Union-administered benefit plans: proceed with extreme caution!

If you are a union that administers benefits for your members, you will likely be interested in today’s decision from the BC Court of Appeal in a case about union-administered LTD benefits.

A group of disabled members filed a class-action lawsuit against the union after their LTD benefits were reduced. The LTD plan had been facing insolvency due to rising claims costs and insufficient premiums to cover them. The union held a referendum to raise dues to maintain disability benefits. The union executive recommended against approval due to concerns about the impact of years of government restraint on members’ wages. The referendum failed resoundingly.

The class action alleges a breach of contract by the union, and a breach of trust by the union and its benefit trustees. It also claims that the trustees were negligent and had mismanaged the benefit funds. For their main claim, breach of contract by the HSA, the plaintiffs mainly relied on a series of brochures and other communications that described the union’s takeover of the LTD plan from the employers and the level of benefits that disabled members would receive. They said that these communications created a distinct contractual obligation to maintain their level of benefits.

On the face of things, it looked like the union had covered all the bases to avoid being on the hook if benefits were reduced. The LTD plan was governed by a complex set of trust documents that gave the trustees clear powers to increase or reduce benefits. At least two of the brochures stated explicitly that they were not contract documents.

The class action was certified by a Justice of the BC Supreme Court. The union and benefit trustees appealed to the Court of Appeal, which upheld part of the certification decision.

Certification is the legal process to give a green-light for a class action to go ahead. It does not involve hearing witnesses or deciding the truth of falsehood of evidence, or making final determinations of legal issues, only deciding whether a class action is the appropriate legal forum for hearing the dispute.

The Court of Appeal ruled that the main breach of trust claims could not proceed, but upheld the BC Supreme Court’s decision to certify the class action based on breach of contract and negligence. It also permitted the claim that the trustees were in breach of trust for (allegedly) participating in the union executive’s decision to recommend against the due increase to restore full funding to the LTD plan.

The Court of Appeal ruled that these claims were not arbitrable, and that they were beyond the scope of the LRB in enforcing unions’ duty of fair representation because participation in the LTD plan did not flow from the collective agreement but from membership in the union.

The Court expressed reluctance in coming to this conclusion. The Court made it clear that the union has a duty to look after the interests of all of its members, not just the ones who are receiving insured benefits. It expressed doubts about several aspects of the claims, but left these to be explored as the case develops rather than rule on them at the early, certification stage.

The class action may ultimately not succeed, but passing the certification hurdle is significant. Class actions are large-scale proceedings, and the cost of defending them can be onerous. Because they bundle together a large number of individual claims, if they succeed they can result in huge judgments. Most class actions that clear certification produce settlements.

Perhaps the best lesson for unions to draw from this is to proceed with extraordinary care in union-administered benefit plans, especially for big-ticket programs like Long Term Disability, and ensure that all communications with members (and particularly beneficiaries) are crystal clear about both the upsides and potential downsides that can flow from financial and demographic trends. Clarity is essential for the sake of both the union and the members who rely on these programs.

As with most exercises in drafting documents that have legal consequences, the most important orientation is to imagine what can go wrong and cover it off the best you can. Claims and liabilities don’t flow from things going right. That is true of contracts, and equally true of communications with benefit recipients. You rely on the fine print at your peril. The care the union in this case took in documenting its insured programs may ultimately save the day, but that will now be in the hands of the courts.

Jim Quail practices labour and regulatory law with Allevato Quail & Worth.

This post is general information only and does not constitute legal advice. Please contact us should you require advice about your specific circumstances.