The Kerfoot v. Weyerhaeuser Company Limited case deals with wrongful dismissal damage claims for the loss of pension and savings benefits by two former non-union managerial employees of Weyerhaeuser Company Limited (the Company) when their employment with the Company was terminated by the 2007 sale of a pulp mill to Domtar. The case offers an interesting example of the kind of damages employees may be awarded in the context of a sale of business (outside of Ontario) even where the purchaser provides seemingly similar pensions and benefits.
On closing of the sale transaction, all mill employees were treated as having been terminated by the Company at common law, but virtually all of them were immediately hired by Domtar in the same positions and at the same or similar wages. As a result of the sale, affected employees immediately ceased participating in the Company’s defined benefit (DB) pension plan which retained their past service benefits and were enrolled in a Domtar plan for future service only. The Company DB plan included an enhanced early retirement provision – the “Rule of 65 and 10″ – which provided employees with at least 10 years’ continuous service and combined age/service of at least 65, with unreduced early retirement benefits.
In conjunction with the sale mill employees were given two options with respect to their Company pensions:
A. continue plan membership by leaving their accrued DB pension benefits (including their Flexible Pension Account balances) in the plan and have their pensions entitlements determined and commenced upon eventual termination or retirement from Domtar, or upon their election to commence once they attained at least age 55, even if their employment with Domtar continued; or
B. immediately terminate their membership in the Company plan and transfer the commuted value of their accrued Company plan DB benefits into a locked-in retirement savings plan and cash out their Flex balances or transfer them to an RRSP.
For those electing Option A who were not eligible for the Rule of 65 and 10 benefit at the sale date, the Company plan was amended to recognize post-closing service with Domtar for purposes of growing in to such eligibility, as long as the employee had attained age 55 with at least 5 years of combined pre and post-sale continuous service. However, Option B benefits were determined based on eligibility at the sale date, so they did not include the value of the Rule of 65 and 10 benefits unless an employee actually qualified for them at that time based on age and pre-sale service with the Company.
The two plaintiffs, neither of whom were eligible for the Rule of 65 and 10 benefits on the sale date, both elected Option B. In their action the plaintiffs claimed that they were entitled to reasonable notice of termination and to have the value of their benefits determined based on age and service at the end of such notice period.
What the B.C. Supreme Court Held
The Court began by finding that the employees were not given any notice of the sale (and related termination of employment). The Court then went on to reject the Company’s argument that the required notice period should be substantially reduced because the employees were immediately hired by Domtar and had no need to seek alternative employment. On the contrary, the Court noted that there was a reduction in the employees’ “overall compensation” (including pension accruals and ancillary benefits) and they were entitled to reasonable notice (one month per year of service) which would have allowed them to obtain other employment and, thereby, avoid such loss. In the result, both plaintiffs were allowed to count their age and service during their notice periods for purposes of determining eligibility for benefits (including the Rule of 65 and 10) under the Company plan.
The Court then considered the value of the Company pension lost by the two plaintiffs during their notice periods.
One of the plaintiffs, Kerfoot, would not have qualified for the Rule of 65 and 10 benefits during his notice period, but there was a benefit accrual differential between the Company and Domtar pensions. Mr. Kerfoot who resigned from Domtar in 2011 at age 47, had withdrawn from the Domtar DB plan in 2009 and enrolled in Domtar’s DC plan. The Court rejected the Company’s argument that Kerfoot failed to mitigate by resigning prior to age 55 and found that he had suffered a net Company pension loss taking into account the value of his post-sale Domtar pension accruals during the same period.
The other plaintiff, Harshenin, was still in the Domtar DB plan and continued to be employed by Domtar at the time of the lawsuit. Unlike Kerfoot, Harshenin would have qualified for the Rule of 65 and 10 benefits during his reasonable notice period, so his claim included damages for loss of both the Rule of 65 and 10 benefit and the pension accrual difference during the notice period. The Court rejected the Company’s argument that Harshenin’s loss was caused by his Option B election. The Court held that Harshenin was entitled to elect to receive his pension funds under Option B as a result of his involuntary termination from the Company by the sale, and that in calculating the value of his Option B benefits the Company should have included the value of his Rule of 65 and 10 benefits which he became eligible for during his reasonable notice period. The Court assessed Harshenin’s loss to include this value, as well as the net Company pension loss taking into account the value of his post-sale Domtar pension accruals during the same period. The Court went on to assess additional damages for the loss of the ability to contribute to the plaintiffs’ Flex pension accounts and the loss of an employer match to a Company savings plan.
While Kerfoot was only awarded $10,493, Harshenin’s damages award was much greater – $81,244 – due largely to the lost opportunity to qualify for the Rule of 65 and 10 benefits.
This case would have had a different result in Ontario due to differences between B.C. and Ontario pension legislation. In this regard, Ontario’s pension rules would have required the Company plan to recognize post-sale service with Domtar for purposes of determining Rule of 65 and 10 eligibility (so called “wait and see” grow-in rights). As well, these rules and Ontario’s deemed continuity of employment provisions would not have permitted affected employees to elect Option B while their employment with Domtar continued, and while their wait and see grow-in rights were still adding value. Finally, Ontario’s pension regulator would have prohibited Option A from permitting a member’s pension under the Company plan from starting while the member remained in Domtar’s employ.
Postscript: In its May 7, 2012 decision in Ratansi et al. v. Superintendent of Financial Services and Ontario Pension Board, the Ontario Financial Services Tribunal (the FST) decided to overturn the long standing position of the Ontario regulator requiring actual termination of employment with the purchaser before transferred members can commence their pensions under the vendor’s plan. The FST noted the “protective purpose of s. 80” and held that it is necessary to determine whether giving effect to the terms of the plan as written would frustrate the purposes of the Ontario PBA. The FST held that as long as all vendor plan ancillary benefits have fully vested pursuant to statutory wait and see rights following a sale, the vendor plan terms can permit the commencement of transferred member pensions, even though such members continue to be employed by the purchaser post-closing. The FST found that the deemed continuity of employment provisions in s. 80(3) of the PBA do not operate to prevent this result. This case is being appealed to Ontario Divisional Court.