Whether non-pension benefit arrangements for retired employees can be unilaterally altered by an employer appears to depend on the terms of the arrangements in place at the time of retirement as determined by employer policies and related communications.
We recently reviewed a BC court decision which addressed an employer’s liability arising from unilaterally imposing benefit reductions on active employees. We concluded that, to avoid uncertainty and thereby reduce potential liability, employers should strive to ensure that employment contracts contain terms which expressly grant discretion to make future changes to benefit programs. To access the previous article, click here.
In a recent BC Supreme Court decision, the employer’s benefits package extended employer-paid provincial health premiums, specific health benefits and extended health insurance coverage to retirees. To save money, the employer unilaterally reduced retiree benefit funding and announced that retirees would be responsible for future cost increases, claiming that the current arrangements were not sustainable and the provision of retiree benefits was discretionary in any event. The affected retirees were all former salaried employees without written employment agreements. They sued for damages for breach of contract, claiming that the promise made to them prior to retirement vested or crystalized at the time of their 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 benefit arrangements were intended as deferred compensation (i.e., they were not gratuitous). As such, they amounted to contractual obligations to continue coverage to former employees who had retired. Notwithstanding that some of the arrangements had been changed during the course of employment, the court concluded that the terms of the contract did not permit unilateral changes to the employer-funded retirement 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 the importance of written policies and employee communications in the area of employment benefits. Clear, consistent, concise and precise documentation and communication, which reserves to the employer the right to amend, alter or discontinue benefit arrangements, is the key to reducing risks and increasing flexibility in this important component of workplace law.