Canada: Non-Pension Post-Retirement Benefits – The GM Case

Non-pension post-retirement benefits (commonly referred to as "OPEB Benefits") are an increasingly expensive benefit for employers and a benefit that is highly valued by employees. As such, employers are increasingly looking to make changes to these benefits in order to control their benefits costs. OPEB Benefits typically are not funded, but rather usually are provided on a "pay as you go" basis. There is scope for making changes to OPEB Benefits, for both current employees and retired employees, provided that the contractual language so permits.

On July 17, 2013, the Superior Court of Justice (Ontario) released its decision in O'Neill v. General Motors of Canada Limited. In this case, General Motors of Canada Limited ("GM") decided to scale back health and life insurance benefits for certain non-union salaried employees who had retired between January 1, 1995 and October 20, 2011 (the "Class"). The Class took issue with these changes, and brought an action against GM contesting GM's right to make the changes. As is fairly common for these types of benefits, there was no single plan document which comprised the GM OPEB Benefits. The evidence before the Court included approximately 260 documents, comprising benefit brochures and booklets, company letters and other written communications with employees (the "Benefits Documents"). Key findings of the court included the following:

  • Plan Interpretation - Whether GM was entitled to reduce OPEB Benefits following retirement depends on an objective interpretation of the entire agreement, including the interaction between what was said in the body of the Benefits Documents and the rights reserved by GM to change the benefits.
  • Reasonable Expectations - Based on statements made in the Benefits Documents, salaried employees could reasonably expect that the core OPEB Benefits promised would continue post-retirement and would be provided for life. Indeed, the court determined that: (a) while these benefits were offered by GM unilaterally, they became contractually enforceable as employees continued to work; and (b) these benefits were provided as deferred compensation for services rendered and not gratuitously.
  • Reservation of Rights Clause – A clause which reserves to the employer the right to amend, modify, suspend or terminate benefits (an "ROR Clause") does not need to be contained in every letter or communication. Rather, it is sufficient to include such a statement in the main benefits documents provided to employees.
  • Vesting – Whether OPEB Benefits can be changed after retirement is a question of contractual interpretation. An employer can retain the right to do so only if the language allowing it to do so is clear and unambiguous.

The Court indicated that many of the Benefit Documents, including brochures and booklets, during the period in question did not contain an ROR Clause. The most robust clause was contained in a number of 1994 Benefits Documents, which provided that "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..." The Court determined that even if this clause contained the language "at any time", it was insufficient to permit GM to reduce the OPEB Benefits of the Class following retirement, for the following reasons:

  • Language not clear and unambiguous – The ROR Clause only permitted GM to make changes to OPEB Benefits for active salaried employees – the ROR Clause did not make specific reference to changing the OPEB benefits of retirees.
  • Contra Preferentum – A provision in a contract which is ambiguous or capable of more than one reasonable interpretation will be interpreted against the drafter.
  • Employment Contract – The OPEB Benefits were part of the employment contract. In the absence of clear language mandating some other result, an employment contract will be interpreted so as to protect the employee.
  • Good Faith – An employer has an implied duty under an employment contract to exercise unilateral powers in good faith. The Benefits Documents provided reasonable assurance of retirement security, and therefore the ROR Clause must be interpreted in this light.
  • Subsequent Conduct - Later revisions to the benefits documents made it clear that the ROR Clause applied to retirees. The court indicated that this offered evidence as to what was intended in the Benefits Documents reviewed by the Court.

The Court also determined that an ROR Clause (similar to the one noted above) in a retirement form signed by many of the Class members who took early retirement prior to date on which GM purported to reduce OPEB Benefits was not sufficient to give GM the power to change these Class members' OPEB Benefits post-retirement. GM's argument was that this clause could only conceivably have application post-retirement and that it should be so construed. While the Court acknowledged that "[t]here is tantalizing logic to this submission", nonetheless the Court rejected the argument.

The Court reached a different conclusion with respect to a sub-set of executives who were entitled to receive post-retirement benefits under a separate plan. In the case of these employees, the Court determined that the ROR Clause was clear and unambiguous and permitted the reduction of benefits, even after retirement.

Some may take issue with certain of the reasons and findings of the Court in this decision. GM has indicated that it will appeal. This will be an interesting case to follow.

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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