This article was originally published in Blakes Bulletin on Pension & Benefits - January 2004
Since the late 1990s, there has been a significant increase in the number of "class actions" in respect of pension and benefit plans. This trend is attributable to the nature of many pension and benefit claims, increasing sophistication of plan members and their counsel with respect to the claims that may be raised with respect to plans and the possibility of significant financial rewards for successful plaintiffs and their lawyers. This article focuses on class actions under Ontario law, but the principles discussed will generally be applicable to class actions in other Canadian jurisdictions.
Mr. Justice Warren Winkler, in a recent paper entitled "Pensions, Benefits and the Canadian Class Action Experience", noted that: "pension and benefit matters are generally well-suited to be handled as class actions … As counsel and the courts gain experience in this area, it appears that pension and benefit claims, that previously would never have been commenced, will proceed as class actions before the courts."
Where an employer/administrator has a strong legal case, it may be prepared to defend a class action on its merits. However, in many instances, even where the employer/administrator has a strong case, there may still be concerns relating to legal costs and time lost by the employer/administrator in connection with the litigation, as well as concerns relating to the effect of the class action on the reputation of the employer/administrator among employees who are not involved in the class action, clients and the public at large. For these reasons, an employer/administrator may consider the possibility of a settlement.
Class action settlements will be affected by the terms of the applicable class action legislation. Under the Ontario Class Proceedings Act, 1992, the provisions that will be most relevant to a settlement will often be the provisions governing certification, i.e., the process by which a class action is initiated, as well as the provisions that are expressly directed towards class action settlements.
Regarding certification, an action can only be a class action if it is certified as such by the court. To obtain certification, the plaintiffs in the proposed action must be able to demonstrate that:
one. There is a sustainable cause of action;
two. Such cause of action is shared by an identifiable class of two or more persons;
three. There are common (but not necessarily identical) issues of fact or law among the proposed class members;
four. A class action is the preferable proceeding for resolving the common issues; and
five. The proposed class representatives adequately represent the interests of the class and have a workable litigation plan for the proceeding.
Assuming a class action is certified, any settlement of that class action must be approved by the court. A decision of the court approving a settlement binds all members of the class who have not chosen to opt out of the class action. In general, courts wish to encourage settlements. In the class action context, this means that courts will try to give effect to settlements that are fair and reasonable and in the best interests of the class as a whole, i.e., it is not necessary that every member of the class be treated equally. This is reflected in the 2002 Ontario Superior Court of Justice decision in Fraser v. Falconbridge.
Having regard to the statutory requirements for certification and settlement of class actions, employer/administrators should, among other things, take into account the following strategic considerations at an early stage in the class action process.
Should Certification Be Opposed?
If an early settlement is not anticipated, the employer/administrator may wish to oppose certification of the class action. Certification could be opposed on a number of grounds, including conflicts or diversity of interest among the various categories of plan members (e.g., pensioners, deferred vested members, active members). A class action may also not be the most effective means of bringing the actions (e.g., a simple application for declaratory relief might work just as well or, where a collective agreement is involved, arbitration may be the preferred approach). If the employer/administrator is successful, the class action cannot proceed.
On the other hand, opposing certification can be costly and in some cases may reduce the likelihood of a settlement if it causes class members to become more entrenched in their position. In addition, even if the employer/administrator is not successful, and the action is certified, class members may see settlement as preferable to a long and costly battle with a strong defendant.
Is The Class Definition Appropriate?
If a settlement can be reached, an employer/administrator will typically want the settlement to bind as many persons as possible who could be affected by the actions of the employer/administrator that led to the class action. Consequently, it will often be desirable for settlement purposes to define the class quite broadly (e.g., if class members’ claims relate to employer contribution holidays taken over many years, the employer may want the class to include everyone who was entitled to benefits under the plan at any time during the period in which the contribution holidays were taken plus their spouses and beneficiaries, whether or not they are currently entitled to benefits under the plan).
However, where the claims are such that the quantum of potential employer/administrator liability increases with each new member added to the class (e.g., where a claim is made with respect to the improper calculation of individual benefit entitlements), a broad class definition will increase the employer/administrator’s potential liability.
Further, if the class is defined too broadly, such that there are material conflicts between different members of the class, the court may decline to certify the action and allow the settlement to proceed unless the class is limited to a more homogeneous group.
What Level Of Opt Outs Will Be Acceptable?
Class action legislation permits persons who satisfy the criteria for class membership to opt out of the class and not be bound by a settlement. The employer/administrator could be subject to individual claims by the opt outs and thus may want to reserve the right to withdraw from the settlement if there are a large number of opt outs, or the opt outs’ share of the claims in the class action is relative to the share of the other class members.
Perfecting The Settlement—Are Other Court Proceedings Required?
It will also be necessary to determine whether there are any other court proceedings required to "perfect" the settlement. For example, in the case of a plan governed by a trust, it may be necessary to vary the trust in order to ensure that persons who become beneficiaries of the plan after the settlement of the class action (and thus are not class members), cannot raise the same claims as are dealt with in the settlement.
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.