The decision of the Ontario Court of Appeal earlier this year in
Slater Steel1 exposed 10 directors and officers
to possible personal liability of $20 million with no meaningful
recourse against the insolvent Slater Steel or its assets. This is
a reminder that failure to recognize and fulfill fiduciary
obligations for a pension plan can expose you to substantial
Canadian businesses face tough economic times, particularly many
manufacturing businesses with defined benefit pension plans.
Efforts will be made to minimize expenses wherever possible. A
company may focus on the substantial amounts contributed each year
to its defined benefit pension plan.
For most defined benefit plans, the contributions are based on a
report of the plan's actuary. The actuary makes assumptions,
often in consultation with the employer. An employer wishing to
conserve cash may encourage the actuary to make aggressive
assumptions. The Slater Steel actuary alleges that he was
instructed to employ a solvency-asset-adjustment or
"smoothing" methods, without disclosure that there were
doubts as to whether the company would remain a going concern.
Ontario, and other Canadian provinces, impose fiduciary duties
on the designated administrator of a pension plan. The
administrator does not have to fund the plan, but must monitor
contributions made by the employer. If the administrator is aware
that the contributions have not been determined correctly (e.g. the
actuarial report was based on inappropriate assumptions), it is
under an obligation to take action.
For most Ontario plans the designated administrator is also the
employer. Hence there is a tension between the desire to minimize
contributions and the obligation to ensure that all required
contributions are made. Generally, the fiduciary duties of the
employer as designated administrator trump any interest that the
employer may have in conserving cash. Slater Steel even
suggests that, in light of the precarious financial position of the
company, there was a fiduciary duty to maximize contributions to
the pension plans.
Of course, a corporate employer acts through its directors,
officers and employees. Ontario law extends the fiduciary duties to
those individuals. Slater Steel concludes that the
fiduciary obligations are separate from, and in effect trump, the
general duties of the individuals as directors, officers and
employees. Also, the Court stated that an individual may not be
protected against claims for breach of fiduciary obligations by a
court order barring claims "arising by reason of, out of or in
connection with" his or her service as an officer or director.
The directors' and officers' charge in the CCAA proceedings
is no longer available in this case.
Not all actions that affect a pension plan are subject to
fiduciary obligations. An employer is generally free to determine
what pension benefits it will make available to employees and to
change those benefits from time to time, without prejudice to
accrued benefits and subject to any statutory notice requirements.
When a decision is subject to fiduciary obligations, you must give
the statutory duties priority over the general interests of the
company. When there is no fiduciary duty, you are free to act
entirely in the interests of the company.
If, as a director, officer or employee or a member of a
committee, you have responsibility for the management or
administration of a pension plan or its assets, you cannot step
away from the fiduciary obligations. Since directors will have
residual responsibility for the company pension plan, even
directors not generally involved in supervision of the plan will
have some fiduciary obligations.
We will soon see whether the Supreme Court of Canada wishes to
consider these issues.
1. Sobeco Ltd. Partnership v. Aon Consulting Inc. (2008),
2008 ONCA 196, 65 C.C.P.B. 293 (Ont.C.A.). Application has been
made for leave to appeal to the Supreme Court of
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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