Shaw v. Healthcare of Ontario Pension Plan, [2012] ONSC 3499 (Ont. Sup. Ct.) - Bonus Not Regular and Thus Not Pensionable

Transcription

1 Volume 22, No. 1 - September 2012 Pensions and Benefits Section CASE LAW UPDATE Prepared by Lesha Van Der Bij of Osler, Hoskin & Harcourt LLP Bennett v. Sears Canada Inc., [2012] ONCA 344 (Ont. C.A.) - Employee Entitled to Retiree Benefits Based on Employer Communication Sears Canada offered employees that met certain eligibility requirements post-retirement benefits. One of these requirements was that the employee must retire from active employment with 20 years or more continuous full-time service. Bennett had worked in a part-time capacity for approximately 22 years and then in a full-time capacity for another 10 years. In June of 2005, Bennett asked about her eligibility for retiree benefits and was told by Sears that her years of service equalled a total of years of full-time service, which meant that she needed to retire in about three years to qualify for the benefits. When Bennett s employment was terminated four years later, she again asked about the retiree benefits and was assured that she would receive full retirement benefits. However, after her employment came to an end, Bennett learned from another company representative that she did not qualify for any post-retirement benefits because she did not meet all the eligibility requirements, specifically the condition that the employee must retire from active employment with 20 years or more continuous full-time service. Sears claimed that the 2005 statement she had received was an error. Bennett initiated an application seeking a determination of her entitlement to post-retirement benefits. The Applications Judge found in Bennett s favour, concluding that the dispute was contractual in nature. Sears had stated that Bennett would be entitled to retiree benefits if she worked an additional three years, which she did. This decision was upheld by the Ontario Court of Appeal. Shaw v. Healthcare of Ontario Pension Plan, [2012] ONSC 3499 (Ont. Sup. Ct.) - Bonus Not Regular and Thus Not Pensionable Over the course of his career, Shaw worked as a senior executive for a number of hospitals and was a member of the Healthcare of Ontario Pension Plan (HOOPP). His most recent employment agreement was amended to remove a severance provision which the employer interpreted as providing an incentive to resign and, instead, the employer would make cash payments (which they termed retention bonuses ) to Shaw over subsequent years, in addition to his salary. The employer retained an actuary who calculated the increase to Shaw s overall compensation, including his pension entitlement. HOOPP, however, was not a party to these discussions.

2 - 2 - In accordance with the amended agreement, Shaw received his first retention bonus of $100,000 and $9,600 was deducted as Shaw s required contribution to HOOPP. A telephone call with a HOOPP representative indicated that it would be pensionable just because it is part of his annual compensation. HOOPP took the position that not all relevant information was provided to the HOOPP representative and that it was only later that HOOPP was provided with a copy of the employment agreement with the amended terms. HOOPP subsequently took the position that the bonus was not pensionable. Shaw s employment was terminated and he sought a declaration that his bonus payment was pensionable. Shaw s application was dismissed. The Ontario Superior Court found that the telephone conversations with the HOOPP representatives had no bearing on the issue of whether the bonus was pensionable, as they did not have a copy of Shaw s employment agreement at the time. Whether the bonuses were pensionable had to be determined based on the terms of the plan and the employment agreement. The Court went on to find that the three bonus payments could not meet the part of the definition of pensionable earnings in the plan that required that they form a regular and integral part of the member s remuneration. The Court accepted the need for a bonus to be regular, noting HOOPP s evidence that the amount of contributions remitted on these bonuses would not be high enough to cover the actual value of the incremental pension benefits that would accrue to Shaw, and thus essentially such benefits would be unfunded. The Court was of the view that regular meant that such payments are paid as a rule or usual or customary. As a result, the Court concluded that Shaw s bonus payment was not pensionable. Provost v. Superintendent of Financial Services, [2012] FST File No. P (F.S.T.) - Employee Subject to Multiple Transactions Entitled to Pension from First Employer While Still Employed by Current Employer Provost was employed by Rio Tinto Alcan (Alcan) from 1977 to 1999 and a member of its defined benefit (DB) pension plan, which is registered in Québec. In 1999, Provost became an employee of Eaglebrook Inc. and a member of its plan when Alcan sold part of its business to Eaglebrook. Eaglebrook subsequently sold part of its business to Kemira and Provost joined that company and its defined contribution (DC) pension plan. At the time of the original Alcan sale, Alcan made a commitment to employees such as Provost that they could either transfer their pension entitlements out of the plan at the time of sale, or leave them in the Alcan plan and claim them as a pension at age 55. Provost chose the latter option. After reaching age 55, Provost applied to Alcan for his Alcan pension. This request was denied, as Alcan was of the view that he was not retired, since he still worked for a successor employer within the meaning of s.80 of the Ontario Pension Benefits Act (Ontario PBA). Although Provost earned his benefit entitlement under the Alcan plan while employed in Ontario, when he sought a ruling as to whether he could receive his Alcan pension, he was referred to the Régie des rentes. The Régie denied Provost s request on the basis of s.80 of the Ontario PBA. The parties agreed that pursuant to s.4(4) and (5) of the Agreement Respecting Multi- Jurisdictional Pension Plans signed by Québec and Ontario, the matter could be referred to the Ontario Financial Services Tribunal, which should treat the Régie s decision as if it were made by the Superintendent. Application allowed.

3 - 3 - The Tribunal began by noting that while there could be a successor to a successor within the meaning of s.80 of the Ontario PBA, there was little evidence indicating whether Kemira was in fact a successor to Alcan. The Tribunal then went on to reject Provost s argument that s.80 should not apply, because the Alcan plan was DB and the Kemira plan was DC. Finally, the Tribunal considered whether Alcan s promise at the time of the original sale (i.e., that employees could begin a pension at age 55) entitled Provost to the pension at issue. The Tribunal held that there was no conflict between the Ontario PBA and Alcan s commitment, and that s.80(3) was not a statutory barrier to such a payment. Further, upon review of the plan text, the Tribunal did not find support for the Superintendent s submission that Provost could not claim his pension until he retires (or terminates employment with a successor employer). The Tribunal also noted that under Québec law, it appears that pensioners continue to be members the fact that the Applicant continues to be a plan member appears to have no bearing on his claim for pension. Thus, the Tribunal ordered the decision of the Régie to be set aside; and the Superintendent to order Alcan to commence payment to Provost of the pension to which he is entitled under the plan. Ratansi et al. v. Ontario Pension Board, [2012] FST File No. P (F.S.T.) - Divested Employees May Receive Pension While Continuing Employment with New Employer The applicants were employed by the Ontario Ministry of Revenue. When their work was transferred to the Canada Revenue Agency (CRA), the applicants were offered employment with the CRA and they were eligible to become members of the federal Public Service Superannuation Plan. As a result, they were no longer members of the Ontario Public Service Pension Plan (PSPP). The applicants sought confirmation from the plan administrator, the Ontario Pension Board (OPB), which it refused to provide, that they would be entitled to commence receiving their pensions once they left the Ontario Public Service. The applicants then sought an order allowing them to start receiving pension benefits effective the date they commenced employment with the CRA. Order granted. The Tribunal did not agree with the OPB and the Superintendent that the applicants claim was statute barred by s.80(3) of the Ontario PBA. Rather, the Tribunal was of the view that the rights of persons in the position of the Applicants must be determined in a more contextual manner, taking into account the language of the Plan, the nature of their accrued rights under the Plan and the impact of s.80(3) on those rights. Turning first to s.80 of the Ontario PBA, the Tribunal held that it was designed to enhance the pension rights of employees affected by a sale of business where certain conditions are met. The Tribunal found that the position of the OPB and the Superintendent had the effect of requiring employees to give up rights that they would otherwise have had. The Tribunal viewed such an approach as being at odds with the protective purpose of s.80. Further, the Tribunal held that the Ontario PBA does not automatically equate employment status and plan membership, as it contemplates a variety of scenarios in which persons may be active plan members but not employees. The Tribunal also rejected the OPB s argument that allowing the applicants to receive their PSPP pension would give them an unfair advantage, noting that even though the reciprocal transfer agreements may have been exemplary in this situation, s.80 does not require them to be. Thus, the Tribunal held that in order to determine whether or not a plan member is entitled to an

4 - 4 - immediate pension in such circumstances, it is necessary to turn to the provisions of the member s plan, after taking account of the impact of s.80(3) on that plan. The Tribunal noted that its current position could be at odds with its prior decisions - i.e., Horgan and Anand, and Burns - where it found that divested employees were not entitled to an immediate pension from the PSPP. However, the Tribunal went on to find that there was no close analysis of the statutory language nor any reference to the relevant provisions of the plans in these cases. Further, it noted that in Imperial Oil Limited (Decision No. P ) it found that deemed continuity for purposes of the Ontario PBA does not necessarily carry with it deemed continuity for purposes of the plan, which is difficult to reconcile with the ready assumption in Horgan and Anand that s.80(3) must necessarily bar access to all rights under the plan available on de facto termination of employment, regardless of whether or not it is necessary to deny those rights in order to give effect to the purposes of the PBA. As such, the Tribunal held that to resolve this inconsistency, it was necessary to take a fresh look at the wording of s.80(3) and at its role in the overall scheme of s.80 and the Ontario PBA as a whole. The Tribunal went on to consider the language of the plan, which provides in part that a member ceases to be a member of the Plan upon the filing of a written election with the Board indicating that he or she no longer wishes to be a member of the Plan, where that member is not required to be a member of the Plan. The Tribunal was of the view that such language allowed the applicants to elect to cease their membership even if their employment status is deemed to continue. Thus, the Tribunal concluded that the applicants were permitted to receive their pension from the PSPP while employed by the CRA. A request to review this decision was denied by the Tribunal. It is now being appealed to the Ontario Divisional Court. Kerfoot v. Weyerhaeuser Company Limited, [2012] BCSC 640 (B.C.S.C.) - Employees Entitled to Pension Loss Due to Employer s Failure to Provide Notice of Sale Weyerhaeuser Company Limited (Weyerhaeuser) provided a DB plan, which included an enhanced early retirement benefit - Rule of 65. Meeting the Rule of 65 required a combination of the employee s age and years of service to equal at least 65, with at least 10 years of continuous service. Weyerhaeuser sold its interest in a mill to Domtar Corporation (Domtar) in As of the date of the sale, all of the employees at the mill were dismissed by Weyerhaeuser, but virtually all of the employees immediately obtained new employment with Domtar, in the same positions that they had with Weyerhaeuser, and at the same or similar wages. With the termination of their employment from Weyerhaeuser, the employees immediately ceased participating in the Weyerhaeuser plan, and were enrolled in a Domtar plan. (Domtar provided both a DB and a DC plan to its employees.) Employees were given two options with respect to their Weyerhaeuser pensions: (i) leave the pension benefits in the Weyerhaeuser plan (together with the amount accumulated in their Flexible Pension Account) and have their pensions entitlements determined upon termination or retirement from Domtar or when they elected to commence their lifetime pension from the Weyerhaeuser pension plan at age 55 or later; or (ii) transfer the commuted value of their benefits in the Weyerhaeuser plan into a locked-in retirement savings plan, and obtain cash payment or transfer

5 - 5 - to a RRSP of the Flexible Pension Account. Employees who chose option #1 and who did not meet the Rule of 65 as of the date of sale, but who reached age 55 or older while employed with Domtar, and who had a minimum of 5 years of combined continuous service with Weyerhaeuser and Domtar, would become eligible to receive the early retirement benefits. They could elect to receive the subsidized Weyerhaeuser pension upon reaching age 55, even without terminating their employment with Domtar. Under option #2, the commuted value of the plan reflected the value of the subsidized early retirement benefits for employees who met the Rule of 65 as of the date of sale. Two employees who chose option #2 and who were not eligible for Rule of 65 benefits as of the date of the sale commenced an action against Weyerhaeuser, arguing that they were entitled to notice of termination and damages for losses of pension and savings benefits during the notice period. The B.C. Supreme Court began by finding that the employees were not given any notice of the termination. The Court then went on to reject Weyerhaeuser s argument that the required notice period should be substantially reduced, as the employee had no need to seek alternative employment. Instead, the Court noted that there was a reduction in the employees overall compensation and they were entitled to notice which would have allowed them to obtain other employment and, thereby, avoid the loss. The Court then concluded that one month per year of service was reasonable, resulting in the two employees being entitled to months and 18.4 months, respectively. The Court then considered the value of the Weyerhaeuser pension lost by the two employees during the notice period. One of the employees, Kerfoot, withdrew from the Domtar DB plan in 2009 and enrolled in the DC plan. He then resigned from Domtar in 2011 at age 47. The Court rejected Weyerhaeuser s argument that Kerfoot failed to mitigate by resigning prior to age 55. The Court found that Kerfoot had suffered a net loss of $4,927 for the loss to his base Weyerhaeuser pension (taking into account the value of the Domtar pension accrued during the same period). The other employee, Harshenin, was still in the Domtar DB plan and continued to be employed by Domtar. Unlike Kerfoot, Harshenin would have qualified for the Rule of 65 benefits during the notice period. The Court rejected Weyerhaeuser s argument that the loss was caused by Harshenin s decision to receive a payout of his Weyerhaeuser pension under Option #2. The Court assessed Harshenin s loss at $77,677, being the loss in actuarial value of the pension due to additional service, including the missed opportunity to satisfy the Rule of 65 and thereby qualify for the Weyerhaeuser early retirement benefits. The Court went on to assess additional damages for the loss of the ability to contribute to the flexible pension accounts and the loss of an employer match to a savings plan. In total, Kerfoot was awarded $10,493 and Harshenin $81,244. Timberwest Forest Corp. v. Gustavson, [2012] BCSC 1232 (B.C.S.C.) - Decision re Elimination of Out-of-Province Coverage Upheld When Gustavson retired from Fletcher Challenge Canada Limited (Fletcher), he was given a letter which included a description of the post-retirement benefits to which he would be entitled. The letter also included the following provision: The Company reserves the right to amend and discontinue any of the benefit plans and programs referred to in this letter and the arrangement in the letter will be, and will be deemed to be subject to such amendments and discontinuance. Notwithstanding the foregoing, the benefits to which you will be entitled shall not be substantially less than those outlined in this letter.

6 - 6 - A few years later Fletcher was purchased by Timberwest Forest Corp., which assumed responsibility for the Fletcher retirees and advised them it was eliminating their out-of-province emergency medical coverage. Gustavson, who spent the winters in Arizona, took out an individual policy for out-of-province coverage. Gustavson commenced an action against Timberwest, seeking reimbursement for the cost of the policy plus the amount of premiums he would pay for the policy for the next two years. The action was allowed by the B.C. Provincial Court, which held that the rights in the letter enjoy a degree of conditional vesting and protection from amendment and discontinuance by the Company, by virtue of the Notwithstanding Provision, and that the change resulted in the benefits being substantially less than was originally agreed. Timberwest appealed to the B.C. Supreme Court, which dismissed the appeal. The Court began by agreeing with the trial judge that the parties intended to include the individual components of the extended health care plan as they existed at the time of Gustavson s retirement (i.e., including out-of-province coverage). The Court rejected Timberwest s argument that there needed to be an express reference and description of the plan s precise components in order for the court to conclude that out-of-province coverage was intended to be included in the contract. The Court also agreed with the trial judge s analysis of whether the benefits provided were substantially less. In my opinion, the trial judge properly concluded that Mr. Gustavson had satisfied the onus of proving his benefits were now substantially less than outlined in the retirement letter. Moreover, this conclusion does not prevent the company from changing individual components of any particular benefit, as long as the amendment or discontinuance does not result in substantially less benefits for any particular retiree. Further, while the Court recognized that in these difficult economic times the decision to eliminate out-of-province coverage could be considered both reasonable and responsible, it cannot override Timberwest s specific contractual obligations to Gustavson. Saint John (City) v. Ferguson, [2012] NBQB 46 (N.B. Q.B.) - Board of Trustees Can Sue for Defamation The Board of Trustees of the City of Saint John Employee Pension Plan (the Board) commenced an action for defamation, arguing that Ferguson had defamed them both in comments that he had made at council meetings and in an article he had written in the Telegraph Journal. In an earlier decision, the New Brunswick Court of Queen s Bench decided that the Board had the legal capacity to commence and maintain legal proceedings. In the present decision, the Court considered whether the Board was capable of holding a reputation and if so, whether it could be defamed. The Court held that while the Board is not a corporation, it is not a completely voluntary association or an indeterminate group of people either. The Court also noted that the Board is subject to fiduciary obligations and must act in the best interests of all the stakeholders, and such are attributes that are essential, in my opinion, for all trustees both individually and collectively. As a result, the Court concluded that the Board has sufficient personality in the form of an important reputation which it is entitled to protect.

7 - 7 - Downey v. Halifax Port International Longshoremen s Association, [2012] NSCA 49 (N.S. C.A.) - Pension Cannot Be Paid to Member Who Does not Meet Eligibility Requirements Downey claimed a disability pension under the Halifax Port ILA/HEA Pension Plan (the Pension Plan) and benefits under the Halifax Port ILA/HEA Health and Welfare Trust Fund Benefits Plan (the Welfare Plan). Downey had worked as a non-union longshoreman for 26 years on the Halifax waterfront before becoming a member of the union on July 2, Upon joining the union, Downey became eligible to participate in the Pension Plan and the Welfare Plan provided certain eligibility requirements for membership were met. Among other things, the Pension Plan required employees to work 300 hours during the year, while the Welfare Plan required 450 hours of work. On December 16, 1991, Downey suffered a permanently disabling workplace injury after working only hours as a union member. The Court of Appeal agreed with the trial judge s interpretation of the terms of the Pension Plan and his finding that Downey was not entitled to membership in the Pension Plan based on such contractual terms. Further, the Court of Appeal also agreed with the trial judge s rejection of Downey s claims of breach of contract based on representations in the employee booklets and member statements. The Court then considered Downey s argument that he was entitled to a pension pursuant to s.14 of the federal Pension Benefits Standards Act (federal PBSA) which provides: Each employee who is engaged to work on a full time basis for an employer and is a member of a class of employees for which a pension plan is provided by that employer shall be eligible to become a member of that pension plan. The Court held that class of employees for which a pension plan is provided referred to not just unionized longshoremen, but rather unionized longshoremen who meet the eligibility qualifications for membership in the Plan. Since Downey never met such qualifications, the trustees were under no statutory obligation to him, and he could not assert any rights pursuant to the federal PBSA. The Court also rejected Downey s arguments with respect to the Welfare Plan, finding that, similar to the Pension Plan, he did not meet the plan s criteria and thus never became eligible for welfare benefits.