Canada: O’Neill v. General Motors: Court Rules That Retiree Benefits May Be Reduced

The Ontario Superior Court of Justice ruled last week that retiree benefits may be changed even after an employee retires: O'Neill v. General Motors of Canada Limited, 2013 ONSC 4654. In other words, an employee's right to retiree benefits does not irrevocably vest in the employee upon retirement. Nor does the right to such benefits vest in an active employee upon the employee satisfying the age and service criteria that may be established by an employer for entitlement to the benefits.

However, in this case the court decided against the employer, General Motors of Canada Limited ("GM"), because GM did not adequately reserve to itself the right to make changes to its retiree benefits program. The result in this case is the same as that reached last year by the British Columbia Supreme Court in Lacey v. Weyerhaeuser Company Limited, 2012 BCSC 353.1 We understand that GM will be appealing the decision to the Ontario court of appeal.

This was a judgment of agreed-upon common issues in a class action commenced by a retiree, Joseph O'Neill who retired in 2002. The class action was certified in October 2011 and Mr. O'Neill passed away in 2012. Lynn McCullough, who retired in 2008, succeeded Joseph O'Neill as the representative plaintiff. The class of retirees was comprised of 3,297 members, including surviving spouses, and 67 of whom were retired executives.

GM made an announcement at the end of 2007 that certain post-retirement benefits would be reduced over the ensuing three-year period. Most of the reductions seem to be quite minor, such as the availability of semi-private hospital coverage, the right to add new dependants for coverage, availability of out-of-province coverage and the level of co-payments on prescription drugs. The other change, announced in 2009, which was more significant, was a reduction in life insurance from, in many cases, $100,000, to $20,000.

The above changes affected only former salaried employees who had retired after January 1, 2005. The reason why the reductions in coverage applied only to those who retired after that date was because since 1994 GM had, in its view, consistently reserved its right to terminate and make changes to its post-retirement benefits. The court was faced with reviewing a total of 260 different communications, comprised of booklets, brochures, letters and other announcements.

Based on the documentation and an analysis of relevant caselaw, the court made the following determinations:

  • The salaried employees had a reasonable expectation that they could plan for and rely upon a core of health care and life insurance benefits upon retirement and for life. The court stated: "It is often said the law of contracts protects the reasonable expectations of the parties, or more specifically, the expectations 'induced by others' conduct'."
  • The retiree benefits constituted a form of deferred compensation. The benefits were not given to the retirees gratuitously, namely, as a gift. The retiree benefits were an integral part of the salaried employees' total compensation. This concept, according to the court, was confirmed in several GM communications. The court stated: "In any event, courts have repeatedly held that employee benefits, even those that were voluntarily introduced by an employer, are enforceable as a matter of contract."
  • GM's reservation of rights ("ROR") clauses in its communications were not sufficient to permit GM to exercise a right to reduce or eliminate its retiree benefits. GM's ROR wording generally reserved to GM the right to amend, modify, suspend or terminate any of its benefit programs at any time. Interestingly, after the law suit was commenced, GM modified the wording in its ROR clause to include retirees, and later to include a reference to making amendments after retirement. The court held that the revised wording was clear and unambiguous, but the prior wording was not.
  • Whether an employer has the right to modify benefits after retirement is a matter of contractual interpretation. An employer will have a right to make changes if and only if the contractual language is clear and unambiguous. To be clear and unambiguous, the ROR wording must refer to making changes to the benefits of retirees and it must refer to making those changes during retirement years.
  • Where there is ambiguity in the wording regarding benefits or the employer's reservation of its rights, or if the wording is capable of more than one interpretation, the wording will be interpreted by the courts in favour of the employee. This is partly because the company is the party that drafted the communications and because there is unequal bargaining power between an employer and an employee. Note, a different result could result in a collective bargaining context.
  • The conditions surrounding the provision of retiree benefits formed part of the "employment contracts" with employees. The court noted that because of the need to protect employees who are generally vulnerable in the bargaining relationship, employment contracts are unlike ordinary commercial contracts. As a result, employment contracts are to be interpreted so as to protect employees.
  • There is an implied duty of good faith on the part of the employer in exercising its rights under an employment contract. The court, in examining the 260 documents pertaining to retiree benefits, interpreted them "through the lens of good faith". GM must be presumed to have acted in good faith when it drafted the ROR clauses, specifically respecting the fact that the benefits were provided as compensation for services performed and that the employees were assured of retirement security.
  • GM's subsequent conduct was important in determining the meaning of its ROR clauses at the time it made its announcements in 2007 and 2009. The court confirmed that GM knew how to draft and communicate a clear and unambiguous ROR clause, given that it did so in 2012: "The fact that this revision was drafted and included in the benefit documents so easily and so quickly is relevant to the task of contractual interpretation."

There were a couple of other side-issues dealt with, one concerning employees who, although they had met the eligibility requirements to be entitled to retiree benefits, had not yet retired, and the other concerned a group of retirees who were executive employees prior to retirement. With regard to the former, the court held that the ROR wording extended to them, because they had not yet retired. Therefore, benefits that would be provided in retirement could be reduced before an employee retires. With regard to the latter, benefits could be reduced for this group on account of separate communications which, in the court's view, were clearer with respect to the right to GM to make changes after an employee's retirement.

Pension and benefit communications can be complex at the best of times. In addition, the courts have a special solicitude toward retirees, given their lack of bargaining power, the fact that the work they have performed for their compensation has been given and the fact that they are on fixed incomes and have limited means of recouping any diminution of their pension or benefits. For these reasons, among others, communications in this area must be absolutely clear and unambiguous in order to achieve the desired results. The review of employee and retiree communications should accordingly be included in an employer's regular governance process.

Footnote

1. Please see our Pension Pulse dated March 16, 2012.

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
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