Canada: The Court Of Appeal Of Québec Confirms That The Past Generosity Of An Employer Does Not Create A Legal Right For Employees In The Future

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 reasonable.

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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