Class action suit launched after company cut healthcare and life insurance benefits during economic downturn
General Motors of Canada (GM) has reached a settlement with more than 3,200 retired employees after it was faced with a class action suit in the Ontario Superior Court of Justice, restoring benefits cut by the automaker following the 2008 recession.
GM provided post-retirement benefits to its employees for a long time. These benefits included healthcare and basic life insurance benefits, which were outlined in numerous documents such as information brochures and booklets — there was no single benefits agreement — that indicated employees could count on a core of benefits for their lifetime. Employees also received follow-up life insurance notices from GM outlining their amount of continuing life insurance for the rest of their life.
GM also provided its executive employees with additional benefits, including a pension top-up benefit, supplemental group life insurance, and “personal umbrella liability insurance.”
Healthcare and life insurance benefits for retirees slashed
In late 2007, GM announced restructuring efforts that would reduce healthcare benefits for salaried retirees, beginning on July 1, 2008. This was followed by a temporary reduction in the executive pension top-up benefit in August 2008 and reductions to the basic group life insurance benefit in 2010. The basic group life insurance benefit was worth up to $100,000 for many retirees, but the reductions would reduce it to $20,000 for most of them. In addition, the reduction in the executive top-up benefit was made permanent and the supplemental group life and personal umbrella liability insurance for executives were eliminated.
In May 2010, Joseph O’Neill, a GM employee who had retired in 2002 after more than 40 years of service, launched a class action suit on behalf 3,045 salaried retirees, 252 surviving spouses and 67 executive retirees. O’Neill saw his healthcare benefits reduced and his life insurance benefit cut from $100,000 to $20,000 in the restructuring. O’Neill passed away in 2012 and Lynn McCullough — a 44-year GM employee who retired in 2008 who had his healthcare benefits and life insurance cut similarly to O’Neill — took over as the representative plaintiff in the class action suit.
The Ontario Superior Court of Justice certified the class action in October 2011 and, in July 2013, reached a decision. The court found the various documents GM provided to its salaried employees led them to reasonably expect they could “plan for and rely on a core of health care and life insurance benefits that would be provided to them in their retirement” and those benefits would continue after they retired for the rest of their lives, as deferred compensation for performing their jobs. In addition, the court noted that, based on benefit documents in the 1960s and 1970s, it was evident that GM itself expected its health care and life insurance programs to continue “indefinitely.”
The court found that all the information GM provided to its employees regarding healthcare and life insurance did not clearly indicate the company reserved the right to change its benefits to employees after they retired due to changing economic conditions. In the main benefit documents, it was stipulated that GM could make changes to salaried employees’ retirement benefits while they were still employees, but not after they became retirees. Therefore, GM was not contractually entitled to reduce the benefits to retired employees — only retirement-eligible employees who had benefits reduced while they were still working, said the court.
However, the court found the executive retirees were in a different situation. GM’s benefits top-up, supplemental life insurance, and umbrella liability insurance programs were all accompanied by stipulations that they were not “pre-funded,” not guaranteed and “may be reduced or eliminated with the prior approval of the board of directors.” Therefore, the executive retirees who had these benefit programs could reasonably have understood that GM could do what it did in cutting the benefits in 2010 and GM was contractually entitled to make the cuts, said the court.
Settlement ends legal battle
GM appealed the decision and McCullough cross-appealed. Shortly before hearing began last month, GM reached out to McCullough and the parties were able to reach an agreement.
According to the settlement, as of Sept. 1, 2014, the company is restoring most of the health benefits that had been reduced to all members of the class action, including employees who retired after the cuts were announced. Class members are required to make contributions to the benefits plan — the amount determined by age and level of coverage — and GM will have the right to change and increase the contributions, as long as it is reasonable and proportionate to established practice. The benefits themselves cannot be reduced by GM.
As for life insurance benefits, GM will reinstate two-thirds of the value of the original life insurance for class members, with no right to reduce them in the future.
The pension top-up and umbrella
liability insurance benefits for executive retirees are restored, but the supplemental group life insurance is not. However, executive retirees will receive the same healthcare improvements as the salaried retirees in the class.
In addition, the settlement stipulates that GM will pay $9 million into a fund that will compensate class members for the loss of life insurance and healthcare benefits from the implementation of the cuts on July 1, 2008, and August 31, 2014. Beneficiaries of class members who have died will receive two-thirds of the normal rate with the remaining funds to be distributed equally to class members for past healthcare claims.
The court approved the settlement, finding it was reasonable and avoided
further appeals which could have taken years
to resolve.
“The settlement provides substantial recovery for the class members in a timely and efficient manner, and eliminates the litigation risk and delay for the class members in a timely and efficient manner,” said the court. “The settlement easily meets the criteria for approval. In my view, it is fair and reasonable and in the best interests
of the class.”
For more information see:
• O’Neill v. General Motors of Canada, 2014 CarswellOnt 11627 (Ont. S.C.J.).
• O’Neill v. General Motors of Canada, 2013 CarswellOnt 9803 (Ont. S.C.J.).
