The Brochure Defines Entitlement

The issue of whether a policy manual may create a binding contract in an employment context is reviewed here. The law, broadly speaking, on this subject is that the policy document may well set expected standards of workplace behaviour, but should it revise or remove common law rights, it must pass the tests of contract formation. The most significant issue in this context is often consideration as continued employment has been determined not to be sufficient.

Similar issues have arisen in this context, complicated by the fact that the insurer is a third party to the employment relationship from which the insurance arises.

The struggle in the cases discussed below, on this subject of insurance and similar benefits, is that the brochure often sets out certain entitlements which are contradicted by the constitutional document such as the policy document. The hand-out typically will not meet the test of contract formulation.

There does remain, however, a possible argument that the employer hand-out setting out a summary of the benefits entitlement may create a contractual term. The decisions are not a straight line. Also, many cases have held the employer to be the agent of the insurer for the purposes of determining liability.

The Supreme Court of Canada, referenced below, spoke to the absence of any detrimental reliance on the contents of the pension brochure, a point which may be addressed if controversial.This again reveals the difficulty in applying traditional concepts of contract formulation to such a summary document. Evidence of consideration is scant, at best, in this context.

There may be forbearance, as in "I would have resigned failing this term" or some such similar evidence. This would be consideration to support the contract argument. Alternatively, there may be a negligent misrepresentation claim which would require detrimental reliance.

There may be arguments of the application of the Bhasin duty of honest performance to support the argument of the plaintiff's position. It seems inherently unfair to provide a generous description of insurance coverage or similar benefit and then deny it based on strict terms of contract interpretation.

Anecdotal Review

Brochure Allowed as a Contract Term

An early case which has been cited with favour on this subject in later case law is that of the Alberta Court of Queen’s Bench. ¹

The action was one of wrongful dismissal. The plaintiff argued that he had lost his option to elect early retirement. The brochure the plaintiff had received, which was the only information he had received on this issue, stated that his pension rights and benefits on retirement limited the termination provisions of the pension plan to the situation where the plaintiff voluntarily left the employ of the defendant.

The actual text of the pension plan said otherwise. The brochure contained no language which denied it had contractual effect and it affirmatively stated that it was “a summary of the main features of the new Simpsons Pension Plan”.

The court held that the plaintiff accepted the offer of the pension based on the contents of the brochure alone and that it was an implied term that the formal document would not differ in meaningful substance from the former and further, that in the event of any contrary terms, the brochure would prevail. The issue of what the consideration may have been to support the contract formation was not discussed.

The Court did not see the brochure as an offer capable of acceptance. It did conclude that there was an implied term that the brochure would be evidence by  which the real terms of the "final offer" would be and that such "final offer" would not differ from the terms of the brochure:

However the statement in the pension brochure that it is a summary leads me to conclude that the brochure does not, itself, constitute the offer. It is, as I have submitted above, a representation as to the material terms of the offer and so was intended to have legal consequences. It was an offer representing that the material terms were set out in the brochure but that a formal offer constituted the “true” offer. When the plaintiff accepted the offer he did so on the basis of that brochure alone. It was an implied term of the offer made by the defendant that the formal offer would not differ in substance from the terms set out in the brochure. It must further have been an implied term in the offer that where the two documents did differ in substance, the brochure would be recognized as evidencing the real terms between the parties.

Pension Brochure

This decision was noted with approval, although distinguished on the facts, in a 1994 Supreme Court of Canada decision. ²

In the latter case, the employees of Stearns Catalytic asserted that the terms of a pension brochure were sufficient to fix upon the employer an equitable obligation to distribute surplus from the pension fund upon its termination to the employees.

The document in question did in fact make such an affirmative statement.

Cory J., speaking for the court, stated that such a document, although not normally considered to have legal impact, may nonetheless “form part of the legal matrix”.

Cory J. was of the view that the brochure did not purport to have contractual effect and further that the employees would have needed to prove detrimental reliance upon this statement to be to support an estoppel plea. This is reflective of the difficulty in applying strict terms of contract formation to the descriptive brochure.

The court also noted that the brochure which was first circulated in 1972, and which on its face stated that the pension plan would be amended from time to time, could not be argued as a fixed term in 1988.

Benefits Booklet & Relief from Forfeiture

Mr. Justice Philip Clarke in the 1998 decision of the Alberta Queen’s Bench reviewed the impact of the benefits booklet provided by the employer, which was known as the “Blue Book”. ³

There were no apparent substantive coverage differences between the Blue Book and the policy. Although it was not material to the outcome of the decision, the judge concluded that any material differences between the two, the Blue Book would prevail. It must be noted that the Blue Book itself was silent as to whether it would, or would not, be of contractual effect.

The contents of the Blue Book and the context in which it was given to the plaintiff were used, however, to obtain relief from forfeiture by showing that the plaintiff’s conduct was reasonable in the circumstances.

Quantification of Benefits

The decision of Mr. Justice Glithero ⁴ considered in a 2005  the legal impact of a benefits brochure which had been prepared by the employer. It was agreed that benefits, which were being paid to the plaintiff were those to which the plaintiff was entitled under the terms of the policy. The plaintiff, however, maintained that the company benefit program as described in a booklet prepared by the employer called for a higher benefit sum. An issue was also raised with respect to life insurance coverage, based on the same theme.

The dispute arose due to a commission which the plaintiff earned in 1998 and was not paid until 1999, in accord with company practice, in the sum of $18,000.

The booklet stated that eligible benefits would be equal to 60% of earnings at the time the disability began. “Earnings” was defined in this document to be base salary, plus commission payments from the previous calendar year”.

The same term was not defined in the life insurance section of the brochure, which describes the insured sum as 1.5 time earnings.

The claim was dismissed for this reason.