As more post-retirement cases actually go to trial, we are
starting to get a sense of what factors judges consider relevant in
determining whether an employer will be permitted to reduce or
eliminate post-retirement benefits. In this British Columbia Supreme Court decision,
the personal circumstances of the plaintiff, Mr. Gustavson, appears
to have been an important factor in the ultimate result.
In 1992, Mr. Gustavson accepted an offer from Fletcher Challenge
Canada Limited (Fletcher) to take early retirement, and was
provided with a letter outlining the various components of his
early retirement arrangement. Included in the letter was a
description of the post-retirement benefits to which he would be
entitled, as well as the following "amending"
The arrangement set forth in this letter is binding upon the
company's successors and assigns. The Company reserves the
right to amend and discontinue any of the benefit plans and
programs referred to in this letter and the arrangement in the
letter will be, and will be deemed to be subject to such amendments
and discontinuance. Notwithstanding the foregoing, the benefits to
which you will be entitled shall not be substantially less than
those outlined in this letter. [Emphasis added]
In 2008, Fletcher was purchased by TimberWest Forest Corp.
(TimberWest), which assumed responsibility for the Fletcher
retirees and advised them it was eliminating their out-of-province
emergency medical coverage. Mr. Gustavson, who spent the winters in
Arizona, took out an individual policy for out-of-province
coverage. He then commenced an action against TimberWest, seeking
reimbursement of the cost of the policy plus the amount of premiums
he would pay for the policy for the next two years.
Decision of the British Columbia Provincial
The British Columbia Provincial Court found in favour of Mr.
Gustavson, indicating that the out-of-province coverage discussed
in the letter "enjoy[s] a degree of conditional vesting and
protection from amendment and discontinuance by the Company, by
virtue of the Notwithstanding Provision", and that the changes
introduced by TimberWest resulted in the benefits being
"substantially less" than what was originally agreed
Decision of the British Columbia Supreme
On appeal, the British Columbia Supreme Court agreed with the
conclusions of the Provincial Court.
The Court noted that out-of-province coverage was intended to be
included in part of Mr. Gustavson's retirement arrangement, as
was evident by references to "benefit plans and programs"
in his retirement letter. In doing so, the Court rejected
TimberWest's argument that the plan's specific components
had to be expressly referenced in order for the out-of-province
coverage be included in the contract.
The British Columbia Supreme Court recognized that Fletcher (and
consequently TimberWest as its successor) had reserved the right to
amend or terminate benefit plans and programs and that each
specific component of the benefit plans consequently could not be
viewed as a "lifetime promise or [that they] would be provided
in perpetuity." The Court also acknowledged that TimberWest
was not prevented "from changing individual components of any
particular benefit, as long as the amendment or discontinuance does
not result in substantially less benefits for any particular
retiree." However, the Court went on to find that, in this
case, the elimination of out-of-province emergency medical coverage
would result in Mr. Gustavson's benefits being
"substantially less", given the cost to Mr. Gustavson of
paying for out-of-country medical coverage.
Implications of the Decision
The British Columbia Supreme Court decision highlights the fact
that where an employer has a qualified right to amend or terminate
post-retirement benefits, the courts may look at the personal
circumstances of an applicant in order to determine if the
amendments violate the contractual obligations of the employer in
respect of that particular applicant. This was the case despite the
fact that the Court explicitly acknowledged that "in these
difficult economic times the decision to eliminate out-of-province
coverage could be considered 'both reasonable and
responsible', given the need for Timberwest to manage the plan
from a group-wide perspective".
It is possible that this decision will increase the litigation
risk for employers seeking to amend their post-retirement benefit
plans, particularly where the employer's right to amend these
retiree benefits is qualified.
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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