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Bulletin | The HR Space

You Promised! Employer Is Told It Can’t Unilaterally Change Its Defined Benefit Plan When It Wants To

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Labour, Employment & Humans Rights Law Bulletin | HR Space

An employer may be delayed or prevented from making changes to a pension or benefit plan, even if the wording of the agreement permits such changes. This was the outcome in Nova Chemicals (Canada) Limited v Unifor Local 914 – Nova (Corunna Unit).

The Pension Plan and the Collective Agreement

The employer and the union negotiated the first collective bargaining agreement on July 22, 1999, which included the following clause:

27.01 The parties agree that bargaining employees’ membership in the current pension, savings and benefits plans, as amended from time to time, shall be continued for the duration of the collective agreement.

Successive collective agreements, including the current collective agreement, contained the same Section 27.01.

Prior to 2000, unionized employees were eligible to participate in the employer’s defined benefit (DB) pension plan, which included unionized and non-unionized employees. In 2000, the employer closed the DB plan and added a defined contribution (DC) pension plan for new hires. The DB and DC pension plans were two parts of a single pension plan. The employer also gave existing DB plan members a one-time option to stay in the DB plan or join the DC plan. In 1999, the employer held information meetings for employees about the upcoming changes.

On July 2, 2020, the employer notified employees that DB plan members would stop earning a DB pension after December 31, 2021, and would earn a DC pension going forward. DB employees would still receive their DB pension earned up to December 31, 2021, at retirement.

The Grievance

The union grieved the employer’s decision to stop DB pension accruals based on two alternative arguments:

  1. the collective agreement prevented the employer from freezing the DB plan; or
  2. in the alternative, the employer should “estopped” or prevented from implementing the changes, as it would be unfair to allow it before the expiry of the collective agreement.

The Arbitrator’s Decision

Arbitrator Wilson disagreed with the union’s first argument. He considered article 27.01 in the context of the surrounding facts at the time the provision was negotiated. He concluded that the provision “permits amendments to the plan with the only limitation being that the pension plan must be maintained.” The amendment to freeze the DB plan was permitted, as the pension plan would be maintained.

But Arbitrator Wilson agreed with the union’s second argument based on estoppel. The legal concept of estoppel is intended to prevent unfairness where one party relies to its detriment on the representations of another party. In this case, the union argued that it relied on the employer’s statements in 1999 that the DB plan would continue after the DC plan was introduced. As a result, the union “had a reasonable belief that the DB Plan would not be frozen” and did not attempt to negotiate any pension-related protections for its members over the years or in the current collective agreement. 

There was very little evidence of the statements the employer made to employees in 1999. Arbitrator Wilson relied on the evidence of two employees who were later involved in collective bargaining. The employees testified that they were told at information sessions in 1999 that as DB members they would continue to earn a DB pension until they retired. Arbitrator Wilson did not agree with the employer’s position that the evidence was “plagued by an unclear recollection of the witnesses” and that the 1999 PowerPoint (the only documentary evidence) did not expressly promise the DB plan would continue. Rather, he found that the 1999 PowerPoint presented the 1999 changes as a “one-time choice” and did not indicate the DB plan may be frozen in the future. It was not sufficient that the employer repeatedly stated that it had reserved the right to amend the pension plan.

Arbitrator Wilson determined that the fair result was to prevent the DB freeze until the expiry of the collective agreement to give the union an opportunity to address the pension issue should it wish to do so in collective bargaining.

Lessons for Employers

An employer’s prior representations may delay or prevent changes to a pension plan such as freezing a DB plan. To reduce the risk of making representations that could be relied upon by a union in an estoppel claim, employers should ensure:

  • pension and benefit communications with employees, whether written or oral, are carefully considered;
  • the knowledge of their representatives at the collective bargaining table is not lost due to employee turnover; and
  • one of its representative at the collective bargaining table is tasked with taking notes including specifically a list of any representations made by the employer.

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