General Motors of Canada suffered a blow this summer when an
Ontario court held that GM was not entitled to reduce benefits it
had promised to its retired workers. The decision can be found
GM informed non-union retirees in 2009 that as a cost-cutting
measure, GM had to reduce benefits that it had promised to certain
retirees while they were employed. The reductions included
significantly lower amounts of life insurance, and the elimination
of semi-private hospital coverage. The retirees responded with a
class action claiming that they were "stunned" by
GM's actions, and that GM's actions were illegal. GM's
position was that language in employee booklets allowed it to make
such changes. GM's employee booklets had typical language that
purported to give GM the right to make changes to all benefits,
"at any time". The Ontario Superior Court of Justice
disagreed with GM's position. The language in GM's employee
booklets wasn't sufficiently clear, said the Court, to allow GM
to impose the unilateral changes on retirees following their
retirement. The Court made very helpful comments about exactly what
wording in employee booklets may be effective to give an employer
the legal right to reduce retiree benefits.
It is common for employers to change employee benefits promised
to current, non-union employees. The considerations for terminated
or retired employees are very different. The recent GM case
confirms the reality that Canadian courts will likely not allow
employers to unilaterally change the benefits of non-union
retirees, unless the employer has communicated that possibility
very clearly to the employees while they were employed.
GM has not given up the fight. It has announced that it will
appeal the Court's decision. Meanwhile, employers would be
well-advised to take a look at the wording in their employee
booklets and other benefit communications that says benefits can be
changed in future. Will that language withstand a court challenge
that it isn't sufficiently broad or clear to allow changes to
be made? The answer may lie in the reasons for judgment in the GM
case and pending appeal.
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