Canada: FMC Team Scores Pension Rectification Win

Last Updated: April 5 2009

Article by Peter J. Cavanagh, Kate Broer, Reena Goyal and Mary Picard

On February 27, 2009, the Ontario Superior Court of Justice released its decision in Kraft Canada Inc. v. Karen Pitsadiotis, the first decision in Canada which has applied the doctrine of rectification to correct an error in the text of a pension plan. In addition to the importance of the decision as the first where rectification has been applied to relieve against a mistaken plan text, the decision is also an important judicial consideration of the scope of the notice requirements for amendments under the Ontario Pension Benefits Act.

With the reforms to Ontario pension benefits legislation in 1987, Kraft's predecessor, Nabisco Brands Ltd., introduced a two year waiting period before employees would become eligible to join the pension plan. Appropriate amendments were made to the pension plan text in 1989 to reflect the change. Prior to 1989, employees were eligible to join the plan immediately upon hire. The pension benefits of all plan members, whether they were hired before or after 1989, was calculated based on the member's years of service while a member of the plan with the result that those members who joined the plan following the amendments in 1989 did not receive pension credit for the two year waiting period. The existing plan members were unaffected by the change.

Effective January 1, 1992, further amendments were made to the plan. These amendments were not intended to alter the changes made in 1989, which introduced the waiting period, or the manner in which pension benefit entitlements were calculated based on years of service while a member of the plan. However, in the course of revising the plan text to incorporate the unrelated amendments, the words "during which he participates in the Plan" were mistakenly deleted from the plan provisions which governed how pension benefits entitlement were to be determined, such that the plan could be read in a manner which gave credit for service for the waiting period.

Following the 1992 amendments, the plan continued to be administered on the same basis as it had since 1989, to give credit for the purposes of pension benefits entitlement for only those years during which a member participated in the plan. This was also continuously communicated to employees and plan members.

The mistake went unnoticed for many years. In 2003, one of the unions representing certain members of the plan requested that the Superintendent of Financial Services make an order requiring credit for service to be given for the two year waiting period. Kraft brought an application for rectification of the mistakenly drafted text. The application was opposed by a representative respondent appointed by the court to represent certain members of the same union that had applied to the Superintendent.

Rectification

Rectification is an equitable remedy that operates to relieve against the consequences of a mistake in a document in circumstances where the document, as written, does not truly reflect the intentions of the party or parties. This remedy is usually applied to relieve against a mistake in a bilateral written contract. In this case, however, the applicable provision in the pension plan had not been the subject of negotiation with plan members or their representatives.

The Court determined that the remedy of rectification is available for a pension plan, which is more akin to a unilateral instrument than a bilateral agreement, resulting from a negotiation between separate parties. In the case of a mistake in a unilateral instrument, the Court held that only the intention of the maker of the document is in issue, and concluded that the prerequisites for rectification established by the decision of the Supreme Court of Canada in Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678 do not apply.

The Court noted the following factors as indicative of the fact that the pension plan was a unilateral document:

  • The plan provisions at issue were not negotiated terms
  • The plan was not incorporated by reference into the collective agreement with the union
  • The company reserved the right in the plan text to amend or discontinue the plan, in whole or in part, subject to statutory requirements
  • The plan expressly provided that neither its terms nor the benefits provided by it constitute a contract between the company and any employee, or shall be deemed to be consideration for employment

In addition to considering the intention of the employer at the time the plan text was drafted, in arriving at its decision, the Court also noted the consistent administration of the plan in accordance with that intention. The Court concluded that it would create an injustice to deny rectification and require the employer to fund additional benefits that were never intended and that plan members could not reasonably expected to have received.

Notice Under the Act

The representative respondent also opposed the application on the basis that notice of the 1989 changes introducing the two year 1992 waiting period had not been given to all existing and former plan members at the time of the amendment.

The Court concluded that the notice provisions under the Act relied upon were not triggered by the 1989 amendment. Specifically, the Court found that there was no obligation to give notice to existing and former plan members of the 1989 changes under then section 26(1) (now section 27(1)) of the Act, as there was no change with the amendment that "would result in a reduction of pension benefits accruing subsequent to the effective date...or that would otherwise adversely affect the rights or obligations of a member or former member or any other person entitled to payment from the pension fund", as the pension benefit of existing and former members of the plan continued to be calculated in the same manner as it had prior to the amendment.

The Court also found that no notice was required to be given following the registration of the amendment as contemplated by section 26(3) of the Act (now section 27(3)), as notice of an adverse amendment need only be given to those who are affected by the amendment made. As it was only individuals who were hired after 1989 who were affected by the amendments, the Court found that it was not necessary for the administrator to give notice to those hired prior to the date of the change.

Although not advanced as an argument by the representative respondent, the Court also commented on the notice requirements under the Act applicable to unions (section 27(5)), noting that advance notice of a plan amendment to a trade union need only be given in circumstances where "the proposed amendment affects members or former members represented by a trade union that is a party to a collective agreement filed with the Superintendent of Pensions as a document that creates or supports a pension plan". As no such filing was made, and it could not be said that the collective agreement created or supported the pension plan, the Court concluded that notice was not required to be given under that section.

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.



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