Grey power

3 recent cases highlight risks of changing health benefits for retirees
By Josée Dumoulin
|Canadian HR Reporter|Last Updated: 05/30/2014

The decision to reduce post-retirement benefits for retirees does not come without legal risk. Reductions of this nature have been the subject of various legal challenges by Canadian retirees in recent years. While retirees contested their former employer’s right to proceed with such reductions after their retirement, many of these claims were settled prior to any judgment being rendered.

However, two recent decisions addressed the validity of changes to post-retirement programs for non-unionized employees — the decision of the British Columbia Court of Appeal in Lacey v. Weyerhaeuser Company Limited and the ruling of the Ontario Superior Court of Justice in O’Neill v. General Motors of Canada.

In addition, early this year, the Supreme Court of Canada rendered its decision in Vivendi Canada Inc. v. Dell’Aniello, whereby it confirmed the authorization granted to a group of retirees to institute a class action in Quebec in connection with changes made to their post-retirement coverage.

The Weyerhaeuser decision

Lacey involved a unilateral reduction of the employer’s contribution to the cost of medical benefits provided to retirees. The plaintiffs were five former salaried employees who had retired during the 1990s and in 2000.

Up until 2010, the entire cost of their retirement medical benefits coverage was borne by the company. However, in 2009, Weyerhaeuser advised retired salaried employees in Canada that its contributions to extended health insurance would be frozen at 50 per cent of the cost as of Jan. 1, 2010, and any future premium increases would be borne solely by the retirees.

The plaintiffs filed a claim against Weyerhaeuser contesting this reduction. They argued their entitlement to these benefits constituted a term of their employment that vested upon retirement and could not be subsequently modified. Weyerhaeuser argued the provision of health benefits was entirely discretionary and not a contractual right of the employees.

The trial judge found in favour of the retirees. Having reviewed the documentation describing the benefit program provided over a number of years to the employees, he concluded medical benefits constituted deferred compensation, which was fully earned upon retirement.

The provision of such benefits was a contractual term enforceable against the employer. In other words, the employer became contractually obligated to provide the agreed-upon benefits.

The trial judge also considered the impact of a provision in the documentation indicating the employer was reviewing the benefit programs on an ongoing basis and reserved the right to make changes from time to time. The judge noted the difference between this language and the more explicit reservation of the right to amend language used in connection with possible changes to the pension plans.

He concluded the language used with respect to medical benefits did not extend to changes made after retirement and would have, at best, permitted changes prior to the employees’ retirement.

The British Columbia Court of Appeal confirmed the conclusions of the trial judge. Permission for leave to the Supreme Court of Canada was denied in November 2013.

The GM decision

In O’Neill, the employer reduced the health-care and life insurance coverage of GM salaried and executive retirees who had retired after 1995. The court concluded such benefits constituted deferred compensation and were contractually enforceable.

Most of the debate revolved around the impact of the reservation of right language found in the documentation provided to the salaried retirees that purported to allow GM “to amend, modify, suspend or terminate” any benefit programs “at any time.”

While the court recognized benefits can be changed, even after retirement, it found that given the terms of the documentation provided to the salaried employees and retirees — but not the executive employees — the language was not sufficiently clear and unambiguous to allow the company to reduce the benefits after the employees’ retirement, as it did not specifically mention retirees or specifically address the possibility of reductions after retirement. The decision is currently on appeal.

The Vivendi decision

In Vivendi, the Supreme Court of Canada was called upon to decide whether a group of retirees was entitled to institute a class action against Vivendi contesting reductions in retiree coverage. The proposed class included some 250 retirees who worked in six provinces.

The trial judge had denied the retirees permission to institute a class action, finding there were a range of individual recourses and the requirement, under the Quebec Code of Civil Procedure, that there be similar or related questions of fact or law was not met.

In his view, the class action was not the most appropriate vehicle for this action as the judge would have to conduct a detailed review of a multitude of individual circumstances, resulting in a multitude of mini-trials.

This decision was quashed by the Court of Appeal of Quebec. The court found there was a common question at the heart of the class action — namely the validity of the changes made to the benefit program. The numerous legal principles that could apply to each group of members was not the core of the dispute, in the court’s view.

The Supreme Court of Canada essentially agreed with the conclusions of the court of appeal, stating that, under Quebec law, the approach to authorizing class actions is more flexible than in the common law provinces and authorizing judges should not place too much emphasis on the fact that several individual questions might have to be analyzed.

Implications

The decisions in Lacey and O’Neill illustrate, once again, that the information provided to employees and retirees is of the utmost importance when determining whether changes to post-retirement benefit programs are permitted. In O’Neill, the court reviewed 260 documents, including booklets, letters and employee binders, provided to the employees and retirees, some of which dated back to the 1960s.

In Lacey, in addition to the various documentation available, the court also considered the information provided during employee seminars. Employers would, therefore, be well-advised to ensure they preserve any benefit plan documentation, even if it dates back many years.

These two decisions also illustrate that the court’s analysis will not be limited to the reservation of right language and will also take into consideration representations or promises that may have been made to employees in documentation provided to them over the years. In O’Neill, the court found that, given the terms of the documentation provided to employees, the reservation of right language would have needed to be crystal clear in stating changes could be made after retirement for such changes to be permitted. It will be very interesting to see if the court of appeal will see it the same way.

In Quebec, now that the Supreme Court of Canada has rendered its decision in Vivendi and authorized the class action, the Québec Superior Court will be called upon to deal with issues similar to the ones raised in Lacey and O’Neill. It remains to be seen whether the court will rely on the principles outlined in these decisions and, if so, how they will be applied to the documentation under review in this case.

Josée Dumoulin is a partner at law firm Lavery in Montreal. She can be reached at (514) 877-3088 or at
jdumoulin@lavery.ca.

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