Pension and Benefit Plans: Employer Obligations and Potential Liabilities Janice Payne, Nelligan O Brien Payne LLP. Introduction

Transcription

1 Pension and Benefit Plans: Employer Obligations and Potential Liabilities Janice Payne, Nelligan O Brien Payne LLP Introduction A key objective of any human resources administrator is to ensure that an employer is able to find and retain talented individuals and that there is a good relationship between the employer and those employees. One of the ways that employers accomplish this is by offering flexible and comprehensive benefit packages. However, inevitably there is a tension in communications to employees between wanting to deliver the good news associated with a benefits plan and the obligation to advise of the risks and downsides of a benefits plan as well. The duty to effectively communicate and provide information to employees concerning pension and employment benefits is one of the most significant obligations of an administrator. The failure to do so can result in exposing the employer to liability. Claims involving loss of employee benefits or pensions usually flows from a failure to communicate or a miscommunication. This paper will look at the employer s obligations with respect to communications to employees about their pension and benefit plans. In the context of this discussion, employee benefits may include insured benefits such as health, dental, hospital care, long-term disability, life insurance and survivor pension plans as well as uninsured benefits such as bereavement leave, leave required for the care of dependents, counselling and travel allowances. Some examples of the failure to meet those obligations will be looked at. Finally, some ideas on how to avoid liability in this area will be presented. Employer Obligations One of the most obvious sources of liability for an employer is the failure to provide information required by statute. A number of statutes and regulations governing pension and other employment benefit plans require the provision of information, including the Ontario Pension Benefits Act. Ontario Pension Benefits Act The Ontario Pension Benefits Act provides important disclosure rights to plan members. These rights are set out in sections of the Act. They include: the right to receive statements on termination, retirement, death or wind up; the right to receive a plan explanation; the right to receive an annual statement of pension benefits; inspection rights; and the right to notice of amendments, wind up and surplus applications. There is also a requirement to make disclosure regarding the treatment of any surplus in a continuing plan or on plan wind-up, and an explanation of any amendments that may affect the plan member. Section 28 of the Pension Benefits Act creates an obligation to provide plan members with a statement on termination of employment. Sections of the Regulations to the Pension Benefits Act contain detailed provisions of the contents of such notices whenever a plan member retires, is terminated or dies. Sections 29 and 30 of the Act are the primary access to information provisions. These sections give members and former members, their spouses, agents or trade 1

2 unions the right to inspect certain documents. Section 45 of the Regulations sets out the types of documents that must be provided within 30 days of a request being made of an administrator. Some of these documents include the text of current and past pension plans, provisions of any document setting out the employer s responsibilities with respect to the plan, documents delegating administration of the plan, and the copies of any part of an agreement concerning the purchase or sale of a business or assets of a business that relate to the pension plan. Non-Statutory Claims In addition to the statutory requirements, there are other ways that an employer can find itself facing liability. Two of these are breach of a duty of care arising out of the employer s fiduciary relationship to the employee and negligent misrepresentation. Duty of Care The Supreme Court of Canada has, on several occasions, classified the employer/employee relationship as one of the most important relationships in the employee s life, but one in which the employer s bargaining power generally far exceeds that of the employee. In that context, the court has held that employers owe a duty of care to their employees. With respects to pension benefits, the Ontario Pension Benefits Act codifies this duty of care in Section 22 which states: ss.22(1) - The administrator of a pension plan shall exercise the care, diligence and skill in the administration and investment of the pension fund that a person of ordinary prudence would exercise in dealing with the property of another person. ss.22(2) - The administrator of a pension plan shall use in the administration of the pension plan and in the administration and investment of the pension fund all relevant knowledge and skill that administrator possesses or, by reason of the administrator s profession, business or calling, ought to possess. The duty of care owed by employers to employees manifests itself in different ways. For example, in the case of Card Estate v. John A. Robertson Mechanical Contractors, 1 the employer was found liable for the breach of its duty of care for failing to bring the terms of benefit policies to the attention of the employee. In this case the employee was fired without being told that his life insurance had been terminated or that he had 31 days to convert the group policy to an individual policy. The court held the employer liable when the employee died during the notice period without having had an opportunity to convert his life insurance coverage. 1 (1989) 26 C.C.E.L. 294 (Ontario High Court of Justice) 2

3 When dealing with a sick or disabled employee, the employer has an obligation to ensure that the employee receives the benefit of any available sick leave and disability leave plans that exist as a benefit of employment. This obligation includes a positive duty to refer the individual to any third party insurer and to assist with the completion of an application for benefits where appropriate. An example of this duty is the decision in Tarailo et al v. Allied Chemical Canada Ltd. et al. 2 In this case, the employer was found liable after an employee with an mental illness was dismissed. The court said that while the employer could release the employee because he could not perform his job, the employer was liable in negligence on the basis that as the agent of the insurer, the employer had a duty to assist the employee to complete forms for long-term disability insurance benefits. The failure to disclose relevant information also gives rise to liability. In the case of Spinks v. The Queen 3, a recent immigrant to Canada who was hired by a Crown corporation, was not told that he had the ability to buy back benefits for certain foreign service prior to his joining a federal government agency. The Federal Court of Appeal found that the minimum standard of conduct necessary to meet the statutory duty to give advice was not met. The failure to divulge information that was of a specialized nature known only to the advisor was a breach of the duty of care owed by the employer. Misrepresentation of Benefits Generally, employees are given a benefits summary booklet at the start of their employment. It is crucial that this booklet contain complete and accurate information on the benefits package. If it inaccurately describes the terms of the benefit policies or if the employer has misrepresented the nature of benefits in an offer or contract of employment, the employer will be exposed. An employee is entitled to make a claim for the benefit coverage stated in the offer or contract regardless of the actual terms of the benefits policy. Employers must provide the benefits they say they will provide. If they do not, they could be found liable for negligent misrepresentation. In virtually all cases, the communications to employees, be they written or verbal, will either form a contractual basis for the agreement because there are no other documents, or will be used to prevent the administrator or employer from relying on formal, legal, written documentation where the communications to the employees appear to be contradictory. 2 (1989) 68 O.R. (2d) 288 (Ont. High Court of Justice) D.L.R. (4 th ) 223 (Federal Court of Appeal) 3

4 The law sets out five requirements that must be met before liability is imposed for negligent misrepresentation: 1. There must be a duty of care based on the special relationship between the parties; 2. The representation in question must be untrue, inaccurate or misleading; 3. The person making the representation must have been acting negligently; 4. The person to whom the representation was made must have relied on that information; 5. The reliance must have caused damages. An example where the criteria for negligent misrepresentation was met was in Bratkowski v. Ontario Teachers Pension Plan Board. 4 In this case, a teacher became an active member of the pension plan. In 1984 a regulation was introduced which allowed certain teachers to buy back credits for their business experience. The teacher was advised incorrectly that he did not qualify for the credit. As a result, the teacher did not apply for credited service for the six years he worked in industry. The court awarded damages, holding that there was a duty of care owed by the defendant to the teacher based on the fiduciary relationship between them. The statement made to the teacher was untrue and misleading. The plaintiff relied on that information in a reasonable manner and did so to his detriment causing damages. Another area where negligent misrepresentation could be found is where the employer attempts to reclaim overpayments due to errors made in calculating benefits. There is a risk that employees may claim that they accepted an early retirement based on information communicated to them about anticipated pension benefits. An attempt by the plan sponsor to later reduce those benefits after the employee has retired could give rise to an action for damages for negligent misrepresentation. An example of this is the case of Gauthier v. Canada 5. Mr. Gauthier was employed by the RCMP until his retirement. Prior to retiring, he considered going to work for Canada Customs. He consulted the Compensation Branch of the RCMP to determine what his pension benefits would be if he retired from his position. The Branch in stating the amo unt failed to take into account a provision in the RCMP Superannuation Act which penalized retirement prior to 25 years of service, and as a result overstated the amount Mr. Gauthier would receive. Based on this information, he chose to retire and take the job at Canada Customs for a lower salary. After eight years, the RCMP realized that it had made a mistake and tried to get Mr. Gauthier to reimburse the overpayment. In bringing his action for negligent misrepresentation, Mr. Gauthier showed that he had relied to his detriment on the calculation of the pension benefits made by the Branch. Despite the fact that the mistake was made honestly, the Court said that the Branch was required to exercise reasonable care and diligence to ensure its representations were accurate. Because of the error, Mr. Gauthier was entitled to recover the difference between his salary with the RCMP and the salary he was receiving at Customs Canada from his retirement to the date he would have retired but for the misrepresentation. 4 [1997] O.J. No (General Division) 5 [2000] N.B.J. No. 143 (N.B. Court of Appeal) 4

5 Often employers or administrators rely upon other parties such as a union official or personnel manager to communicate with plan participants. If errors or miscommunications are made by these parties, the plan administrator and the employer can be found liable. For example, in Deraps v. Labourer s Pension Fund of Central and Eastern Canada 6 a union representative met with the spouse of a member of the Labourers International Union to discuss disability benefits in the event her husband died. The union representative provided the spouse with forms containing two options but did not explain the forms. The spouse chose the first option and signed a spousal waiver. When her husband died she was denied benefits. The Ontario Court of Appeal awarded damages to the spouse in the amount of the pension earnings she would have received had the spousal waiver not been signed. The spouse did not understand what she was signing. Someone who was appointed by the union to provide information to union members was deemed to have specialized knowledge and was required to explain that there would be no pension benefits if the spouse chose the first option. This amounted to negligent misrepresentation. Both the union and the insurer were found liable as the union representative was acting as the insurer s agent. Employers who act as administrators of benefits policies on behalf of insurance companies should understand that they may be acting as agents for the insurers. Employers who deliver policy booklets to employees, assist employees to complete application and claim forms or collect premiums could be found jointly and severally liable for any errors or omissions that occur in the administration of the benefits plan. What can you do? There are an increasing number of ways that an employer can be exposed to liability, especially as employees become more informed and pro-active in enforcing their rights. However, there are a number of things that employers can do to protect themselves. A few of these include: 1. Do not cross the line between providing an explanation and giving advice. There is an obligation for employers to explain benefits and pensions to all employees. However, employers should not give advice, for example, on what the employee should do on retirement. This sort of information includes investment advice, advice on RRSPs, or anything outside of the employer plan. The best way to deal with an employee who asks for advice is to direct him or her to professionals in that area. Keep a lis t of professionals handy with at least four or five professionals suggested. Alternatively, state simply that you cannot give that kind of advice. 6 [1999] O.J. No

6 1. Be clear in your communications Today many people communicate by which tends to be a more informal way of sharing information. Or someone might drop into your office with what seems like a straight forward question and want a quick answer. Any administrator should be very careful about providing information in this format. While saving time in the short run, sloppy, incomplete, or incorrect answers may cause problems in the future. As the cases mentioned demonstrate, even where a mistake is honestly made, an employer can still be held liable. Therefore, it is important to have well thought-out, correct information available to employees, even if that means an answer cannot be provided right away. 1. Be creative in how you present benefit package information. While it may often be a good communications strategy to accentuate the positive, totally eliminating or downplaying the negative is of no assistance if a dispute arises. There are a number of ways to present your benefits information in a way that covers the information that must be expressed in a manner that is accessible, easy to understand, and gives complete information. For example, the Bank of Nova Scotia s Flexible Benefits Program was introduced in both official languages and was also available in a format accessible to employees with physical challenges -- in braille and in video with closed captioning. The Bank of Canada has a benefits hotline with specially trained staff to provide additional information to employees. 7 When employees have a greater understanding of the benefits available to them, access to information, and clear and correct answers, the chances of employer liability decreases greatly. 1. Keep your employees informed and up-to-date on changes to benefits. Taking pro-active steps to provide information can avoid future problems. For example, when the Ontario Teachers Pension Plan Board had to explain its investment in Bre-X Minerals, it did so in a timely, honest and informative manner. A newsletter was produced which explained to the Pension Plan members the methods the Board used to invest in stocks, how it came to own Bre-X shares and the effect on its total fund. 8 Providing such information before a pension plan member asks for it will ensure that your duty to communicate is effectively met. 2002, Janice B. Payne et al. This article was prepared by: Janice B. Payne, Lawyer and Clare da Silva, Student-at- Law. 7 Examples taken from Communication Award winners, Benefits Canada magazine, June Example taken from Communications Award winners, Benefits Canada magazine, June