The trend away from defined benefit to defined contribution or hybrid pension plans has heightened the litigation risk for employers when it comes to the duty to explain the changes to their employees.

It’s not a new issue but it’s one that goes beyond pension plans to include a duty to properly communicate employee benefits offerings and other terms of employment.

“It’s not a problem that occurs that regularly, but when it does, it can be a big one,” says Jennifer Wiegele of Miller Titerle + Co. LLP in Vancouver.

The costs of misrepresentation

Just how big the problem can become was evident in a recent case in the British Columbia Superior Court, Feldstein v. 364 Northern Development Corp. It resulted in an award of some $93,000 to an employee who claimed his employer had negligently misrepresented the terms of his long-term disability benefits.

Read: Employers urged to beware litigation risk in converting pension plans

The employee, Cary Feldstein, suffered from cystic fibrosis. He knew he’d eventually require a double lung transplant and was very diligent about his health care.

Feldstein isn’t the only recent case to consider the rules around long-term disability benefits. In May, the Alberta Court of Queen’s Bench ruled in favour of a teacher who sought long-term disability benefits, following her diagnosis with a brain tumour three days into her teaching contract and despite a policy exclusion for pre-existing conditions. Read the full story: “Alberta LTD ruling offers lessons about exclusions for pre-existing conditions.

In the course of his pre-employment discussions with the employer, Feldstein specifically asked about the company’s disability benefits and coverage for pre-existing conditions. The benefits summary provided to Feldstein by the company indicated there was only a “proof of good health” requirement. The company’s chief information officer told him he’d satisfy the requirement if he worked for three months without illness.

Two years into his employment, Feldstein claimed long-term disability benefits for the transplant. The bulk of his claim was denied because he hadn’t filled out a medical questionnaire when he originally enrolled in the plan. The denial came as a surprise to both Feldstein and the chief information officer.

Justice Jennifer Power of the Supreme Court of British Columbia ruled the statement by the chief information officer regarding the “proof of good health” requirement was a negligent misrepresentation. Feldstein had reasonably relied on that statement to conclude he’d have coverage after three months. Given Feldstein’s demonstrated diligence about his health, Power concluded the plaintiff would likely not have accepted employment with the company had he not been fully happy with his coverage.

Read: How to avoid legal liability for benefits communications

Power ordered damages for 30 months of lost benefits, less the minimal payments Feldstein had received, for a total of $83,336. She also ordered an additional $10,000 in damages for mental distress, notwithstanding the fact that the chief information officer’s misrepresentation was an honest mistake and he had done his best to assist Feldstein. The case has been appealed.

Diligence required

Wiegele, who represented Feldstein, notes it wasn’t a situation where an employer had made an outright promise and reneged on it.

“What’s terrifying for employers about the decision is the suggestion that employers ought to know when people are relying on getting full information as part of making a decision and so have an obligation to give them the information that they need to make that decision,” she says. “That requires a thorough knowledge of what the rules are and a sense of diligence and prudence that can be very costly but, if not satisfied, can even bankrupt some small companies.”

The only realistic option is to word all employee communications carefully, and preferably in writing.

“What’s said to the employees must match the documents underlying the plan,” says Mitch Frazer of Torys LLP in Toronto. “Employers who go further risk expanding their duties.”

Julius Melnitzer is a freelance writer based in Mississauga, Ont.

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Copyright © 2018 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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