Slashed benefits restored to GM retirees

General Motors of Canada has reached a settlement with more than 3,200 retired employees after it was faced with a class-action suit by retirees. The settlement, approved by the Ontario Superior Court of Justice, restores many of the benefits cut by the automaker after the 2008 recession.

GM has provided post-retirement benefits to employees for a long time. These included health-care and basic life insurance benefits, which were outlined in numerous documents such as informational brochures and booklets (there was no single benefits agreement) that indicated employees could count on certain core benefits throughout their lifetimes. Employees also received followup life insurance notices from GM outlining the amount of continuing life insurance for the rest of their lives.

GM also provided executive employees with additional benefits, including a pension top-up benefit, supplemental group life insurance and "personal umbrella liability insurance."

In late 2007, GM announced restructuring efforts that would reduce health-care benefits for salaried retirees who retired after 1995, beginning July 1, 2008. This was followed by a temporary reduction in executive pension top-up benefits 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 was eliminated.

In May 2010, Joseph O’Neill, a GM employee who had retired in 2002 after more than 40 years’ service, launched a class-action suit on behalf of 3,045 salaried retirees, 252 surviving spouses and 67 executive retirees. O’Neill passed away in 2012 and Lynn McCullough — a 44-year GM employee who retired in 2008 and had his health-care 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 2011 and, in July 2013, reached a decision. The court found the various documents GM provided to 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 benefits documents in the 1960s and 1970s, it was evident GM expected its health-care and life insurance programs to continue "indefinitely."

The information GM provided to employees regarding health care and life insurance did not clearly indicate the company reserved the right to change its benefits for employees after they retired due to changing economic conditions, found the court. It was stipulated GM could make changes to salaried employees’ retirement benefits while they were still salaried employees, but not after they became retirees.

Therefore, GM was not contractually entitled to reduce the benefits to retirees — only to retirement-eligible employees who had benefits reduced while they were still working, said the court.

However, 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," said the court. Therefore, executive retirees with these benefit programs could have reasonably understood GM could do what it did in cutting the benefits in 2010 and GM was contractually entitled to make the cuts, said the court.

GM appealed the decision and McCullough cross-appealed. Shortly before the hearing began last month, the parties were able to reach an agreement.

According to the settlement, 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 has 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 health-care improvements as the salaried retirees in the class.

In addition, GM will pay $9 million into a fund to compensate class members for the loss of life insurance and health-care benefits from the implementation of the cuts. 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 health-care claims.

The court approved the settlement, finding it was reasonable and avoided further appeals that could take 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."

• 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.).

Jeffrey R. Smith is the editor of Canadian Employment Law Today. For more information, visit www.employmentlawtoday.com.