The British Columbia Court of Appeal has affirmed a decision of the Supreme Court which found an employer to be in breach of contract after it unilaterally reduced its contribution to premiums for lifetime benefits previously provided to retirees.

Five retirees sued for breach of contract after the Employer unilaterally reduced its contribution to the cost of premiums for lifetime retirement medical benefits from 100% to 50%. The trial judge found that while the Employer’s payment of the premiums was initially a gratuitous or discretionary benefit, since 1985 the payment was intended as a contractual form of deferred compensation. The Court noted that Canadian courts have made clear that a right to deferred compensation upon retirement under a common law contract of employment is one which vests and, thus, cannot be unilaterally modified. The retirees were awarded damages in the amounts each had contributed to the premiums as a result of the breach. The Employer appealed.

The Court of Appeal unanimously held that the trial judge did not err when he found that the Employer had an ongoing contractual obligation to pay 100% of the premiums.

Employers may mistakenly believe that retiree benefits are provided gratuitously and can be unilaterally reduced or eliminated at any time. To avoid having to provide these benefits for the rest of the retirees’ lives, employers should ensure that communications about these benefits make clear that they are entirely discretionary and they do not constitute a contractual right to deferred compensation.

Lacey v. Weyerhaeuser Company Limited, 2013 BCCA 252