Employers seeking to unilaterally alter, reduce or terminate retiree health and welfare benefits must ensure they have a clear contractual right to do so before proceeding. In a recent decision of the Ontario Superior Court, GM Canada discovered to its detriment that it lacked the contractual right to reduce core retiree benefits, and was ordered to reinstate those benefits and reimburse affected retirees. This decision is similar to and relies upon a 2012 decision of the British Columbia Supreme Court discussed in an earlier article and recently affirmed by the BC Court of Appeal.
When GM decided to reduce costs by unilaterally reducing life insurance and healthcare benefits for retirees, it thought the law was in its corner. Benefit booklets distributed to employees reserved to GM the right to amend, suspend or terminate any benefit program at any time. As a result, GM severely reduced life insurance coverage, increased prescription drug co-payments, eliminated semi-private hospital coverage and cut maximum dental coverage. Affected retirees brought a class action lawsuit against GM and successfully argued that, with the exception of certain additional executive benefits, GM did not have the contractual right to reduce health and welfare benefits available to retirees.
Of particular interest in this decision is the fact that the plaintiff class comprised two groups of retirees; one composed of former salaried employees and the other former GM executives. The salaried employees were successful while the executives, who were seeking to reinstate additional benefits (beyond the core benefits enjoyed by all retirees) were not. Employers can learn much from this distinction.
In reaching his decision, the judge reviewed over 260 booklets, brochures and information circulars distributed to GM employees over the years. While some contained the disclaimers noted above, the judge held that the documents were vague about GM’s right to alter core benefits after retirement and, taken as a whole, created a reasonable expectation that those benefits would remain available to retirees for life. However, with respect to the additional benefits granted to GM executives, the judge concluded that GM had consistently maintained clear and unambiguous disclaimer language. Therefore, he concluded GM had a right to alter the additional benefits promised to the executives, even after their retirement. In fact, retiring executives were required to acknowledge in writing that the additional benefits granted to them were not guaranteed and could be reduced or eliminated even after retirement.
We recommend that employers seeking to alter, reduce or terminate retiree health and welfare benefits review all relevant communications and objectively assess whether the applicable contractual language is clear and unambiguous. It is equally important for employers establishing new health and welfare benefit programs for employees to ensure that their employee communications clearly and unambiguously reserve the right to alter, reduce or terminate the benefits in the future, both during employment and following retirement.
A GM spokesperson has indicated that the company plans to appeal the Court’s decision.