The Reduction of Retirement Benefits and the Rise of Class Action Lawsuits

January 24, 2014

It is no secret – many employers are looking for ways to keep up with the mounting expense of post-retirement benefits. As a result, some employers may attempt to unilaterally amend or terminate benefits to their retirees, relying on “reservation of rights clauses” commonly found in employment contracts (e.g. the employer reserves the right to amend, modify, suspend or terminate any of the benefit programs at any time).

Recently, a number of class action law suits have been won by pensioners who fought to maintain the benefits they had been receiving since retirement: see, for example, O’Neill v. General Motors of Canada Ltd. 2013 ONSC 924 and Lacey v. Weyerhaeuser Co., 2012 BCSC 353. The courts in such cases have decided, even in spite of “reservation of rights clauses,” that employers are not permitted to reduce or terminate benefits if employees had a reasonable expectation that benefits would continue post-retirement and would be provided for life.

In a recent decision, Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1, the Supreme Court of Canada upheld the Quebec Court of Appeal ruling which granted all beneficiaries of the benefits plan the right to form a class against their former employer, Seagram Ltd., which was acquired by Vivendi Canada Inc. in 2001. In this case, Vivendi unilaterally reduced a benefits plan for retirees of Seagram’s.

As a result, a group of retirees that worked for Seagram’s in six different provinces during different decades put forth a motion for authorization of the class to contest the benefits plan amendment. At trial, the Superior Court dismissed the motion on the basis that the claims of all the members of the proposed group did not raise questions that were identical, similar or related, given that there were different rules governing each member’s right to benefits. However, the Court of Appeal and Supreme Court of Canada found common questions in the claims of the members of the proposed group with respect to the legality or the validity of the benefits plan amendment.

It was acknowledged by the Supreme Court that the Quebec approach to authorization of a class action is more flexible than the one taken in the common law provinces, although the court went on to say that the latter provinces do generally subscribe to an interpretation of “common issue” that is favourable to the class action.

In light of recent class action cases, an aging population and lengthened life expectancies, it is likely that employers will face future challenges when reducing benefit plans for existing retirees. It is important for employers to remember that despite reserving the right to amend or terminate benefits for retirees, the courts will consider all communications regarding post-retirement benefits, and whether the employee formed a reasonable expectation that benefits would be provided for life.

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