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© Copyright 2000 Rogers Media. The following article first appeared in the December 2000 edition of
BENEFITS CANADA magazine.
Strength in numbers
Class action suits are on the rise as disgruntled employees and pensioners band together to take on
their employers. Is your organization in danger?
By Brett Ledger
Class action suits conjure up images of John Travolta in A Civil Action and more recently, Julia
Roberts in Erin Brockovich.
Unfortunately, Canadian plan sponsors are discovering that class actions are not just the stuff of
Hollywood movies. Nor are they limited to headline-making issues such as breast implants, faulty consumer
products and tainted blood.
Pension and employee benefits class action suits are turning up with startling regularity. They have the
potential to become one of the most lucrative new practices for ever-inventive class action lawyers--and
one of the biggest headaches for plan sponsors.
To protect their organizations from the financial and reputation-harming repercussions of a class action,
plan administrators need to understand the factors generating this legal activity in Canada, and develop
strategies to avoid becoming a lightning rod.
Three provinces in Canada have class action legislation: Quebec (1979), Ontario (1993) and B.C. (1995). One
factor fuelling the recent acceleration in class actions is simply the passage of time since these laws
were introduced.
In addition, lawyers, actuaries and other professionals involved in class action litigation have become
increasingly adept and innovative in their approaches.
Despite this growing legal expertise, not all cases have been accepted by the courts. For a class action to
be certified as a class proceeding, it must raise issues common to the class members and be deemed the
preferable procedure for addressing these issues.
Canada has proven to be a relatively friendly forum for the prosecution of class actions. Canadian courts
have stressed the judicial benefits--notably freeing up court time otherwise required to resolve individual
claims--and they have repeatedly emphasized the value of class actions in providing access to justice for
those who could not otherwise be able to afford to prosecute their claims.
In addition, the threat or reality of huge settlements can result in drastically modified behaviour on the
part of defendants as well as other organizations learning from their mistakes.
A bigger factor behind the growth of class actions is the legal fees, which are two to three times the rate
of normal fees. To plaintiff lawyers, this is a powerful incentive--particularly when deep-pocketed pension
funds and corporations are the target.
Plan sponsors and benefits plan administrators in provinces without class proceedings legislation are not
insulated from these cases. In provinces with class action laws (Ontario in particular), courts have
demonstrated a willingness to certify national classes that have members in provinces without such
legislation.
Plaintiff groups in these provinces are also able to launch representative proceedings, in which a few
plaintiffs represent a larger group, again allowing similar claims to be consolidated into a single action.
Imperial Oil Limited is currently facing a representative action launched in Alberta that challenges an
amendment to the company's pension plan. The amendment, which is alleged to add an age 50 requirement in
order for employees to qualify for a supplementary retirement benefit, was found to be valid by the Pension
Commission of Ontario.
However, Alberta members of the Imperial Oil pension plan, which has members across Canada, are claiming
the right to sue for civil damages despite the ruling. Imperial had argued unsuccessfully to the Supreme
Court of Canada that the Alberta courts do not have jurisdiction in light of the Ontario decision.
Class action defendants and their legal counsel have had some success in stopping certain actions in their
tracks, and limiting the scope of other cases. In a case involving Reichhold Limited, the Ontario Superior
Court recently dismissed a bid made by a group of former employees to participate in a class action
settlement. The plaintiffs had transferred out of the Reichhold plan when their division was sold to a new
employer. Former employees claimed they had a right to participate in the distribution of a surplus, which
had been negotiated with active plan members and retirees.
The court wasted little time in dismissing the claim. It ruled that there was no legal basis for finding
that a pension plan administrator or a trustee of a pension fund owes a "duty for the future" to members
who have left a pension plan and are either no longer receiving, or are no longer entitled to, benefits
under that plan.
LAW OF MISREPRESENTATION
The common issue requirement for certifying a class action has also impeded cases where the plaintiffs
allege that misrepresentations have been made to them by plan sponsors, or when they claim they were not
given complete and accurate information before making benefits-related decisions.
The law of misrepresentation requires plan member plaintiffs to demonstrate that they relied on a
representation made by a company's benefits officer or outside benefits consultant in making their
decision. Because these representations--both in their content and result--can vary so much, the courts
have been reluctant to certify cases that turn on numerous allegations of individual misrepresentation in
different contexts.
This was the situation in Huras vs. Com Der Ltd. There were so many possible different accounts of
an employee stock plan that the judge refused to certify a class action.
But even in these cases, a chink has appeared in the defence's armour. In the case of Scheweyer vs.
Laidlaw, the court certified a case where the representation complained of was a letter sent to 30
employees who had accepted a retirement package. Issues of individual reliance will be determined, if
necessary, after the common issue of whether the company's letter or press release amounted to a
misrepresentation is decided.
Recently, in the latest installment in the Brex-X case, the Court of Appeal of Ontario certified a
misrepresentation case based on press releases.
Benefits brochures are another source of representations that might support a class action if they prove to
be inaccurate or misleading.
On the positive side, class actions have been used to obtain the court's seal of approval on surplus
distribution plans. Section 29(3) of Ontario's Class Proceedings Act states that a settlement of a class
proceeding approved by the court binds all class members unless they opt out. If the definition of the
class is sufficiently broad, an order under the Act provides some certainty and finality for employers
implementing surplus distribution plans.
B.C., however, has the opposite regime. Individuals must opt into a class proceeding after they're notified
that the case has been certified to proceed.
Many of the new issues arising in the pension and employee benefits industry are fertile grounds for class
actions. Look for class actions in fiduciary duty claims, allegations of improper or imprudent investments,
market manipulation as well as plan wind-up and amendment scenarios.
The dramatic increase in the number of defined contribution pension plans over the past few decades also
increases the potential for class actions. If retiree income proves to be below expectations, there will
likely be class action claims alleging mismanagement, breach of fiduciary duty, imprudent and speculative
investments and inappropriate conversion of benefits.
The potential is virtually unlimited here and, as usual, the pension and benefits bar will likely fuel even
more inventive attempts to fit group claims in the class proceedings legislation. Whether the courts will
continue to be receptive to such actions remains to be seen. But the chance of earning fat fees will be a
powerful incentive for plaintiffs' counsel.
ALTERNATIVE SOLUTIONS
Class action laws do not create any new cause of action--they simply introduce a new procedure for
resolving the same kinds of issues that have been around for years.
Accordingly, full, clear, accurate and timely disclosure of changes to benefits plans remains the rule, as
does complete disclosure of potential risks to members arising from any changes to the plan.
Faced with the threat of a class action, a plan sponsor should consider alternative dispute resolution
methods that may enable the claims of a large number of employees or members to be resolved fairly and
expeditiously. The courts have indicated that they are prepared to consider extra-judicial alternatives,
such as mini-trials, mediation and references when they're considering whether or not to certify a class
action.
Defendants who face the possibility of an expensive and time-consuming legal battle may well want to
consider a pro-active approach to resolving plaintiffs' claims, particularly where liability is not a
significant issue.
One thing is certain though, class actions are here to stay. However, this isn't all bad news.
On the housekeeping side, class action laws may enable plan sponsors to compress the grievances of hundreds
or even thousands of individual plan members into one action, resulting in a court ruling that would also
bind any future claimants. So there may indeed be a silver lining to the black cloud of pensions and
benefits class action suits.
Prudent administrators are advised to keep an eye on new legal fronts brewing and assess damage reports
from those class action cases that do occur--all the while monitoring their own defences.
Brett Ledger is the chair of the litigation department of Osler, Hoskin & Harcourt LLP in Toronto.
bledger@osler.com.
The class action club
The introduction of class action legislation in three Canadian provinces during the 1990s has spawned
dozens of lawsuits over flawed products, stock market losses and employee pensions and benefits. In fact,
current and former employees are banding together to claim millions in cases involving everything from
pension surpluses and wrongful dismissals to occupational health and safety issues. Here are a few
examples:
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Royal Bank of Canada and Royal Trust Corp. have been named as defendants in a $150-million class action
relating to pension surplus and pension fund management.
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Hydro-Québec is facing a class action by retirees who have been excluded from a surplus-sharing
agreement with active members of its pension plan.
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Donohue Quno Inc. settled a class action commenced by retirees who alleged that their retiree benefits
coverage was unilaterally reduced.
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A national wrongful dismissal class action against K-Mart Canada Ltd. on behalf of several thousand
former employees has been certified and is proceeding in the courts.
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General Motors of Canada Limited is facing a series of potential class actions (not yet certified)
launched by former union members who claim their severance packages should include severance benefits
negotiated by the union after their departure. GM Canada is also facing a $22 million class action
(also not yet certified) which alleges that it failed to accommodate injured workers.
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Sun Life Assurance Co. of Canada has settled vanishing premiums life insurance class action claims in
Ontario, B.C. and Quebec involving over 140,000 members.
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Laidlaw Carriers Inc. has had a class action certified against it relating to the valuation of retiree
pensions.
Plan sponsors as plaintiffs
The Canadian plan sponsor community can take some comfort knowing that it may be able to use class action
legislation to its advantage.
Recently, CalPERS, the massive California public employees' pension fund, led a class action lawsuit on
behalf of other investors against Cendent Corporation. The action, which stemmed from the fund's investment
in Cendent, was based on allegations of fradulent financial statements. It recently resulted in a whopping
settlement of more than US$3 billion.
Surprisingly, there is a positive side to the growth of class actions in Canada for plan
sponsors--particularly when the targets are investment firms. New lawsuits stemming from increased
vigilance on the part of securities regulators, for instance, actually benefit plan sponsors as well as
other investors who suffer from losses as the result of fund managers' unethical behaviour.
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