PARTIAL WIND-UPS

Navistar Canada Inc. v. Ontario (Superintendent of Financial Services), 2014 ONFST 8

Navistar Canada Inc. (Navistar) sponsored the Navistar Canada Inc. Non-Contributory Retirement Plan (the Navistar Plan), a defined benefit pension plan covering former employees who were represented by the Canadian Auto Workers, Locals 35 and 127, and were employed at its Chatham and Burlington, Ontario plants. In 2008, Navistar began developing a reorganization strategy. Over the next several years, multiple rounds of layoffs took place and plant operations were reduced. On July 28, 2011 (the Closure Date), the Chatham plant was permanently closed. A closure agreement was not negotiated.

In March 2013, the Ontario Deputy Superintendent of Financial Services issued a notice of intended decision (NOID) (1) to order that Navistar partially wind-up the Navistar Plan effective July 28, 2011, (2) to include certain members in the wind-up group who had ceased to be employed, whether voluntarily or involuntarily, after June 30, 2009, when the collective agreement expired, and (3) to include in its partial wind-up report the ​full value of certain benefits under the Navistar Plan. Navistar filed a request for a hearing before the Financial Services Tribunal (FST) in respect of the NOID.

With respect to the issue of the scope of the wind-up group, the FST noted that the parties had agreed to July 28, 2011, as the wind-up date for valuation purposes but that “it is necessary to explore whether the related events prior to July 28, 2011 led to a loss of employment by a significant number of Navistar Plan members as a basis for triggering their inclusion in the partial windup group.”

Navistar submitted that the Superintendent of Financial Services (the Superintendent) could not rely on subsections 77.3(1)(a) and (b) of the Pension Benefit Act (Ontario) (PBA) as a basis for ordering a partial wind-up. Under the PBA, the Superintendent may order a partial wind-up under subsection 77.3(1)(a) if a significant number of members cease to be employed as a result of the discontinuance of all or part of the employer’s business or as a result of the reorganization, and may order a partial wind-up under subsection 77.3(1)(b) if all or a significant portion of the employer’s business at a specific location is discontinued. As a result of July 1, 2012, amendments to the PBA, the Superintendent may order a partial wind-up only in respect of events that occurred prior to July 1, 2012.

The FST rejected Navistar’s argument that the Superintendent could not rely on multiple provisions of subsection 77.3(1) of the PBA in ordering a partial wind-up. According to the FST, “there is nothing in the Act or law that prohibits the Superintendent from applying more than one provision of subsection 77.3(1).” In this case, the FST found that the conditions under both subsections 77.3(1)(a) and (b) were met.

Finding that the Closure Date “does not draw a hard line between inclusion ... and exclusion” in the partial wind-up group, the FST ordered that all Navistar Plan members who ceased to be employed after February 1, 2009, were entitled to wind-up benefits. The FST noted that the closure “was simply the final step in the reorganization.” “An employer,” the FST explained, “should not be able to circumvent its partial wind-up obligations simply by staggering its layoffs and announcing closure late in the downsizing process.” Moreover, voluntariness of termination was found to be irrelevant.

The FST rejected Navistar’s attempts to further exclude from the partial wind-up group (1) those members who received severance packages, and (2) those who signed a waiver purportedly disentitling them to wind-up benefits. In rejecting Navistar’s arguments, the FST found that severance benefits are distinct from wind-up benefits and the former cannot be used by employers to offset the latter. It also found that the waiver related only to employment claims and, more significantly, that a member cannot waive entitlement to future wind-up benefits.

Navistar sought to enforce a requirement that Navistar Plan members must have returned to work from sick leave or lay-off in order to receive up to 0.9 years of credited service under the Navistar Plan. The FST found the Navistar Plan terms ambiguous and ordered that Navistar credit affected members accordingly. Finally, the FST ordered that all Navistar Plan members affected by the partial wind-up whose age plus service equals 55 be provided with the special early retirement benefit under the Navistar Plan. According to the FST, such benefit was a consent benefit for which, under the PBA, consent was deemed to have been given on wind-up.

Navistar filed a notice of appeal of this decision on August 11, 2014.

Financial Services Tribunal Decision

LONG-TERM DISABILITY INSURANCE

Industrial Alliance Insurance and Financial Services Inc. v. Brine, 2014 NSSC 219

Bruce Brine was a former police officer, insured under a disability insurance policy (the Policy) with National Life (succeeded by Industrial Alliance). In 1995, Mr. Brine applied for and was approved by National Life for long-term disability benefits. In 1998, National Life ceased making payments of Mr. Brine’s long-term disability benefits on the basis that he had received lump sum payments under both the Canada Pension Plan (CPP) and the Public Service Superannuation Act (PSSA) and that this amount should have been deducted from his disability benefits. In the course of its dealings with Mr. Brine, National Life also implemented and suspended rehabilitation services and issued T4 slips to Mr. Brine, which identified his disability benefits as taxable income, despite contrary decisions by the Tax Court of Canada. Mr. Brine claimed that, by its actions, National Life had breached the terms of the Policy and the duty of utmost good faith owed to him.

The Nova Scotia Supreme Court (NSSC) found that while National Life was entitled to claim a set-off under the terms of the Policy because Mr. Brine had received CPP and PSSA payments, it was not, based on the terms of the Policy, entitled to recoup the overpayment using an upfront, complete “clawback.” Rather, repayment should have been prorated over the life of the Policy.

In addition, the NSSC found that National Life breached its duty of utmost good faith owed to Mr. Brine for a number of reasons, including the following:

  • While National Life was not obligated to rehabilitate Mr. Brine, according to the court, it had an obligation to “manage in good faith the provision of this benefit.” According to the evidence, National Life had acted on “obviously outdated medical information,” did not attempt to collect current information on the advisability of stopping rehabilitation and failed to seek proper clarification following the receipt of a medical report that was specifically requested to consider the advisability of rehabilitation.
  • National Life’s failure to meaningfully address and consider the classification of Mr. Brine’s disability benefits as taxable income despite two decisions of the Tax Court of Canada in which it was held that such benefits should not be considered taxable income.
  • The late disclosure to Mr. Brine of a medical report and inaccurate testimony of a witness at trial.

The NSSC found that Mr. Brine was entitled to damages for breach of contract in the amount of C$62,036.81, mental distress damages caused by breach of contract in the amount of C$30,000, aggravated damages in the amount of C$150,000 and punitive damages in the amount of C$500,000. In awarding C$500,000 for punitive damages, the NSSC noted that “National Life’s conduct went beyond the ordinary misconduct associated with a breach of policy provisions” and, in particular, looked to the vulnerability of Mr. Brine, the “unquestionable need for deterrence” and the quantum of awards in other cases.

Nova Scotia Supreme Court Decision

SEPARATION AGREEMENTS

Tarr Estate v. Tarr, 2014 BCCA 315

This is an appeal of a decision previously summarized in our December 2013 Pensions Newsletter.

Mr. and Ms. Tarr were members of the British Columbia Teachers’ Pension Plan. At the time of his retirement in 2002, the Tarrs were married. As a result, Mr. Tarr elected a joint life pension and designated Ms. Tarr as his beneficiary. In 2007, the parties entered into a separation agreement (the Separation Agreement), stating that each “shall retain for his or her own use absolutely, free of any claim by the other pension and pension rights.” Ms. Gablemann was married to Mr. Tarr when he died in 2010. As executrix of her late husband’s estate, she sought to recover the survivor benefits.

The British Columbia Supreme Court (BCSC) ruled that, based on the Separation Agreement, the parties intended for Mr. Tarr to retain all of his pension rights, and Ms. Tarr was not entitled to the survivor benefits. Ms. Tarr appealed to the British Columbia Court of Appeal (BCCA).

The BCCA found that spouses are granted special statutory protection under the Family Relations Act (British Columbia) and the Pension Benefits Standards Act (British Columbia) (PBSA). Under the PBSA, if a member has a spouse at pension commencement, the spouse is entitled to a joint and survivor pension upon the death of the member unless the spouse has waived the benefit in the prescribed form or as part of a court order or settlement agreement. In order to be effective, the prescribed waiver must be provided to the plan administrator at least 90 days prior to pension commencement and the waiver in a separation agreement must be provided to the plan administrator at any time prior to pension commencement. The Tarrs did not execute a waiver or separation agreement prior to the commencement of Mr. Tarr’s pension.

Because Ms. Tarr was Mr. Tarr’s spouse at the time his pension commenced and she had not waived her entitlement to a survivor benefit prior to the commencement of his pension, the BCCA found that “[a]s far as the PBSA and the pension plan is concerned, Ms. Tarr’s right to the survivorship interest in the member’s pension vested upon commencement of the pension in July 2002.”

Further, the court found that the Separation Agreement, in providing that each party “shall retain for his or her own use absolutely, free of any claim by the other, pension and pension rights”, instead of being a waiver by Ms. Tarr of her vested right, was confirmation that Ms. Tarr would retain her vested right to survivor benefits. The court declined to comment on how a spouse could effectively waive a survivorship interest but suggested that in order to do so, “it must be explicit, and leave no doubt as to what the spouse is relinquishing.”

The BCCA allowed the appeal, ruling that Ms. Tarr was entitled to the survivor benefit.

British Columbia Court of Appeal Decision

RETIREE BENEFITS

SPATEA and MacDonald, Dettwiler and Associates, Inc., 2014 CanLII 41297 (ON LA)

In this grievance, SPATEA (the Union) claimed that a former member, Mr. Dilts, who was laid off before retirement, and other vested members of a pension plan were entitled to post-retirement benefits (PRBs). Mr. Dilts’ employment was terminated by the employer, MacDonald, Dettwiler and Associates, Inc. (MDA), on July 4, 2011, at the age of 54.

A collective agreement negotiated between MDA and the Union in 2009 provided that PRBs would be provided to those who elected to retain the PRBs but was silent regarding eligibility criteria. Mr. Dilts specifically elected to retain PRBs, rather than receiving an incentive for opting out.

Arbitrator Shime first found that, contrary to MDA’s arguments, the representations made by MDA regarding PRBs resulted in the PRBs being part of the “legal matrix associated with or extending the collective agreement” or, alternatively, that PRBs were incorporated by reference into the collective agreement. It would have been unfair for MDA to attract and retain employees by making representations as to the PRB benefits available, if the PRBs could be provided (or not provided) at MDA’s discretion. It was expected that the employees relied on the representations made by MDA regarding the PRBs, in which case MDA could not resile from them.

However, Arbitrator Shime further found that employees needed to be active employees at age 65 or older to be eligible for PRBs, such that Mr. Dilts was not eligible for those benefits. In reaching this conclusion, Arbitrator Shime looked to past documentation regarding the PRBs, including documentation regarding negotiations between MDA and the Union in respect of the eligibility requirements, wherein MDA had consistently maintained that eligibility was only reached at age 65. There was no tangible, credible evidence that MDA had ever changed its position in this respect, while there was evidence that the Union’s attempt to change MDA’s position regarding the 65 years of age eligibility criterion to 55 years of age was withdrawn or aborted.

Arbitrator Shime also considered past practices of MDA in exercising its discretion in limited cases in providing PRBs to employees who had not reached 65 on a “gratuitous” basis. Specifically, Arbitrator Shime looked at a past settlement in respect of a different employee (who was 64 at the time of lay-off) where MDA and the Union agreed to bridge the employee’s employment until he reached age 65 so that he was eligible for PRBs. A former Union president had signed the settlement, which waived “the requirement to terminate active employee benefits at the time of termination and retirement at the age of 65 to be eligible for Post-Retirement Benefits” and specifically stated that the proposed lay-off package was being provided at MDA’s discretion and was to be considered “gratuitous” in nature.

Arbitrator Shime, therefore, found that MDA was required to maintain PRBs for employees who met eligibility requirements, being active employees 65 years of age or older at the time of termination or retirement. MDA maintained discretion to provide PRBs to employees who did not meet the eligibility requirements if it wished to do so.

Labour Arbitration Award

O’Neill v. General Motors of Canada, Settlement Order, 2014 (Ont Sup Ct J)

On August 7, 2014, the Ontario Superior Court of Justice approved a settlement in a class action lawsuit between General Motors of Canada Limited (GMCL) and a group of retired employees (the Class). The action was commenced in May 2010 and certified as a class action proceeding in October 2011. The Class alleged that by reducing and modifying post-retirement benefits, GMCL had breached its contractual fiduciary obligations, was unjustly enriched and had made negligent misrepresentations.

In July 2013, the Ontario Superior Court of Justice found that GMCL was permitted to reduce the retiree benefits for 67 executive employees but was not permitted to reduce the retirement health-care and life insurance benefits for 3,297 salaried employees and surviving spouses who retired after January 1, 1995, but before October 20, 2011. For a summary of that decision, please refer to our July 2013 Blakes Bulletin: Ontario Court Rules on Reducing Retiree Benefits​. Prior to the settlement, both GMCL and the Class had appealed certain aspects of the lower court decision.

PARTICIPATING EMPLOYER WITHDRAWAL FROM MEPP

Louben Sportswear Inc. v. Caisse de retraite des industries de la mode (U.I.O.V.D.) and Conseil des fiduciaires de la Caisse de retraite des industries de la mode (U.I.O.V.D.) (Defendants), and Régie des rentes du Québec (Mise en cause), 2014 QCCS 3260

In this Quebec Superior Court decision, an employer, Louben Sportswear Inc. (Louben), participated in a multi-employer pension plan known as the Caisse de retraite des industries de la mode (U.I.O.V.D.) (the Plan). On May 10, 2010, Louben stopped making contributions to the Plan as it no longer had active employees. However, no application for the registration of an amendment to the Plan was ever filed with the Régie des rentes du Québec (the Régie) in order to effect the withdrawal of Louben as a participating employer as of May 10, 2010, as per the requirements of the Quebec Supplemental Pension Plans Act (SPPA).

The Régie terminated the Plan on December 1, 2012. Upon termination of the Plan, there was a deficit to be paid by the participating employers, of which C$940,480 was claimed from Louben.

Louben contested this payment by alleging that it had not had any employees covered by the Plan since May 10, 2010, and that the calculation of its debt should be made as at the date it withdrew from the Plan, that is, May 10, 2010, and not as at the Plan’s termination date. Louben also sent a demand letter to the Plan on February 12, 2014, asking that the required application for registration of an amendment to the Plan to effect the withdrawal of Louben from the Plan as of May 10, 2010, be filed with the Régie.

Louben later filed an introductory motion in declaratory judgment and injunctive relief seeking a declaration that Louben withdrew from the Plan on May 10, 2010, and ordering the Defendants to file with the Régie the above-mentioned application for the registration of an amendment to the Plan.

The Defendants brought a motion to dismiss Louben’s action. The Quebec Superior Court granted the motion for dismissal on the basis that it was clear and obvious that Louben’s action had no chance of success.

The court explained that the mere fact that Louben ceased to contribute to the Plan on May 10, 2010, did not in and of itself constitute a withdrawal from the Plan. Pursuant to Section 198 of the SPPA, the withdrawal of an employer from a multi-employer pension plan is conditional upon an amendment to the plan that must be authorized by the Régie. The amendment for the withdrawal of an employer must be registered with the Régie and comes into force on the date of its registration, subject to certain exceptions. In addition, Section 207.6 of the SPPA provides that no plan amendment can take place after the termination of the pension plan.

In the present case, any amendment to the Plan would necessarily take place after the Plan’s termination date of December 1, 2012, which is not permitted by Section 207.6 of the SPPA. As a result, the Quebec Superior Court ruled that the Plan could no longer be modified after December 1, 2012, so as to confirm Louben’s withdrawal therefrom, and Louben’s action in declaratory judgment and injunctive relief was thus doomed to fail.

Quebec Superior Court Decision

DETERMINATION OF PENSION ENTITLEMENTS

Eibner v. Manitoba (Superintendent of Pensions), 2014 MBCA 65

Leonard Eibner was a member of The Pension Plan for the Salaried Employees of W.L. Wardrop & Associates Ltd. (the Wardrop Plan) while he was employed by Wardrop between September 1963 and December 1979. When he terminated his employment, Mr. Eibner made an election to withdraw a 25 per cent lump sum payment from his pension and deferred the remaining amount until his retirement in 1991.

Mr. Eibner did not agree with the calculation of his pension and requested an order from the Manitoba Superintendent of Pensions (MB Superintendent) under section 8 of The Pension Benefits Act (Manitoba) (MBPBA). Subsection 8(2) of the MBPBA provides the MB Superintendent with the ability to make an order if, in the MB Superintendent’s opinion, a pension plan is not being administered in conformity with the MBPBA or the regulations thereunder or a person has committed a breach of a provision of the MBPBA or the regulations thereunder.

The MB Superintendent refused Mr. Eibner’s request for an order, noting that determinations of pension entitlements fall under the purview of the plan administrator. Nevertheless, the MB Superintendent’s office reviewed Mr. Eibner’s pension entitlement and concluded that it was properly determined under the terms of the Wardrop Plan.

Mr. Eibner subsequently appealed the MB Superintendent’s decision to the Manitoba Pension Commission (the Commission). The Commission dismissed Mr. Eibner’s appeal, holding that he had failed to establish a prima facie case that there was a violation of the Wardrop Plan provisions.

Mr. Eibner brought a motion for leave to appeal the Commission’s decision. Under subsection 8(11) of the MBPBA, “a person who is a party to a decision of the commission may appeal the decision to the Court of Appeal, with leave of the court, on a question of law or jurisdiction.” In Winnipeg Airports Authority Inc. v. EllisDon Corp., the Manitoba Court of Appeal had confirmed that three criteria must be satisfied in order for leave to appeal to be granted: (1) the leave to appeal can only be granted on a question of law or jurisdiction, (2) the question must be of sufficient importance, and (3) the case must have a reasonable prospect of success.

Before the Manitoba Court of Appeal (MBCA), Mr. Eibner argued that there was a question of law because the issue was one of contractual interpretation. The MB Superintendent argued that there was no question of law raised on appeal but also argued that the appeal was not of sufficient importance and lacked merit. Wardrop argued that the issue did not raise a question of law.

Justice Cameron of the MBCA agreed that the issue of the correct calculation of pension entitlements did not raise a question of law and that “at best, it is a question of mixed fact and law.” Further, Justice Cameron noted that even if the court were to accept Mr. Eibner’s argument that the appeal raised a question of law alone, “leave to appeal should be denied on the basis that the matter does not merit consideration by this court and does not have a reasonable likelihood of success.” Mr. Eibner’s motion for leave to appeal was dismissed.

Manitoba Court of Appeal Decision