Canada: Ontario Court Rules On Reducing Retiree Benefits

Although the Ontario Superior Court ruled against General Motors of Canada Limited (GMCL) in O'Neill v. General Motors of Canada, the decision provides additional guidance for employers on how to properly reserve the right to change benefits for retired employees.

Background

On July 17, 2013, the Ontario Superior Court of Justice found that GMCL was not permitted to reduce the retirement health care and life insurance benefits for 3,297 salaried employees and surviving spouses who retired after January 1, 1995 but before October 20, 2011. The Court did find that GMCL was permitted to reduce the retiree benefits for 67 executive employees. It has been reported that GMCL intends to appeal the decision.

The reductions in benefits which GMCL was defending related to health care benefits affecting availability of semi-private hospital coverage, the right to add new dependents for coverage, out-of-province coverage and co-payments on the cost of prescription drugs. In addition, life insurance benefits were being reduced from C$100,000 or more to C$20,000 over a period of time.

Like the prior benefits cases decided in Canada to date, the Court's determination was based on an interpretation of the contracts between GMCL and its employees. In the case of the salaried employee group, the Court found that there was a breach of contract and that GMCL's attempts to reserve its rights to change benefits were not sufficiently clear and unambiguous. With respect to the executive employees, the Court found that there had not been a breach of contract because GMCL had been clear with the executives that the benefits were not guaranteed and could be reduced or eliminated with the prior approval of the Board of Directors.

The decision is interesting as it gives full consideration to what type of reservation of rights to amend or eliminate benefits will be required to reduce benefits for already retired prior employees.

Decision Concerning Salaried Employees

After reviewing some 260 employee communications, the Court concluded that there was a reasonable expectation that the salaried employees would have certain of these benefits for the remainder of their life. The Court went on to comment, as previous Courts have commented, that benefits were provided as deferred compensation for services rendered and not gratuitously.

In coming to its decision, the Court quoted from some of the company's prior statements about the retiree benefits offerings, for example its reassurance that the benefits information "should be of interest to your family and a useful tool for your own financial planning." The 1975 booklet Highlights of Your Benefits, said this:

"As a GM Salaried Employee...you enjoy one of the finest and most comprehensive employee benefit packages in industry.  GM has been and continues to be a leader in providing a broad range of benefit programs to protect employees and their families. Today's GM benefits are an important factor in making your life more enjoyable and the future of yourself and your family more secure."

Furthermore, the Court referred to passages in GMCL's You and Your Benefits binder dated 2004 and subtitled, "A Handbook for Salaried Employees in Canada," and noted that in the "When You Retire" section, there was an explicit reassurance that "Your health care coverage...will be provided at GM's expense for your lifetime." In the section labeled, "In the Event of Death," the basic life insurance coverage is explained as follows: provided the eligibility requirements are satisfied (not at issue here), "your basic life insurance will be continued for you for your lifetime."

After reviewing statements of the sort extracted above, the Court then considered whether GMCL's reservation of rights to amend clauses in the various plans were sufficient to allow it to reduce or eliminate the benefits with respect to already retired employees. In this regard, the Court found that many of the benefits documents in the relevant period contained the following reservation of rights language:

"General Motors reserves the right to amend, modify, suspend or terminate any of its programs (including benefits) and policies by action of its Board of Directors or other committee expressly authorized by the Board to take such action. [Emphasis Added]"

The Court contrasted that reservation of rights language with the provision as amended in 2012 which reads as follows:

"General Motors of Canada Limited ("General Motors") reserves the right to amend, modify, suspend or terminate any of its programs (including benefits) and policies covering employees and former employees, including retirees, at any time, including after employees' retirements."... [Emphasis Added.]

The Court did concede that it was not reasonable to have this reservation of rights clause in every letter or communication that went to members but that it was sufficient if such a clause was included in the main benefit documents that were provided to employees.

The Court contrasted the reservation language in the pre-2012 provision and the 2012 provision. The Court found that while the 2012 provision was clear and unambiguous that a change could be made to retiree benefits, the earlier language was not.

In reaching its decision in favour of the retired salaried employees, the Court relied on the doctrine of contra proferentem, which provides that a provision that is ambiguous or capable of more than one reasonable interpretation should be interpreted against the drafter, having regard to the customary context of unequal bargaining power between employees and employers. The Court also noted that because the benefits related to the employment context, the Court said "in absence of 'clear language mandating some other result', employment contracts are interpreted so as to protect employees". In addition, the Court noted that the duty of good faith favours the employee claim that benefits could not be reduced after the employee had retired given the repeated reassurances by GMCL of retirement security.

The Court also considered the situation of a group of early retirees who had signed a document containing an acknowledgement of GMCL's general reservation of rights and had also signed releases in favour of GMCL. The Court found that the language used did not expand the prior reservation of rights provisions that were inadequate. Moreover, the release was not applicable to claims that the early retirees were not aware of at the time that they signed the release.

Decision Concerning Executive Employees

The Court found that the documents with respect to the retired executive employees permitted GMCL to make post-retirement benefit changes as the foundational documents clearly stated that benefits were "not guaranteed" and "may be reduced or eliminated with the prior approval of the Board of Directors." In addition, when the executive retired, they were required to sign a document that provided that the executive had read and understood the terms of the Program including that "benefits paid under this Program may be reduced or eliminated with the prior approval of the Board of Directors". Finally, when they retired, the individuals were asked to sign a Monthly Benefits Authorization form which provided (just above the signature line) that "benefits paid under this Program may be reduced or eliminated with the prior approval of the Board of Directors."

Conclusion

While we await the appellate Court's ruling on these issues, the lower court's analysis of and conclusions as to what constitutes a sufficient reservation of the right to amend employee benefits programs for retirees must be carefully considered.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Canada LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions