Often so-called single-employer pension plans will have multiple related employers participating in the pension plan. There has been legal uncertainty in the past regarding whether such related participating employers are jointly and severally liable for pension funding or only liable in respect of each employers own employees.
The prior uncertainty resulted primarily from the broad interpretation that was given to the definition of “employer” in Ontario’s Pension Benefits Act (PBA) in prior cases, including the case of Re St. Marys Paper Inc. In that case, the Ontario Court of Appeal considered a situation where Ernst & Young Inc. was appointed as the trustee in bankruptcy for St. Marys. E&Y attempted to continue the business with a view to selling the business as a going concern. They agreed to continue the pension plans, to deduct and remit employee contributions and to pay the current service costs of the plans.
However, they entered into an agreement with the employees that they would not be liable for any obligation of St. Marys, including unfunded pension liabilities. Price Waterhouse was appointed as the administrator of the pension plans and took the position that E&Y, by hiring the employees and continuing their pension plans, had become the “employer” under the PBA and, as such, E&Y was responsible for the unfunded liabilities in the plans. E&Y made a motion to the Court seeking a declaration that it was not liable for any pension obligations. The majority of the Court of Appeal in St. Marys agreed with PW and found that E&Y was an employer under the PBA and therefore liable for the unfunded pension obligations.
The recent decision of the Financial Services Tribunal in the matter of Victorian Order of Nurses for Canada considered a situation where there was a pension plan administered by VON Canada, a not-for-profit corporation, which plan had several branches of VON Canada that also were participating employers. Each of the branches was a separately incorporated not-for-profit corporation. The employees of the branches were paid by the branches and not by VON Canada. The plan was never considered by the participants to be a multi-employer plan, and the FST did not consider whether in fact the plan was correctly classified as a single employer plan.
In 2000, VON Canada began a strategy to bring the operations of the branches into a single organization. If a branch did not elect to participate in the unified organization by September, 2006, the branch would have to disassociate itself from VON Canada. There were several branches that chose to disassociate from VON Canada. In addition, four branches were also insolvent. Partial wind ups of the plan were declared in respect of the insolvent branches. When the insolvent branches were wound up, VON Canada informed each branch that it was solely responsible for funding any pension shortfall attributable to that branch. In addition, VON Canada advised the branches that chose to disassociate from VON Canada that they would be solely responsible for funding any existing or future pension shortfall attributable to that branch.
Whether VON Canada was also responsible for funding the pension shortfalls depended entirely on the meaning of the word “employer” under the PBA. The FST was provided with 3 possible interpretations of employer, each of which was considered by the tribunal. The separate branches, the unions and the Superintendent of Financial Services supported the interpretation that employer could mean the one and only “controlling employer” of the plan. The FST rejected this interpretation.
The Superintendent of Financial Services and the unions alternatively supported a broad interpretation of employer, where it could mean “all participating employers jointly and severally”, notwithstanding the separate legal status of each employer. The FST also rejected this interpretation. If either of these interpretations had been accepted, VON Canada could have been liable in respect of the pension shortfalls related to the insolvent and disassociated branches, even though it was not party to the employment relationship with the plan members employed by these branches.
Instead, the FST determined that “employer” under the PBA refers to the person or organization who pays remuneration to the employees. In reaching this conclusion, the FST examined the definition of “employer” in the PBA and the plain English meaning of the definition. The FST determined that the PBA contains a clear and unambiguous definition of employer and that this is the definition that should be applied. Therefore, the only relevant factor in deciding who is an “employer” is which organization paid remuneration to the members who were branch employees. Accordingly, each branch was responsible for the funding obligations in respect of its employees and VON Canada was only responsible for the funding obligations in respect of its employees.
The FST decision in the VON Canada matter provides welcome clarification to the definition of employer in the PBA. Specifically, for many administrators of single-employer plans that have multiple related participating employers, it provides some clarity regarding the extent of their potential liability in the event of the insolvency of a participating employer.