Pensions, Benefits & Executive Compensation Newsletter – January 2020

Welcome to the 26^th issue of the Blakes Pensions, Benefits & Executive Compensation Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions, benefits and executive compensation and is not intended to be legal advice.

For additional information or to discuss how any aspect of these developments may affect you, please contact a member of the Blakes Pensions, Benefits & Executive Compensation group.

IN THIS ISSUE

BENEFICIARY DESIGNATIONS

• Nickel v. Gerbrandt, 2019 SKQB 117

FAMILY LAW

• Meloche v. Meloche, 2019 ONSC 6143

• Lux v. Lux, 2019 ABCA 454

PRESUMPTION OF LIFE

• Threlfall v. Carleton University, 2019 SCC 50

INTERPRETATION OF PENSION PLAN TERMS

• Lamarche v. Canada (Attorney General), 2019 FC 1303

• Jost v. Canada (Attorney General), 2019 FC 1356

• Integram Windsor Seating division of Magna Seating Inc. v. Unifor Local 444, 2019 CanLII 114882 (ON LA)

VESTING DURING THE REASONABLE NOTICE PERIOD

• O’Reilly v. IMAX Corporation, 2019 ONCA 991

HEALTH AND WELFARE BENEFITS

• Markham Stouffville Hospital (Uxbridge Site) v. CUPE, Local 1999, 2019 ONSC 5373

BENEFICIARY DESIGNATIONS

Nickel v. Gerbrandt, 2019 SKQB 117

Mr. Gerbrandt was a former employee of the Saskatchewan Wheat Pool. Before separating in 1998, Mr. Gerbrandt lived in a common law relationship with Ms. Nickel for 15 years. During this time, Mr. Gerbrandt named Ms. Nickel as the beneficiary of his pension plan and did so in the manner provided for in the plan. Mr. Gerbrandt died in 2018. Before his death, he did not rescind, revoke or change the designation in the manner required by the plan. Instead, Mr. Gerbrandt executed a holographic will, giving his daughter “any money owed to [him] from all pension plans.” Both Ms. Nickel and Mr. Gerbrandt’s daughter claimed an entitlement to the pre-retirement death benefit.

The Saskatchewan Court of Queen’s Bench (Saskatchewan Court) held that, under section 67(2) of the Saskatchewan Pension Benefits Act, 1992 (Saskatchewan PBA), a change of a beneficiary designation must be made using the form prescribed by the pension plan and in the manner specified in the plan. Section 67(2) of the Saskatchewan PBA states that “[a] member or former member may from time to time alter or revoke a designation made pursuant to a plan, but that alteration or revocation may be made only in the manner specified in the plan.” The Saskatchewan Court held that the correct interpretation of this provision dictates that the beneficiary designated in the pension document cannot be altered by a contrary intention expressed in the deceased member’s will.

As Mr. Gerbrandt did not alter the beneficiary designation in the manner required by the plan, the Saskatchewan Court held that the holographic will was not a valid change to the beneficiary designation. The Saskatchewan Court ordered that the pension plan pay the pre-retirement death benefit to Ms. Nickel.

Saskatchewan Court of Queen’s Bench Decision

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FAMILY LAW

Meloche v. Meloche, 2019 ONSC 6143

Mr. Meloche and Ms. Meloche (Parties) separated in 2017 after 30 years of marriage. Two years earlier, Ms. Meloche retired and elected a joint pension with a 60 per cent survivor benefit. Mr. Meloche had Amyotrophic Lateral Sclerosis and was unable to work. He received full-time care and resided at an assisted living facility. While the Parties agreed that 48.99 per cent of Ms. Meloche’s pension should be paid to Mr. Meloche for the rest of his life, Mr. Meloche brought a motion requesting that the plan administrator also pay to his estate a portion of Ms. Meloche’s pension benefit for the rest of her life, should he predecease her.

The Ontario Superior Court of Justice (Superior Court) held that the Ontario Pension Benefits Act (Ontario PBA) explicitly precludes such payments from being made to Mr. Meloche’s estate after his death. In reaching its finding, the Superior Court noted that the applicable provisions of the Ontario PBA do not suggest that a monthly split of pension benefits is an asset that can be gifted or bequeathed, nor do the provisions authorize the payment of a portion of a pension to the estate of the spouse. Instead, the applicable provisions in the Ontario PBA direct divided pension payments only to the ‘eligible spouse’ and prohibit any other divided pension payments.

In addition, the Superior Court determined that section 65(1) of the Ontario PBA, specifically prohibits the type of assignment or bequest requested. 
The Superior Court ordered that the plan administrator pay Mr. Meloche 48.99 per cent of Ms. Meloche’s monthly pension payments. The Superior Court further ordered that in all other respects, Mr. Meloche’s motion be dismissed.

Ontario Superior Court of Justice Decision

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Lux v. Lux, 2019 ABCA 454

The Lux case dealt with a marriage breakdown situation where support and property—including pension—division issues were contested.

The respondent in the case began to accrue pension rights early in the marriage. For property division purposes, there was a question as to whether the pension was to be valued at the date of separation or the date of the trial. The trial judge had found that pension accrual for marriage breakdown division purposes should end at the date of separation.

The Alberta Court of Appeal noted that “[t]he presumption under the Matrimonial Property Act, RSA 2000, c. M-8, is that matrimonial property is divided at the date of trial.”

The Alberta Court of Appeal concluded that for purposes of the division of pension, the period of accrual continues until the date of the trial.

Alberta Court of Appeal Decision

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PRESUMPTION OF LIFE

Threlfall v. Carleton University, 2019 SCC 50

Mr. Roseme, a retired political science professor, was receiving pension payments from a university pension plan (Plan) on a life-only basis, with payments to stop upon Mr. Roseme’s death. In September 2007, he disappeared from his home in Quebec. He had been suffering from early-stage Alzheimer’s disease. Upon his disappearance, Mr. Roseme became an ‘absentee’ under article 85 of the Civil Code of Quebec (CCQ), which provided that he be presumed alive for seven years unless proof of death was made before then. As such, pension payments continued to be made by the Plan. About six years after his disappearance, Mr. Roseme’s remains were discovered and his date of death was established as one day after he went missing.

The issue was whether Mr. Roseme’s succession was entitled to keep the pension payments made to him while he was presumed to be alive, even though this presumption was subsequently rebutted. The Supreme Court of Canada (SCC) held that Mr. Roseme was not entitled to the pension benefits paid out following his death under the plan or the CCQ. The pension plan unambiguously contemplated the termination of benefits upon Mr. Roseme’s actual death and the rebuttal of the presumption under article 85 of the CCQ. retroactively extinguished the rights rooted in that presumption. Although Carleton University was obligated to make pension payments while Mr. Roseme was presumed to be alive, the SCC held that it is entitled to restitutionary relief because the payments were, retrospectively, not due.

Supreme Court of Canada Decision

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INTERPRETATION OF PENSION PLAN TERMS

Lamarche v. Canada (Attorney General), 2019 FC 1303

Stephen Lamarche (Mr. Lamarche) applied for judicial review of a decision made by the Government of Canada Pension Centre of Public Services and Procurement Canada (Pension Centre) regarding the interpretation of the Reserve Force Pension Plan Regulations (Regulations) made under the Canadian Forces Superannuation Act (Act). As the Reserve Force Pension Plan (Pension Plan) did not exist prior to 2007, the Regulations permit a buyback of years of service predating March 1, 2007, where the plan member so elects. Further, benefits under the Pension Plan are calculated taking into account a maximum of 35 years of pensionable service. Specifically, section 11(3) of the Regulations states that “there shall be counted as pensionable earnings, starting with the most recent, only those that would result in a maximum of 35 years of pensionable service to the credit of the participant.”

Mr. Lamarche retired on April 26, 2016, at the age of 60, after 42 years of service with the Canadian Armed Forces. Mr. Lamarche made an election to buyback service under the Pension Plan. After much communication between the Pension Centre and Mr. Lamarche in respect of his pensionable earnings, the Pension Centre advised Mr. Lamarche that only his first 35 years of earnings would be used in the pension calculation.

The issue was which 35-year period should be taken into account for the purposes of a pension calculation when a plan member, such as Mr. Lamarche, has over 35 years of service. Both parties took the position that the answer turns on the interpretation of the words “starting with the most recent” in section 11(3) of the Regulations. The Attorney General argued that the words should be read in reference to the date of the buyback election, such that one counts pre-March 1, 2007, earnings as pensionable earnings backwards from the date of the election. If the 35-year maximum is not yet reached, there remains room for earnings after March 1, 2007, to be counted as pensionable earnings. Mr. Lamarche argued that the language must be interpreted with respect to the time of the member’s retirement.

The Federal Court concluded that the Pension Centre’s decision to count years of service back from the date of the election was reasonable and noted that other sections of the Act and Regulations provide strong support for this position. For example, past earnings and pensionable service are to be credited on the date of the buyback election. In order for such earnings and service to be credited on the date of the buyback election, the amounts must be capable of quantification. If the Federal Court were to accept Mr. Lamarche’s interpretation, the quantum of past earnings and pensionable service to take into account from the pre-March 1, 2007, period would be unknown, and it would be impossible to calculate until the date of retirement.
As such, the Federal Court dismissed Mr. Lamarche’s application for judicial review.

Federal Court of Canada Decision

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Jost v. Canada (Attorney General), 2019 FC 1356

After retiring from the Canadian Armed Forces (CAF) in 2015, Douglas Jost (Mr. Jost) waited several months before his pension commenced. Other retirees from CAF also experienced delays. Additionally, while Mr. Jost was initially informed that his transfer value was worth C$859,980, he was later told that his transfer value was C$703,180.

Mr. Jost sought an order certifying a class action on behalf of retirees from the CAF for negligence, breach of fiduciary duty and breach of contract with respect to their CAF pensions. Mr. Jost submitted that all required legal elements for certification were met. The Federal Court held that Mr. Jost met the legal requirements for certification, namely that there was a reasonable cause of action, an identifiable class, a legal and factual foundation common to all class members, and that certification was the preferred procedure, as well as that Mr. Jost was the appropriate representative of the class. Though the Federal Court held that there was an identifiable class, it limited the class to CAF Reserve Members as there was no evidence of problems experienced by Regular CAF Members, who were members of a separate pension plan. 

Federal Court of Canada Decision

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Integram Windsor Seating division of Magna Seating Inc. v. Unifor Local 444, 2019 CanLII 114882 (ON LA)

This arbitration dealt with the question of whether the company pension plan provided an unreduced early retirement benefit for employees retiring between ages 55 and 59. Two grievances were filed when the company refused to provide an unreduced pension.

The arbitrator found that the plan wording did require a reduction of the early retirement benefits for employees retiring between ages 55 and 59. However, the complicating factor in this matter was that for 10 months, the company interpreted the plan such that no reduction was required where employees retiring between age 55 and 59 had age and years of service totaling 80 or more. The company subsequently determined that the interpretation that permitted the unreduced pension was not correct and ceased permitting such an unreduced pension.

During the 10-month period of the erroneous interpretation there was no collective bargaining. In that circumstance, the arbitrator found that the union’s claim of detrimental reliance failed and, as such, the company was entitled to correct its interpretation and, therefore, the grievances failed.

Ontario Arbitration Decision

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VESTING DURING THE REASONABLE NOTICE PERIOD

O’Reilly v. IMAX Corporation, 2019 ONCA 991

This case is an appeal of the Ontario Superior Court of Justice decision in O’Reilly v. Imax Corporation, 2019 ONSC 342, with supplementary reasons at O’Reilly v. Imax Corporation, 2019 ONSC 1239, discussed in our April 2019 Pensions, Benefits & Executive Compensation Newsletter.

At trial, a senior executive, Mr. O’Reilly, employed with IMAX Corporation (IMAX) brought a successful wrongful dismissal case and was awarded damages for salary, commissions, pension contributions, benefits and lost opportunity to exercise awards of restricted stock units (RSUs) and stock options granted under a Long Term Incentive Plan (LTIP) during the reasonable notice period.

This appeal only concerns Mr. O’Reilly’s entitlement to exercise his RSUs and stock options under the LTIP during the reasonable notice period. IMAX argued that the terms of the LTIP prevented Mr. O’Reilly’s RSUs and stock options from vesting after the date he was dismissed without cause. The motion judge rejected IMAX’s submission, determining that the RSUs and stock options continued to vest during the reasonable notice period and that Mr. O’Reilly was entitled to damages. The motion judge also concluded that Mr. O’Reilly’s damages for loss of the RSU and stock option awards should be calculated based on what would have likely occurred had Mr. O’Reilly remained employed until the end of the notice period. The motion judge noted that Mr. O’Reilly had exercised his options in the past and that he would likely have done so again, had his employment not been terminated.

The issues before the Ontario Court of Appeal (Appeal Court) were: (1) whether the motion judge erred in deciding that Mr. O’Reilly was entitled to damages for the loss of opportunity to exercise the RSUs and stock options that would have vested during the reasonable notice period, and (2) whether the motion judge erred in calculating Mr. O’Reilly’s damages for the loss of the stock options and RSUs.

On the first issue, the Appeal Court noted that while the language in the LTIP at issue extinguished Mr. O’Reilly’s right to exercise any unvested awards as at the date of termination or when employment terminates, the LTIP did not establish in unambiguous terms when the date of termination is or when employment terminates. Therefore, the LTIP left open the possibility that termination could have occurred at the end, rather than the beginning, of the notice period. Where such ambiguity exists, the Appeal Court explained that the language will be interpreted as mandating a lawful termination. Since there was no language removing any entitlement to damages, the Appeal Court found that the motion judge did not err in determining Mr. O’Reilly was entitled to damages for loss of opportunity to exercise his stock options and RSUs.

On the second issue, the Appeal Court determined that the motion judge did not err in finding that Mr. O’Reilly likely would have exercised his rights to the RSUs and stock options, had his employment not been terminated. The Appeal Court found that the motion judge did not make a palpable and overriding error in his assessment of the evidence concerning damages. The appeal was dismissed.

Ontario Court of Appeal Decision

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HEALTH AND WELFARE BENEFITS

Markham Stouffville Hospital (Uxbridge Site) v. CUPE, Local 1999, 2019 ONSC 5373

Markham Stouffville Hospital (Uxbridge Site) (Hospital) sought to overturn, on judicial review, a decision by the Arbitration Board (Board). The Board’s decision on review held that the collective agreement required the Hospital to provide long-term disability (LTD) benefit coverage—provided through the Hospitals of Ontario Disability Income Program (HOODIP)—to employees who work past 65 and, in refusing to do so, the Hospital breached the LTD provision in the collective agreement. Article 13.01(a) of the collective agreement provides that, “the Hospital will pay 75% of the billed premium towards coverage for eligible employees under the long-term disability portion of the plan (HOODIP or an equivalent plan as described in the August, 1992 booklet (Part B)).”

During the arbitration, the Hospital and the union agreed that the 1992 HOODIP Booklet (Booklet) was incorporated into the collective agreement. The union’s position was that neither the collective agreement nor the Booklet specified benefits cut off at 65. The Hospital argued that since the Booklet referred to the HOODIP plan, the HOODIP plan was also incorporated into the collective agreement and the HOODIP plan specified a cut-off of benefits at age 65. The Board determined that, had the Hospital and the union intended LTD coverage to be cut off at age 65, they would have negotiated explicit collective agreement language to reflect this or changed the eligibility requirement in the booklet.

The Ontario Superior Court of Justice (Superior Court) concluded that the Board’s decision was reasonable, considering the language of the collective agreement and the circumstances of the case. The Superior Court rejected the Hospital’s argument that the union, in seeking to extend LTD benefits past the age of 65, was seeking a “new benefit,” for which clear language is required. The Superior Court noted that case law demonstrates the opposite, that clear and unambiguous language is required to provide lesser benefits to employees who work after 65.

Ontario Superior Court of Justice Decision

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