On June 21, 2011, in Canadian Jewish Congress v. Polger, the Court of Appeal of Québec overturned a decision of the Superior Court that had ordered an employer to pay pension benefits based only on an alleged practice and without proper written documentation to that effect.  The pension benefits in this case were deemed to be gratuitous payments only, not required to be paid to all departing employees by virtue of policy or practice.

The Facts

Polger and Smajovits had worked for the Canadian Jewish Congress for 36 and 22 years respectively when they were dismissed following a reorganization.  Not surprisingly, they sued for termination pay.  They included in their action a claim for supplemental pension benefits that they said were not provided in their defined contribution pension plan.

Polger and Smajovits argued that the employer had an unwritten policy of supplementing its employees' pension plan either by making special contributions to their pension fund or by paying them additional pensions upon retirement.  They argued that the policy flowed from a long-standing practice which resulted in a hybrid pension plan - allowing retiring employees who were the beneficiaries of a defined contribution plan to receive a supplementary pension for a total annual pension amounting to 2% of their average annual salary over the last five years of service for each year of service.  These were the supplementary benefits they argued they were entitled to.

The Trial Judge Decision

The trial judge agreed.  The judge said the employer's practice of pension enhancement became binding upon termination.  On that basis, the judge order the employer to pay Polger and Smajovits $2,030 per month and $4,582 per month respectively, for the rest of their lives – amounting to potentially millions of dollars.

The Court of Appeal Decision

The employer appealed.  The Court of Appeal agreed with the employer and overturned the trial decision. In doing so, the Court of Appeal did not agree that the evidence supported there being a binding policy or practice that would warrant the payment of pensions calculated according to the defined benefit "2% formula".  In the view of the Court of Appeal, all that the evidence showed was that gratuitous payments in a variety of forms were made over the years to a certain number of employees upon request only and following a decision by the Board of Directors or by management on a case by case basis.  There was no general, uniform and established practice of granting employees additional pension advantages.  Certainly, the evidence did not establish that the employer ever agreed, directly or indirectly, to transform the defined contribution pension plan offered to its Quebec employees into a defined benefit pension plan or to remedy, systematically, its perceived inadequacies.

Employers Must Nevertheless Protect Themselves

Although the Court of Appeal's decision comes as a relief to employers who may on a case by case basis offer more generous benefits to certain employees, employers must protect themselves when they do so.  In such cases, employers across the country must make it clear that such benefits are paid on a gratuitous basis only and not commit themselves to providing those benefits in the future.