Canada: Imperial Oil Decision Confirms Need To Balance Interests Of Pension Plan Sponsors And Members

On June 18, 2008 the Alberta Court of Queen's Bench dismissed an action brought by former Alberta employees of Imperial Oil Limited (IOL) concerning the 1991 amendment to an IOL-sponsored pension plan (the Plan). The decision recognizes that pension plan members must follow the appropriate processes under applicable pension legislation before seeking judicial intervention. It also confirms the necessity of balancing the interests of plan sponsors and members in applying pension jurisprudence, and builds on developing pension jurisprudence set out in other Canadian jurisdictions.

Background

Prior to the amendment in 1991, the Plan provided for enhanced early retirement benefits for members who had a minimum of ten years of service with IOL and were terminated by IOL for reasons of efficiency. Following the amendment, members were further required to be eligible to retire within five years of termination (i.e. to be at least 50 years of age) to qualify for enhanced early retirement benefits. Shortly after the Plan was amended, IOL terminated a number of employees, including the plaintiffs, in a downsizing effort. As all of the plaintiffs were under the age of 50 at the time of their termination, the plaintiffs were not eligible to receive enhanced early retirement benefits under the amended section.

In 1995, a challenge to the amendment was brought before the Pension Commission of Ontario (the PCO) since the Plan was registered in Ontario. Members of the Plan who were resident in Alberta, including a number of the plaintiffs, were involved in the Ontario challenge. In 1995, the PCO dismissed the challenge, holding that IOL had not breached the prohibition under the Pension Benefits Act (Ontario) (the PBA) of amendments that reduce ancillary benefits for members who had met all eligibility requirements.

The PCO found that termination for reasons of efficiency was an eligibility requirement. As none of the affected members had been terminated at the date of the amendment, they had not satisfied all of the eligibility requirements when the amendment became effective. Further, the PCO held that IOL did not owe the members a fiduciary duty under the PBA since IOL was not acting in its role as administrator in amending the Plan. This decision was not appealed to the Divisional Court of Ontario.

In 1997, the plaintiffs filed a Statement of Claim in Alberta alleging that the 1991 amendment was invalid as it breached both the Employment Pension Plans Act, 1986 (Alberta) (the EPPA) and the Plan. Additionally, the plaintiffs alleged that IOL had breached its fiduciary duty and its duty of good faith in amending the Plan as it did in 1991.

Decision

Associate Chief Justice Wittmann dismissed the plaintiffs' claims that the amendment breached the EPPA and IOL's fiduciary duty, finding that these issues had been previously decided by the PCO. Wittmann, ACJ stated that recent decisions of the Supreme Court of Canada "suggest that there is a strong preference for parties to avail themselves of the administrative process, particularly in the context of pensions, which are subject to a complex regulatory scheme and fall within the jurisdiction of highly expert tribunals."

In dealing with the plaintiffs' arguments that the issues had not already been addressed since the PCO had not dealt with the EPPA or specific sections of the Plan in its decision, the court held that the plaintiffs had chosen not to challenge the 1991 amendment on those grounds before the PCO and so were now prevented from doing so. Additionally, Wittmann, ACJ found that the issue of fiduciary duty had been argued, considered and decided by the PCO. Since the fiduciary duty imposed by statute is indistinguishable from that which may arise under common law, the fact that the PCO had based its decision on the PBA, rather than common law, was irrelevant to the finding that the matter had been previously determined.

Wittmann, ACJ then considered the merits of the claims, in the event that his decision was found to be incorrect on appeal. Under the Plan, IOL was prohibited from making amendments which reduced benefits that had accrued to members prior to the date of the amendment. Wittmann, ACJ held that the 1991 amendment did not breach the Plan as ancillary benefits would not accrue until a plan member met all of the eligibility requirements. Under the Plan prior to the 1991 amendment, to be eligible for enhanced early retirement benefits, a member must have had at least ten years of service and been terminated by IOL for reasons of efficiency. As none of the plaintiffs had been terminated at the time of the amendment, the benefit had not accrued to them. Therefore, the amendment did not reduce an accrued benefit. This decision is in line with decisions in other jurisdictions concerning the meaning of "accrued" as it applies to ancillary benefits, including the earlier decision of the PCO.

At the time of the amendment, the EPPA also prohibited amendments that reduced "a person's benefits in respect of employment on or after the initial qualification date and before the effective date of the amendment." The plaintiffs argued that this prohibited IOL from making amendments which affected eligibility for ancillary benefits. The court held that to adopt the plaintiffs' interpretation would "effectively freeze all ancillary benefits at their high water mark," and would fundamentally restrict the ability of plan sponsors to make amendments. He held that this interpretation was not supported by the language of the EPPA, nor did it take into account the purpose and scheme of the legislation. Wittmann, ACJ concluded that the EPPA has always allowed employers to amend pension plans in a manner that would reduce ancillary benefits for which members had not met all eligibility requirements.

In determining that IOL did not owe a fiduciary duty to plan members in amending the Plan in 1991, Associate Chief Justice Wittmann adopted the "two hats" principle set out in the PCO decision in this case and since adopted in other jurisdictions. This principle acknowledges the inherent conflict between an employer's roles as plan sponsor and plan administrator, and imposes a fiduciary duty on an employer only when acting in its capacity as plan administrator. Wittmann, ACJ stated that a plan sponsor exercising its power of amendment is not subject to a fiduciary duty regardless of whether an administrator's fiduciary duty arises under statute or the common law. This decision explicitly recognizes that the "two hats" doctrine applies in Alberta and brings Alberta clearly in line with other Canadian jurisdictions.

Finally, in considering the argument that IOL had breached its duty of good faith in making the amendment, Wittmann, ACJ followed the reasons of both the Supreme Court of Canada, as set out in the separate concurrence of Bastarache J, in Buschau v. Rogers Communication Inc. and the Ontario Superior Court of Justice in Sutherland v. Hudson's Bay Company. Wittmann, ACJ stated that where the outcome of the action is consistent with the scope of the pension plan, the fact that the sponsor acted in its own self interest is irrelevant. Further, he stated that an employer acting in its capacity as employer and exercising its right to amend in accordance with the plan and the applicable legislation cannot be said to have been acting in bad faith.

Significance

As noted above, while this decision does not establish new legal principles in the pension context, it clearly confirms the necessity of balancing the interests of plan sponsors and members in developing pension jurisprudence. Further, the decision reinforces the jurisprudence in other jurisdictions that pension plan members must follow the appropriate processes under applicable pension legislation before seeking judicial intervention. This decision provides comfort to Alberta pension plan sponsors by clearly applying legal principles enumerated in other jurisdictions to Alberta pension law. However, given that this decision was rendered by the Alberta Court of Queen's Bench, it remains to be seen whether it will be the defining pronouncement on these issues in Alberta.

Imperial Oil Decision Confirms Need To Balance Interests of Pension Plan Sponsors and Members

Brett Ledger specializes in corporate and commercial litigation with an emphasis on pension and employment, environmental and general corporate litigation as well as class actions and administrative proceedings. Cheryl Rea is an associate in the Pensions and Benefits Department in the firm's Calgary office. Kristin Smith is an associate in the Pensions and Benefits Department of the firm's Calgary office.

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