Silence Through Predictability: Manitoba Telecom Services

Pensions are often the lifeline for the millions of pension holders once they retire. Pension plans also fluctuate in value if parts of the funds are invested in securities. In such cases, actuarial surpluses occur when a fund’s assets are greater than the actuarial estimate of the pension plan’s liabilities, and sometimes it is not clear what to do with such surpluses. But the Supreme Court of Canada (SCC) does not often examine the law of actuarial surpluses because each actuarial surplus depends on the governing legislation and a plan’s unique circumstances (see Nolan v Kerry, [2009] 2 SCR 678).

Thus, it would seem that the SCC’s recent decision in Telecommunications Employees Association of Manitoba Inc v Manitoba Telecom Services Inc, 2014 SCC 11, is relevant for only a small segment of the Canadian public. However, the decision is significant for Canada as a whole because it offers valuable insight into the SCC’s thought process, something that is especially valuable given the telecommunication competition situation. The problem, though, is that this predictability may, in fact, be harmful to Canada.

Facts

The events of this case originate from the privatization of Manitoba Telephone System (“Crown MTS”) to Manitoba Telecom Services Inc. and MTS Allstream Inc. (“MTS”) in 1997. Prior to 1997, Crown MTS employees and retirees (the “plan members”) were part of a contributory benefit plan (the “Old Plan”), governed by The Civil Service Superannuation Act, CCSM c C120 [CSSA]. Under this plan, they contributed a defined percentage of their pensionable earnings to the fund. Their employer, the government, paid its share on a “pay-as-you-go” basis, paying half of the benefits owed to retirees as they were due. Consequently, the fund only contained the plan members’ contribution and interest. The CSSA also allowed the plan members to use the actuarial surpluses for their benefits. For instance, they could also supplement their monthly superannuation allowance by the cost of living adjustments (“COLA”) to account for inflation.

During the privatization negotiations, Crown MTS and the government repeatedly promised the plan members that they would not use any surpluses from the Old Plan to reduce MTS’s cost of, and share of contribution to, the new pension plan (the “New Plan”). The parties also signed the Memorandum of Agreement (“MOA”). Paragraph 3 stated that “any initial surplus… would be allocated to the new pension plan trust fund to fund future cost of living adjustments…”

Upon privatization, the New Plan was created. The New Plan and the Old Plan were equivalent with respect to the plan members’ required ongoing contributions and the payments to the retired plan members. However, the Pension Benefits Standards Act, 1985, RSC 1985, c 32 [PBSA], governed the New Plan. This change required MTS to ensure that the New Plan was fully funded at all times, which also gave MTS the right to take “contribution holidays,” reducing its regular contributions to the pension fund.

Approximately $43.364 million (the “Initial Surplus”) of actuarial surplus and other pension assets were also transferred to the New Plan for the 7,000 plan members, as required under s. 15(2)(a) of the Reorg. Act. This provision required MTS to establish “a new plan which shall provide for benefits which on the implementation date are equivalent in value to the pension benefits to which employees have or may have become entitled under [the Old Plan].” MTS did not, however, match the plan members’ contribution. The phrasing also made it essentially impossible for plan members to receive payment for the enhanced cost of living benefit.

The question at issue was whether MTS violated the Manitoba Telephone System Reorganization and Consequential Amendments Act (“Reorg. Act”), the MOA, or any other promise by structuring the New Plan such that the plan members could not use the Initial Surplus to their benefit.

Judicial History

Court of Queen’s Bench of Manitoba

In 2010 the trial court held that the plan members were entitled to the Initial Surplus plus interest because the plan members did not receive pension benefits that were equivalent in value, as required by s.15(2)(a) of the Reorg. Act. The court also held that MTS violated paragraph 3 of the MOA because it showed an understanding that the plan members “would have access to the initial surplus to be utilized in the same fashion as surpluses had been utilized under the Old Plan.”

Manitoba Court of Appeal

In 2012, the Court of Appeal (MCA) allowed MTS’s appeal and dismissed the plan members’ cross-appeal. The MCA held that MTS did not violate s.15(2)(a) of the Reorg. Act because it only required the pension members to receive equivalent basic superannuation allowance, based on the narrow definition of “pension benefits” in s.1(1) of the CASSA. The MCA also held that MTS did not violate paragraph 3 of the MOA because the negotiations and subjective intention of the plan members were irrelevant to the interpretation of the MOA.

Decision

The SCC allowed the appeal, holding that MTS violated the Reorg. Act and that this breach was sufficient to reinstate the trial court’s order. To arrive at its decision, the SCC took a broad interpretation of the phrase “equivalent in value,” focussing on the rationale for the inclusion of the word “value,” the statutory context and the legislative history of s. 15 of the Reorg. Act. It decided that the addition was deliberate and must be interpreted to include the paid benefits and the funding mechanism used to produce such benefits.

It used the following test: would a reasonable person be indifferent between a plan in which employees must make some contributions and a plan in which the employer is the sole contributor? Applying the test, the SCC found that a reasonable person would not be indifferent because only MTS gained from the plan members’ approximately $43.343 million excess contribution. MTS benefited from the contribution holidays; the plan members could not use the Initial Surplus for enhanced COLA; and the plan members received no enhanced benefit to offset this inequality at the implementation of the New Plan.

Discussion

This case is important because it reaffirms the SCC’s growing pattern of placing power with the masses rather than with large organizations, as it did in Canada v PHS Community Services Society, [2011] 3 SCR 134, in which it ordered the federal government to keep its distance from the Vancouver clinic, and in Reference Re Securities Act, [2011] 3 SCR 837, in which it held that the day-to-day regulation of contracts for securities should remain within the provinces’ jurisdiction to regulate property and civil rights and not with the federal government. In solidifying the pattern, then, the SCC’s decisions become all the more predictable. It is almost as if the SCC is taking guidance from the Federal Reserve’s policy of informing the public of its intentions regarding its quantitative easing and unconventional monetary policy to do away with any ambiguity.

The question, then, is whether this apparent predictability is good for the country. Will large organizations take a more cautious route in order to avoid a defeat at the SCC? This question is especially relevant for the telecommunication competition issue. For the past few months, the big three telecommunications companies, Rogers, Bell and Telus, have attempted to thwart international competition from entering the country. They have, for example, launched aggressive and nostalgic campaigns, arguing that it is in Canada’s best interest to protect its telecommunication industry. Two main consequences emerged from this campaign. First, Verizon lost interest in Canada. Second, people started talking.

Recently, though, the campaign has essentially stopped (see the CBC article). This is problematic because the fundamental problem – whether Canada’s telecommunication industry should make room for an international player – has yet to be solved. To answer this question, we need to keep talking.

Why, then, did Rogers, Bell, and Telus stop? It is possible that they took the SCC’s anti-large organization sentiment as a warning that it simply was not the best time to press the issue. The problem, though, is that this question is critical for Canada. It affects the rates the telecommunication companies charge, the customers’ security and privacy, the level of foreign investment, the fate of international competition in Canada, and many other issues. So, in making its position clear, the SCC may actually be silencing debates that matter to Canada, a silence that is at odds with Canada’s best interest.