On October 7, 2010, the Supreme Court of Canada released its
decision in Burke v. Hudson's Bay Co., which
confirms the Ontario Court of Appeal's decision that a
proportionate share of pension surplus in a defined benefit plan
need not necessarily be transferred to a successor plan established
for transferred employees on the sale of a division of a
From 1961, the Hudson's Bay Company (HBC) provided a
contributory defined benefit plan for its employees. In 1987, HBC
sold its Northern Stores Division to the North West Company (NWC).
This resulted in approximately 1,200 employees being transferred
from HBC to NWC. As part of the transaction, NWC agreed to
establish a new pension plan providing the transferred employees
with benefits at least equal to those provided under the HBC plan,
and HBC transferred assets sufficient to cover the defined benefits
of the affected employees. At the time of the transfer, however,
the actuarial report showed that the HBC plan had a significant
actuarial surplus. None of this surplus was transferred to the NWC
Representatives of the transferred employees were successful in
the Ontario Superior Court of Justice in obtaining an order
requiring HBC to transfer a portion of the actuarial surplus to the
NWC plan. Justice Campbell held that the transfer of certain
employees to the NWC plan without a portion of actuarial surplus
constituted differential treatment in breach of trust. This
decision was overturned by the Court of Appeal.
The Supreme Court of Canada confirmed the holding of the Ontario
Court of Appeal, with reasons written by Justice Rothstein on
behalf of the full Court. The Court held that, like any surplus
distribution question, the threshold question is whether the
employees in question had an entitlement to the surplus funds.
Although it is clear that employees may have an equitable interest
in actual surplus on termination of a pension plan, the novel
question raised in Burke is the nature of any interest in actuarial
surplus while the plan is ongoing. In circumstances where employees
are entitled to surplus on plan termination, the Court analogized
their interest while the plan is ongoing to a "floating
equity"– rather like the interest of a residual
beneficiary under a will – which may or may not
crystallize. Vesting of an entitlement to actual surplus remains
contingent on (a) the plan terminating; (b) there being an actual
surplus once the liabilities are satisfied; and (c) the employees
surviving the date of the termination of the trust.
Furthermore, the Court held that the applicable plan documents
did not entitle HBC employees to anything in excess of their
defined benefits while the plan was ongoing, nor to the actuarial
surplus in the pension plan on plan termination. Since none of the
employees had an entitlement, the surplus was properly maintained
in the original plan for improvement of benefits or contribution
The Court also rejected the employees' argument that HBC
treated its retained employees differently from the transferred
employees, since neither the retained nor transferred employees
have an equitable interest in the surplus. The fact that HBC was a
fiduciary as plan administrator did not obligate it to confer any
benefits to one class of employees to which they had no right under
The Court also upheld the lower courts' determinations
that pension plan expenses could properly be paid from the pension
fund. The original trust agreement specified that HBC was required
to pay the trustee's compensation and expenses but was
silent on payment of other expenses. Relying on its earlier
decision in Nolan v. Kerry (Canada) Inc., the Court held
that silence in the documentation does not create an obligation on
the employer to pay the plan expenses.
In holding that actuarial surplus need not necessarily be
transferred along with employees, the decision may be viewed as
favourable to companies who are undergoing or contemplating
corporate transactions. However, the decision points to the need
for additional due diligence in corporate transactions. The Court
emphasized that its decision depended upon the text and context of
the pension plan documentation at issue, and that each situation
will have to be evaluated on a case-by-case basis. Whether
actuarial surplus must be transferred depends upon who owns the
surplus; that determination will often require companies to obtain
surplus ownership opinions in cases involving the transfer of
pension plan assets.
The Pension and Benefits Group at Borden Ladner Gervais LLP
would be pleased to discuss with you the implications of this
decision and any other pension or benefits issues you may have.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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