Canada: Ratansi: Court Clarifies Treatment Of Employees Who Are Transferred As Part Of Transaction

The Ontario Divisional Court's recent judgment in Ontario Pension Board v. Ratansi has overturned an earlier decision of the Financial Services Tribunal and restored an understanding established by previous Tribunal precedents. Employees who have transferred to a new employer as a part of a sale of business or divestment are not entitled to receive pension benefits from their predecessor employer while they continue working for the new employer, because their employment is deemed to continue for purposes of the Ontario Pension Benefits Act (PBA).

Background

Pension plans which are impacted by transactions are governed by s. 80 of the PBA. In particular, s. 80(3) provides that employment of employees affected by transactions "shall be deemed, for the purposes of this Act, not to be terminated by reason of the transaction."

In 2001, the Financial Services Tribunal first considered the meaning of deeming employment to continue per s. 80(3) in Horgan v. Superintendent of Financial Services.

In Horgan, a Ministry of Finance employee was transferred to the Ontario Property Assessment Corporation (OPAC) as a part of an Ontario government divestment, and became a member of OMERS in respect of future pensionable service. Mr. Horgan claimed that he retired from the Ontario government and was therefore entitled to receive an immediate pension from the Ontario Public Service Pension Plan (PSPP).

The Tribunal noted that the purpose of the "deeming" provision in s. 80 is to protect transferred employees' eligibility for and entitlement to benefits in predecessor and successor plans. By doing so, employees are in the same position they would have been had the transaction not occurred. Thus, under such circumstances, Mr. Horgan could not retire and commence receiving a pension from the PSPP without first terminating employment with or retiring from OPAC. (Later that year, the Tribunal reached the same conclusion in Burns v. Superintendent of Financial Services, a similar case involving the divestment of certain Ontario Provincial Police services.)

Financial Services Tribunal Changes its Position

The Ratansi case involved facts similar to those in Horgan and Burns. Ontario government employees who had been transferred to the Canada Revenue Agency (CRA) as a part of a divestment and who had enough service to qualify for an immediate unreduced pension from the PSPP, asked the plan administrator – the Ontario Pension Board – to start paying them their pensions from the PSPP, even though they continued to be employed by the CRA.

Despite the clear similarities, the Tribunal declined to follow its prior decisions in Horgan and Burns, finding that the Tribunal had not closely analysed s. 80 in these earlier cases and, as such, it was necessary to take a fresh look at the wording of s. 80(3) and its role in the overall scheme of s. 80 and the PBA as a whole.

In essence, the Tribunal's reasoning was that "s. 80(3) of the PBA only deems employment with the predecessor employer to continue, but does not deem Plan membership to continue." Further, the Tribunal was of the view that the reference in s. 80(3) to "for the purposes of the Act" did not necessarily mean that employment was deemed to continue for purposes of the pension plan. Thus, the Tribunal found that one had to look to terms of the plan to see what they permit.

The Tribunal went on to find that the affected members were permitted, pursuant to the terms of the PSPP, to voluntarily withdraw their membership in the plan and, if eligible, to begin receiving their pension from the PSPP.

Ontario Divisional Court Restores Prior Interpretation of Section 80

The Divisional Court reviewed the Tribunal's decision in Ratansi and, based on the following reasons, concluded that its narrow interpretation of s. 80(3) of the PBA – deeming continuation of employment for purposes of the PBA and not the PSPP – was incorrect. In particular, the Court noted:

• The reference in s. 80(3) to "for purposes of the Act" was not meant to distinguish between the PBA and the plan, but rather to clarify that an employee's employment is deemed to continue for purposes of the PBA (as opposed to other Ontario employment-related legislation).
• Further, this reference to "the Act" makes it clear that the deemed continuation of employment is intended to apply to the PBA as a whole – not just s. 80 – and, therefore to the pension plan too.
• The applicability of s. 80(3) to the PSPP is further supported by other PBA provisions which provide that: the PBA applies to all Ontario pension plans (s. 3), and the PBA overrides plan provisions that are inconsistent with the Act (s. 19).
• Where the PBA intends to distinguish between employment and plan membership, it does so explicitly.

The Court went on to comment on the Tribunal's deviation from the prior case law and noted:

By changing its approach to these issues in the Ratansi case, the Court noted that the Tribunal created uncertainty for plan administrators and members.

Practical Implications

In reaching its decision, the Divisional Court has restored a previously understood principle: employees transferred to a new employer as a part of a transaction are deemed to continue their employment for purposes of the PBA and the predecessor pension plan. As a result, they are not entitled to receive their pension from the predecessor plan until they terminate employment with or retire from the successor employer.

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