Whether non-pension benefit arrangements for retired employeescan be unilaterally altered by an employer appears to depend on the terms of thearrangements in place at the time of retirement as determined by employerpolicies and related communications.
We recently reviewed a BC court decision which addressedan employer’s liability arising from unilaterally imposing benefit reductionson active employees. We concluded that,to avoid uncertainty and thereby reduce potential liability, employers shouldstrive to ensure that employment contracts contain terms which expressly grantdiscretion to make future changes to benefit programs. To access the previousarticle, click here.
In a recent BC Supreme Court decision, the employer’s benefitspackage extended employer-paid provincial health premiums, specific healthbenefits and extended health insurance coverage to retirees. To save money, theemployer unilaterally reduced retiree benefit funding and announced that retireeswould be responsible for future cost increases, claiming that the currentarrangements were not sustainable and the provision of retiree benefits wasdiscretionary in any event. The affectedretirees were all former salaried employees without written employmentagreements. They sued for damages for breach of contract, claiming that thepromise made to them prior to retirement vested or crystalized at the time oftheir retirement and could not be unilaterally altered thereafter.
The court reviewed company policies and communications(written and oral) with employees and concluded that the retiree benefitarrangements were intended as deferred compensation (i.e., they were notgratuitous). As such, they amounted to contractual obligations to continuecoverage to former employees who had retired. Notwithstanding that some of the arrangementshad been changed during the course of employment, the court concluded that theterms of the contract did not permit unilateral changes to the employer-fundedretirement benefits package (including alteration to the scope of coverage,coverage limits, deductibles or cost sharing) after the date of retirement.
This decision serves as a reminder to employers of theimportance of written policies and employee communications in the area of employmentbenefits. Clear, consistent, concise andprecise documentation and communication, which reserves to the employer the rightto amend, alter or discontinue benefit arrangements, is the key to reducingrisks and increasing flexibility in this important component of workplace law.
The Company’s appeal is scheduledto be heard on October 29 and 30, 2012.