A recent Court decision from Ontario emphasizes the need for
employers to be careful when promising compensation and benefits to
employees. The case was a class action law suit brought by
over 3000 retired employees of General Motors of Canada Ltd.
challenging the decision of GM to reduce their post-retirement
benefits. The principles of the decision apply to any
compensation provided by an employer to existing or former
In December 2007 GM announced various reductions in its
post-retirement benefits to take effect over 3 years. The
changes were stated to be a result of the financial pressures that
GM was facing during the economic slowdown. The group of
retired salaried employees challenged this decision.
The Court was asked to review a variety of benefit related
documents that had been issued by GM over the years including
booklets, brochures, letters and other communications. GM had
made numerous and repeated reassurances over the years that its
salaried employees could reasonably expect to plan and rely on the
core health care and life insurance benefits in
However, GM had included in its documents, from time to time, a
"reservation of rights" clause ("ROR").
One version of this clause stated that GM "reserves the right
to amend, modify, suspend or terminate any of its programs
Despite the ROR clause, the Court held that GM did not have the
right to terminate or reduce the post-retirement benefits. It
relied on a number of contractual principals in reaching this
conclusion. First, the ROR clause was not
"clear and unambiguous". The ROR clause referred to
"salaried employees" and did not refer to "retired
employees". The Court found that the ROR clause in place
prior to 2007 was not clear and unambiguous but in fact could be
interpreted to only reserve GM's rights to change the benefits
in respect of salaried employees and not retired employees.
Second, the Court applied the principle of Contra
Preferentum. Under this principle, an ambiguous provision
will be interpreted against its drafter. GM drafted the ROR
clause so the ambiguity was resolved against GM.
Third, the Court noted that employment contracts
are a special form of contract in which there is generally a
vulnerability in the bargaining relationship. Employment
contracts are not to be treated like ordinary commercial
agreements. In the absence of clear language mandating a
particular result employment contracts are to be interpreted so as
to protect employees. Finally, the Court
stated that employers have a duty of good faith and must exercise
any unilateral powers in good faith.
The lesson to be learned from this decision is that policies,
booklets, letters and other communications in which employers set
out benefits and entitlements need to be carefully worded to
reserve the ability to amend or delete such provisions in the
future. Clear and precise language must be used and employers
should consider as many contingencies as possible in drafting such
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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