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Cutting retiree benefits doesn’t fly in B.C. court

Posted by on Oct 22, 2012 in Legal, Other, Retirement | 0 comments

BY Sheryl Smolkin lawyer and journalist | October 22, 2012


When Clarence Gustavson’s retiree benefits were changed to cut his out-of-province coverage, he sued the company that did it. The trial judge sided with Gustavson so the company, Timberwest Forest Corp., appealed the decision.

Read about the first court decision: B.C. court stop changes to retiree health benefits

In his appeal decision, Justice B.D. Mackenzie did not accept the company’s submission that there had to be a description of the health plan’s precise components for the court to conclude they intended out-of-province coverage to be part of the contract.

Furthermore, he was satisfied that the trial judge did not find there was an “unconditional lifetime entitlement” to any of the individual components of the benefit plans or programs outlined in the retirement letter which would have necessitated further “clear and express language” in the agreement.

Read: Legal perspective: Firing caregiver was discriminatory

While Justice Mackenzie acknowledged that Timberwest (as the successor to Fletcher Challenge) had reserved the right to amend or cancel Gustavson’s benefits, he agreed with the trial judge that the net result could not be “substantially less” than the benefits promised.

He also agreed that discontinuation of the out of province emergency medical coverage eliminated a tax-free benefit for Gustavson. While it could be replaced by him personally, this could be accomplished “only by utilizing his after-tax dollars and at a significant cost to him, on an ongoing basis.”

He did not disagree with Timberwest that in these difficult economic times the decision to eliminate out-of-province coverage could be considered “both reasonable and responsible,” given the company’s need to manage the plan from a group-wide perspective. However, he said “this cannot override the company’s specific contractual obligations to this specific retiree in the present circumstances.”

Read: Protect clients from costly dismissal damages

Finally, he concluded that whether or not his decision will affect other retirees will depend on the specific terms of their early retirement agreements as well as their individual present circumstances.

Justice Mackenzie dismissed the appeal and said the two parties should be able to come to an agreement. Gustavson asked for a refund of premiums paid for out-of-province medical coverage since the benefit was eliminated plus future premiums he would have to pay to replicate the coverage.

Justice Mackenzie added there was insufficient evidence to rule on damages but if the parties could not come to an agreement, they were free to come back to court and have a judge decide on the terms.

What advisors need to know

Few new hires in organizations of any size can expect to receive post-retirement health benefits when they retire. However, those employers who have retirees vested in their retiree health benefits would like to find a way to minimize this future liability.

Before trying to modify the retiree promise, companies should have the relevant documentation reviewed by an experienced benefits lawyer to determine what if any options may be available to them in the circumstances.

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