbitration, which is a quasi-judicial process used to issue binding decisions on disputes between unions and employers, Milloy testified that as a matter of principle, management didn’t want to continue employing people who had defrauded the agency.
“But we were dealing with the scenario here where we had hundreds upon hundreds of cases,” he said.
“The logistics were almost impossible to imagine.”
Milloy said the TTC concluded it could stomach retaining employees who had filed false claims for smaller amounts, “if we could reach some agreements to address the resources, the time, the money and the effort” that would be expended if the agency had to let them go.
So the TTC went to Local 113, which represents more than 11,000 TTC workers, and offered them a deal.
According to Milloy, in August 2015 he gave Frank Grimaldi, a prominent member of the union executive, a one-page document outlining the terms: employees who committed fraud of less than $5,000 could keep their job if they paid the money back, served a 10-day suspension, and co-operated with the fraud investigation.
The TTC believed the deal would cover about 200 union workers but Milloy testified the agency was open to negotiating leniency for additional employees if they were “willing to be honest and come forward.” A similar offer was also extended to non-union TTC employees.
But the union didn’t negotiate. Instead, Milloy testified that in December 2015 he got a call from Bob Kinnear, then-president of Local 113.
“Bob called me, he was rather upset, kind of ranting and, sort of swearing about the benefits fraud investigation,” Milloy testified.
He said Kinnear told him “there’s not going to be any cooperation, there’s not going to be any meetings, and that there wasn’t going to be any kind of (union) involvement in this at all.”
According to Milloy, the conversation convinced him the deal was off, and the TTC proceeded with the laborious process of individually interviewing and firing union members it had evidence against.
Kinnear didn’t testify at the arbitration hearings, but in an interview with the Star he confirmed he spoke to Milloy in 2015. He denied any knowledge of an offer from the TTC that would have allowed some employees involved with Healthy Fit to keep their jobs.
He said he called Milloy not to talk about a deal, but to object to what he believed was the unfair way in which management was interviewing union members who it believed had committed serious offences.
“I can tell you unequivocally that I was not provided with any such proposal in 2015,” he said. “I was always willing to have a discussion with the TTC in relation to how we resolve the issue and reinstate the employees.”
The TTC disputed Kinnear’s account. “TTC staff at the time spoke to ATU officials, including Mr. Kinnear and Mr. Grimaldi, about the 2015 offer,” said TTC spokesperson Stuart Green.
Grimaldi, who is no longer a Local113 executive, declined the Star’s request for an on-the-record interview. So did Milloy, who now works for the city of Toronto.
Kinnear resigned from Local 113 midway through his fifth term as president in March 2017, following a power struggle unrelated to Healthy Fit.
Carlos Santos, the current president of Local 113, declined to answer the Star’s questions, but in a brief statement said while he was “disappointed” by the two recent decisions, other Healthy Fit grievances are still in arbitration and “we cannot comment further.”
As of this month, the TTC has fired 197 employees implicated in the Healthy Fit scam, and 60 more have resigned in order to avoid discipline, according to the agency. The TTC’s investigation remains open and more dismissals are expected.
Most of the hundreds of grievances related to the scheme are in abeyance while arbitrators decide the test cases. The union has not fared well in the two released so far.
Lawyers for Local 113 didn’t dispute that either employee had filed false claims, and didn’t deny the union had rejected Milloy’s offer of a deal.
But central to their defence was the argument that union members should effectively be entitled to the deal Local 113 passed up in 2015. The union said that because the TTC made a similar offer to nonunion employees, at least three of whom took it and kept their jobs, denying it to Local 113 members amounted to “discriminatory discipline.”
The arbitrators roundly rejected that position, concluding Local 113 couldn’t ask the TTC to give members a deal the union had already passed on.
“The rejection by the union of the Milloy proposal has caused the expenditure of resources that the proposal was designed to avoid,” wrote Slotnick.
“Negotiations cannot be conducted productively if a party that refuses an offer can successfully ask an arbitrator to order it later.”
Muneeza Sheikh, a partner at Levitt LLP, a labour and employment law firm in the GTA, said the legal precedent upholding the dismissal of employees who defraud their employer “is so unbelievably solid” that the union should have known it would lose at arbitration.
The compromise offered by the TTC in 2015 “would have been the only possible way to get people back to work,” said Sheikh, who wasn’t involved in the arbitration but reviewed the awards at the Star’s request.
She said the union made a “massive blunder” by not accepting an offer that would save its members jobs and had likely opened itself up to legal claims that it failed to fairly represent its members.
Opinion among Local 113 membership is divided about whether the union should be expending resources defending employees who took part in fraud.
But even members who told the Star they had no sympathy for colleagues who went to Healthy Fit said leadership should have taken the deal.
“I think that was a big mistake,” said one member who is involved in union politics but spoke on the condition of anonymity because he feared retaliation from leadership.
“If they were willing to propose a settlement” that would save jobs and avoid union dues being spent on litigation, “then why not take that deal?” he asked.
Green, the TTC spokesperson, said he couldn’t quantify how much money the agency has spent on Healthy Fit litigation, but the TTC is saving about $7 million a year on reduced benefits claims as a result of shutting down the scheme.
Based on the two test cases so far the agency is hopeful the arbitration process will end “sooner rather than later,” Green said. “But it will be up to the union to decide if they continue to pursue this course of action or withdraw.”
The TTC’s investigation remains open and more dismissals are expected