Canadian HR Reporter

CANADIAN HR REPORTER CANADIAN HR REPORTER June 2, 2014 June 2, 2014 FEATUR FEATURES 11 EMPLOYMENT LAW Grey power 3 recent cases highlight risks of changing health benefi ts for retirees By Josée Dumoulin T he decision to reduce post-retirement benefi ts for retirees does not come without legal risk. Reductions of this nature have been the sub- ject of various legal challenges by Canadian retirees in recent years. While retirees contested their former employer's right to proceed with such reductions after their retirement, many of these claims were settled prior to any judgment being rendered. However, two recent decisions addressed the validity of changes to post-retirement programs for non-unionized employees — the decision of the British Columbia Court of Appeal in Lacey v. Wey- erhaeuser Company Limited and the ruling of the Ontario Superior Court of Justice in O'Neill v. Gen- eral Motors of Canada. In addition, early this year, the Supreme Court of Canada rendered its decision in Vivendi Canada Inc. v. Dell'Aniello, where- by it confi rmed the authorization granted to a group of retirees to institute a class action in Quebec in connection with changes made to their post-retirement coverage. e Weyerhaeuser decision Lacey involved a unilateral re- duction of the employer's con- tribution to the cost of medical benefi ts provided to retirees. e plaintiff s were fi ve former salaried employees who had retired during the 1990s and in 2000. Up until 2010, the entire cost of their retirement medical benefi ts coverage was borne by the com- pany. However, in 2009, Weyer- haeuser advised retired salaried employees in Canada that its contributions to extended health insurance would be frozen at 50 per cent of the cost as of Jan. 1, 2010, and any future premium in- creases would be borne solely by the retirees. The plaintiffs filed a claim against Weyerhaeuser contest- ing this reduction. ey argued their entitlement to these ben- efi ts constituted a term of their employment that vested upon re- tirement and could not be subse- quently modifi ed. Weyerhaeuser argued the provision of health benefi ts was entirely discretion- ary and not a contractual right of the employees. e trial judge found in favour of the retirees. Having reviewed the documentation describing the benefi t program provided over a number of years to the employees, he concluded medical benefits constituted deferred compensa- tion, which was fully earned upon retirement. e provision of such benefi ts was a contractual term enforce- able against the employer. In other words, the employer became con- tractually obligated to provide the agreed-upon benefi ts. e trial judge also considered the impact of a provision in the documentation indicating the employer was reviewing the ben- efi t programs on an ongoing basis and reserved the right to make changes from time to time. e judge noted the difference be- tween this language and the more explicit reservation of the right to amend language used in connec- tion with possible changes to the pension plans. He concluded the language used with respect to medical benefi ts did not extend to chang- es made after retirement and would have, at best, permitted changes prior to the employees' retirement. The British Columbia Court of Appeal confi rmed the conclu- sions of the trial judge. Permission for leave to the Supreme Court of Canada was denied in November 2013. e GM decision In O'Neill, the employer reduced the health-care and life insurance coverage of GM salaried and ex- ecutive retirees who had retired after 1995. e court concluded such benefi ts constituted deferred compensation and were contrac- tually enforceable. Most of the debate revolved around the impact of the reserva- tion of right language found in the documentation provided to the salaried retirees that purported to allow GM "to amend, modify, suspend or terminate" any benefi t programs "at any time." While the court recognized benefi ts can be changed, even af- ter retirement, it found that given the terms of the documentation provided to the salaried employ- ees and retirees — but not the ex- ecutive employees — the language was not suffi ciently clear and un- ambiguous to allow the company to reduce the benefi ts after the employees' retirement, as it did not specifi cally mention retirees or specifi cally address the pos- sibility of reductions after retire- ment. e decision is currently on appeal. e Vivendi decision In Vivendi, the Supreme Court of Canada was called upon to de- cide whether a group of retirees was entitled to institute a class action against Vivendi contest- ing reductions in retiree cover- age. e proposed class included some 250 retirees who worked in six provinces. e trial judge had denied the retirees permission to institute a class action, fi nding there were a range of individual recourses and the requirement, under the Que- bec Code of Civil Procedure, that there be similar or related ques- tions of fact or law was not met. In his view, the class action was not the most appropriate vehicle for this action as the judge would have to conduct a detailed review of a multitude of individual cir- cumstances, resulting in a multi- tude of mini-trials. is decision was quashed by the Court of Appeal of Quebec. e court found there was a com- mon question at the heart of the class action — namely the valid- ity of the changes made to the benefi t program. e numerous legal principles that could apply to each group of members was not the core of the dispute, in the court's view. e Supreme Court of Canada essentially agreed with the con- clusions of the court of appeal, stating that, under Quebec law, the approach to authorizing class actions is more fl exible than in the common law provinces and au- thorizing judges should not place too much emphasis on the fact that several individual questions might have to be analyzed. Implications e decisions in Lacey and O'Neill illustrate, once again, that the in- formation provided to employ- ees and retirees is of the utmost importance when determining whether changes to post-re- tirement benefit programs are permitted. In O'Neill, the court reviewed 260 documents, includ- ing booklets, letters and employee binders, provided to the employ- ees and retirees, some of which dated back to the 1960s. In Lacey, in addition to the various documentation avail- able, the court also considered the information provided during employee seminars. Employers would, therefore, be well-advised to ensure they preserve any ben- efi t plan documentation, even if it dates back many years. ese two decisions also illus- trate that the court's analysis will not be limited to the reservation of right language and will also take into consideration represen- tations or promises that may have been made to employees in docu- mentation provided to them over the years. In O'Neill, the court found that, given the terms of the documentation provided to em- ployees, the reservation of right language would have needed to be crystal clear in stating changes could be made after retirement for such changes to be permitted. It will be very interesting to see if the court of appeal will see it the same way. In Quebec, now that the Su- preme Court of Canada has ren- dered its decision in Vivendi and authorized the class action, the Québec Superior Court will be called upon to deal with issues similar to the ones raised in Lacey and O'Neill. It remains to be seen whether the court will rely on the principles outlined in these deci- sions and, if so, how they will be applied to the documentation un- der review in this case. Josée Dumoulin is a partner at law firm Lavery in Montreal. She can be reached at (514) 877-3088 or at jdumoulin@lavery.ca. Credit: Mark Blinch (Reuters) Cars pass in front of the General Motors assembly plant in Oshawa, Ont. GM reduced the health-care and life insurance coverage of salaried and executive retirees, but a court ruled the benefits — for the salaried workers — were deferred compensation and couldn't be unilaterally cut.

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