Pension class action lawsuits on the rise

By David Brown
|Canadian HR Reporter|Last Updated: 10/30/2001

A recent Supreme Court of Canada decision means pension and benefit plan sponsors across the country could be more likely to face a class action lawsuit.

The importance of the otherwise innocuous case lies less in the details — a group of would-be immigrants who lost money in a program meant to ease their entrance into Canada — than in the manner in which the case will proceed.

The Supreme Court ruled the case of

Western Canadian Shopping Centres v. Dutton

, could proceed as a class action, unusual for a case originating in Alberta because there is no class action legislation in the province.

Experts say that, for a variety of reasons, there has been a noticeable increase in the number of class action lawsuits, some of which are brought by disgruntled pension and benefit plan members.

However, most of that action has been in British Columbia, Quebec and Ontario where comprehensive statutory schemes set a framework for class action practice.

The absence of a clear framework outside those provinces has made it more difficult to proceed with a class action. That could change with the

Dutton

decision, said Brett Ledger, a partner specializing in pension and employee benefit litigation with Osler Hoskin & Harcourt.

In a class action one or more people can sue on the behalf of a larger group and seek damages on behalf of that group. Before launching a class action was an option, if one or two members were unhappy about some change to their pension plan, it would be difficult for them to take their claim before the courts. But the economies of scale of a class action allow the legal costs to be spread over a larger number of claimants.

Troubled telecommunications firm Nortel for example, is facing a class action suit on behalf of laid off Ontario employees who claim they will suffer pension and benefit losses.

Some form of representative action has technically always been an option for claimants anywhere in the country, but the absence of a clear guide for how to proceed discouraged their practice. Some provinces, including Alberta and Manitoba, are considering enacting class action legislation. The

Dutton

case was brought as a representative action under an old rule dating from the 19th century. But in delivering the reasons for allowing the case to proceed as a class action, the Court essentially ignored that old rule and referred instead to modern class action legislation already existing in British Columbia, Ontario and Quebec.

In effect, the justices said the rules for representative actions should be essentially the same as those used in class action proceedings in B.C., Quebec and Ontario, said Ledger.

“There is no question that the number of class actions is increasing,” said Ledger. “I think we are going to see more.” And pensions and benefits are viewed by many as fertile ground for class actions. “Some people would say pensions and benefits (claims) are custom made for a class action because you have a large number of people affected by common issues,” said Ledger.

Some cynics have attributed it to an increase in the number of lawyers in the country and associated increase in search for work.

The possibility of receiving more than regular hourly fees by working on a contingency basis, (receiving a percentage of what could be a multi-million dollar settlement) likely encourages some lawyers to suggest class actions.

However, it has also taken time for the practice to catch on. The legislation is, after all, relatively new. Quebec has had its rules in place since 1979, but Ontario only introduced its legislation in 1992 and B.C. in 1996. There still aren’t that many lawyers who have expertise in both class actions as well as in pensions, though their numbers will increase.

For the most part, the possibility of facing a class action is viewed as bad news for employers, said Randy Bauslaugh, of the firm Blake Cassels and Graydon. “The bad thing from the point of view of sponsors is that litigation on benefits and pensions is very expensive litigation to conduct,” said Bauslaugh.

Pension plans are typically very complicated. Aside from the fact that pension and tax lawyers are generally fairly expensive, sponsors will often need to hire other experts and actuaries. In order to determine pension rights, it is usually necessary to review documents right from the start of the plan. Bauslaugh recalls one case where the pile of documents was literally five feet high. “Someone has to read all of that and they have a high hourly rate,” he said.

“But there is also good news in that it is a way to resolve everything at once.”

And the increase in class actions doesn’t necessarily mean employers are doing anything wrong or that their responsibilities have changed. Though they may need to be more vigilant of what they can and can not do and ensure administration is flawless.

Typically class actions arise when the employer makes some change to a benefit plan and employees contest their right to do so, said Bauslaugh. Or else some small error is made in administration that gets compounded over time. Sponsors should be doing periodic audits of administration to avoid that possibility.

However, defined contribution pension plans could also spawn a number of class actions down the road. In a DC plan it is the sponsors responsibility to ensure members make informed investment decisions with their retirement savings. As more of those still relatively young plans mature, it is possible there will also be more plan members who are unhappy about their savings, will claim they did not receive enough information and launch a class action against their employers.

The Nortel case is being brought on the behalf of all non-unionized employees in Ontario over the age of 50 and who have been laid off since December, 2000. A lot of people in this class have more than 20 years of service and would be entitled to substantial notice. But they were only given eight weeks’ and offered a lump sum payment to make up for any loss of salary or harm to benefits and pensions. The employees proceeding with the case say they are owed more than they were offered, explained Dougald Brown of the firm Nelligan O’Brien Payne, which is representing the former Nortel employees.“We restricted it to people 50 years of age and older because the pension loss tends to be magnified and much more easily quantified for people closer to retirement age,” he said.

In any defined benefit pension plan where the ultimate pension is based on a combination of age, service and some average of final earnings, the person would be entitled to a better pension at the end of their notice period, said Brown.

For example, somebody who may have been eligible to for early retirement within the appropriate notice period, of perhaps 12 months, won’t have that opportunity. “Early retirement is usually beneficial in terms of the pension benefit. But if the person isn’t able to exercise that early retirement, there is usually significant loss.”

The exact number of employees and damages sought won’t be finalized until the case is certified. A hearing to determine if the case can proceed as a class action is slated for Aug. 24.

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