Differential treatment in pension and benefit plans based on date of hire now prohibited in Québec (or is it really?)

Topics:

Jul 13, 2018

The differences in pension and employee benefits between younger workers and more experienced workers have become one of the dominant political issues of the moment in Québec’s pension and benefits industry. Over the last few years, unions have intensified pressure on the Québec government to ban the common practice of offering different pension and benefits to employees depending on their date of hire.

The provisions included in pension and benefit plans to exclude new employees are often referred to as “disparity clauses” or “orphan clauses” (the latter term often being used in an attempt to evoke the “vulnerability” of new hires and their isolation from the main group of employees.)

As appears from the adoption of Bill 176, An Act to amend the Act respecting labour standards, by the National Assembly of Québec on June 12, 2018, unions have been at least partially successful in their lobbying efforts.

While the main objectives of Bill 176 are to expand statutory leaves of absence and to regulate the use of employee placement agencies, the bill also includes a deceptively simple provision intended to prohibit differential treatment in pension and benefit plans based solely on a date of hire. 

What the prohibition means…

Following the adoption of Bill 176, section 87.1 of the Act respecting labour standards (Québec) will now include the following paragraph:

Any distinction made solely on the basis of a hiring date, in relation to pension plans or other employee benefits, that affects employees performing the same tasks in the same establishment is also prohibited.

This provision will prevent employers from differentiating on the basis of date of hire, not only in their pension plans, but also in their other employee benefit plans such as group insurance plans.  The most obvious example of the effect of Bill 176 is that an employer will no longer be allowed to close a defined benefit (“DB”) plan to new employees hired on or after date “x”.

A prohibition to implement a “hard freeze” in respect of Québec DB plan members is already in place (i.e. salary increases granted to Québec DB members have to continue to be factored in for the calculation of their benefits even if they cease accruing service). In addition to this existing limitation, employers are now no longer allowed to close DB plans to new hires.

While the closure of DB plans to new hires may have been the main purpose of this new prohibition, the scope of Bill 176 is broader and will also prevent other common types of plan design changes:

  • employers will not be able to introduce a contribution scale or a matching contribution in a defined contribution plan that would only apply in respect of employees hired after a given date;
  • employers will not be able to close post-retirement benefit plans to new hires;
  • employers will not be able to introduce a different group insurance plan or coverage for employees hired after a given date.

What the prohibition doesn’t mean…

Bill 176 is not retroactive. Differences in benefits based on date of hire introduced prior to June 12, 2018 may continue to apply. If an employer closed its DB plan or post-retirement benefit plan to new hires before June 12, 2018, that “distinction”, closure, or “freeze” is still valid and enforceable.

It is also important to note the following points about the application and consequences of Bill 176:

  • It only applies in respect of Québec-based employees who fall under provincial jurisdiction. The prohibition does not apply in respect of Québec employees of federally-regulated businesses or non- Québec employees participating in Quebec-registered plans. It does, however, apply in respect of Quebec employees participating in non- Québec-registered plans.
  • It does not prevent employers from treating employees differently based on factors other than the date of hire (as long as the factors used are permissible under human rights/pension standards legislation). For example, manufacturing employees and office employees could still be offered different benefits.
  • It does not prevent employers from closing plans or changing benefits as long as these changes apply to all members of a class of employees and not just new hires.

There is no question that Bill 176 removes some flexibility in plan design going forward. That being said, there are still ways to structure plan design changes that will achieve the employer’s objectives without running afoul of the prohibition under Bill 176. We encourage employers to consult us before concluding that certain changes cannot be implemented.