The ongoing economic uncertainty has forced many employers to consider various costs saving measures, including changes to employee retirement income arrangements. In the unionized context, such changes may prove more difficult to implement, in addition to the plan and legislative/regulatory requirements, which pose their own challenges. This is especially the case where a retirement benefit program is expressly incorporated into a collective agreement.

Whether an employer can unilaterally amend the terms of a program that is expressly incorporated in a collective agreement will depend on both the plan text and the terms of the collective agreement. For instance, a collective agreement may contain a specific provision prohibiting the employer from altering or discontinuing certain benefits without the union’s consent. In such instances where the union’s consent is required, and the union does not provide it, the contemplated change will have to be negotiated at the next round of collective bargaining.

On the other hand, some collective agreements may explicitly or implicitly recognize an employer’s right to alter retirement benefits. This was held to be the case in St. Marys Cement and United Steelworkers, Local 9235.1 In this case, the grievance concerned the unilateral conversion by the employer of the pension plan from a defined benefit to a defined contribution plan. In dismissing the grievance, the arbitrator held that the Collective Agreement between St. Marys Cement and the United Steelworkers incorporated a pension plan that gave the Company the unilateral right to change the plan in whole or in part at any time and, indeed, to discontinue the plan altogether.

The pertinent facts of the case were as follows. In July 2008, the Company advised the Union of its intent to freeze the defined benefit plan at the end of 2008, and convert the employee pension plan to a defined contribution plan. The Company personnel met with Union representatives and members of the Pension Committee, outlined the changes, and made a presentation on the practical effects of the proposed changes. Further, on July 31, 2008, representatives from Manulife had two meetings with employees at the Company to outline and explain the pension plan changes. A notice regarding the pension change was distributed to all employees by October 8, 2008. On December 31, 2008, the Company froze the defined benefit portion of the pension plan and introduced a defined contribution plan to take effect on January 1, 2009.  

Article 14.01(a) of the Collective Agreement clearly incorporated the pension plan into the Collective Agreement. Further, Article 15.01 of the pension plan expressly stated: “The Company... reserves the right to amend the Plan or discontinue the Plan either in whole or in part at any time”. It is important to note that the parties were in negotiations in July 2008. At that time, the Union was fully aware of the Company’s intention to convert the Pension Plan, and objected to the change. Despite its attempt during bargaining, the Union was unsuccessful in protecting the defined benefit plan. A new Collective Agreement was ratified by the bargaining unit and signed on August 5, 2008. The Articles relevant to the pension plan were unchanged.

At the arbitration, the Union took the position that the incorporation of the pension plan into the Collective Agreement secured the defined benefit promise; and that any substantive change to, or derogation from, that defined benefit promise must be achieved through collective bargaining. The Union argued that, since the pension plan language was unchanged in the 2008 bargaining, the defined benefit plan must continue in effect.

The Company maintained its position that it exercised its right to amend the Plan from a defined benefit plan to a defined contribution plan effective January 1, 2009. It argued that, by so doing, it exercised a management right under both the Collective Agreement and the pension plan.

Arbitrator Ian Hunter agreed with the Company. The Arbitrator reasoned that his duty is to give effect to the Collective Agreement. And, the Collective Agreement, based on his reading of it, explicitly or implicitly recognized the Company’s prerogative to change the pension plan. The Arbitrator further held that the Company gave the Union notice of its intention to make changes to the pension plan at the outset of collective bargaining in 2008, and the Union had every opportunity throughout the bargaining process to achieve its objective (“maintain the status quo”) but failed to do so.

In Arbitrator Hunter’s view, the Union’s position was untenable, as it would require him to read Article 15.01 out of the Collective Agreement. He concluded that did not have jurisdiction to read Articles out of Collective Agreements; certainly not where the Article in question (a) did not conflict with any other part of the Collective Agreement; (b) did not result in manifest absurdity; and (c) was part of the bargain negotiated between the parties.

While the decision in this case is certainly favourable to employers, it is important to keep in mind that, in all cases, an employer’s ability to unilaterally amend a retirement benefit will depend on the specific wording of the collective agreement and plan text.