The Court of Appeal of
Québec has recently reversed a judgment of
the Superior Court that
had granted two former employees an indemnity in lieu of reasonable
notice corresponding to 36 months and supplementary pension
payments based on past practice.
In this case, the employees had successfully argued before the
Superior Court that the conduct of the employer in the past with
respect to its retiring employees had implicitly transformed the
defined contribution pension plan into a defined benefit plan.
Based on the definition of "usage" under Québec
civil law, the Superior Court concluded that the employer had
implicitly committed to providing all employees with additional
pension enhancements, in addition to the defined contribution
pension plan thus allowing them to enjoy a de facto
defined benefit pension plan.
The evidence revealed that over a period of approximately 50
years, the employer had granted occasionally, at its discretion and
upon request, additional contributions or other benefits to its
employees. However, the Court of Appeal was of the opinion that in
this case, there was no proof of a "usage" that could be
a source of implied contractual obligations. By a majority
decision, Justices Beauregard and Bich found no general and uniform
practice, which is necessary to constitute "usage" within
the meaning of article 1434 of the Civil Code of
Québec. Moreover, in the
opinion of the Court, the fact that the employer had granted
payments ex gratia in the past is the opposite of
mandatory conduct and cannot constitute the start of a practice
that creates an implied contractual obligation. As a result, the
Defendants were only entitled to benefits arising under their
existing pension plan, but nothing more.
As for pay in lieu of notice, the Court of Appeal held that the
payment should be reduced in accordance with the applicable case
law in Québec to the effect that, barring exceptional
circumstances, the ceiling for such awards is 24 months. In this
case, exceptional circumstances were found to exist and a notice
period of 24 months for each employee was found to be
With this judgment, the Court of Appeal of Québec
confirms the application of the criteria of "usage" in
the employment contract. In the absence of a general consistent,
uniform and established practice, the generosity of an employer in
the past cannot create a right for employees in the future.
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