The Quebec Court of Appeal has ruled the province’s Bill 15, which substantially modified municipal sector pension plans, is unconstitutional with respect to retirees but justified for active plan members.

The legislation, which was passed in 2014, adopted a cost-sharing formula for plans and plan deficits, established a shared-cost stabilization fund and put an end to automatic pension indexations.

Labour groups representing nearly 75,000 municipal employees and 30,000 municipal pensioners argued Bill 15 infringed on their freedom of association, including the right to collectively bargain their remuneration and benefits, of which pensions were a significant component. They pointed to the provisions in the law that changed actuarial deficits attributable to past service, defined strict limitations on future bargaining and amended existing collective agreements.

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After a 95-day trial in 2020, Quebec Superior Court Justice Benoit Moulin released a decision that rejected the constitutional challenges by active members but upheld them for retirees.

The majority of the Court of Appeal reached the same result, but by a different route. As the court’s two-to-one majority saw it, Bill 15 was unconstitutional against both active members and retirees because it imposed substantial structural reform on pension plans and the bargaining process around them, effectively subtracting matters of “critical importance” such as cost-sharing formulas and automatic indexation from collective bargaining.

Despite finding that Bill 15 offended the Charter of Rights and Freedoms in general, the majority nonetheless upheld its constitutionality against active members on the basis that Section 1 of the charter — which allows limitation on charter rights as long as those limits are reasonable in a free and democratic society — applied.

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The majority concluded the law’s objectives were to improve the financial health and sustainability of pension plans and reduce costs for municipalities. “The court must defer to this choice since the legislator has some constitutional leeway, especially since the measure concerns complex social issues for which the legislator is in a better position than the courts to choose from a range of alternative measures,” stated the court decision.

The entire court found these conclusions applied only to active plan members, not retirees. While retirees didn’t benefit from the same constitutional protection of their rights acquired through collective bargaining as active members did, they nevertheless benefited from a right to a bargaining process though an employee association acting on their behalf. Bill 15 removed that right by giving municipalities the sole power to suspend automatic indexation of pensions and determine the percentage of a deficit that retirees were bound to fund.

Most labour organizations involved in the case have instructed counsel to file applications for leave to appeal to the Supreme Court of Canada.

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