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News



August 28, 2013
GM wrong to cut retiree benefits, court says

An Ontario court has ruled that General Motors Canada was wrong to cut the group life, health and dental insurance of its retired employees in 2009.

In what could potentially be a landmark ruling for the group benefits industry, Ontario Superior Court Justice Edward Belobaba ruled that the auto maker was “not contractually entitled” to make changes to the benefits of its retired salaried employees when it faced financial restructuring during the 2008-09 market crash.

According to Justice Belobaba, GM was too vague in outlining its right to reduce or eliminate group benefits, particularly after the affected employees had stopped working.

GM maintains that its benefits booklets, which were distributed to its salaried workers, clearly specified that the company could “amend, modify, suspend or terminate the benefit programs at any time.”

However, in reviewing the various benefits documents that had been distributed to the workers, Justice Belobaba noted that GM had repeatedly said that the workers could rely on the company to provide the promised group health care and life insurance benefits.

“The salaried retirees, some of whom had worked for decades at GM, were told repeatedly in the benefits documents that they could rely on the promised health care and life insurance benefits…,” the judge noted.  “GM’s right to make changes to the benefit programs didn’t mean that GM could cut retirement benefits after retirement.  If that’s what the company intended, GM should have told them while they were still working, in language that was clear and unambiguous.”

Complicating the Court’s decision was its ruling that GM did have the right to cut the benefits of its retired executives.   In that case, the company had clearly warned those employees that it had the right to reduce or eliminate their benefits.  

The ruling affects approximately 3,300 retired salaried workers and 67 retired executives that retired from the company between 1995 and 2011.
GM says that it will appeal the ruling.

For plan sponsors, the Ontario court decision underlines the need for employee booklets and other benefits-related communications to be unequivocally clear regarding the right to change or terminate their plan members’ benefit entitlements.   In addition, the use of language or statements that imply that benefits and entitlements are permanent should be avoided.

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