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Pensions & Benefits Law A Discussion of Canadian and U.S./Cross-Border Pension & Benefit Legal Issues

Early Retirement Package not Discriminatory

Posted in Bankruptcy Issues, Canada Pensions & Benefits Law, Plan Administration

A recent decision from the Ontario Human Rights Tribunal has confirmed that an early retirement package which was offered to employees who met certain age requirements did not contravene the Ontario Human Rights Code.

In Kovacs v. Arcelor Mittal Montreal, the employer decided to close a plant as a part of a filing under the Companies’ Creditors Arrangement Act. The employer had negotiated an early retirement package with its union. To be eligible for the negotiated early retirement program an employee had to satisfy one of the following requirements: (i) have 30 or more years of service; (ii) be older than age of 55 with 15 or more years of service; or (iii) be at least 52 years of age but less than 55 years of age with 25 or more years of service.

Mr. Kovacs, an employee at the closing plant, did not satisfy any of the eligibility requirements since he was 47 years old and had only 27 years of service. He launched a human rights complaint, arguing that he had been subject to discrimination on the basis of age.

The Tribunal noted that early retirement plans, which may contain eligibility requirements based on age, are common in unionized workforces and that they provide “superior benefits to older, long service employees; individuals who may experience greater difficulty in obtaining alternative employment if permanently laid-off.”

Further, the Tribunal held that the Human Rights Code (Code) recognizes that a voluntary early retirement program, which differentiates between employees on the basis of age, may not be discriminatory if it complies with the Ontario Employment Standards Act, 2000 (ESA). The prohibition in the ESA against differential treatment under a benefit plan on the basis of age does not apply with respect to plan provisions that differentiate on the basis of age in establishing a normal pensionable date for voluntary retirees or an earlier voluntary retirement date or age, unless the pension plan contravenes the Ontario Pension Benefits Act (PBA) provisions regarding normal retirement dates and early retirement pensions. Finding that the plan in this case did not violate the PBA provisions regarding the normal retirement date, the Tribunal concluded that the early retirement package did not violate the Code.

While the Tribunal came to a seemingly obvious conclusion in this case, it is helpful to plan sponsors who are putting together early retirement packages in response to downsizing initiatives, and who often face employee allegations of discrimination in response to seemingly “unfair” age requirements.

It is important to point out that this case is far from the last word on the use of age-based criteria in the context of pension benefits. Later this month, the Supreme Court of Canada will hear the Withler case, in which a group of deceased members’ spouses have brought a Charter challenge regarding the ability of the federal government to reduce the amount of a supplementary survivor benefit based on age. While private companies are not subject to the Charter, the outcome in Withler may have an impact on how human rights tribunals decide challenges to the use of age-based criteria in private sector plans or may result in Charter challenges to the validity of the current exemptions for pension plans.