Canada: Pension Plans And Orphan Clauses: The Quebec Court Of Appeal Issues Its Ruling

In a recent decision,1 the Quebec Court of Appeal ruled on the matter of whether an employer could validly specify in the same collective agreement that employees hired as of a particular date will not have the same employee benefits and pension plan as all the other employees.

Background

On November 1, 2002, Bell Actimedia, a subsidiary of Bell Canada, became an independent, publicly traded company, Yellow Pages Group Co. (Yellow Pages Group or Employer). At the time of the transaction, 1,500 employees, including 200 represented by the Syndicat des employées et employés professionnels-les et de bureau, Local 574, SEPB, CTC-FTQ (Union), participated in Bell Canada's very advantageous "Flex" benefits program and the Bell Canada defined benefit pension plan. Yellow Pages Group signed a first collective agreement with the Union effective from January 1, 2003, through June 30, 2005. A letter of understanding (LOU) stated that the Flex program would be maintained until July 1, 2005 "[translation] insofar as it applies to the employees covered by the agreement."

Concurrently with the Employer becoming an independent, publicly traded company, a strategy was put in place to favour Canada-wide expansion. Yellow Pages Group wanted to standardize the conditions of employment of its unionized and nonunionized employees and so it met with the Union to explain the programs it wished to implement. Most of the changes would affect employees hired after July 1, 2005, who would cease to receive post-retirement benefits. Also, employees hired after January 1, 2006, would be members of a defined contribution pension plan, instead of the defined benefit pension plan like the other employees. Lastly, employees already employed on July 1, 2005, but retiring after January 1, 2007, would have to bear the costs of certain post-retirement benefits.

The Union disagreed with the proposed changes and filed two grievances.

Arbitration award

The matter at the heart of the dispute, heard before arbitrator Frumkin, hinged on the interpretation of the LOU. The arbitrator therefore considered the context in which the LOU was signed and the way it was worded. He determined that its meaning and scope were clear: its purpose was to assure the employees that the benefits under the plans they participated in when the LOU was signed would not be changed to their detriment. It therefore applied to persons employed by Yellow Pages Group at the time the collective agreement was signed in May 2004 and to employees hired subsequently during the term of the collective agreement, i.e. before July 1, 2005.

Based on this, the arbitrator determined that the Union had no "valid reason" to object to the changes made to the employee benefits or the new defined contribution pension plan.

However, the arbitrator found that the Union was justified in objecting to the changes to the benefits for employees hired before July 1, 2005, and retiring after January 1, 2007, as those programs were not necessarily advantageous for that group of employees.

Lastly, the arbitrator rejected the Union's argument that the existence of different pension and employee benefit plans for employees based on their hiring date was contrary to section 87.1 of the Act respecting labour standards2 (ALS) and to sections 10, 16 and 19 of Quebec's Charter of Human Rights and Freedoms3 (Charter).

Decision of the Quebec Court of Appeal

The Union and the Employer appealed a Quebec Superior Court decision not to intervene – a decision made on the grounds that the interpretation of the LOU raised a matter that fell within the arbitrator's area of expertise and the Employer's decision was not contrary to the Charter.

The Quebec Court of Appeal also refused to intervene. In its analysis, the Court of Appeal discusses at length not only the grounds supporting the reasonableness of the arbitrator's interpretation of the LOU, but, particularly, the Union's argument that the arbitrator's decision was contrary to section 87.1 ALS and sections 10, 16 and 19 of the Charter.

Differences in treatment and section 87.1 ALS

The Union argued that the post-retirement benefits and pension plan were included in the section 1 ALS definition of "wages." The Union therefore maintained that by ceasing to provide post-retirement benefits and the defined benefit pension plan to employees hired after July 1, 2005, while continuing to provide those same benefits to employees hired before July 1, 2005, the Employer was introducing differences in treatment into the collective agreement that were based solely on the hiring date, something prohibited by section 87.1 ALS.

Pointing out that the interpretation of section 87.1 ALS fell within the scope of the arbitrator's decision-making mandate, the Court of Appeal held that "[translation] section 87.1 ALS prohibits discriminatory treatment solely based on the hiring date"4 with respect to labour standards prescribed in certain divisions identified by the ALS and, therefore, the scope of the prohibition did not include all conditions of employment. For the court, a restrictive interpretation essentially finding that the standard pertaining to "wages" covered only "wages paid in cash" but not the benefits having a pecuniary value that are employee benefits and pension plans, is not an unreasonable decision. Those benefits are part of "remuneration" and, consequently, the employees' conditions of employment, but are not part of the standard prescribed in Section I of Division IV.

In addition – although caution must be exercised in reading them – reference was made by the court to parliamentary debates in which the minister of labour at the time, Diane Lemieux, rejected a proposed amendment that, if passed, would have had the effect of extending the application of section 87.1 ALS to "[translation] any standard proscribed in a collective agreement." Referring specifically to pension plans and employee benefits, the minister rejected the proposed amendment on the grounds that it created a different plan for unionized employees by granting them protection for all conditions of employment included in the collective agreement but not granting the same protection to nonunionized employees.

Sections 10,16 and 19 of the Charter

Section 19 of the Charter states that an employer must, without discrimination, grant equal salary or wages to the members of his personnel who perform equivalent work at the same place. Section 16 states that an employer may not practise discrimination in respect of the conditions of employment on the basis of the age of the employees.

However, the arbitrator determined that there was no "[translation] basis for illegal discrimination covered by the Charter because granting greater benefits in an insurance plan to employees with more years of service by reason of said service"5 is one of the permissible distinctions under the Charter. The Court of Appeal concurred with the arbitrator's findings, holding that the evidence had not revealed a valid statistical comparison regarding adverse effects discrimination based on age, except by way of a general comment in an expert report to the effect that the new employees were "[translation] generally younger." The fact that new employees were "likely" to be younger did not prove, on a balance of probabilities, the existence of discrimination based on age.

Conclusion

Our takeaway from this ruling is that section 87.1 ALS covers only wages themselves and does not include all other benefits, including post-retirement benefits. An employer therefore cannot be prevented, on the grounds that such benefits are included in section 87.1 ALS, from converting its employee benefit plan and pension plan based on the hiring dates of the employees. This decision therefore clears the way for adaptation to market realities and a switch from defined benefit pension plans to defined contribution pension plans for a category of employees hired as of a particular date.

There is one caveat, however: while the Court of Appeal dismissed the Union's argument that the changes sought were contrary to the Charter, it needs to be kept in mind that it did so because discrimination based on age was not proven. Another case may come along in which such discrimination will be proven and not simply presumed.

Footnotes

1 Syndicat des employées et employés professionnels-les et de bureau, section locale 574, SEPB, CTC-FTQ c Groupe Pages Jaunes Cie, 2015 QCCA 918.

2. CQLR, c N-1.1.

3. CQLR, c C-12.

4. Groupe Pages Jaunes Cie et Syndicat des employées et employés professionnels et de bureau, section locale 574, SIEPB CTC-FTQ, AZ-50739052.

5. Ibid.

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