Court Response to Modification of Retiree Benefits: What don't you understand about a deal is a deal is a deal?
The recent decision of the Supreme Court of British Columbia in Lacey v. Weyerhaeuser Company Limited, 2012 BCSC 353 found that employers do not have the right to change the terms of promised retiree benefits once an employee retires.
The five plaintiffs in this case were retirees of Weyerhaeuser and its predecessor, MacMillan Bloedel. The terms of their employment included the right to retiree health benefits and for it to be fully paid for by the company. The plaintiffs all retired between 1991 and 2000. The company later on January 1, 2010 stated that it was reducing its health benefit contributions from 100% to 50% and that retirees would be responsible for future cost increases. The plaintiffs subsequently sued for breach of contract.
The British Columbia Supreme Court, in reviewing the facts of the case, held that the evidence demonstrated on balance that the company promised to provide lifetime retiree health benefits to be fully paid for by the company. The court also found that there was no documentation stating that the company reserved the right to make changes to the benefits.
The court held that, based on the descriptions of the benefits in the employee booklets and as communicated in the employee seminars, the employees would have understood the benefits to be lifetime benefits. The court further held that the benefits were a form of compensation, rather than a gratuitous payment. To this end, the court specifically stated the following:
“The objective evidence leads me to conclude that the retirement health benefits were intended as a form of deferred compensation, that the offer to continue to provide those benefits was a term of a contract between MB and its employees, and that as such it is enforceable.”
The court also found that the company had agreed to provide retiree benefits in full without any co-payment by the retirees and that the obligation extended to providing the same health care benefits as were available at the time of their retirement.
Although, the company did have language within its 1994 brochure giving it the right to “make changes from time to time”, the court deemed that this was too vague and, accordingly, it did not apply to those who were already retired. In making this finding, the court stated the following,
“…[I]t would reasonably have been within the contemplation of both MP and its employees that retirees had a particular need for security; that persons on a fixed income would have a particular desire for certainty and predictability. Therefore a more restricted interpretation of the reservation of a right to make changes, as affecting only current employees, would be at least as reasonable as the broader interpretation.”
The court further held that employees’ rights to benefits vested upon retirement. In making this finding, the court rejected case law from the United States which supported the principle that the non-vesting of retirement benefits. The court specifically found that the United States legislation was not applicable as it was based on unique statutory framework not applicable in the Canadian context.
Why does this case matter?
The case is highly informative in several specific ways, including the following:
(i) Courts are willing to wade through significant documentation in order to determine what promises it believes an employer has made to an employees and, accordingly, what obligations are owed;
(ii) Courts will interpret retiree benefits as “deferred compensation” unless the employer clearly stipulates that its provision is gratuitous;
(iii) Where retiree benefits are found to be deferred compensation, the right to such benefits will have been found to have been vested;
(iv) Any contractual ambiguity will likely be interpreted in the favour of a retiree; and
(v) An employer may reserve the right to modify the provision of benefits, but this must be made in a clear and unambiguous manner.
For further information, please view Heenan Blaikie 's Pension Pulse.