Prepared by Lesha Van Der Bij and Julien Ranger-Musiol of Osler, Hoskin & Harcourt LLP

Transcription

1 Volume 20, No. 2 - December 2011 Pensions and Benefits Section CASELAW UPDATE Prepared by Lesha Van Der Bij and Julien Ranger-Musiol of Osler, Hoskin & Harcourt LLP Quinn v. New Brunswick, [2011] CarswellNB 372 (N.B. Q.B.) - Amendments to Indexing Benefits The pension plan was established by the province of New Brunswick to provide pension benefits to certain unionized employees. The plan was not subject to the New Brunswick Pension Benefits Act (the NB PBA). As a result of a substantial deficit in the plan, the actuary advised the administrator that it would be necessary to take measures to either reduce benefits, increase contributions or a combination of both. The administrator applied to the New Brunswick Court of Queen s Bench for direction with respect to the proposed amendments, including whether or not it could amend the plan to reduce or eliminate indexing benefits for active and retired members. The plan terms prohibited amendments that retroactively reduced benefits earned by a member in respect of pensionable service prior to the date of such amendment. The issue was therefore whether or not an amendment eliminating indexing would violate this amendment provision. The Court considered whether or not the members could vest in the cost of living allowance (COLA) provisions prior to termination from the plan, and determined that it was only when a triggering event (i.e., termination, retirement or death) occurred that the right to the COLA matures and becomes vested. Until then, the member is simply accumulating pensionable service. As well, the Court interpreted the prohibition on amendments that retroactively reduced benefits earned by a member in respect of pensionable service prior to the date of such amendment as a prohibition on amendments that reduce benefits acquired by the member at termination from the plan by the accumulation of Pensionable Service. Accordingly, the Court held that the proposed amendments reducing or eliminating indexing benefits for active members were within the amending power under the plan and therefore permissible. The Court then considered whether retirees vest annually in each COLA adjustment or once in a series of COLA adjustments which are annually calculated. The Court was of the opinion that retirees vests once in a series of COLA adjustments which are calculated annually, and directed the administrator to refrain from making the proposed amendments to the COLA provisions for the retirees. Sutherland v. Hudson s Bay Company, [2011] ONCA 606 (Ont. C.A.) - Members Entitled to Surplus on Plan Termination LEGAL_1:

2 - 2 - Hudson s Bay Company (HBC) closed its defined benefit (DB) plan to new members in In 1994, HBC re-opened the plan to employees of subsidiary companies who became members of a defined contribution (DC) component that was added to the DB plan. At the same time, HBC began taking contribution holidays with respect to the DB and DC components of the plan. The members of the original DB plan commenced a class action, arguing that HBC improperly used surplus that had accrued in the trust fund for the DB plan to pay the employer contributions to the DC component. At trial, the judge ruled that: the DB plan assets were impressed with a trust in favour of the DB plan members; HBC was not a beneficiary of the trust; and on plan termination, the DB plan members were entitled to any surplus assets in the trust fund. However, the cross-subsidization of the DC component was held to be valid. The members appeal was abandoned; however HBC continued with its cross-appeal, challenging the trial judge s conclusions that HBC was neither a beneficiary of the DB plan nor entitled to any surplus assets remaining on the plan s termination. Cross-appeal dismissed. The Ontario Court of Appeal began by considering the principles regarding entitlement to surplus on plan termination established by the Supreme Court of Canada in Schmidt. The Court reviewed the historical plan documents and found that there was a trust. Further, the Court held that the employer had not limited the operation of the trust to prevent it from applying to the surplus, nor did it reserve a power of revocation. Thus, it was necessary to consider the terms of the trust agreement, which provided as follows: ARTICLE 2. (a) The Company by this Agreement establishes with the Trustee a fund (herein called the Trust Fund ) comprising all cash and property acceptable to the Trustee now and hereafter received by it in trust for the purposes of the Plan, together with all proceeds, investments, reinvestments and income and profits arising therefrom less all payments, deductions and withdrawals therefrom authorized hereunder. ALWAYS PROVIDED that no part of the Trust Fund may be used for, or diverted to any purposes other than those connected with the exclusive benefit of members of the Plan and their beneficiaries. The Court of Appeal noted that the exclusive benefit language in the original HBC trust agreement was similar to the language considered in Schmidt, which the Supreme Court found entitled the members to surplus despite later amendments purporting to give surplus to the company. The Court of Appeal then went on to reject HBC s submission that the original plan text, which provided HBC with an entitlement to surplus, trumped the original trust agreement. The Court of Appeal then considered whether the Supreme Court s decision in Burke (where the Court found that employees transferred as a part of a sale of a HBC division were not entitled to a share of surplus) altered its analysis. The Court distinguished the present case from Burke noting that it turned on a different plan text and trust agreement, with language which is materially different from the language of the original Trust Agreement in this case. As a result, the Court of Appeal concluded that Burke did not alter its analysis in the present case, and the trial judge had correctly concluded that the DB plan assets were impressed with a trust in favour of the plan members and the members were entitled to any surplus assets in the plan on its termination and wind up.

3 - 3 - Canadian Jewish Congress c. Polger, [2011] QCCA 1169 (Que. C.A.) - Terminated Employees not Entitled to Gratuitous Pension Payments Polger and Smajovits were both employed by the Canadian Jewish Congress (the CJC) until their employment was terminated in 2004 and 2005 respectively. Both of them participated in the CJC s DC pension plan. In addition to the pension benefits under the basic plan, the CJC s practice was to pay its employees supplemental pensions on termination or retirement. Such pensions would cover the difference between the pensions payable under the basic plan and a target amount determined based on a DB-like formula (i.e., 2% of a member s average salary per year of service). Upon termination, Smajovits and Polger were offered severance packages that were conditional on signing a waiver renouncing any other claims, including the right to a pension supplement. Given the value of the monthly supplemental pensions ($4,582 for Smajovits and $2,030 for Polger), both employees refused to sign the waivers and together instituted an action against the CJC before the Quebec Superior Court for breach of contract. The trial judge agreed that there was a generalized practice and saw no reason as to why these two employees should be treated less favourably than everyone else. The Court appears to have concluded that the right to the supplemental pensions had become an implicit term of the plaintiffs employment contracts. The CJC was therefore ordered to make monthly pension supplement payments to them for the rest of their lives and the lives of their spouses. The CJC appealed. The appeal was allowed by the Quebec Court of Appeal which found no evidence of a binding policy or practice that would have warranted having the pensions calculated in accordance with the DB-like formula. An application/notice of appeal of the decision of the Quebec Court of Appeal was filed with the Supreme Court of Canada on September 19, Jarman v. Jarman, [2011] BCSC 1155 (B.C.S.C.) - Federal Supplemental Plan Governed by Provincial Property Laws Mr. Jarman was an Air Canada pilot, who participated in two Air Canada pension plans a DB plan and a supplemental plan. His former wife was seeking payments from the plans. At issue, was the payment due from the supplemental plan. Air Canada took the position that it need not comply with the B.C. Family Relations Act in relation to the supplemental plan, as this plan was not governed by the federal Pension Benefits Standards Act (the federal PBSA). Air Canada was of the view that the former spouse must rely on the plan member to pay the amount for the member s lifetime, and after the member s death, the former spouse may be required to rely on any new spouse to pay her share of the survivor benefits. The B.C. Supreme Court reviewed the relevant provisions of the federal PBSA and noted that section 4 indicates that the Act applies in respect of pension plans, and the term pension plan is defined in subsection 4(2) to include a supplemental pension plan. Further, subsection 25(1) defines provincial property law to include property division on marriage breakdown, and makes pension plan benefits subject to the applicable provincial property law. As a result, the Court held that a supplemental pension plan, including the one at issue, is subject to applicable provincial property law. The Court concluded that the former spouse required an order that Air Canada pay directly to the claimant her entitlement at source from the Supplemental Retirement Plan on a monthly basis following the first day of the month following the making of this order.

4 - 4 - Waterman v. IBM Canada Limited, [2011] BCCA 337 (B.C.C.A.) - Pension Benefits Not Deductible from Wrongful Dismissal Damages Waterman, a 42-year IBM employee who had worked in a non-managerial position, was dismissed without cause. At the time of his dismissal, Waterman was 65 years old and was unable to find another position in his field. He commenced an action for wrongful dismissal. At trial he was awarded 20 months notice. The trial judge also found that pension benefits paid to Waterman during the period of reasonable notice were not deductible from the damages. IBM appealed the pension deductibility issue. The B.C. Court of Appeal reviewed the relevant cases, including its earlier decision in Girling and the Supreme Court of Canada s decision in Sylvester, and held that each case will turn on an analysis of the nature of the benefit and the terms of the employment contract applied to the particular facts of the case. The Court of Appeal went on to distinguish the present case from Sylvester where the Supreme Court was dealing with disability (rather than pension) benefits (and found that disability benefits were deductible). Further, the Court noted that under Waterman s employment contract, including the provisions of the DB Plan, there is no express provision which governs the issue before the Court. The Court of Appeal also noted [n]o one has suggested that using pension benefits to offset damages for wrongful dismissal was, or is, a common employer practice, whether in a depressed economy, or otherwise. As a result, the Court of Appeal concluded that the pension benefits received by Waterman during the period of reasonable notice were not deductible from the damages he was awarded for wrongful dismissal. An application/notice of appeal of the decision of the B.C. Court of Appeal was filed with the Supreme Court of Canada on October 3, Re Financial Services Commission of Ontario, [2011] CanLII (Ont. I.P.C.) - Request for Certain Pension Documents Properly Denied The Ministry of Finance received a request under the Freedom of Information and Protection of Privacy Act (the FIPPA) for access to all documents concerning the merger of two pension plans, including all documentation concerning the disposition of the surplus of one of the plans. The Ministry indicated that certain records would not be provided, as they fell under the solicitorclient exemption in the FIPPA. The requester appealed the Ministry s denial of the specified documents. The Financial Services Commission of Ontario (FSCO) responded to the Information and Privacy Commissioner (IPC) inquiry, as it was the proper responding institution. The IPC reviewed the documents as well as the rationale for solicitor-client privilege, and concluded that the Ministry properly withheld the documents. Memorial University of Newfoundland v. Lee and Acreman, 2011 NLCA 55 (N.F.L.D. C.A.) - Post-Retirement Benefits Class Action Continues Prior to 1978, Memorial University pensioners paid 50% of the premium for their postretirement group insurance benefits with the University paying the remaining 50%. Between 1978 and 1992 the foregoing arrangement changed such that the University pensioners were provided with no-cost post-retirement group insurance benefits. The University stated that it subsidized the pensioners premium obligations with payments from a trust fund that had originated from several refunds made by the former insurance carrier. Upon depletion of the trust funds, the University was of the view that the arrangement reverted back to the premium sharing that had existed up to As such, the University signalled, in 1992, that it would be eliminating the no-cost post-retirement group insurance benefits effective January 1, The

5 - 5 - University implemented a graduated payment schedule with respect to the pre-1993 retirees and their survivors for the period January 1, 1993 to March 31, Thereafter, the University stopped making payments in respect of the 50% premium cost and started charging the pre-1993 retirees and survivors the full amount. The pre-1993 retirees and their survivors, and all estates of the pre-1993 pensioners who died after November of 1996, commenced a class action against the University. The class action was certified by the Newfoundland Supreme Court. The University appealed the certification decision to the Newfoundland Court of Appeal. The Court of Appeal dismissed the University s appeal, finding that there was support for the applications judge s determination (e.g., there were common issues, and a class action was the preferable procedure). Trois-Rivières (Ville de) c. Bessette, [2011] QCCA 966 (Que. C.A.) Pension Dispute Within Court s Jurisdiction A unionized employee (Bessette) became eligible to retire effective November 1, She received a document setting out the different retirement options available and she elected to receive a monthly pension of $3, After ensuring that she would not be penalized if she were to retire a few months later, she continued to work for the City of Trois-Rivières. After completing her retirement application in January 2009, the City provided her a statement indicating that her monthly pension would be $600 lower than what was indicated in the first document. The difference was due to the fact that she had decided to retire after December 31, Bessette filed a lawsuit against the City claiming that she was misled by the City s employees. The City filed a preliminary motion to have the action dismissed on the basis that the dispute fell within the exclusive jurisdiction of a grievance arbitrator. The Court of Appeal found that the interpretation and/or application of a collective agreement falls within the exclusive jurisdiction of an arbitrator. However, the Court of Appeal agreed with the trial judge that the dispute in this case only concerns the liability of the City for negligent misrepresentation. The interpretation and/or application of the pension plan itself is not contested. The action can proceed before a court. Chatigny c. Emerson Électrique du Canada ltée, [2011] QCCS 1896 (Que. S.C.) Undertaking to Apply Grow-In Rules in Respect of Quebec Employees The plaintiffs were seven Quebec employees of a division of Northern Telecom Canada (Nortel). In 1998, they became employees of Emerson Électrique du Canada ltée (Emerson) following the sale of the division and their accrued pension benefits were transferred to a new pension plan. These employees were all terminated by Emerson between 2002 and Their pension benefits were calculated in accordance with the terms of the new plan and the Quebec Supplemental Pension Plans Act. The employees filed a lawsuit claiming that they were entitled to have their benefits calculated in accordance with the rule of 55 under the Ontario Pension Benefits Act (i.e., the grow-in rules). They claimed the sum of $768,433 representing the difference between the pension benefits calculated in accordance with the rule of 55 and the benefits calculated by Emerson following their termination.

6 - 6 - The Court agreed that the plaintiffs were entitled to have their benefits calculated in accordance with the rule of 55 even though they were Quebec employees. They held important positions within the division and Emerson had an interest in retaining their services after the sale to ensure the continuation of the business. The evidence demonstrated that Emerson provided assurances to the employees that their employment conditions, including the rule of 55, would be maintained after the sale. Moreover, Emerson negotiated the transfer of $12,179,300 with Nortel in order to have the necessary funds in its pension plan to comply with the rule of 55. The fact that the new pension plan included a provision granting Emerson the discretion to comply or not with the rule of 55 in respect of Quebec employees could not be relied on in light of its undertaking to the plaintiffs. Therefore, the Court ordered Emerson to pay the plaintiffs the balance of their pension benefits. Association des retraités de l École polytechnique c. Corporation de l École polytechnique, [2011] QCCS 2784 (Que. S.C.) Refusal to Authorize Pension Class Action The Corporation de l École polytechnique (the University) is the sponsor of a DB pension plan. Prior to 2004, the plan provided that benefits were to be indexed at 50% of the consumer price index (CPI), leaving the University the discretion to grant supplementary indexation representing the other 50% of the CPI. In 2002, the pension committee recommended that the plan be amended so that the supplementary indexing be automatically granted on January 1 of each year beginning in 2004, provided that the plan s actuary could confirm on that date that the plan has a specified reserve. As part of the amendment process, the pension committee sent a summary of the proposed amendment to plan members in April 2002 and asked them to vote on it. Following a favourable vote, the University amended the plan to make the supplementary indexing automatic when two conditions are met: (i) the plan has a specified reserve; and (ii) the plan is solvent. Shortly after the 2003 indexation was announced, the Association des retraités de l École polytechnique (the Association) contested the indexation rate retained by the University. The parties were unable to find a common ground for about three years. The parties eventually agreed to amend the plan to address this particular conflict. The proposed amendments provided that the University would obtain the right to take contribution holidays equivalent to the amount of its special solvency payments to the plan. In return, the retirees would be entitled to a retroactive pension indexation. Once again, the pension committee sent a summary of the proposed amendments to plan members and asked them to vote. The University then amended the plan to provide that the retroactive indexation would only be paid once it would have recovered the amount of its special solvency payments. From 2004 to 2008, the plan s actuary was unable to certify that the plan was solvent. The University thus refused to award supplementary indexation. The Association filed a motion for authorization to institute a class action. It submitted that the solvency requirement was not approved by the participants in 2002 and claimed that the addition of a priority of the contribution holidays over the retroactive indexation had also not been approved by the members. The motion was dismissed. The Court concluded that the group failed to establish a serious appearance of right as required by section 1003(b) of the Civil Code of Procedure. The evidence showed that the votes were called by the pension committee, not by the University. The Court found that the University should not be blamed for the failure of the pension

7 - 7 - committee to explain the existence of a solvency requirement and the priority of the contribution holidays in clear terms. In addition, considering that the University had the sole authority to amend the plan with respect to indexation, the 2002 amendment did not have to be approved by members in the first place. The evidence also showed that the Association itself had recognized on many occasions the existence of the solvency requirement and the priority of the contribution holidays. Since its motion was filed more than three years after it could have discovered the alleged nullity of the amendments, the action was clearly time-barred. West Grey Police Services Board v. West Grey Police Association, [2011] CanLII (Ont. Arb.) - Employee Entitled to Retiree Benefits Based on Collective Agreement The grievor began working for the West Grey Police Services Board (the Board) in September 2002, and a year later she became a member of OMERS. In 2007, the grievor left her employment. The Board s Annual Report indicated that she had retired, though no retirement party was held. Shortly thereafter, the grievor elected to receive a reduced pension. In 2009, the grievor submitted a claim for chiropractic services under the Board s group medical plan. Her claim was denied on the basis that coverage had been terminated when she left her employment. The West Grey Police Association brought a grievance, arguing that the grievor was entitled to benefits until age 65 under the collective agreement, which provides as follows: Grievance allowed. Upon retirement on an O.M.E.R.S pension a member, spouse and dependants (sic) shall receive all medical, vision, and dental care benefits as referenced in Article 12 of this Agreement. Such coverage to continue until age 65, or should a member become deceased prior to age 65 such benefits will continue for the spouse and dependents. The arbitrator reviewed the language in the collective agreement and noted that the parties had not limited the entitlement to post-retirement benefits to members who retire at their normal retirement date. The arbitrator also noted that the Board s argument that providing such benefits would be astronomical was not relevant. As a result, the arbitrator concluded that the clear language of the collective agreement provided the grievor with retiree benefits until age 65 (or if she were to die before age 65 the benefits would continue for her spouse and dependents.) AGS Automobile Systems v. National Automobile, Aerospace, Transportation and General Workers of Canada, Local 124, [2011] CanLII (Ont. Arb.) - Employees Did Not Lose Retiree Benefits By Electing Severance Pay The grievors, who were all laid off for 35 weeks or more, had relinquished their recall rights for the purpose of claiming severance pay benefits under the Ontario Employment Standards Act (the ESA). Shortly thereafter, they had all elected to retire and started to receive pension benefits. The collective agreement stated that certain post-retirement benefits would be provided to retired employees and [t]hose who retire. The employer took the position that by taking severance pay under the ESA, the grievors had precluded their ability to exit their employment through retirement and, as such, they were not entitled to retiree benefits. The union launched a grievance, arguing that the employees were in fact entitled to the postretirement benefits. Grievance allowed.

8 - 8 - The arbitrator noted that the parties had not specified in the collective agreement that those who had exercised a claim for severance pay before activating an intention to retire were not entitled to retiree benefits. Finding that the group referred to as retirees had not been sharply focused in the collective agreement, the arbitrator declined to interpret retirees and retired employees for the purposes of the application of retiree benefits with the sharp distinctions advanced by the Employer. Further, the arbitrator held that the entitlement to life insurance and health benefits in addition to severance pay under the ESA was not a contradictory result. As a result, the arbitrator concluded that the grievors did not lose their rights to retiree benefits by virtue of their election to be paid severance pay. Toronto (City) v. CUPE Local 79, [2011] CanLII (Ont. Arb.) - Post-Retirement Benefit Improvements Effectively Incorporated into Collective Agreement Prior to amalgamation, the City of Toronto provided retiree benefits for employees after age 65. After amalgamation, the collective agreement provided for retiree benefits for all employees employed by the new City of Toronto up to the age of 65. However, the agreement also contained the following Note: Any employee who is eligible for retiree benefits beyond age 65 as at May 11, 2000 shall continue to be eligible for said benefits. The union filed a policy grievance to determine the entitlement of employees who retired after May 11, Specifically, the arbitrator was asked to consider whether their entitlement was frozen as at May 11, 2000 (i.e., are they entitled to receive any negotiated improvements to benefits after May 11, 2000). The union argued that the benefits were green circled for the grandfathered employees as a result of a by-law which was repealed after the aforementioned agreement (the by-law was repealed in February, 2002). The by-law stated that pensioners would receive any improvements to existing medical and dental benefits received by CUPE Local 79 during negotiations. In the union s view this meant that the grandfathered employees (i.e., all those employees eligible for the benefits as at May 11, 2000) would receive any improvements negotiated by CUPE Local 79. The arbitrator sided with the union. He noted that the entitlement to benefit improvements for retirees existed at the time that the parties agreed to the Note and that they effectively incorporated it into their collective agreement. Thus the grievance was allowed.