Court decisions reinforce need for benefits communications policy

In a previous post, I extolled the virtues of a benefits communications policy for those who communicate pensions and benefits to employees. Two recent court decisions demonstrate just how important a benefits communications policy can be for employers.

In Feldstein v. 364 Northern Development Corp., the British Columbia Supreme Court awarded more than $93,000 in damages to an employee, Feldstein, in respect to inaccurate information provided to him about the company’s long-term disability program during the hiring process.

During pre-employment interviews Feldstein disclosed that he suffered from a condition that could require him to apply for LTD benefits at some future date and, understandably, asked pointed questions about the organization’s LTD program. The hiring manager misrepresented how the program operated and when Feldstein ultimately applied for benefits, he was denied full coverage. The court confirmed that the law required the employer to ensure that representations made to Feldstein about the LTD program were accurate and not misleading. It concluded that Feldstein, to his detriment, had accepted employment on the strength of the company’s negligent misrepresentation and was entitled to recover damages.

Read: B.C. employer on the hook for $90K for miscommunicating LTD rules

Among the many features of a benefits communications policy is the thorough vetting of all communications that may be relied upon by potential and current employees to make important decisions. With Feldstein’s disclosure of a pre-existing medical condition and pointed questions about the organization’s LTD program, it should have been obvious that he intended to rely on the employer’s explanation in making his employment decision. That alone should have spurred the hiring manager to refer to the company’s benefits communications policy (assuming it had one) which, one hopes, would have required the explanation to be thoroughly vetted before being delivered to Feldstein.

In another case, Samoisette v. IBM Canada, the employer amended its defined benefit pension plan to eliminate bridge benefit entitlements for its employees in respect of their future retirement benefits and unilaterally terminated health insurance coverage for certain employees over age 65. Affected employees challenged IBM’s right to make those changes.

The Quebec Superior Court upheld IBM’s right to modify its health plan on the basis that all benefits communications to employees had clearly reserved to IBM the right to amend those benefits at any time.

However, the bridge benefit amendment was held to be invalid on the basis that employees had relied on the company’s unqualified representations about that benefit, which said nothing about possible future changes, when making the important decision to remain in the defined benefit plan when an alternate (defined contribution) plan was introduced by the company. The court found that most employees who chose to remain in the defined benefit plan did so to take advantage of the bridge benefit and, hence, IBM was prohibited from amending the bridge benefit notwithstanding that it had reserved the right to amend its pension plan in the future.

IBM was ordered to pay more than $23 million plus interest to active and retired employees a decade after the original bridge benefit amendment. Keep in mind that the Quebec court’s decision may be appealed.

Read: IBM ordered to pay $23M to staff in connection to pension change

While IBM effectively reserved the right to amend or terminate its health insurance coverage, it appears that its pension communications were not sufficiently explicit to overcome the expectations of employees who elected to remain in the defined benefit plan to take advantage of the bridge benefit feature. An effective benefits communications policy will recognize when representations will be relied upon by employees to make important decisions and, among other things, will ensure such representations include language highlighting the employer’s right to implement future changes to benefits programs.

As noted in my earlier post, a benefits communications policy should become an integral part of an organization’s risk management strategy and be aligned with existing procedures and human resource capabilities. There is no guarantee that phantoms of past benefits communications will not haunt an employer in the future. Nevertheless, a benefits communications policy can significantly decrease the risk of future legal claims against an employer and increase the likelihood that upcoming cost-saving measures, which include changes to pension and benefits programs, will not be derailed by ambiguous employee communications.

Read: How to avoid legal liability for benefits communications