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

Transcription

1 Volume 21, No. 2 - May 2012 Pensions and Benefits Section CASE LAW UPDATE Prepared by Lesha Van Der Bij and Julien Ranger-Musiol of Osler, Hoskin & Harcourt LLP Lacroix v. Canada Mortgage and Housing Corporation, [2012] ONCA 243 (Ont. C.A.) - Claims to Partial Wind Up and Surplus Dismissed Between 1995 and 2000 Canada Mortgage and Housing Corporation (CMHC) laid off half of its workforce. A number of the laid-off employees elected to transfer the commuted value of their pension benefits out of the CMHC pension plan. A few years after CMHC began to reduce its workforce, it decided to use part of the surplus in its pension plan to enhance the benefits of plan members. CMHC gave two benefit enhancement packages, the first at the beginning of 1999, and the second at the beginning of The employees who had elected to take out the commuted value of their benefits were not eligible for these enhanced benefits. Lacroix and Ladouceur represent a group of former CMHC employees who did not receive either package of benefit enhancements. Initially, they claimed that CMHC committed a breach of trust and breach of fiduciary duty by depriving them of these benefit enhancements. Common issues relating to their benefit enhancement claim have already been certified. McCann and Guffie represent a group of former employees who received the first benefit enhancement package, but not the second package. Their action has not been certified as a class action. Each set of plaintiffs brought motions before the Ontario Superior Court to certify common issues relating to their claim that CMHC contravened the conflict of interest provisions of the federal Pension Benefits Standard Act (PBSA) by failing to partially terminate its pension plan. The plaintiffs asked the Court to order a partial termination or damages based on a partial termination. These claims were denied by the motions judge, and an appeal to the Ontario Divisional Court was dismissed. The plaintiffs appealed again to the Ontario Court of Appeal. Appeal dismissed. The Court of Appeal began by reviewing the plan termination provisions in the PBSA and noted that they give the Superintendent and the plan administrator (subject to the

2 - 2 - supervision of the Superintendent) the right to initiate a plan termination. There was no provision, however, giving the courts such a right. The Court of Appeal went on to reject the argument that it could simply award the plaintiffs damages in the form of a pro rata share of the surplus, agreeing with the Divisional Court s finding that a court does not have jurisdiction to grant damages based upon the hypothetical distribution of surplus on wind up following a partial termination of the pension plan. The Court also disagreed that by enhancing the members benefits, CMHC had basically done a backdoor partial termination. Having found that it could not order a partial termination, the Court of Appeal also rejected the plaintiffs argument that it should simply certify the breach of the PBSA as a common issue, and leave it to the trial judge to determine the appropriate order. Imperial Oil Ltd. v. Superintended of Financial Services, [2011]; [2012] FST File No. P (F.S.T.) Single Member Granted Party Status, but No Partial Wind Up Ordered Imperial Oil Limited moved its corporate head office and certain other functions from its premises in Toronto, Ontario to Calgary, Alberta, resulting in a number of employees no longer being employed by Imperial Oil. The Superintendent issued two Notices of Proposal to order the partial wind up of the pension plan under section 69(1)(d)(e) of the Ontario Pension Benefits Act (the Ontario PBA) in relation to those members who ceased to be employed at Imperial Oil s Toronto location. Imperial Oil and the affected members reached a settlement, which was approved by the Financial Services Tribunal on December 8, At the same time, the Tribunal ordered the Superintendent to refrain from carrying out the Notices of Proposal. Three members did not agree to the settlement, and the Superintendent issued a Notice of Intended Decision (NOID) to partially wind up the plan in relation to these outstanding members. Imperial Oil subsequently reached a settlement with two of the three remaining members, and sent a cheque to the third member, Ms Hnyp, representing the minimum amount payable under the settlement, which exceeded the total grow-in amount to which she would be entitled if a partial wind up were ordered. The Superintendent notified Hnyp that it would withdraw the NOID. Hnyp filed an application for party status, and indicated that she was seeking: (i) her grow-in benefits to be added to her accrued pension in the plan (an additional $4 per month); (ii) the partial wind up to be pursued to benefit the members who settled; and (iii) due process to be observed and to have a partial wind up ordered. The Tribunal granted Hnyp party status subject to certain conditions. It then went on to consider whether the Superintendent could withdraw the NOID in light of Hnyp s party status. The Tribunal concluded that while the Superintendent has the discretion to change his position or to take no position at all, after issuing the NOID the Superintendent generally does not have the authority to amend or withdraw it except to the extent that all affected parties agreed to a settlement as it affects them, that is implemented in part by withdrawing the NOID and except in such circumstances as the Tribunal orders or directs

3 - 3 - in accordance with subsection 89(9) of the [Ontario PBA]. The Tribunal was of the view that it should not grant such an order at this stage of the proceeding. As a result, the Tribunal ordered the proceeding to go forth in accordance with the following two stage process: (i) at stage one the Tribunal will decide if it is prepared to exercise its discretion to order a partial wind up with respect to Hnyp s interest in the plan; and (ii) at stage two, which would proceed only if the Tribunal is prepared to exercise its discretion to order a partial plan wind up at stage one, the Tribunal will decide whether conditions to order such a partial plan wind up exist under section 69(1)(d)(e) of the Ontario PBA. In a subsequent decision, the Tribunal decided not to exercise its discretion to order a partial wind up of the plan with respect to Hnyp s interest. The Tribunal was satisfied that Hnyp had been offered the equivalent value of any additional benefits she would have received if a partial wind up had been ordered. Further, the Tribunal agreed with the Superintendent that the term benefit in the Ontario PBA appears to mean an amount and not a transfer right. The Tribunal also made note of the Superintendent s assertion that he would not have issued the NOID if the current circumstances existed. Bennett v. British Columbia, [2012] BCCA 115 (B.C.C.A.) Changes to Retiree Benefits Permissible The Province of British Columbia paid 100% of the premiums for medical services and extended health benefits for both unionized and non-unionized retirees of the Province and various Crown corporations (the Retirees). Effective January 1, 2003, the Province no longer paid for the retiree benefits in full and, as a result, there was some reduction in retiree benefits. The Retirees commenced a class action, alleging that this reduction constituted a breach of contract and a breach of fiduciary duty. In 2007, the British Columbia Court of Appeal confirmed that a class proceeding was the preferable method for hearing the dispute, and determined which Retirees should be included in the class. In particular, the Court of Appeal held that only those class members who were directly employed by the Province (the Province Retirees) could participate in the claim for breach of contract, thereby excluding all class members who were employed by Crown corporations. All of the Retirees could, however, be included in the claim for breach of fiduciary duty. The British Columbia Supreme Court then considered the Province Retirees claim for breach of contract and the Retirees claim for breach of fiduciary duty on the merits, and dismissed all of the claims. With respect to the claim for breach of contract, the trial judge first rejected the Province Retirees argument that information regarding retiree benefits in retirement letters, brochures, information sheets, booklets, retirement application and notice forms, and presented at retirement seminars constituted written and verbal manifestations of the employment agreement. Next, the trial judge considered the provisions of the benefit and medical plans, which were contained in legislation and regulations, and concluded that such programs were never guaranteed, as they left a considerable amount of discretion in the hands of the Province. Based on the forgoing,

4 - 4 - the trial judge concluded that the retirement benefits were neither vested contractual rights nor vested statutory benefits. The Province Retirees appealed the trial judge s decision regarding the breach of contract claim to the B.C. Court of Appeal. The appeal was dismissed. The Court of Appeal agreed with the trial judge s findings regarding the character of the Province s post-retirement benefit communications. For example, the Court of Appeal noted that the communications were made to retired and about-to-be retired employees (rather than new hires) and this formed the basis of the trial judge s conclusion that they were not promises and that, if they were promises, no consideration was given for them. As a result, the Court agreed that there was no breach of contract, finding these statements were descriptive of the benefits available at the time and were not promises that the respondent would pay the premiums for the subclass members in the future. Turning to the Province Retirees argument that they had a vested statutory right, the Court of Appeal held that this question was not certified as a common issue. Nonetheless, the Court reviewed the trial judge s analysis of this issue and again agreed with her conclusions. Thus, the Court of Appeal held that there were no vested statutory rights. Dell Aniello v. Vivendi Canada Inc., [2010] QCCS 3416 (Que. C.S.); [2012] QCCA 384 (Que. C.A.) Post Retirement Benefits Class Action Certified In 1977, The Seagram Company Ltd. (Seagram) decided to provide its salaried employees and executives across Canada with post-retirement health insurance coverage. Various employee communications were issued between 1977 and 2003 to outline the terms and conditions of the insurance coverage. As a result of some transactions in the early 2000s, Vivendi Canada Inc. (Vivendi) became the successor of Seagram and became responsible for the insurance coverage for the former Seagram employees. Effective January 1, 2009, Vivendi announced certain changes to the coverage (including an increase of deductibles and the imposition of a $15,000 lifetime cap). Dell Aniello, a retired Seagram executive, claimed that the changes were not permitted because they amounted to a modification of the retirees vested rights to which they had not consented. He commenced a class action seeking a declaration that the amendments were null and claiming damages for the additional expenses incurred since January 1, Vivendi sought to have the action dismissed mainly on the basis that it did not meet the common issues test under section 1003 a) of the Civil Code of Procedure. The Quebec Superior Court accepted Vivendi s argument that a class action was not the appropriate procedural vehicle in this case in light of the important issues that would have required an individualized analysis for each member of the proposed class. The Superior Court s decision was appealed to the Quebec Court of Appeal, which allowed the appeal and certified the action.

5 - 5 - The Court of Appeal concluded that the trial judge, after setting out the applicable legal framework for amending/terminating post-retirement benefits (i.e., the Dayco analysis), actually applied that framework to the facts of the case. In doing so, he ended up deciding the case on the merits at the certification stage. Fredericton Police Association, Local 911 v. Fredericton (City), 2011 CanLII (N.B.L.E.B.) Unilateral Change to Pensionable Earnings Interferes with Union s Representation Rights In response to a funding deficit in the City of Fredericton s pension plan, the City indicated it would amend the plan to increase employer and employee contributions, revise the indexation formula, and change the definition of pensionable earnings to exclude overtime and non-regular earnings. As overtime regularly comprised approximately 10-15% over and above police employees regular income, it became the most contentious issue. The police union served notice to bargain on the City, and stated that it considered the proposed plan amendments unilateral changes in violation of the New Brunswick Industrial Relations Act (the IRA). The City subsequently amended the plan and pointed to the plan s amending power in support of its authority to do so. The union filed an unfair labour practice complaint with the New Brunswick Labour and Employment Board. Complaint allowed in part. The Board reviewed the IRA and held that its no interference provisions in conjunction with the good faith bargaining provisions, prohibit an employer from acting in a way that interferes with a union s statutory right to act as an exclusive bargaining agent for employees for which it is certified, and on whose behalf it has given a bargaining notice. With this in mind, the Board found that while the changes to the plan s contribution and indexation provisions did not threaten the union s existence or indicate an intent to bargain in bad faith, the removal of overtime from pensionable earnings did constitute an interference with the union s representation rights. The Board ordered the City to cease its violation of the no interference provisions in the IRA, and directed the City to meet with the union to discuss the change adopted in the pensionable earnings definition of the pension plan. However, finding no motive or intent by the City to hinder the union s ability to represent employees, the Board dismissed the bad faith complaint. Lacey v. Weyerhaeuser Company Ltd., 2012 BCSC 353 (B.C.S.C.) Retirees Entitled to Post-Retirement Benefits Employees of Weyerhaeuser Company Limited or its predecessor company, MacMillan Bloedel Limited (MB), who retired between 1991 and 2000 were entitled to retirement health benefits at the sole expense of the employer. These insurance benefits were not bargained for, but were introduced voluntarily by MB. The benefits were described in various publications provided to MB s employees over the years, and were discussed with employees in seminars held by the company s human resources staff. As of January 1, 2010, the employer unilaterally reduced its contribution to the cost of this coverage by 50%, and announced that the retirees would be responsible for bearing any future cost

6 - 6 - increases. The former employees commenced an action, arguing that their right to retiree benefits had vested and that the employer had breached a contractual right. Action allowed. Since the employees did not have written employment contracts, the B.C. Supreme Court began by reviewing the parties conduct to determine whether benefits were gratuitous or provided as part of the salaried employees compensation packages. For example, the Court reviewed internal memoranda, a request for an advance ruling from the Department of National Revenue, employee booklets, accounting records and Human Resources committee documents. With respect to the employee communications, the Court held that three aspects were of particular significance: (i) references to extended health insurance being provided for the lifetime of the retiree and his or her spouse; (ii) explicit statements that the benefits provided to employees were a form of compensation ; (iii) references such as it is in your interests to know what you are entitled to, implying that benefit coverage was not a gratuitous benefit, but an entitlement. Further, the Court noted that MB decided to provide a benefits package which compared favourably to that offered by its competitors. In addition, the Court noted the significance of MB s move to accrual accounting of the benefits in the early 1990s, in accordance with Financial Accounting Standard (FAS) 106. The Court also noted that the fact that the retirement medical benefits were initially offered unilaterally, and were not bargained for, was of no assistance to the employer. Concluding that the retirement health benefits were intended as a form of deferred compensation, the Court then found that MB had contracted with its employees to provide extended health care benefits to retirees and their spouses at its sole cost, for life. The Court did note that MB had reserved a right to make changes from time to time to the benefit program in an employee communication binder, but held (among other things) that it did not include a right to change the terms of a retiree s coverage after the date of retirement. Turning to the issue of whether the retiree health benefits had vested, the Court held that it is clear in Canadian law that a right under a common law contract of employment to deferred compensation upon retirement is one which vests. As a result, the Court concluded that the plaintiffs were entitled to the extended health benefits available to retirees and their dependants as of the date of their retirement, without alteration of the scope of coverage, coverage limits or deductibles, all at the defendant s continuing expense. Telecommunication Employees Association of Manitoba Inc. v. Manitoba Telecom Services Inc., [2012] MBCA 13 (Man. C.A.) Employees Not Entitled to Initial Surplus in Plan As a result of the privatization of Manitoba Telephone System (MTS) and its subsidiaries, the MTS employees/retirees were required to change pension plans. After the employees/retirees raised concerns, they were assured by the Government of

7 - 7 - Manitoba and by MTS that the new pension plan to the extent possible would mirror the old plan and the benefits under the new plan would be equivalent in value. In addition, as the employees/retirees were transferring more assets into the new plan than was MTS, they were promised in a Memorandum of Agreement (MOA) that this initial surplus would be used for their benefit (e.g., future cost of living adjustments (COLA)). MTS ended up taking a contribution holiday with respect to the new plan. The employees/retirees claimed that none of MTS assurances were met and commenced an action seeking redress. Specifically, they sought: (i) a payment of $ million plus interest (which represents the initial surplus) to be used to enhance pension benefits; (ii) a separate accounting for the COLA account; (iii) a declaration that the opinion of the independent actuary retained by the Provincial Auditor on equivalency is invalid and of no force and effect; and (iv) a declaration that the new plan is to be governed on the basis of consensus through the operation of a two-thirds vote of the Pension Committee with respect to all changes to the plan that would impact on benefits. The action was allowed in part with the trial judge finding that the initial surplus should be used to enhance benefits and the opinion of the independent actuary was invalid and of no force or effect. However, the trial judge dismissed the employees claims for relief in respect of governance and their claim to entitlement to share in ongoing surpluses under the new plan. MTS appealed the judgment against it for $ million plus interest and the employees cross-appealed the trial judge s findings with respect to the amount of the initial surplus and the governance issue. The appeal was allowed and the cross-appeal dismissed. The Manitoba Court of Appeal began by finding that while the trial judge correctly exercised his discretion to substitute his decision for that of the independent actuary, he erred in his interpretation as to the meaning of benefits under The Manitoba Telephone System Reorganization and Consequential Amendments Act (the Reorg Act) as a part of his analysis of equivalent in value. Specifically, the Court held that the trial judge s conclusion that the term benefits was intended to include issues of surplus was incorrect. Benefits under the Reorg Act, which were to be equivalent in value to the pension benefits under the old plan, were to be the pension benefits as that term was defined under the old plan, namely, the aggregate monthly or other periodic payments of superannuation allowance to which an employee is or may become entitled under the [old plan] upon retirement. The Court of Appeal then considered the nature of actuarial surplus and found that the initial surplus was simply an actuarial surplus to which neither the employees nor MTS had any legal entitlement. The Court then considered whether the MOA displaced these common law principles. The Court of Appeal found that while the MOA imposed obligations upon MTS with respect to the initial surplus beyond that which existed under the old plan or pursuant to common law principles, it did not unconditionally mandate enhancement of the employees pension benefits by use of the initial surplus. Rather, it required only that the

8 - 8 - Initial Surplus be used to fund future guaranteed COLA and if the state of the COLA account in any particular year was able to fund a higher increase, then a higher increase, or enhancement, would be given for that year. The Court went on to note that MTS was permitted to take the contribution holidays and, further, in the years when MTS took contribution holidays, it still notionally credited the account established for the COLA with the required employee and employer contributions. As a result, regardless of the taking of contribution holidays, MTS was obligated to pay and the Employees were to receive and have received the pension benefits to which they are entitled under the terms of the New Plan. Thus, the Court concluded that there was no breach of the MOA and, as a result, there was no obligation upon MTS to pay the sum of $ million plus interest to the employees. Timminco Limited (Re), [2012] ONSC 506 (Ont. Sup. Ct.) CCAA Charges Granted Super Priority Timminco Limited and Bécancour Silicon Inc. (collectively, the Timminco Entities) applied for and obtained relief under the Companies Creditors Arrangement Act (the CCAA). The Timminco Entities sponsored two defined benefit (DB) plans and a hybrid DB/defined contribution (DC) plan, all of which were underfunded and one of which was already wound up. The Timminco Entities brought a motion for an order (among other things): (i) suspending the Timminco Entities obligations to make special payments with respect to the pension plans; and (ii) granting super priority to the administration charge and the directors and officers (D&O) charge. The Timminco Entities argued that they could only pay: (i) the contributions in respect of normal cost; (ii) contributions to the DC plan; and (iii) employee contributions deducted from pay. The Ontario Superior Court began by finding that the Timminco Entities were insolvent and simply did not have sufficient reserves to make the special payments to the pension plans. The Court then agreed with the Timminco Entities that a CCAA court has the ability to override conflicting provisions of provincial statutes, such as the deemed trust provisions in the Ontario PBA, where the application of the provincial legislation would frustrate the company s ability to restructure, and that this proposition regarding paramountcy was confirmed by the Ontario Court of Appeal in Indalex. Further, the Court held that the employees and former employees would not be prejudiced by the suspension of special payments since a bankruptcy would not produce a better result for them. With respect to the super priority request, the Court noted that it was not reasonable to expect professionals to risk not being paid for their services and directors and officers to remain without the requested protection. Without such persons bankruptcy would result, leaving pensioners and employees worse off. As a result, the Court granted the super priority to both the administration charge and D&O charge, and suspended the Timminco Entities obligations to make special payments to the pension plans.

9 - 9 - Timminco Limited (Re), [2012] ONSC 948 (Ont. Sup. Ct.) DIP Lender Granted Super Priority The Timminco Entitites brought another motion for an order approving the DIP facility and granting a priority charge on the current and future assets, undertakings and properties of the Timminco Entities in favour of the DIP lender. The DIP agreement specified that DIP advances could not be used to make special payments in respect of the pension plans. The motion was opposed by the unions representing the Timminco Entities employees, which argued that the Timminco Entities had failed to consider their fiduciary obligations or consider the best interests of the plan members or beneficiaries, including when they negotiated the DIP agreement. Motion granted. The Court noted, among other factors, that the secured creditors and the monitor generally supported the requested relief and without the approval of the DIP Facility and the granting of the DIP Charge, there simply will be no money available. Further, the priority charge requested and the terms of the DIP agreements were necessary under the circumstances. The Court went on to find that it was necessary to invoke the doctrine of paramountcy such that the provisions of the CCAA override those of the Quebec and Ontario pension legislation. As a result, the Court approved the DIP facility, and granted the priority charge over all other security interests, trusts, liens, charges and encumbrances, statutory or otherwise, including over any deemed trust created under the pension legislation.