Legal Update: NS Court of Appeal Finds Employee Neither Eligible Nor Entitled To Plan Benefits
November 13, 2012
By Kiersten Amos, Former Lawyer at McInnes Cooper
On May 8, 2012 the N.S. Court of Appeal confirmed that the Trustees of a pension and a welfare plan correctly interpreted the hours-based eligibility criteria when they refused the disabled employee’s application for a disability pension and for welfare benefits. The Trustees had decided that he was not a member of either plan because he never satisfied the eligibility criteria for membership set out in the plans’ text. The Court of Appeal also upheld an award of $45,000 costs payable by the employee personally, rather than from the plan fund. McInnes Cooper lawyers John MacPherson and Kiersten Amos represented the Plan Trustees. The Court of Appeal’s decision confirms that:
- Courts will give pension plan text – including disclaimers in plan documents – full effect;
- Neither the N.S. Pension Benefits Act nor the Canada Labour Code create a statutory entitlement to a pension benefit for an employee not already eligible for or entitled to such benefit; and
- A person bringing a claim that is not for the benefit of, or on behalf of, the general plan membership or the plan’s administration will personally bear the risk of legal costs.
In Downey v. Halifax Port International Longshoremen’s Association, the Halifax Port International Longshoreman’s Association/Halifax Employers Association Pension Plan (“Pension Plan”) and the Halifax Port International Longshoreman’s Association/Halifax Employers Association Welfare Trust Plan (“Welfare Plan”) were offered to workers at the Port who met the plans’ eligibility requirements. The Board of Trustees responsible for the management and administration of both plans was comprised of appointees from both the Halifax Port International Longshoremen’s Association and the Halifax Employers Association. The Pension Plan text provided that to become a Member and participate in the Pension Plan a person must:
- be an Employee “Employed in the Industry”, i.e., working at least 100 hours during the year while a member in good standing of the Union in work under a Collective Agreement;
- work at least 300 hours during the year while a member of the Union; and
- be less than 71 years of age.
To be entitled to a disability pension as a Member of the Pension Plan, the Member must also have 5 years consecutive service, with an average of at least 600 hours/year and a minimum of 300 hours/year in all five years. The Welfare Plan text contained different eligibility criteria: a Member must have accumulated a minimum of 450 hours to be eligible for group benefits.
Mr. Downey began working as a non-union longshoreman at the Halifax Ports in 1965. In 1991, he worked 202.5 hours as a non-union longshoreman before becoming a union member on July 2, 1991. Between July 2, 1991 and December 16, 1991, Mr. Downey worked a total of 245.5 hours as an employee in the industry. He stopped working as a Union longshoreman on December 16, 1991 when he became disabled.
Between 1991 and 1993, Mr. Downey was reimbursed for certain benefits from the Welfare Plan. From 1992 to 1994, he received workers’ compensation disability benefits; during this time he received annual member pension statements crediting him with his workers compensation hours.
In 1997, Mr. Downey applied for a disability pension under the Pension Plan. However, the Trustees refused his application on the basis that he did not meet the eligibility criteria for membership in the Pension Plan. In 2000, the Trustees determined they had misinterpreted the Welfare Plan, and Mr. Downey was also never a member of the Welfare Plan or eligible for welfare benefits either. The Trustees did acknowledge to Mr. Downey that the hours it credited to him for time on Workers’ Compensation and the reimbursement of certain welfare benefits were both in error. While they did not try to recover these entitlements, they maintained that he was never a Member under the terms of either Plan.
Mr. Downey brought an action against the Board of Trustees of the plans claiming for disability pension benefits, welfare benefits, compensation for breach of contract, and compensation for breach of the Trustees’ fiduciary duty.
N.S. Supreme Court Decision
The N.S. Supreme Court dismissed Mr. Downey’s claim in full, finding that Mr. Downey was not a Plan Member as he never met the eligibility criteria for Membership:
- he did not work at least 300 hours after becoming a Union member;
- even including the hours the plan administrators erroneously credited him, he did not work the average of 600 hours for 5 consecutive years with a minimum of 300 hours per year which was required before entitlement to disability pension benefits; and
- he did not work the number of hours required in the Welfare Plan to establish any entitlement to welfare benefits.
Mr. Downey appealed the decision to the N.S. Court of Appeal on a number of grounds.
Court of Appeal Decision
The Court of Appeal dismissed Mr. Downey’s appeal on all grounds.
Mr. Downey argued that the reference in the Membership provision of the Pension Plan to 300 hours worked “during the year” includes all – both union and non-union – hours worked in the year, not just those worked after the person became a union member. The Court of Appeal rejected this interpretation because it ignored the related requirement that the hours worked were “while being a Union Member in good standing”. Mr. Downey was thus never eligible for membership in the Pension Plan because he did not meet the minimum threshold for Union hours worked.
The Court of Appeal also found that Mr. Downey was not entitled to disability pension benefits or welfare benefits based on his hours on workers’ compensation. While Mr. Downey relied on an information booklet published in 1991 that suggested Members would be credited with workers compensation hours for pension purposes, the booklet clearly indicated it was an information outline only, and the Pension Plan would prevail. The Pension Plan text did not provide for crediting workers compensation hours for the purpose of initial eligibility for Membership in the Pension or entitlement to a disability pension benefit.
The Court of Appeal also concluded that the Trustees were not precluded (or “estopped”) from asserting that Mr. Downey was not a Member because they sent him pension statements that identified him as a Plan Member. Mr. Downey was aware the statements included a clear declaration they were for information only and the Pension Plan Text governed, and though he did rely on them, he did not do so to his detriment. The Court thus gave full effect to the statements’ clear disclaimer.
Mr. Downey also asserted a statutory right to pension plan membership under the N.S. Pension Benefits Act and the Canada Labour Code as an alternative to the contractual entitlements he claimed.
Mr. Downey first argued that under section 14 of the Act, full-time employees who are a “member of a class of employees for which a pension plan is provided shall be eligible to become a member of that pension plan” on or after certain requirements are met based on the type of pension plan. Mr. Downey claimed he met those eligibility criteria and thus had a statutory right to eligibility for membership in the Pension Plan. However, the Court of Appeal found that section 14 applies to the “class of employees” who had attained Membership in the Pension Plan. Since Mr. Downey never attained Membership, he was not a member of a class of employees for which a pension plan was provided. The Court similarly dismissed Mr. Downey’s argument under the vesting provisions of the Act, where the language of the statute referred to the “members” of a plan.
At the appeal, Mr. Downey also raised a new argument of statutory entitlement to pension plan benefits under sections 239 and 239.1 of the Code prohibiting an “employer” from terminating an employee for absences due to disability in certain situations. However, the Court found the Trustees were not Mr. Downey’s “employer”. Furthermore, these provisions protect benefits an employee is already eligible for in the event of termination; Mr. Downey was not already entitled to benefits, and his employment was not terminated. The Court of Appeal thus found the Code did not apply.
The Court of Appeal rejected all of Mr. Downey’s arguments for entitlement to welfare benefits under the Welfare Plan on the same basis.
Click here to read the N.S. Court of Appeal’s decision.
At the trial, Mr. Downey argued that both parties should be awarded legal costs payable from the Pension Plan, and on a solicitor-client basis instead of the normal – and lower – scale for costs. The Trial Judge concluded that the dominant character of the legal action was adversarial and not for the benefit of the general Plan Membership. He thus declined to exercise his discretion to award costs from the Pension Plan. The Judge further concluded that the normal scale for legal costs was inadequate, and ordered Mr. Downey to personally pay legal costs of $45,000 to the Trustees.
Mr. Downey appealed both the amount of the costs and the refusal to award them paid from the Pension Plan. The Court of Appeal found the Trial Judge had applied correct legal principles and it did not amount to a manifest injustice. More importantly, the Court of Appeal affirmed that Mr. Downey was not acting as a representative, but in his own personal capacity; the claim was adversarial; and he had not brought the litigation on behalf of or for the benefit of the plan beneficiaries or the plan’s due administration. Because he was ultimately unsuccessful and the case was complex, the Court of Appeal agreed with the lump sum award of $45,000 payable by Mr. Downey, and not the Pension Plan, and also awarded $2,000 legal costs for the appeal.
Leave to Appeal to the Supreme Court of Canada
On August 7, 2012, Mr. Downey filed an Application for Leave to Appeal to the Supreme Court of Canada; the Court has not yet decided whether it will hear the case.
This case is very fact driven and the decision turned on the interpretation of specific wording in a specific Pension Plan. However, it does have broader application in a number of respects:
- Pension Plan Text Governs & Disclaimers Stand: On its face this was a sympathetic case: a disabled employee with over 26 years in the workforce who is totally and permanently disabled. Despite this, both the Trial Court and the Court of Appeal gave full effect to the text of the Plans. The law remains that pension plan summary booklets and pension annual statements do not create a separate or new contractual right where the documents contain clear concise statements that any discrepancies will be governed by the terms of the Pension Plan. Rather, the pension plan will be governed by the terms of the plan text.
- Statutory Entitlements: Neither the N.S. Pension Benefits Act or the Canada Labour Code create a statutory entitlement to a pension benefit where an employee is not already eligible for or entitled to such benefit.
- Costs: A person who brings a legal claim that is adversarial in nature, and that is not brought for the benefit of or on behalf of the general plan membership or the administration of the plan, will not be awarded costs payable from the Pension Plan Fund. Such a person will personally bear the risk of an award of legal costs against him or her when choosing to proceed with litigation against a Pension fund.
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