Pensions Newsletter – January 2019

Welcome to the 23rd issue of the Blakes Pensions Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions and benefits 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

FAMILY LAW

CALCULATION OF YEARS OF SERVICE

JURISDICTION OF PENSION PLAN

DISABILITY PENSION ENTITLEMENT

EQUALITY RIGHTS

SHARE VALUATION

FAMILY LAW

Gaudet v. Gaudet, 2018 NSSC 231

Following the breakdown of their marriage, Mr. and Ms Gaudet signed a separation agreement in May 2016. The separation agreement included a provision under which each party would retain sole undivided ownership of any pension accrued during the marriage. During the divorce trial, this provision (and others) became one of contention. Ms Gaudet had a significantly larger income and accrued pension than Mr. Gaudet, and argued that the agreement should be enforced in accordance with its terms Mr. Gaudet, however, took the contrary position on the basis that the division of pensions was not discussed during the drafting of the separation agreement and that he did not receive a copy of the agreement at any point during the drafting or after the agreement was signed. Furthermore, Mr. Gaudet did not receive independent legal advice.

The court held that section 29 of the Matrimonial Property Act permits the court to intervene where it is satisfied that “any term of the contract or agreement” is unconscionable or unduly harsh on one party. The court stated that the circumstances under which the agreement was drafted and signed were far from ideal, as both parties were under extreme emotional distress, and there was confusion as to whether counsel was acting for both parties and whether the agreement was permanent or temporary. Furthermore, given Mr. Gaudet’s earning capacity was significantly lower than Ms Gaudet’s, the potential stream of retirement income Ms Gaudet’s pension would offer him was considered to be significant by the court. The court ultimately held that while the separation agreement should not be set aside as a whole, it should be amended to provide for an equal division of pension benefits accrued during marriage at source.

Nova Scotia Supreme Court Decision

Back to top

CALCULATION OF YEARS OF SERVICE

Gervais c. Association internationale des débardeurs (ILA Chekers – Local 1657), 2018 QCCS 4138

The plaintiffs were hired in 1969 as spare checkers for the Port of Montreal. Although a job security program was established at the port in 1972, the plaintiffs did not enter it until 1985. Between 1972 and 1985, the plaintiffs were on the “first priority list” (the employees called to work after those on the job security program).

In order for the year to be credited for the purposes of years of service, the pension plan at issue required 550 hours of work during the year. The plaintiffs argued that they should be credited additional years of service for the period before 1985. In addition, one of the plaintiffs, Mr. Joyce, argued that he should also be credited with a 30th year of service that he worked in 2010. The defendants disputed this argument, stating that this 30th year of service should not be counted for pension purposes because Mr. Joyce was past the mandatory retirement age at the time. Furthermore, the defendants argued that Mr. Joyce should be barred from asking for a correction for the 30th year or service due to a transaction he signed in 2011. The transaction settled a complaint to the Canadian Industrial Labor Board regarding the credit for this year of service. Upon signing the transaction, Mr. Joyce released his rights related to his pension benefits or any other issue regarding his employment.

The court held that the plaintiffs failed to demonstrate conclusively that they were eligible for additional pension credits in the years before 1985, as there were no available records proving that the Plaintiffs had worked the requisite 550 hours per year.

With respect to Mr. Joyce’s claim regarding his 30th year of service, the court found that he should be credited for this year of service. There was nothing in the plan that precluded Mr. Joyce from having that year credited, as the plan specifically stated that the pension be based on the years of credited service up to the actual retirement date of the employee. Given that Mr. Joyce had worked the requisite 550 hours in 2010, the court concluded that he was entitled to a credit for that year of service.

The court disagreed with the defendants’ assertion that the transaction Mr. Joyce signed in 2011 precluded him from being credited with an additional year of service, stating that Mr. Joyce would not have accepted the transaction had he known that it was possible to receive credit for the 30th year of service. The facts indicated that Mr. Joyce had only accepted this transaction after the president of the union convinced Mr. Joyce that it was impossible to have his 30th year of service credited. The court concluded that this error related to an essential element that determined Mr. Joyce’s consent and therefore, vitiated Mr. Joyce’s consent. As a result, Mr. Joyce had the right to apply for the annulment of the transaction.

Superior Court of Quebec Decision

Back to top

JURISDICTION OF PENSION PLAN

Northern Inter-Tribal Health Authority Inc. v. Canada (Attorney General), 2018 FC 1180

The Peter Ballantyne Cree Nation Health Services Incorporated (PBCNHS) and the Northern Inter-Tribal Health Authority Inc. (NITHA) sought judicial review of two decisions communicated by the Office of the Superintendent of Financial Institutions (OSFI), where OSFI reaffirmed its previously held position that the pension plans of PBCNHS and NITHA do not fall under federal jurisdiction and must be registered provincially. PBCNHS and NITHA disagreed with this position. PBCNHS and NITHA stated that they took on delivery of the federal government’s long-standing obligation to provide health services to First Nation members. Given that these health services would revert to federal government delivery should PBCNHS and NITHA cease to provide the services, PBCNHS and NITHA argued that their pension plans fell under federal jurisdiction.

In reviewing the treaty relationship between the First Nations and the federal government, the court gave particular consideration to the federal nature of delivery of health services to treaty First Nations. The court concluded that the federal Crown undertook to provide health services to First Nations and PBCNHS and NITHA were enabled to take over delivery of these federal health services by way of agreements entered into between the federal Crown and PBCNHS and NITHA. As a result, the court held that OSFI had erred in its decision. It quashed the OSFI decisions concerning the PBCHNS and NITHA pensions and granted a declaration that the health services are federal undertakings within federal jurisdiction.

Federal Court Decision

Back to top

DISABILITY PENSION ENTITLEMENT

Greene-Kelly v. Canada (Attorney General), 2018 FC 1188

Ms Greene-Kelly served as a civilian dispatcher with the Royal Canadian Mounted Police from July 1982 to August 1996. In the spring of 1992, the RCMP required her to attend a three-month long French language training course. On May 20, 1992, while travelling to the course, she was in a motor vehicle accident. At the time of the accident, Ms Greene-Kelly’s supervisor was a passenger in her vehicle, as they were attending the course together and carpooled together to the course.

Ms Greene-Kelly suffered chronic myofascial pain syndrome because of the accident and applied to Veterans Affairs Canada for a disability pension a few months before she was medically discharged from the RCMP on the basis that this disability arose out of, or was directly connected with, her RCMP service. A disability adjudicator at Veterans Affairs denied her application for a disability pension, finding that the chronic myofascial pain syndrome did not arise out of, and was not directly connected with, her RCMP service. The adjudicator ruled that Ms Greene-Kelly was not entitled to a disability pension pursuant to section 32 of the Royal Canadian Mounted Police Superannuation Act, in accordance with the Pension Act, as she had not provided documentary evidence connecting her condition to her RCMP service.

Ms Greene-Kelly appealed the adjudicator’s ruling to an Entitlement Review Panel of the Veterans Review and Appeal Board, which upheld the adjudicator’s decision. Ms Greene-Kelly then appealed to an Entitlement Appeal Panel of the Board (Appeal Panel), which confirmed the denial of the pension entitlement. Ms Greene-Kelly then sought judicial review of the decision.

The court held that the Appeal Panel correctly interpreted and applied the test to establish entitlement to a disability pension under the Pension Act. The court went on to state that in this case, Ms Greene-Kelly was “not under the control or direction of the RCMP” when she was rear ended, as she was not on duty or performing any work associated with the RCMP at the time of the accident, and she had not been directed by the RCMP to travel a specified route to the French language training center. As a result, the Appeal Panel had reasonably ruled to deny pension entitlement to Ms Greene-Kelly. Ms Greene-Kelly’s application for judicial review was therefore denied.

Federal Court Decision

Back to top

EQUALITY RIGHTS

Fraser v. Canada (Attorney General), 2018 FCA 223

The appellants were former regular members of the Royal Canadian Mounted Police force who, when mothers of young children, took advantage of the RCMP’s job sharing policy to work reduced hours by sharing a full-time job with another RCMP officer. The appellant’s pension benefits for the job-sharing periods were based on the hours the appellants regularly worked under their job-sharing arrangements. Such benefits were calculated in the same manner as pension benefits were calculated for other RCMP members who work part-time hours.

The appellants alleged that this pro-rated calculation infringed their equality rights guaranteed by section 15 of the Canadian Charter of Rights and Freedoms (Charter), as they were treated less favourably that those who were absent from work on leave without pay of more than three months’ duration. RCMP members who take such leaves are afforded the option of treating the period of leave without pay as fully pensionable, with pension for the leave period being calculated based on the hours regularly worked immediately prior to the leave, provided the member makes the necessary additional contributions for the leave period. The appellants could have opted to take unpaid care and nurturing leave instead of opting to job share. Had they done so, they could have opted to buy back their pensions for the period of the leave and not had their pension benefits reduced.

The Federal Court concluded that the appellants had failed to establish that they had been adversely impacted by the impugned provisions. The court further concluded that any such impact, if it existed, was not because of their sex and/or family or parental status, but rather because they had worked part-time hours, which was not a ground enumerated in section 15 of the Charter. The Federal Court of Appeal agreed with this conclusion and ultimately dismissed the appeal, stating that while working mothers face real and significant challenges, this social reality did not give rise to a constitutional right to increased pension benefits in the absence of discrimination.

Federal Court of Appeal Decision

Back to top

SHARE VALUATION

Mikelsteins v. Morrison, 2018 ONSC 6952

Mr. Mikelsteins was terminated without cause and without notice from Morrison Hershfield Ltd. (Morrison Hershfield), an employee-owned engineering firm that provides engineering and construction and consulting services throughout Canada and the United States. Mr. Mikelsteins’s annual compensation package included: a base salary, employment benefits, company contribution to his RSSP equal to four per cent of base salary, and a pay-for-performance plan. In addition, Mr. Mikelsteins was eligible to purchase shares of his company as an employee of Morrison Hershfield. This was done under a shareholders’ agreement, which set out the terms and conditions regarding the shares held by the various shareholders. Mr. Mikelsteins received an annual payment called a “share bonus”, paid in accordance with this agreement.

Several issues were brought before the court, including whether Mr. Mikelsteins was entitled to any increase in the valuation of his shares in Morrison Hershfield during the reasonable notice period of 26 months he was owed, any gross-up on the value, and the share bonus pursuant to the shareholder’s agreement.

On the termination of Mr. Mikelsteins’s employment, Morrison Hershfield took the position that according to the “transfer notice” provision of the shareholders’ agreement, Mr. Mikelsteins was deemed to have given his transfer notice on November 25, 2017 (30 days following the date of the written notice of dismissal on October 26, 2017). In other words, Mr. Mikelsteins was deemed to have sold his shares at that time. As a result, Morrison Hershfield submitted that Mr. Mikelsteins was not entitled to the increase in the value of his shares and the share bonus during the 26-month notice period he was owed. Mr. Mikelsteins disagreed, submitting that he was not only entitled to the increase in value, he was also entitled to a gross-up to address the fact that if he was awarded the increase it would be taxed differently than if he had held the shares in his RRSP.

The Ontario Superior Court of Justice examined the language used in the shareholders’ agreement and determined that it did not oust Mr. Mikelsteins’s entitlements during the reasonable notice period, as it lacked clear language required to do so. As a result, the court held that Mr. Mikelsteins was entitled to damages for his loss of his share bonus pursuant to the shareholders’ agreement during the reasonable notice period. In addition, in the court’s view, Mr. Mikelsteins had also provided sufficient evidence to show that he was entitled to a gross-up.

Ontario Superior Court of Justice Decision

Back to top

Blakes and Blakes Business Class communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue.

We would be pleased to provide additional details or advice about specific situations if desired.

For permission to reprint articles, please contact the Blakes Client Relations & Marketing Department at communications@blakes.com. © 2019 Blake, Cassels & Graydon LLP