May 16, 2003
21.4.807
The employee is grieving the denial of reimbursement of 3-months' mortgage interest differential charges. The grievor requested that the charges be considered as falling under clause 3.5.1d) of the Relocation Directive (and thus be reimbursed as a penalty) even though the form of the charge differs from the description in 3.5.1d).
The Executive Committee has previously considered several cases where a relocating employee required to sell a home has sought reimbursement of a payment required by a financial institution on the early discharge of a mortgage. At issue has been the conflicting application of two different provisions of the Relocation Directive:
Section 3.5.1:
"An employee meeting the conditions outlined in 3.4.1 shall be reimbursed....
(d) first mortgage repayment penalty, not exceeding six months' mortgage interest".
Section 3.5.2:
"When an employee's first mortgage is at a higher interest rate than current rates, the lender may levy a special charge to cover the loss of the interest. This is known as a mortgage interest repayment charge. It is not reimbursable, as it represents money which would have been payable by the employee whether or not the mortgage was terminated early".
In this case, the terms of the grievor's mortgage required him to pay the greater of (1) a penalty equal to three-months' interest, or (2) an interest rate differential calculated on the basis of the time remaining in the mortgage term. For the grievor, the amount under (1) was calculated by the financial institution to be $2393.01, and under (2) $2879.53. The latter amount was therefore levied by the bank as an interest rate differential payment consistent with its "greater of" rule.
The Department denied the grievor's claim for reimbursement because the payment was by nature an "interest rate differential" covered by section 3.5.2 and thus not payable (as opposed to a penalty under 3.5.1(d) which would have been payable).
The grievor contended that, since it was the bank's policy to charge their clients the greater of amounts (1) and (2), the 3-month penalty portion of the overall payment should still be viewed as a "penalty" covered by section 3.5.1(d) and reimbursable. Accordingly, he claimed through his grievance payment for $2393.01, not $2879.53, and accepted that the difference of $486.52 constituted an interest rate differential that could not be reimbursed. The grievor argued that the employer's interpretation was unreasonable and that, in effect, the conflict between sections 3.5.1(d) and 3.5.2 of the Relocation Directive results in some employees benefiting from their application and some being penalized. In the grievor's case, had amount (2) not exceeded amount (1), the $2393.01 payment would have been viewed as a penalty and reimbursed by the department under section 3.5.1(d).
The Secretariat's research suggests that, since 1985, the Government Travel Committee has heard four grievances directly relevant to the case at hand, all essentially involving similar circumstances. In the first and fourth of these cases (21.4.133 and 21.4.772), the Executive Committee resolved an impasse at the working level and issued a decision in favour of the grievor. These grievances were allowed on the basis that the interest rate differential charge in effect constituted a penalty within the intent of the Relocation Directive and was therefore reimbursable.
In the second and third cases (21.4.473 and 21.4.542), the Government Travel Committee recommended denial on the basis that the interest rate differential charge was a sum that the grievor had contracted to pay at the time the grievor assumed the mortgage, and for which payment would have continued had the grievor not relocated.
The Executive Committee considered the circumstances in this case and agreed that the grievor was not treated within the intent of the Relocation Directive. The Committee agreed to uphold the grievance on the basis that the interest rate differential charge (to a maximum of 3-months' interest) in effect constituted a penalty within the intent of the Relocation Directive and was therefore reimbursable under 3.5.1d).
The grievance was upheld.