Despite contract language providing for post-retirement benefits, eight retirees of a Cornwall, Ont., manufacturing company are out of luck after an arbitrator ruled the company could terminate them.
The Aug. 2 arbitration decision follows the April 2015 closure of Sensient Flavors Canada Inc.’s plant in Cornwall. By January 2016, the company had notified the United Steelworkers Local 13292 and the retirees that their group benefits would end on April 20, 2016, despite language in the collective agreement that stated that, “upon retirement, all present employees, surviving spouses and dependants, shall be provided with full benefits.” The union grieved the end of the retiree benefits, which included group life insurance, extended health care and dental coverage.
“We’re still in shock,” says Richard Leblanc, a union representative for the United Steelworkers who acted in the arbitration matter.
“We’re terribly disappointed,” he adds, noting the union is now reviewing its legal options. “This will have a tremendous negative impact on the employees and their families for the rest of their lives.”
Key to the case was the company’s group insurance policy with Industrial Alliance Insurance and Financial Services Inc. The policy included a requirement for minimum participation that stated: “At all times, the number of participants shall not be less than 100% of eligible employees and not less than 26 participants.” That requirement doesn’t appear in the benefits booklet applicable to employee or retirees, arbitrator Marilyn Nairn noted.
Among other things, the union argued the retiree benefits had vested and the language in the collective agreement requiring the employer to provide them should prevail. While Nairn accepted that the benefits had vested, she also considered the employer’s argument that the collective agreement included language about the insurance contracts prevailing. The collective agreement stated: “Each employee will receive a document detailing the benefits. The summary is intended to provide you with a convenient outline of the more important terms and conditions of our benefits; however, the respective insurance company master contracts are the governing documents and are hereby incorporated into the Collective Agreement by reference.”
In considering the issue, Nairn also dealt with the union’s arguments that the employer’s position provided it with a means of getting out of providing retiree benefits despite a clause in the collective agreement requiring them. Despite acknowledging the union’s concerns, Nairn found the requirement for minimum participation served as a limitation on the company’s promise to retirees:
“It specifically limits the promise made. . . .This stated requirement reflects the kind of clear and unequivocal language required . . . to reserve a right to reduce or eliminate vested entitlements. While each of the affected individuals in this case enjoyed a vested right to retiree benefits, the right that vested was not unlimited. It came with a particular limitation that required a minimum level of participation in the benefit coverage. Thus, while I fully appreciate the impact of this decision, I am driven to the conclusion that the Employer is entitled to rely on the action of the insurer in terminating the policy pursuant to the minimum participation requirement. The potential for that event must be taken to have been accepted by the parties when they incorporated the master contract into the Collective Agreement, giving it the full and effective weight of their agreement.”
Toronto pension and benefits lawyer David Vincent says while the case is an interesting one, the fact that it’s an arbitration decision, rather than a court ruling, limits its applicability to other matters. But he says it’s a “very helpful case” for employers nevertheless. Clauses such as the Industrial Alliance one setting out a minimum number of members are typical, he adds, noting an insurer would generally want to avoid having the risk concentrated among a small number of retirees with the potential for high claims.
“What’s unique about this case is if you look at the terms of the collective agreement, in a way it’s contradictory,” he says, contrasting the detailed language around the benefits the employer is to provide against the insurance contract that provided various ways to terminate them.
For Leblanc, the case is a cautionary tale. “It’s telling us that we should make sure to have master policies handed to us every round of bargaining,” he says.
In fact, Leblanc says the company only raised the issue of the master agreement in April as a “new development” after it first announced the benefits elimination in January. He also takes issue with the idea that the company can’t afford to continue the benefits given that Sentient Flavors still operates around the world despite the closure in Canada. “They can pay this,” he says. “It’s really unfortunate they’re leaving out the eight retirees.”
Correction: Story updated Aug. 5 to reflect the fact that Vincent is a Toronto lawyer. The article originally stated he was a Markham, Ont.-based lawyer.