The Divisional Court’s July 2015 decision in Navistar Canada Inc. v. Superintendent of Financial Services went a long way to resolving the seven-year-old pension saga arising from the company’s decision to reorganize in 2008.
But employers’ counsel aren’t all that happy about the ruling that upheld the decision of the Ontario deputy superintendent of financial services requiring Navistar to include certain former employees in the windup group for the company’s pension plan.
“The decision adds about $14 million to the cost of the pension windup and penalizes companies who are trying to rationalize their workforce during an economic downturn with the aim of building the workforce back up when the recovery comes,” says Jessica Bullock, of Davies Ward Phillips & Vineberg LLP in Toronto.
“It also doubly compensates workers who voluntarily severed their employment by accepting generous severance or early-retirement packages by requiring their inclusion in the windup group.”
Navistar was the sponsor of the company non-contributory retirement plan, a defined benefit program covering former employees represented by the Canadian Auto Workers at the company’s plant in Chatham, Ont.
Navistar began implementing a reorganization strategy in 2008 in which it reduced plant operations with multiple layoffs over the following three years.
In July 2011, the company closed the Chatham plant. At the time, negotiations for a closure arrangement supplanted talks aimed at renewing a collective agreement that had expired in June 2009.
Although the parties resolved many matters, disputes over pensions and severance pay prevented a final agreement.
In March 2013, the superintendent ordered Navistar to partially wind up its plan as of July 2011 and include former employees who had ceased to be employed, voluntarily or involuntarily, both before and after the expiry of the collective agreement. The Financial Services Tribunal upheld the orders with Navistar appealing to the Divisional Court of the Ontario Superior Court of Justice.
At the core of the tribunal’s decision was the conclusion that Navistar was engaging in a reorganization.
At the relevant time, s. 77.3(1) of the Pension Benefits Act gave the superintendent discretion to order a partial windup “as a result of the reorganization of the business of the employer.”
Navistar argued no reorganization could have taken place without a renewed collective agreement in place. The company submitted that without the renewed agreement, what was in place was a “planned reorganization which never took place.”
But the tribunal relied on precedent, recognizing that a reorganization under the act has “a broader meaning than that which is given under certain statutes dealing with corporate organization.”
Among other things, a reorganization under the pension legislation connoted “a group of intended events occurring as a result of some form of deliberate guidance.” Establishing the existence of a reorganization, then, required at a minimum “that the guiding mind had, at the beginning, at least a rough sense of what the organization would look like at the end of the process, of the approximate duration of the process, and of the route that would be followed to get to the end.”
As the Divisional Court saw it, the tribunal’s analysis was correct.
“In the end, the failure to renew the collective agreement may have ultimately brought on the Plant closure; however, the evidence is clear that Navistar had implemented a reorganization well before the Plant was closed,” the unanimous court stated.
The tribunal had also properly exercised its discretion as to the makeup of the windup group. An employer, the court reasoned, shouldn’t be able to avoid its windup obligation by staggering its layoffs and encouraging members to cease their employment where there was little or no chance of a recall.
“To read the section otherwise would run the risk of members being excluded from their rights under the Plan because of a strategy by the company to move gradually towards the ultimate closure of a plant without telling the members when that closure will occur,” the court wrote.
“In the face of clear moves by an employer to reorganize their business so as to drastically cut employees over time leading to ultimate closure, many members will inevitably take a severance package or resign. If they do so, they should not be forced to give up their rights under the Plan.”
It’s important to note that this case relied on a previous version of the Pension Benefits Act. The current version recognizes only full windups and not partial ones.
“After the amendments took effect, the Navistar plan would have continued indefinitely until production ceased altogether,” says Bullock.
But Lewis Gottheil, who represented Unifor (formerly the CAW), says the Divisional Court’s affirmation of the tribunal’s broad interpretation of reorganization continues existing jurisprudence that militates in favour of workers’ rights.
The Divisional Court’s ruling will also help bring the severance pay dispute to an end. Under the Employment Standards Act, employees who receive unreduced pension benefits on severance aren’t entitled to severance pay.
But in March 2015, the Ontario Labour Relations Board refused to declare that the company’s refusal to arbitrate the severance pay issue was a failure to bargain in good faith and make every reasonable effort to make a collective agreement. Because the resolution of the pension matters could affect the issues of entitlement and quantum, the board reasoned, the severance pay issues couldn’t be finally determined.
Now they can, but just how long that will take is unclear.