Nortel Class Action: Pension and Retiree Benefits

Pension Benefits

According to the Statement of Claim filed by the representative plaintiff, Nortel announced on June 26, 2006 that participation in the DB provisions of the plan would cease 18 months hence for employees who were not at least age 55 with 70 points, had not attained age 60, or did not have 30 years of service. From January 2008 forward, employees who did not meet one of these grandfathering criteria would participate in a defined contribution pension plan with a minimum employer contribution rate of 2% of earnings. Nortel advised members of the plan that with effect from Jan. 1, 2008, future salary increases would not be considered for purposes of determining the value of DB benefits. The Claim alleges that Nortel failed to provide advance notice of changes to the plan as required by subsection 26(1) of the Ontario Pension Benefits Act (PBA), and failed to provide reasonable common-law notice of changes of the terms and conditions of employment of the plaintiff class.

The Claim seeks a declaration that the changes to the plan restricting further DB accrual for employees in the plaintiff class were void or, in the alternative, monetary damages for Nortel’s alleged failure to provide advance notice of pension changes as required by the PBA and to provide reasonable common-law notice changes to terms and conditions of employment relating to pension benefits.

Retiree Benefits

The Claim states that Nortel made changes to its retiree healthcare and life insurance benefit programs such that employees who were not age 50 or more with five years of service would no longer be eligible for retiree benefits. The Claim seeks monetary compensation from Nortel based on the replacement cost of the retiree benefits or their value, whichever is greater.

The Claim also seeks “special damages” in an amount to be determined, pre- and post-judgment interest and costs on a substantial-indemnity basis.

Comment

The statements and allegations contained in the Claim have not been proven. Nortel will likely file a Statement of Defence within the period required by the Ontario Rules of Civil Procedure. Normally, this period is 30 days, though an extension may be granted. The Statement of Defence can be expected to contain a materially different account of facts presented in the Claim and to deny that the proposed plaintiff class is entitled to monetary damages or any other relief.

At this stage, it is too early to tell whether the Claim will succeed or even if it will be certified as a class action. However, the case will be of considerable interest to employers as it unfolds because the outcome could have a significant impact in terms of whether and how employers can terminate, reduce or replace pension and retiree benefit programs.

James Pierlot is a lawyer with Towers Perrin HR Services in Toronto. james.pierlot@towersperrin.com.