Canada: GM Loses Bid To Reduce Post-Retirement Benefits For Salaried Retirees

In O'Neill v. General Motors of Canada Limited, the Ontario Superior Court of Justice held that General Motors of Canada Limited (GM) did not have the contractual right to reduce the level of post-retirement health care and life insurance benefits provided to salaried employees who had retired.  This case illustrates the importance of clear and unambiguous reservation of rights (ROR) language in documentation related to post-retirement benefits where an employer wishes to retain the right to reduce such benefits after the date of retirement.

As part of its restructuring during the 2007-2009 financial crisis, GM significantly reduced the health care and life insurance benefits of non-unionized former salaried and executive employees who had retired, relying on the ROR clauses in the benefit documents that purported to allow the company "to amend, modify, suspend or terminate" any of the benefit programs "at any time".  The reductions affected employees who had retired on or after January 1, 1995.  Affected retirees (and their spouses and beneficiaries) commenced a class action in the Ontario Superior Court of Justice, and a motion was eventually brought for summary judgment to determine whether GM had the contractual authority to reduce the healthcare and life insurance benefits for employees after they had retired.

The parties produced 260 documents, consisting of booklets, brochures, letters and other communications provided to salaried and executive employees over the years in question.  Aside from one-off letters and other communications, the documents fell into 5 groups of booklets or brochures.  The court held that based on the numerous and repeated reassurances provided by GM in the body of the benefits documents over the years, the salaried employees had a reasonable expectation that they would receive a core of health care and life insurance benefits in their retirement and that the benefits would continue to be provided for life.  The court also found that the benefits were provided as deferred compensation for services rendered and were not provided gratuitously.

The court found that the use of ROR clauses in the benefits documents was sporadic prior to 1994 (and their scope and content were uneven), and ROR clauses were used with regularity commencing in 1994.  As the reductions to post-retirement benefits applied to employees who retired on and after January 1, 1995, the court focused on the ROR clauses in the documents from 1994 onwards.  Specifically, the ROR clause added to many of the benefits documents in 1994 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 or other committee expressly authorized by the Board to take such action.  The Programs, benefits and policies to which a salaried employee is entitled are determined solely by the provisions of the applicable program, benefits or policy." [emphasis added]   

While there were several of variations of the ROR clause in the benefits documents, the court focused its analysis on the iteration of the ROR clause quoted above as it was the most explicit.  The question before the court was whether the above ROR clause was sufficient in the context of the overall benefits documents to allow GM to reduce health care and life insurance benefits after retirement.  The court held that, in the case of salaried employees, the clause was not sufficient for the following 5 reasons:

  1. The ROR clause refers specifically to "salaried employee", and the court held that one could reasonably interpret the ROR clause as permitting (and limiting) GM's right to make changes to the retirement benefits for a salaried employee while the employee is still an active employee, but not after the employee retires;
  2. The court invoked the "contra proferentem" principle - i.e., where a provision of a contractual document is ambiguous or capable of more than one reasonable interpretation, it must be interpreted against the interest of the party that drafted it (in this case, GM); 
  3. Referring to the "special place of employment contracts", the court held that in the absence of clear language mandating some other result, employment contracts are to be interpreted to protect employees;
  4. The court held that an employer has an implied duty under an employment contract to exercise unilateral powers in good faith, and an interpretation of the ROR clause consistent with the duty of good faith supported the claim that benefits could not be reduced after the employee had retired; and
  5. The court noted that subsequent conduct of the parties can be relevant in contractual interpretation.  In this regard, the court referenced a 2012 version of the ROR clause (which reserved the right to "amend, modify, suspend or terminate any of its benefit programs (including benefits) and policies covering employees and former employees, including retirees, at any time, including after employees' retirements"), and stated that the 2012 version of the ROR clause offers evidence of the meaning the parties attributed to the pre 2012 versions of the ROR clause. In short, amending a contractual provision could be viewed as an admission that a different interpretation should be attributed to the prior contractual provision.

With respect to former executive employees, the court held that the governing documentation (the Canadian Supplemental Executive Retirement Program, or CSERP), consistently provided that the benefits under the CSERP were "not guaranteed" and "may be reduced or eliminated with prior approval of the Board of Directors".  When an executive employee retired, the executive was required to sign an acknowledgment that he/she has read the terms of the CSERP including the provision permitting the reduction of benefits.  Accordingly, the court held that GM had the contractual right to reduce the level of post-retirement supplemental pension, liability insurance and supplemental life insurance benefits applicable to executive employees after they had retired.

Comments

The O'Neill case shows that the courts set the bar high for ROR clauses in post-retirement benefit plans.  Employers that wish to maintain flexibility to reduce post-retirement benefits after the date of retirement should consider reviewing the ROR language in their historic benefits documentation to ensure that such right is provided in clear and unambiguous language, and consider whether any revisions are necessary or appropriate.  Given reason #5 cited by the court, employers should exercise care in making any revisions to the ROR clauses to ensure that the contemplated revision is viewed as a clarification and not as a form of subsequent conduct which suggests an undesired interpretation should be attributed to the previous version(s).

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