In my last post to this blog I extolled the virtues of a benefit communications policy for HR professionals who communicate pensions and benefits to fellow employees. I pointed out that years of benefit miscommunication has an overwhelming impact on an organization’s potential legal liability. I also highlighted the fact that court decisions demonstrate time and again that important cost-savings measures, such as reducing post-retirement benefits or eliminating future pension accruals, can be derailed by ambiguous communications.

Canadian case law demonstrates how widely courts and arbitrators are prepared to cast their nets when awarding damages for benefit miscommunication. Cases involving negligent misrepresentation, for example, have resulted in awards for retiring employees, terminated employees, spouses of deceased employees and future employees. Two recent cases dealing with employee benefits and pensions demonstrate how a benefit communications policy can make a difference to employers.

In Feldstein v. 364 Northern Development Corporation, the B.C. Supreme Court awarded more than $93,000 in damages to a 364 employee, Feldstein, in respect to inaccurate information provided to him about the company’s long term disability (LTD) 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 364’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 364 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.

Among the features of a benefit 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 364’s LTD program, it would have been obvious to even the most casual observer that he intended to rely on the company’s explanation in making his employment decision. That alone should have spurred the hiring manager to refer to 364’s benefit communications policy (assuming it had one) which, one hopes, would have required the explanation to be thoroughly vetted before being delivered to Feldstein.

While the Feldstein case addresses communications to future employees, a more recent Quebec Superior Court decision deals with communications to current employees.

In Samoisette v. IBM Canada the employer amended its defined benefit (DB) pension plan to eliminated 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 court upheld IBM’s right to unilaterally modify its health plan on the basis that all benefit 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 IBM’s unqualified representations about that benefit, which said nothing about possible future changes, when making the important decision to remain in the DB plan when an alternate (defined contribution) plan was introduced by the company. The court found that most employees who chose to remain in the DB 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.

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 DB plan to take advantage of the bridge benefit feature. An effective benefit communications policy will recognize when representations will be relied upon by employees to make important decisions and, among other things, will ensure that such representations include language highlighting the employer’s right to implement future changes to benefit programs.

As noted in my earlier post, a benefit 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 benefit communications will not haunt an employer in the future.  Nevertheless, a benefit 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 benefit programs, will not be derailed by ambiguous employee communications.

Ensure that your organization adopts a benefit communications policy as soon as possible. If you require assistance, speak with one of our experienced pension and benefits lawyers.

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