Employees need notice if changes to retiree benefits

QUESTION: I retired 5 years ago from Stelco with over 30 years of service. When I retired, I qualified for a monthly pension as well as post-employment health and welfare benefits such as dental, prescription drug coverage and eye glasses. The kinds of health benefits we would receive and the specific limits of the coverage were defined in the Employee Manual. At no time before I retired did the company communicate that they reserved the right to reduce my post-retirement health benefits. I thought they were fixed for life. Recently, I received a letter advising that they are going to be changed and they were subsequently  reduced. Can they do this?

ANSWER: Only if you let them. The basic principles of contract law are on your side. 

In the eyes of the law, the employment relationship is a contractual one. If your employer wants to terminate your relationship without just cause while you are still an employee, it has to give you reasonable notice based on your age, seniority and level of responsibility. Let’s say that in your case, if you had been terminated while you were still working but just before you retired, you would have been entitled to 22 months notice.

That means that if the employer walked up to you and told you that 22 months later your job was finished but that you had to keep working for the next 22 months, other than a few statutory payments, that is all that you would get. You would work for 22 months and then be done. 

If the employer can tell you that 22 months later your job is finished, they could also tell you that 22 months later you lose all your benefits and are being demoted. What they would really be saying is that 22 months later you are fired but there is a job without benefits you can have if you want after that. That would be legal.

This concept of giving reasonable notice of significant changes to the terms of your employment, however, no longer applies to you. You no longer work there. A contract is something that is enforceable when somebody makes an offer and the other person accepts that offer. The person who made the offer must get something for the promise.

Your employer promised you for many years that if you stayed for 30 full years and rendered your services that when you retired you would get medical benefits. They did not put a condition on the promise that those benefits were subject to change or reduction from time to time. If they had clearly communicated that, you would have no argument.

You accepted this offer or promise of retiree benefits by continuing to work for your employer and rendering services to them. The employer got something for their promise…your labour and service.

This is an offer and acceptance for consideration. “Consideration” is the legal term for something of value. The thing of value that the employer got was your services.

You fulfilled your part of the contract and rendered your 30 years of service.

Even if the employer gave every retiree two years notice that their benefits were going to change, the problem would not be fixed. The concept of reasonable notice of a change simply no longer applies. This is now a fixed contract. You made the decision to leave your employment and retire based on the promise of these specific benefits. Obviously, if you had called up your employer the day after you got the letter about the benefits and said that in that case you withdrew your decision to retire and wanted to return to work, you would have gotten the cold shoulder. Your employer would have told you not to bother showing up.

But think about basic fairness. If you can’t change your mind about retiring, why would they get to change their mind about the benefits they promised?

Health benefits are extremely important to most employees. Many people are able to retire a number of years before they reach the age of 65 and the government takes care of many of those expenses. A retiree who sat before a judge and said that if they had known they were going to lose some of their benefits they would not have made the decision to voluntarily end their employment will be believed.

For employers to remain strong and competitive in the workplace, they must have succession plans. They must also have a strong work force. Having a good retirement plan attracts good people. Having a good retirement plan also means that there is rejuvenation in the work force and room for younger people to start to build the company’s future. These are very good and appropriately self-interested goals for any company.

But you don’t get to have your cake and eat it too. Making a promise, getting all the things you were trying to get in exchange for that promise, then changing your mind, just does not fly.