By David McFarlane
T'S A DAILY OCCURENCE. Communicating with employees is a continual process. It takes a variety of different forms and accomplishes a host of different objectives. It serves to educate, advise and instruct. It shapes the nature of employment and at times purposefully modifies the employment contract between the employer and the employee.
In the pension and employee benefits context, regular communication is a method of helping employees understand their entitlement to benefits, the scope of coverage and their rights under various legal documents. Legislation demands disclosure of certain information to employees but quite apart from that, the current trend is toward greater employee education and information with respect to benefits, delivered to employees in increasingly sophisticated and innovative ways.
Recently, however, the Canadian courts have been turning their attention to certain communications in the pension and benefits context in order to determine whether the employer has made a promise to the employees which the employees have relied upon to their detriment, even though the terms of the governing plan documents and policies may provide otherwise.
Employers are being held liable, and paying a heavy financial price, for these promises even where there are the usual disclaimers or caveats so commonly found in employee communications. This trend should be of serious concern to all employers.
THE SUPREME COURT of CANADA
(a) Pension Plan Brochures
IN THE RECENT case of Schmidt v. Air Products of Canada ("Schmidt") the Supreme Court of Canada had reason to consider the impact of an employee brochure on the issue of entitlement to surplus in a pension plan. The Court held that interpretation of the pension plan text itself would not be the sole determinant of who had the rights to surplus. Justice Cory, for the majority, wrote that:
The Court noted that the brochure was "potentially misleading" but that the employees had not proven that they had relied on the booklet to their detriment. The Supreme Court also commented that the age of the booklet played a part in weighing its importance in the employment context (it is, however, worth noting that the 1996 Federal Court of Appeal decision in Spinks v. Canada was based upon an oral communication made nearly 20 years prior).
The Schmidt case is noteworthy in the context of employee communications because it sets forth some guidance as to when a communication will be considered to form part of the "legal matrix" of a pension plan arrangement and indicates that the common law test of estoppel may apply to bind the employer to its statements in the communication. The leap of application of the reasoning in Schmidt to other non-pension situations is relatively easy.
(b) Types of Documents
IN DISCUSSING THE impact of various documents on the legal interpretation of pension plans, the Supreme Court in Schmidt specially referred to "documents not normally considered to have legal effect". Their comment merits further review.
Some of the type of "documents" that the court might have been referring to include brochures, booklets, letters, memoranda, forms, notes, annual reports, sale of business documents, annual statements etc. The last three types of documents have in fact been relied upon by courts in decisions concerning employee benefits.
What, however, about other types of communications? Could the Supreme Court's comments include such things as electronic mail, video presentations or oral communications and advice including statements made by HR personnel or executives to employees? The courts have given some indication that the answer to this is yes at least in the context of statements made by those in positions of some authority or knowledge within the employer's organization.
(c) The Guidelines
ACCORDING TO THE Supreme Court, the following matters will determine whether a document may form part of the legal matrix of a pension plan:
"Wording of the documents"
WHAT WAS SAID in the document? Was it in the nature of advice? Was it instructions to the employee? Was it simply information? It is generally assumed that employers may rely on general caveats or disclaimers in their communications which direct the reader to the official plan text or provide that the official plan text prevails or that the information is in summary form only. This, however, may no longer be sufficient as indicated by recent caselaw in the U.S.
One suggestion which may be effective in this context is the use of what could best be described as "pointed cautions" which are specific cautions to general statements set forth in the communication rather than one disclaimer at the end of the communication that the official plan text prevails. That approach seemed to work in one of the few recent cases where the employer was successful in defending an employee's claim to benefits based upon incorrect information in an annual statement.
"Circumstances in which they were produced"
OF CRITICAL IMPORTANCE is the context or circumstances in which the communication was produced. Was it part of an offer of employment? Was it a modification of the employment contract? Did it impact on positions during collective bargaining?
Arguably of equal importance was whether the communication properly targeted its intended recipient. What was the level of sophistication/competency of the recipient? How complex was the communication? What was the purpose of the communication (advice, instruction, information)? Was there an expectation that the recipient would reasonably rely on the communication?
"The effect they had on the parties, particularly the employees"
IT IS WORTH NOTING that the Supreme Court acknowledged in Schmidt that the impact of the communication on the employer, in addition to the impact on the employee, was a valid consideration in determining whether or not the communication formed part of the "legal matrix" of the pension plan.
However, the Supreme Court also noted that the employer in Schmidt might have been prohibited (or, in legal terms, "estopped") from denying the statement in the brochure if there was some acceptable evidence of inducement or reliance upon the brochure by the employees. While the argument was apparently not advanced in Schmidt, the employees might also have advanced an argument of negligent misrepresentation as was successfully done in the 1996 employee communication case of Spinks.
IN LIGHT OF RECENT CASELAW both in the lower courts and the comments of the Supreme Court of Canada, employers would be well advised to carefully review their communication strategies and assess their potential exposure.
Web Law Review, Winter 1997
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1996-97, David McFarlane
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