Class action pension suits on the rise

Plaintiffs don't need to worry about paying defendants' legal costs
By Uyen Vu
|Canadian HR Reporter|Last Updated: 07/12/2007

In June 2002, when the Ontario government made changes to its benefit plan, a retired health ministry worker fought back.

The change included new deductibles for prescription drugs and dental services, elimination of out-of-country services and elimination of over-the-counter drug coverage. Citing breach of contract and breach of fiduciary duties, Barbara Kranjcec, who retired in 1993 after 27 years of service, launched a class action suit that would grow to include 48,000 retirees.

Last month, a court approved a settlement that would see the Ontario government reimburse $20 million to the group, or about $350 each after legal fees. In addition, these retirees would be entitled to new benefits negotiated by the province’s public-sector union in 2005 and a drug benefit card, which meant they no longer have to pay out of pocket then claim for reimbursements.

Class action lawsuits over pensions and benefit issues have been mushrooming in most Canadian jurisdictions, and with an aging population pushing pension issues to the forefront, observers agree there are bound to be more.

What remains to be seen is whether class action lawsuits, which are easier to launch than other methods of pension-related litigation, will remain limited to disputes over defined benefit plans.

So far class action pension lawsuits have yet to involve defined contribution (DC) plans, but that doesn’t necessarily mean they’re invulnerable.

“DC plans are not immune,” said Jeffrey Galway, a litigation lawyer at the Toronto office of Blake, Cassels and Graydon. “There have been cases in the United States over DC plans, so we’ll have to wait and see.”

It’s difficult to quantify the level of pension activity in the class action litigation landscape. A search on the WestlaweCarswell legal database turned up 21 cases, but Galway noted this list may represent only the tip of the iceberg. Most cases end up being settled and those aren’t reported, he said.

In his own practice as a class action litigator, pension files have been increasingly crowding out other types of files in his caseload. At the union- and employee-side employment law firm Koskie Minsky in Toronto, lawyer Mark Zigler said, at any given time, there are at least a dozen pension-related class action files on the go, compared to just two or three in the past.

Compared to the U.S., class actions are but a fledgling breed of litigation. First introduced in the U.S. in the 1960s, they only appeared in Canada in 1979 in Quebec. Ontario and British Columbia followed suit in 1992 and 1995 respectively. The Federal Court of Canada began allowing class actions in 1998; Manitoba, Saskatchewan and Newfoundland and Labrador in 2002; and Alberta in 2004. Class action legislation was introduced in New Brunswick in June.

From the outset, it was apparent to most pension lawyers that pension and benefit disputes lend themselves to class action claims, said Murray Campbell, a lawyer at Lawson Lundell in Vancouver.

That’s because pension cases typically involve large groups of people having common claims, said Campbell.

However, the methods of pension litigation before class actions were available might have been less complex, he added. Before class actions, cases might have been filed as a “representative action,” which allowed individuals to pursue a claim on behalf of a representative group. This type of proceeding tended to be more straightforward, because class actions have to go through the extra step of being certified as such.

“A certification can be opposed by the defendant and take a long time to be resolved,” said Campbell. “In a representative you can file and be done in a year or two. (Whereas) you can spend a couple of years fighting about certification.”

While the “representative case” option is still available now, class actions have several cost advantages for workers.

They lend themselves to court-approved contingency fee arrangements.

“If an individual has to go out and hire a lawyer on an hourly basis and, to boot, worry about whether they’ll lose and have to pay the defendants’ legal costs, most plan members will never start a lawsuit,” said Campbell.

In some provinces, claimants in a class action are virtually immune from costs, even if they’re unsuccessful, said Campbell. Legal costs in Canada are determined on a loser-pay basis, so plaintiffs in most types of civil suits have to worry about whether they’ll lose and have to pay a portion of the defendants’ legal fees.

But “in a pro-plaintiff province such as British Columbia, once you’re certified, except in the most outrageous circumstances where the court thinks the claim is really inappropriate, the claimants will never pay the defendants’ costs,” said Campbell.

However, the growth of this type of litigation has as much to do with the heightened awareness of pension issues as with the fact the claimants don’t have to worry about costs in a class action, said Zigler of Koskie Minsky.

“As a lot of the population ages, pension and benefit issues have moved to the forefront. Pension funds are big issues that are important to a lot of people involving a lot of money for employers,” he said. “That’s got nothing to do with class action. You would have had more litigation regardless of the format. Some employers are trying to cut back and cut corners and whenever that happens, that generates litigation.”

The types of cases Canadian courts have seen run the gamut of pension issues. Members have sued sponsors over contribution holidays and surpluses, over the use of pension surpluses for administrative expenses and over the enhancement of benefits for some but not others.

Funding shortfalls have also triggered other types of claims, including those alleging breach of fiduciary duties on the part of plan custodians and actuaries. As in the Kranjcec case above, retired government employees in B.C. are currently pursuing a claim against the province over extended health plan benefits and medical services plan payments, which were allegedly taken away in 2003.

But most of the cases Galway has seen are related to surpluses.

“One of the things we’ve been waiting to see is if there will be more litigation related to a deficit in a pension plan. We haven’t seen it yet,” said Galway. “It may be that if you’re talking about plans in deficit, that there isn’t a lot to go after from a plaintiff’s perspective. When you’re dealing with a deficit, the question is where’s the money going to come from if, in fact, the plaintiffs are successful in the case.”

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