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Court Upholds Partial Wind-up

July-24-2008

Area Pensions

Summary


Article originally published by Benefits Canada, July 24, 2008

"Court Upholds Partial Wind-up"

In certain circumstances, the Superintendent of Financial Services has the authority under Ontario’s governing pension statute to order a partial plan wind-up. One of those circumstances is if a significant number of members of a pension plan lose their jobs as a result of a business reorganization of their employer. A recent case decided by the Ontario Superior Court of Justice involved a new interpretation of the word “significant.” This case has potentially broad interpretations.

In Hydro One Inc. v. Ontario (Superintendent of Financial Services), between Jan. 1, 2000 and Dec. 31, 2002, the company had undertaken a number of initiatives, including a reorganization of the business of Hydro One and its affiliates, with the result that members of its pension plan ceased to be employed. As of Dec. 31, 2002, there were 3,913 active members in the pension plan.

The membership of the pension plan included members of the Power Workers’ Union, and members of the Society of Energy Professionals and Management Compensation Plan (MCP). As a result of this reorganization, between Sept. 1, 2002 and Dec. 31, 2002, 73 MCP plan members were involuntarily terminated. Some of the affected MCP members asked the Superintendent to make an order under the legislation for a partial wind up, which he declined to do. The Tribunal overturned the Superintendent’s decision, and the Ontario Superior Court upheld the Tribunal.

The Court examined the wording of the applicable statute and its history. It concluded that words such as “significant” were used to allow for flexibility in determining whether a partial wind-up should be ordered. The Court examined the relevant case law and determined:

1. that the number of terminated employees may be “significant” as an absolute number in its own right and need not necessarily be     compared to the total number of active members in the pension plan; and

2. where the number of terminated employees is expressed as a ratio, the threshold may be met, in certain cases, by comparing the number of terminated employees in a sub-group to the total number of members in that sub-group, rather than to the totality of plan membership.

In this case, although 73 affected MCP members were not significant when compared to the entire plan population (73/3913), it was a significant number when compared with the total MCP plan population (73/379).

The Court’s analysis has led to a broadened application of the word “significant,” particularly in the context of business reorganizations. Now it is possible for the Superintendent to order a partial wind-up where the total number of terminated members may not seem significant when compared to the entire plan population.

To view the article, please visit the Benefits Canada website.