Employer unilaterally changes pension to DC

Arbitrator sides with employer over union in landmark case that hinged on wording common in many DB plans
By Danielle Harder
|Canadian HR Reporter|Last Updated: 01/14/2011

Stephen Bernardo’s Toronto law office has been fielding calls from employers across Ontario as a result of the dismissal of a union grievance against St. Mary’s Cement. The decision allowed the company to unilaterally change its pension structure from a defined benefit (DB) plan to a defined contribution (DC) plan.

It’s a precedent-setting case, said Bernardo, a labour relations lawyer at the Toronto office of Mathews, Dinsdale & Clark.

“It’s amazing, really, when you think of the potential consequences of this decision, especially in a depressed economy where employers are looking for savings and predictability,” he said.

At issue was a decision by St. Mary’s in the fall of 2008 to switch to a DC plan, effective January 2009. The DB plan had been in place since the late 1960s.

United Steelworkers Local 9235 argued the pension plan forms part of the collective agreement, thus securing a “defined benefit promise” that St. Mary’s could not change without the union’s consent.

The company’s counter-argument hinged on section 15 of the plan that states: “The company… reserves the right to amend the plan or discontinue the plan either in whole or in part at any time.”

“The unions never read the fine print,” said Bernardo. “In the broader significance, many pension plans across Canada are older plans and virtually all have a clause allowing the employer the right to amend or even cancel the plan.”

Since the pension plan formed part of the collective agreement, the amendment power contained within the pension plan — section 15 — also formed part of the collective agreement, said arbitrator Ian Hunter. “There is no ambiguity, latent or patent” in the collective agreement and no language restricting this right, he said in his decision.

Unions have traditionally fought to incorporate pension plans into collective agreements so that if an issue — such as the one at St. Mary’s Cement — arose, it could be referred to binding arbitration, said Bernardo.

This decision proves that assumption wrong, he said.

“When incorporating the pension plan into the collective agreement, everything is incorporated into the collective agreement — including the clause that gives the company the right to unilaterally change the pension plan,” he said.

This decision should have far-reaching consequences, said Bernardo.

“The natural assumption has been that employers couldn’t unilaterally amend the pension structure from a defined benefit to a defined contribution,” he said. “It took an employer who was determined to regulate its costs to take a hard look at the plan and get legal advice.”

Bernardo has been contacted by lawyers representing several companies in a similar situation, he said. Many have held back from challenging the decision in recent years because they felt the cost of challenging the pension plan was too much, both financially and emotionally in terms of harmed relationships.

St. Mary’s new DC plan is generous and more manageable for the company, said Bernardo.

“Their goal was to be able to predict their costs on an ongoing basis,” he said. “You can only do that with a defined contribution plan.”

No one from the United Steelworkers was available to comment. However, at the hearing, the union expressed displeasure with the way St. Mary’s introduced the change.

In July 2008, immediately prior to collective bargaining, the company advised the union of its intentions to convert the plan from DB to DC. The union voted 98 per cent in favour of a strike.

One month later, a new collective agreement was ratified with the provisions dealing with the pension plan unchanged from the previous agreement but the union failed to have St. Mary’s agree to maintain a DB plan. The union filed the grievance shortly thereafter.

Danielle Harder is a Brooklin, Ont.-based freelance writer. This article originally appeared in CLV Reports, a sister publication to Canadian HR Reporter. For more information, visit www.labour-reporter.com.

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