Welcome to the 28th issue of the Blakes Pensions, Benefits & Executive Compensation Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions, benefits and executive compensation and is not intended to be legal advice.
For additional information or to discuss how any aspect of these developments may affect you, please contact a member of the Blakes Pensions, Benefits & Executive Compensation group.
IN THIS ISSUE
Lorimer v. Lorimer, 2020 ONSC 1923
Van Delst v. Hronowsky, 2020 ONCA 329
VESTING DURING THE REASONABLE NOTICE PERIOD
Battiston v. Microsoft Canada Ltd., 2020 ONSC 4286
Francis Battiston was an employee at Microsoft Canada (Microsoft) for almost 23 years prior to his termination without cause. In addition to his base salary, Mr. Battiston received benefits every year, including merit increases, cash bonus and stock awards under Microsoft’s Rewards Policy. These benefits comprised about 30 per cent of Mr. Battiston’s total compensation. One issue at trial was whether Mr. Battiston was entitled to the vesting of his previously awarded stock bonuses during the notice period.
Microsoft communicated the award of the stock bonus to employees by e-mail. The e-mail directed the employee to the My Rewards website to complete the online acceptance process, where a record would save indicating that the employee had read, understood and accepted the stock award agreement (Agreement) and accompanying plan documents. The e-mail indicated that failure to read and accept the Agreement and other plan documents may prevent the employee from receiving shares from the stock award in the future. The e-mail concluded by directing the employee to a human resources webpage for more information regarding the stock awards. Mr. Battiston’s self-described practice was to accept the stock plan without reading the Agreement, given its length. The Agreement contained a termination provision which provided that unvested awards would be forfeited on termination of employment. Mr. Battiston testified that he had not read the Agreement, nor did Microsoft draw his attention to the termination provisions, and further claimed that he was under the impression that he would be eligible to cash out his granted but unvested stock awards in the event that he was terminated without cause.
In deciding that Mr. Battiston was entitled to damages relating to the termination of unvested stock awards that would have vested during the notice period, the Ontario Superior Court of Justice (Ontario Superior Court) held that, though the Agreement unambiguously excluded Mr. Battiston’s right to vest his stock awards after he was terminated without cause, Mr. Battiston was entitled to damages for the unvested stock awards that would have vested during his notice period had he not been terminated, as the termination provisions were unenforceable. The Ontario Superior Court refused to enforce the termination provisions in the Agreement as they precluded Mr. Battiston’s right to have unvested stock awards vest if he had been terminated without cause. The Court further accepted Mr. Battiston’s evidence that he was unaware of the termination provisions in the Agreement and that such provisions were not brought to his attention by Microsoft, noting that Microsoft’s e-mail communication that accompanied the notice of the stock award each year did not amount to reasonable measures to draw Mr. Battiston’s attention to the termination provisions.
Ontario Superior Court Decision
Boulos v. Duca Financial Services Credit Union Ltd., 2020 ONSC 1946
Nazha Boulos, the estate trustee of her late husband, Edward Joseph Boulos, brought an application for an order declaring that Mr. Boulos’ estate is the beneficiary of three Registered Retirement Investment Fund (RRIF) accounts in the name of the late Yura Khagek, a close friend of Mr. Boulos. Mr. Khagek was the sole annuitant under three Registered Retirement Savings Plan (RRSP) accounts (RRSP Accounts), and Mr. Boulos was the designated beneficiary of each RRSP Account. Upon Mr. Khagek reaching the age of 71, in the absence of any direction from Mr. Khagek, Duca Financial Services Credit Union converted the RRSP Accounts to RRIFs in accordance with Section 146(2)(b.4) of the Income Tax Act (Canada). Mr. Khagek had not signed beneficiary designation forms for the RRIFs. Mr. Khagek later passed away and appeared to die intestate, with no will or testament found. Shortly thereafter, Mr. Boulos passed away. Mrs. Boulos is the executor and sole beneficiary of Mr. Boulos’ estate.
In arriving at its decision that Mr. Boulos was the designated beneficiary of the RRIF accounts, the Ontario Superior Court looked to the Succession Law Reform Act (SLRA) and jurisprudence regarding the relationship between RRSP accounts and RRIFs. Pursuant to section 51(1) of the SLRA, which provides that a plan participant may designate a person to receive a benefit payable on the participant’s death by a written designation or by a will, Mr. Khagek had designated Mr. Boulos as the beneficiary of the RRSP Accounts through a written designation.
Further, in determining that the RRSP designation also applied to the RRIF accounts, despite no explicit designation having been made under the RRIF, the Ontario Superior Court followed the judgment of Ashton Estate v. South Muskoka Memorial Hospital Foundation, 2008, which held that “RRIFs are connected to or derivatives of the RRSP from which they have been converted.” The Ontario Superior Court found that the RRSP designation made by the late Mr. Khagek would follow the conversion of the funds into a RRIF, absent Mr. Khagek revoking the designation.
For these reasons, the Ontario Superior Court granted the application and ordered the funds in the RRIFs to be transferred to Mr. Boulos’ estate.
Ontario Superior Court Decision
Lorimer v. Lorimer, 2020 ONSC 1923
Mr. and Ms. Lorimer married on October 6, 1979, and separated on June 1, 2007. In 2011, Mr. Lorimer was ordered to transfer one-half of his pension to Ms. Lorimer and pay Ms. Lorimer spousal support (2011 Order). On January 1, 2018, Mr. Lorimer retired after almost 37 years of service. Mr. Lorimer filed for divorce around this time.
At issue was whether Mr. Lorimer’s pension was to be included in his income for spousal support purposes, notwithstanding that the portion of the pension entitlement that accrued to Mr. Lorimer during the marriage was equalized by the 2011 Order. Mr. Lorimer submitted that Ms. Lorimer received the benefit of one-half of his employment pension accrued during the marriage as an asset, and accordingly his pension income should not be considered in the calculation of spousal support. Mr. Lorimer also submitted that Ms. Lorimer had an obligation to use the divided assets to provide for her own pension, but chose to deplete her assets in order to live beyond her means and to provide for her independent adult children. Ms. Lorimer acknowledged that the reduction in Mr. Lorimer’s income upon his retirement represented a material change in circumstances. However, Ms. Lorimer submitted that, although she received a division of Mr. Lorimer’s pension upon equalization, Mr. Lorimer’s pension income should continue to be included in his post-retirement income for the purpose of spousal support, as she has continued to experience economic hardship from the marriage or its breakdown.
As outlined in Boston v. Boston, 2001 SCC 43, the payee spouse’s need and the payor spouse’s ability to pay are factors which the court considers when determining spousal support, as is the extent, if any, of “double recovery.” The Supreme Court of Canada noted that it is generally unfair to allow the payee spouse to reap the benefit of the pension, both as an asset and then again as a source of income. Accordingly, the Ontario Superior Court indicated that Mr. Lorimer’s retirement and diminished income potential was a material change to warrant a variation order, because Mr. Lorimer continuing to pay spousal support would permit a double recovery that was not contemplated when the 2011 Order was made.
Ontario Superior Court Decision
Van Delst v. Hronowsky, 2020 ONCA 329
This case is an appeal of the Ontario Superior Court decision in Van Delst v. Hronowsky, 2019 ONSC 2569, discussed in our October 2019 Blakes: Pensions, Benefits and Executive Compensation Newsletter.
Ms. Van Delst and Mr. Hronowsky (Parties) had been married for slightly more than a decade when they separated in 2016. Both Parties had accrued benefits in federally regulated pension plans and both of their employers were governed by the Public Service Superannuation Act (PSSA). One issue at trial was the valuation of the Parties’ pensions. Three aspects of the trial judge’s reasons on the valuation of the Parties’ pensions were challenged on appeal: (i) the determination of the Parties’ normal retirement dates; (ii) the decision not to include in Ms. Van Delst’s net family property the contingent interest she held in the Mr. Hronowsky’s pension; and (iii) the inclusion of a contingent survivor benefit in valuing the Parties’ pensions.
The ONCA held that while the trial judge reached the right conclusions on the survivor benefit and contingent survivor benefit issues, she erred in her approach to all three issues by failing to heed the requirement of section 10.1(2) of the Ontario Family Law Act (FLA). Section 10.1(2) of the FLA provides that the imputed value, for family law purposes, of a spouse’s interest in a non-Ontario registered pension plan is determined, where reasonably possible, in accordance with section 67.2 of the Ontario Pension Benefits Act (PBA) or, in the case of a spouse’s interest in a variable benefit account, section 67.7 of the PBA, with necessary modifications.
The ONCA noted that the correct approach was to treat the issue the same way it would be treated if the pension plan at issue was an Ontario pension, by first asking: “What would the law require if this were an Ontario pension?” Once that has been determined, the next question is whether any modifications of that approach are necessary in the circumstances. The problem with the trial judge’s analysis of the Parties’ pensions was that she did not default to the requirement that a federally regulated pension should be valuated in the same manner as a provincially regulated pension, unless a departure from the methodology was necessary in the circumstances. Instead, she applied the pre-legislative reform approach of tailoring the pension valuation to the Parties’ specific circumstances.
On the issue of the Parties’ normal retirement date, the trial judge concluded that the normal retirement date was age 60 for Mr. Hronowsky and age 65 for Ms. Van Delst. These conclusions were based on the pre-separation evidence of the Parties’ intended retirement dates. While plans registered under the PBA must specify a normal retirement date, the plan at issue was not regulated by the PBA and therefore was not required to — and did not to — specify a normal retirement date. As such, the PBA rules needed to be modified to value these pensions for family law purposes. The ONCA outlined that an analysis of the use of “normal retirement date” in the PBA and other regulated pension plans shows that the normal retirement date is not a case-specific value reflecting when a given member is likely to retire. Rather, it is a generalized value representing the date at which the pension plan entitles any given member to unreduced pension benefits. The ONCA held that the trial judge erred by replacing the generalized concept of normal retirement date, as defined under the provincial scheme, with a case-specific value for which there is no statutory authority. The ONCA further held that applying the PBA valuation methodology with necessary modifications to the pension benefits provided by the PSSA requires the substitution of the definition of normal retirement date with the date that the Parties reach age 60.
Ontario Court of Appeal Decision
JURISDICTION OF PENSION PLAN
Canada (Attorney General) v. Picard, 2020 CAF 74
This case is an appeal of the Federal Court decision in Picard v. Canada (Attorney General), 2018 FC 747, discussed in our October 2018 Blakes: Pensions, Benefits and Executive Compensation Newsletter.
The Federal Court of Appeal (FCA) was asked to determine whether the administration of a pension plan designed to benefit certain Aboriginal police officers should be the responsibility of either the federal or provincial authority. The First Nations Public Security Pension Plan (Plan) was established to provide retirement benefits to officers and special constables hired by band councils to work within certain Aboriginal communities in the Quebec. The plan was first approved by the Office of the Superintendent of Financial Institutions (OSFI) in 1981 under federal pension standards legislation. However, following the rendering of FCA decision Nishnawbe-Aski Police Service Board v. Public Service Alliance of Canada, 2015 FCA 211 (Nishnawbe-Aski), OSFI reassessed the appropriateness of maintaining regulatory supervision over the Plan and concluded that the Plan was not approved under the Pension Benefits Standards Act, 1985, and should be transferred to Retraite Québec. The Plan Administrator successfully brought an application for judicial review to the Federal Court in respect of OSFI’s decision to transfer the Plan.
In dismissing the appeal and affirming the Federal Court’s decision, the Court held that OSFI had erred in its decision to transfer the Plan based on the Court’s ruling in Nishnawbe-Aski, as the two cases were sufficiently distinguishable. In Nishnawbe-Aski, members of the Nishnawbe-Aski Police Services Board derived their authority from the provincial Police Services Act, were recruited and trained by the Ontario Provincial Police (OPP), reported to the OPP commissioner and had the authority to act both on and off the reserve. In the instant case, the police officers and special constables were employed by band councils and they did not derive their authority solely from provincial legislation. Most importantly, unlike members of the Nishnawbe-Aski Police Services Board, the jurisdiction of the Plan members was limited to the reserve.
The FCA held that by emphasizing the nature of the police officers’ work rather than the business which employed them, OSFI had erred in characterizing the work of the officers as a provincial undertaking. The Court reiterated the Federal Court’s position which stated that, in their essential nature, the police services rendered by the officers and special constables employed by band council members were closely linked and indivisible from the governance activities of the band council. The fact that a member of an Aboriginal police force has the status of a “peace officer” under the Police Act does not affect his employment relationship with the band council, and does not change the federal character of the band council governance activities. Lastly, the FCA concluded that this approach does not call into question the applicability of provincial laws validly adopted in the administration of civil and criminal justice. Thus, the minimum training and hiring standards provided for in the applicable provincial legislation, and in particular in the Police Act and the Code of ethics of Québec police officers, apply to Aboriginal police services, as provided under the tripartite agreements involving the federal and provincial governments.
Federal Court of Appeal Decision
HEALTH AND WELFARE BENEFITS
Toronto (City) v. Toronto Professional Firefighters’ Association, Local 3888, 2020 CanLII 31921 (ON LA)
These grievances arose in response to the City of Toronto’s (Employer) decision to change the benefit carrier with regards to the extended health care, dental and out-of-country benefit entitlements of certain unionized employees, pursuant to the provisions of the collective agreement (Collective Agreement). The Employer is self-insured with respect to extended health care benefits and dental benefits. Historically, the Employer has entered into an Administrative Services Only contract with a benefit carrier. With respect to the out-of-country benefits, the Employer is not self-insured.
In October 2016, the Auditor General of the City of Toronto released a report containing a number of recommendations regarding the Employer’s oversight of benefit claims administration, with a focus on preventing and detecting potential misuse of benefits and to ensure that the Employer’s benefit plans follow industry standards and practice. A joint Request for Proposal (RFP) was issued to find an appropriate benefit administrator and a new benefits administrator was selected. In response to the change in benefits carrier, the Toronto Professional Firefighters’ Association (Association) filed three grievances, which raised concerns about various policy issues associated with the switch.
Article 16.11 of the Collective Agreement provides that “[s]hould there be a change in benefit carrier at any or all of the employee benefits set forth in this Article, such change of carrier shall not itself result in a change of benefit levels.”
The Association submitted that the term “benefit levels” in Article 16.11 did not only relate to quantitative entitlement, but also encompassed any existing limitations and exclusions with respect to those benefits. In other words, that the term “benefit levels” captures the way in which the previous benefits carrier historically administered the relevant benefit plans. The Employer asserted that the parties’ use of the term “benefits levels” in Article 16.11 reflected a clear intention to only capture the type of benefit, maximum amount of entitlement and frequency of entitlement, as expressly provided for under Articles 16.02 and 16.03 of the Collective Agreement, which provide for a detailed list of benefits under the extended health care plan and dental benefits, respectively.
Arbitrator Sheehan held that Article 16.11 gives the Employer an unequivocal right to change the benefit carrier; however, this right is qualified by the requirement that any change in carrier “shall not itself result in a change in benefit levels.” Arbitrator Sheehan then undertook an analysis of Article 16.11 in light of the Collective Agreement as a whole. He concluded that the term “benefit levels” was therefore intended to capture more than the specific listing of benefit entitlements in Articles 16.02 and 16.03. Instead, it requires a comparative assessment of the provisions of the relevant plans, including the respective limitations or exclusions with respect to coverage; and the manner in which the predecessor benefit carrier applied those provisions. Article 16.11 is an assurance that a change in benefit carrier would not result in any lessening of the “status quo,” which would mean that they would continue to provide for the maintenance of the full breadth of benefit entitlement enjoyed by plan members. Anything less would constitute a “change in benefit levels” for the purposes of Article 16.11. Arbitrator Sheehan considered each relevant provision of the new benefits plan in relation to the prior benefits plan to see if the change in benefit carrier resulted in a change in benefit levels for the purposes of Article 16.11 of the Collective Agreement, concluding in most instances that there was a change in benefit levels. The union’s request that all claims decisions since January 2017 — when the new carrier took responsibility for administering benefits — be reviewed was referred back to the parties for further discussion in view of the arbitrator’s findings on specific benefit provisions.
Ontario Labour Arbitration Decision
CALCULATION OF ANNUAL REFERENCE SALARY
Roy v. Retraite Québec, 2020 QCTA 227 (Me Pierre-Georges Roy)
This is an appeal of a decision of Retraite Québec regarding the calculation of the annual reference salary of a Québec public service employee who had applied for phased retirement.
Ms. Lise Roy worked for several years in the Quebec public healthcare system. In December 2015, she applied for a phased retirement. In her application, there was only one employer identified. Based on that information, Retraite Québec calculated her annual reference salary at C$93,007.22. However, in 2018, Retraite Québec proceeded with the review of Ms. Roy’s phased retirement application and discovered that, at that time, she was, in fact, employed with two different employers and that her other employment had a lower annual salary rate. Retraite Québec therefore concluded that Ms. Roy’s annual reference salary for the purposes of her phased retirement had been erroneously determined in 2015, and that it should have been set at C$88,388.03.
Retraite Québec subsequently informed Ms. Roy that she would need to reimburse part of the pension benefits she received during her phased retirement since she had received amounts in excess of her revised annual reference salary. Ms. Roy challenged Retraite Québec’s decision on the basis that she conducted herself in accordance with the annual reference salary of C$93,007.22, which was confirmed to her in writing in 2016. Due to that situation, Retraite Québec agreed to reconsider its decision and decided not to penalize Ms. Roy for the inaccurate calculation of her annual reference salary. Retraite Québec thus confirmed to Ms. Roy that she would not need to reimburse the benefits received in excess of her accurate annual reference salary for the years 2016 to 2018.
Considering that Ms. Roy was treated according to the most advantageous numbers, the arbitrator concluded that there was no reason to intervene and review Retraite Québec’s decision in this case.
Québec Arbitration Tribunal Decision