Employment Law Newsletter - Fall 2009

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[ LEGAL ISSUES OF INTEREST TO EMPLOYERS AND EMPLOYEES ]=
Volume 19, No. 1
Fall 2009
Supreme Court of Canada Clarifies
Certain Pension Plan Rules
amendments, order the company to
reimburse the plan for all expenses paid out
of the plan, and then wind up the pension
plan. The employees relied primarily upon
the original 1954 Trust Agreement, which
stated that the pension fund was for “the
exclusive benefit” of the beneficiaries.
The Supreme Court of Canada recently
released its decision in Nolan v. Kerry
(Canada) Inc,1 clarifying five areas of
pension law that have been issues of some
controversy over the past two decades.
Nolan v. Kerry was, at its heart, a dispute
about the funding and administration of a
pension plan. The employer who
administered the pension plan made a
number of changes to its administration of
the pension plan, including: requiring the
pension fund to pay for actuarial,
management and audit fees; taking a
contribution holiday paid for by an actuarial
surplus; creating a defined contribution
component to the pension plan; and then
paying the employer’s share of contributions
by using the actuarial surplus available in
the defined benefit portion of the plan.
The Superintendent granted relief
concerning the plan expenses, but declined
to refuse the amendments or wind up the
pension plan. The case eventually made its
way from the Financial Services Tribunal
through the Ontario court system up to the
Supreme Court of Canada, who upheld the
company’s decision on all five issues:
1. Standard of Review of the Financial
Services Tribunal: Reasonableness, not
correctness.
2. Plan Expenses: The 1958 Trust
Agreement obligated the employer to
pay “trustee fees” and “trustee
expenses”, but did not refer to any other
costs arising from the plan’s
administration. Therefore, the employer
did not have to pay plan expenses.
Further, the “exclusive benefit”
provision in the trust was not infringed,
After the employer introduced amendments
in 2000 permitting it to do these things, the
Employees Pension Committee requested
the Ontario Superintendent of Financial
Services to deny registration of the 2000
1
Pages 76-81
2009 SCC 39.
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Fall 2009
as plan expenses benefited the
employees. The majority of the Court
actually stated: “nor can the term
‘exclusive benefit’ be construed to mean
that no one but the employees can
benefit from a use of the trust funds.”
(particularly as the employer has an
ongoing obligation to contribute to the
pension fund, unlike normal trusts), and
that the normal rule in pension litigation
will be to “allow a court to award its
costs out of the fund where there is a
legitimate uncertainty as to how to
properly administer the trust and where
the dispute is not adversarial.” This case
was ultimately adversarial because it
was about the propriety of the
Company’s actions, and because the
employees sought to have funds placed
into the Fund to the benefit of DB
members only.
3. DB Contribution Holidays: In general,
contribution holidays are permitted
where plan documents “provide that
funding requirements will be determined
by actuarial practice.” The plan wording
in this case was for company
contributions “not less than those
certified by the Actuary as necessary to
provide the retirement income accruing
to members during the current year.”
Christopher Rootham
613-231-8311
[email protected]
4. DC Contribution Holidays: The
employer could use the DB surplus to
cover its share of contributions to the
DC plan. The Supreme Court of Canada
ruled that the employer could create one
plan with two benefits (i.e. one trust and
one plan, but DB or DC benefits
provided out of the same plan). It was
not unreasonable for the Tribunal to hold
that DC members could be designated as
beneficiaries under the trust because
they were employees. Justice LeBel
authored a strongly-worded dissent on
this issue. The majority’s decision rests
in large part on the absence of a
prohibition against the impugned
activity. Pension plans are private
arrangements, and therefore absent
express prohibitions in statute or under
the terms of the trust, employers can act
according to their discretion.
Un employeur peut être lié par ses
propres politiques de travail
Le juge Wedge de la Cour suprême de la
Colombie-Britannique a récemment rendu
un jugement en ce qui a trait au droit de
l’employeur de congédier une employée qui
a choisi de ne pas suivre une directive.2
Dans cet arrêt, l’employée en question était
une dame de 41 ans qui détenait le poste de
gestionnaire en chef de l’hôtel, Fairmont
Vancouver Airport Hotel. Elle travaillait
pour Fairmont depuis 12 ans au moment de
son congédiement en 2006.
En tant que gestionnaire en chef de l’hôtel,
Mme Adams était responsable de la
préparation du budget annuel de son hôtel.
La préparation du budget annuel était faite
selon une politique écrite publiée par
Fairmont et distribuée à chaque employé. La
politique en question prévoyait que le
budget annuel devait être préparé et
approuvé conjointement par l’équipe
5. Costs: Costs were awarded against the
employees. The Court recognized that
in estate litigation costs are often
payable out of the trust unless a
beneficiary makes a claim which is
adverse to other beneficiaries of the
trust. However, the SCC decided that
pension litigation is different
2
Adams c. Fairmont Hotels and Resorts Inc., [2009]
B.C.J. No. 1017
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Fall 2009
l’insubordination puisque Fairmont ne
pouvait pas, selon sa propre politique, lui
demander de faire des changements
unilatéralement. Mme Adams avait raison
d’agir selon la politique, laquelle établissait
les attentes de l’employeur envers ses
employés et vice versa.
exécutive de l’hôtel et la direction générale
de Fairmont. La politique était détaillée et
prévoyait chaque étape de la préparation du
budget annuel.
En 2006, Mme Adams et son équipe ont
entamé la préparation du budget annuel pour
l’année 2007. Fairmont avait indiqué à
chacun de ses hôtels que les budgets de 2007
devaient prévoir une augmentation du profit
d’au moins 10 pour cent en comparaison à
l’année précédente. Malgré tous leurs
efforts, l’équipe de Mme Adams était
incapable de prévoir une augmentation de
plus de 3.6%, soit un profit annuel de 5,82
millions $. La direction générale de
Fairmont exigea à Mme Adams d’augmenter
son budget pour que le profit annuel soit de
6,6 millions $. Elle s’y opposa en expliquant
que ce n’était ni possible ni réaliste. La
gestion lui répondit en augmentant le profit
annuel désiré à 6,7 millions $. Elle refusa
d’ajuster le budget de son hôtel et fut
congédiée le 16 octobre 2006. Fairmont
allégua qu’il avait un motif valable pour
congédier Mme Adams puisque celle-ci
avait refusé de suivre une directive et donc
avait été insubordonnée.
La Cour a ensuite décidé que Mme Adams
avait droit à un préavis raisonnable d’une
période de 15 mois puisque son emploi était
très spécialisé.
Christine Poirier
613-231-8227
[email protected]
Completing LTD Forms Does Not Mean
You Admit You Are an Employee
The Ontario Court of Appeal3 has recently
stated that filling out a long term disability
application form does not prevent an
employee from alleging that she has been
constructively dismissed.
Ms. Kelland stopped working in February
2007 because of medical problems she
attributed to her work environment. Her
employer, POI Business Interiors, wrote on
May 30, 2007 to ask her intentions.
Although Ms. Kelland did not respond, POI
did nothing to sever the relationship and it
maintained her group benefits coverage.
La Cour suprême de la ColombieBritannique a entendu la cause et a statué
qu’un employeur doit respecter ses propres
politiques. En créant la politique étalant la
procédure à suivre pour la préparation du
budget annuel, Fairmont créait non
seulement des règles à suivre pour ses
employés mais en créait aussi pour sa
direction générale. En l’espèce, la politique
prévoyait clairement que le budget devait
être préparé et approuvé conjointement et
donc Fairmont ne pouvait ignorer sa propre
politique. Mme Adams avait donc le droit de
ne pas donner son accord final au budget
annuel selon le langage utilisé dans la
politique. De plus sa décision était
raisonnable selon les circonstances. Son
refus n’était pas équivalent à de
On September 17, 2007, Ms. Kelland
applied for long-term disability benefits.
Her application indicated that she was a POI
employee. Four days later, she commenced
an action alleging that POI had wrongfully
or constructively dismissed her on May 30,
2007.
3
Kelland v. POI Business Interiors Inc., 2009 ONCA
67
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Ms. Kelland’s application for long-term
disability benefits was approved, retroactive
to June 23, 2007.
Fall 2009
package. The employee filed a claim for
wrongful dismissal against his employer for
a twenty-four month notice period. The
employer counter-claimed against the
employee, alleging that it had discovered
just cause for dismissal (essentially, that the
employee had been the true owner of a
consulting firm that advised bidders of how
to obtain contracts with the employer and
that he had accepted a $56,000 consulting
fee from a successful bidder for whom he
did no work) and that it should be repaid the
termination package already provided.
POI moved for summary judgment. The
motion judge granted the motion on the
basis that there was no triable issue as to
whether Ms. Kelland had been actually or
constructively dismissed. He reached this
conclusion on the basis of estoppel – that is,
he reasoned that by applying for benefits as
she had, she was estopped from maintaining
that she had been dismissed from
employment.
The trial judge concluded that the employer
had “after-acquired cause” for termination
(particularly the “kickback” worth almost
$56,000). The trial judge – without further
reasoning – then allowed the counterclaim
for the employer to recover the entire
severance package paid.
The Court of Appeal disagreed, noting that it
is for a trial judge to decide whether an
estoppel has been established. In any event,
the core question of whether Ms. Kelland
had been constructively dismissed would not
necessarily be resolved by a determination
of the estoppel issue and the matter should
not have been determined by way of
summary judgment.
Christopher Rootham
613-231-8311
[email protected]
Ainslie Benedict
613-231-8364
[email protected]
Severance Clauses: Pre-Estimate of
Damages or Penalty?
In Renaud v. Graham1, the Ontario
Divisional Court recently considered
whether employers may enforce a severance
clause that requires departing employees to
pay a predetermined sum to the employer.
The court concluded that employers and
employees are free to include a genuine precalculation of damages in employment
contracts, but that the amount must always
be reasonable.
An Employer Can “Take Back” a
Termination Package if it Discovers
Just Cause
In Doucet v. Spielo Manufacturing Inc4 a
trial judge in New Brunswick ordered an
employee to pay back a twelve-month
termination package to his former employer
when that employer discovered just cause
for termination.
The employee was hired to be responsible
for obtaining contracts to provide online
gaming systems to lottery corporations.
When his division was not performing well,
he was terminated on a without cause basis
and provided a twelve-month termination
The Defendant, Ian Graham, aspired to
become a real estate agent. The Plaintiffs,
William Renaud and Raymond Otten, were
experienced real estate agents in Ottawa,
and agreed to employ Mr. Graham despite
4
1
[2009] N.B.J. No. 217
[2009] O.J. No. 597 (ONSCJ – Div. Ct.)
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the fact that he had no experience in the real
estate industry. They entered into a 3-year
agreement to provide Mr. Graham with
training to qualify him as a real estate agent,
to provide him with a salary while he
received training, and to employ him after
he obtained his realty license.
Fall 2009
whether the severance clause was a penalty
and therefore unenforceable. The court
confirmed that a severance clause that
provides a penalty, and is not a legitimate
and reasonable pre-estimate of the
employer’s loss, is invalid. The court
further explained that this depends on the
terms of the contract and the surrounding
circumstances.
The employment agreement contained a
severance clause that stated that if Mr.
Graham left their employment, and then
commenced work as a realtor within one
year, Mr. Graham would pay Renaud-Otten
one month’s wages for each uncompleted
month of his 3-year contract.5 Mr. Graham
negotiated a cap of $20,000.00 on this
payment. The clause was intended to
compensate Renaud-Otten for the costs of
training Mr. Graham during the first six
months of his employment.
In this case, the court concluded that the
severance clause included a reasonable and
legitimate pre-estimate of the cost of Mr.
Graham’s training, and that Mr. Graham –
by engaging in negotiations – accepted the
provision. The severance clause was not a
penalty clause, and Mr. Graham was ordered
to pay the training costs under his contract to
his former employer.
The court’s decision therefore confirms its
traditional assessment of severance clauses.
When faced with a severance provision, the
court will consider the following questions:
After 17 months of selling real estate with
Renaud-Otten, Mr. Graham resigned and
joined a competing real estate agency in
Ottawa. Mr. Graham claimed that the
severance clause was invalid, and refused to
pay Renaud-Otten the cost of his training
under his employment contract.
Is the amount genuinely intended to
compensate the employer for
damages resulting from the loss of a
departing employee?
Is the amount a reasonable preestimate of the employer’s
anticipated loss, or instead intended
to penalize the employee?
Did the employee and employer
voluntarily agree to the term?
The court first found that equal bargaining
power existed between Mr. Graham and
Renaud-Otten and that the agreement did not
restrain Mr. Graham’s ability to compete or
solicit clients. The court then considered
5
5(A) If the Listing Agent voluntarily terminates his
employment with Renaud-Otten and commences
work as a realtor, either as his own Broker or for
another Broker within one (1) year of his termination,
he shall be required to return to Renaud-Otten
immediately upon termination, one month of wages
(but not bonuses), for which he has received from
Renaud-Otten, for each full month between the date
of his termination and the three year anniversary of
the commencement of his employment with RenaudOtten, provided the Listing Agent signs the
Authorization to Cause Return of Wages attached to
this Agreement. This is to compensate Renaud-Otten
for the costs of training the Listing Agent in the first
six months of employment.
The court gives particular attention to the
reasonableness of the amount to be paid, and
to the genuine intent of the parties. The
negotiation history, the extent of the
employee’s involvement and the relevant
surrounding circumstances at the time of
contract remain essential considerations.
Employees must therefore pay close
attention to severance clauses when
presented with an employment contract.
Employees should take that opportunity to
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assess its genuine intent, and to
communicate any concerns related to the
reasonableness and purpose of the severance
amount. A severance clause that is not
designed as a genuine pre-estimate of
damages remains unenforceable as a penalty
clause.
Fall 2009
Employment Law is not intended to provide
legal advice or opinion as neither can be given
without reference to specific events and
situations.
Craig Stehr
613-231-8208
[email protected]
Questions and comments concerning materials in
this newsletter are welcomed.
Christopher Rootham, Editor,
[email protected].
Copies of this newsletter and other newsletters
are also posted on our Web site at
www.nelligan.ca.
Our Employment Law Practice Group
Janice Payne
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Denise Workun
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