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GM retirees in the driver’s seat

Court approves class action lawsuit over slashing of post-retirement benefits for non-unionized salaried and executive retirees

By Todd Humber

Don’t mess with retirees.

That’s advice pretty much any organization should adopt, and fuel was added to that fire last month when General Motors of Canada settled a multimillion dollar class-action lawsuit filed on behalf of 3,200 non-unionized salaried and executive retirees who had their benefits slashed when the automaker ran into financial trouble.

The final bill for GM is expected to be about $130 million, according to Justice Edward Belobaba of the Ontario Superior Court of Justice. (See the full ruling here.)

What happened

During the 2007-2009 financial crisis, GM reduced the retirement benefits it was paying its non-unionized salaried and executive retirees who retired after 1995. A couple of examples from the settlement approval, dated Aug. 27, 2014, from the Ontario Superior Court of Justice:

• elimination of semi-private hospital coverage

• elimination of ability to add new dependents for coverage

• reduced out of province coverage

• increased co-payments on the cost of prescription drugs

• life insurance cut from $100,000 to $20,000 for most class members.

A class-action lawsuit was launched against GM Canada in the wake of the cuts, and it was certified in October 2011.

The settlement

Under the terms of the settlement, GM reinstated most of the health benefits effective Sept. 1, 2014. The 3,200 workers will be treated the same as workers who retired on or before Dec. 31, 1994, when it comes to health-care benefits.

Contributions: Retirees will still be required to make health-care contributions that were introduced in August 2008. The payments, ranging from $15 to $70 depending on age and coverage (single, couple or family), can be increased — but the increases must be “reasonable and proportionate” based on experience. The right to increase the rate is also subject to review by an arbitrator.

Life insurance: As of Sept. 1, 2014, two-thirds of the reduced basic life insurance benefits were reinstated.

Executives: Retired GM Canada executives got additional perks above and beyond retirement benefits, including a pension top up and additional insurance benefits including supplemental group life insurance and personal umbrella liability insurance.

The settlement restored two-thirds of the supplemental group life insurance benefits for retired execs, but it did not restore the pension top up.

Past claims: GM is paying $9 million into a fund to compensate retirees for the loss of life insurance and health benefits between July 1, 2008, and Aug. 21, 2014. Cheques for any past life insurance benefits will be mailed out by Nov. 17, 2014. Cheques for past health-care benefits will be sent by Jan. 15, 2015.

Court praises GM

Justice Edward Belobaba of the Ontario Superior Court of Justice said the settlement was in the best interest of the retirees and reflected well on General Motors of Canada.

“The cuts to the post-retirement healthcare benefits have had a significant impact on class members given their age, susceptibility to health problems, and inability to assume new financial burdens,” wrote Justice Belobaba in his ruling. “The settlement provides a real and immediate benefit to class members by restoring their healthcare benefits on a going-forward basis, while also providing compensation for past health losses.”

He pointed out that, without the settlement, the appeal proceedings could have easily consumed another five years — more.

The court also awarded legal fees of $1.9 million to counsel for the retirees.

Some may argue that GM had no choice but to slash benefits as it fought to stay alive during the economic crisis. Even in hindsight, some might say putting off the full bill for post-retirement benefits was a good decision — after all, it helped free up some cash to help the automaker stabilize. And now that the company is financially viable again, the bill is being paid — nearly in full — for retirees.

But this is hardly a case of all is well that ends well. With GM taking a reputation hit, with retirees suffering real losses and hardship and the damage to morale for current salaried workers who wonder about their own futures — this case is nothing to trumpet.

If nothing else, it serves as a reminder that — increasingly — Canadians are willing to file employment related class-action lawsuits and courts seem to be warming up to them. Just ask some of the banks when it comes to unpaid overtime.

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Todd Humber

Todd Humber is the publisher and editor-in-chief of Canadian HR Reporter, the national journal of human resource management. Follow him on Twitter @ToddHumber
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