Experience Notable Cases Employer should not have slashed post-retirement benefits, Court holds

Employer should not have slashed post-retirement benefits, Court holds

July 17, 2013

Class action challenging the reduction and elimination of post-retirement benefits succeeds!

In O’Neill v. General Motors of Canada, the Ontario Superior Court of Justice held that an employer should not have cut retirees’ post-retirement benefits.

Background

This class action was commenced on behalf of salaried and executive retirees of General Motors of Canada Ltd. (GMCL) arising out of the reductions and eliminations to their post-retirement benefits over 2008-2010. The class action was certified on consent in 2011 and the case proceeded to a motion for summary judgment on the issue of whether GMCL breached its contracts with the class members in reducing/eliminating their benefits.

The initial representative plaintiff, Joseph O’Neill, worked for GMCL for more than 40 years. Lynn McCullough, who became the representative plaintiff in 2012 after Mr. O’Neill passed away, worked for GMCL for 44 years. GMCL promised to provide the former salaried employees with post-retirement benefits, including healthcare and life insurance, in various documents provided to them over their careers.

In 1994, GMCL began including a “reservation of rights” clause in its benefits documents, which it claimed allowed it to “amend, modify, suspend or terminate any of its programs (including benefits).” Over 2008-2010, GMCL implemented a number of reductions to the post-retirement benefits, including the elimination of semi-private hospital coverage and a severe reduction in the amount of the basic group life insurance benefit. Some class members lost over $100,000 in life insurance coverage as a result of the reductions.

The Court’s decision

The court agreed with the plaintiffs that the benefits were provided to employees as a matter of contract and as “deferred compensation” for their service to GMCL. The court further found that former salaried employees would reasonably expect that the benefits provided to them were secure and would continue for life, based on the promises in the booklets. In this context, the court found that the “reservation of rights” clause language was not sufficiently clear to permit GMCL to reduce the benefits after retirement, and that more explicitly language alerting employees to the possibility of reductions after retirement was required. Such language was not included in the benefits booklets until 2012, when GMCL amended the reservation of rights clause to specifically provide that benefits could be reduced “at any time, including after employees’ retirements.”

One third of the class retired early pursuant to early retirement agreements. The court agreed with the plaintiff that nothing in these agreements altered GMCL’s obligation to continue to provide post-retirement benefits, and found that GMCL breached the contracts of the early retirees when it reduced and eliminated their benefits.

With respect to the executive retirees, the court found that the language in their benefits documents was different and sufficiently clear in conveying that the benefits were not guaranteed and were subject to reduction. Accordingly, the court found that GMCL could lawfully reduce their benefits after they had retired and had not breached their contracts of employment in doing so.

The Court was not asked at this stage of the proceedings to address the question of how each of the successful retirees should be compensated.

GM stated that it intended to appeal the judgment, but the parties subsequently settled the class action.

Read the decision.