Employers Permitted to Reduce Retiree Benefits after Retirement

The Ontario Superior Court has ruled that employers may unilaterally reduce retiree benefits after retirement if there is clear and unambiguous language demonstrating that the employer has reserved the right to do so in its communications with employees (O’Neill v. General Motors of Canada, 2013 ONSC 4654).

In 2007, General Motors began to unilaterally reduce health coverage and life insurance for retired employees. In the O’Neill v General Motors class action, the court examined 260 booklets, brochures and other communications provided to the employees, finding that General Motors had not reserved a right to alter retiree benefits for salaried employees. The salaried employees could reasonably expect that the benefits claimed would not be reduced following retirement, based on the communications from General Motors. Language used by General Motors in its communications attempting to reserve the right to alter benefits had been ambiguous. Ambiguities are to be resolved in favour of the employees.

General Motors was permitted to reduce retiree benefits following retirement for retired employees who had been employed as executives, based on communications that were found to be clear and unambiguous in stating that the retirement fund was unfunded and that benefits were not guaranteed. In addition, retired executive employees were asked to sign a statement providing that benefits under the retirement plan might be reduced or eliminated.

General Motors has announced its intention to appeal the decision as it applied to salaried employees, regarding whom General Motors was not permitted to reduce benefits. We will be watching for further developments in this case, and will update you as they come.

Employers who wish to reserve the right to alter employee benefits following retirement should be aware of the importance of clear and unambiguous drafting of communications with employees. If you require drafting advice, or have any other employment law related concerns, please don’t hesitate to contact Dale & Lessmann LLP.

Blog prepared with assistance of Phaydra Falkner, student-at-law.

Christina J. Wallis is a Partner specializing in Employment Law at Dale & Lessmann LLP, a Toronto, Ontario, Canada, a full service business law firm. To speak to Christina please call 416-369-7832 or send an email message to her at mailto:cwallis@dalelessmann.com.
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