Class Action Lawsuit Illustrates the Importance of Careful Contract Drafting

September 9th, 2013 by Dan Stone

After two years of law school and three months of working at Devry Smith Frank LLP, the one lesson I’ve learned and always keep at the forefront of my mind is to be careful when choosing my words. Law school, and much of what I’ve done at Devry Smith Frank LLP demands that attention is paid to the minutest detail in order to ensure that you and the person(s) you are communicating with understand exactly what is being said. A misunderstanding or a vague word or sentence can cost you big at work, in life or even at school. I remind myself of this every day.

General Motors of Canada Ltd. (“GM”) was reminded of this in mid July when Justice Belobaba of the Ontario Superior Court handed down his decision, ruling in favour of more than 3,000 retired GM employees who had brought a class action to court when GM cut their life and health insurance benefits.

Justice Belobaba based his decision on a number of factors, but ultimately it came down to the latin maxim of contracts, contra proferentem. This maxim is proof of the importance of paying attention to detail as it dictates that when making a contract, if there is any ambiguity in the clauses or terms used, that ambiguity is to be read against the party who drafted the contract. My colleague Michelle Stephenson recently wrote a blog regarding contra proferentem and the interpretation of insurance litigation.

Class Action Lawsuit Illustrates the Importance of Careful Contract DraftingThe clause in the GM employee contract at issue read:

General Motors reserves the right to amend, modify, suspend or terminate any of its programs (including benefits) and policies by action of its Board of Directors or other committee expressly authorized by the Board to take such action. The Programs, benefits and policies to which a salaried employee is entitled are determined solely by the provisions of the applicable program, benefits or policy…

There is no reference to retired employees. Notably, after this litigation had commenced, GM changed the wording of the clause to read:
General Motors of Canada Limited … reserves the right to amend, modify, suspend or terminate any of its programs (including benefits) and policies covering employees and former employees, including retirees, at any time without notice by action of its Canadian Executive Committee or other committee expressly authorized by the Canadian Executive Committee to take such action…. [Emphasis Added]

Justice Belobaba determined that because in the first clause above (the one which prompted the litigation) GM had not made it clear that programs for retired employees were among those that could be amended, modified, suspended or terminated, contra proferentem should apply and GM should not be allowed to include retired employees in that statement.

Additionally the judge made a point of noting the importance of this contract being an employment contract. Justice Belobaba noted that not only is there an inherent duty of good faith in an employment relationship, but that there is a need to protect employees who are the less sophisticated of the bargaining parties.

Class Action Lawsuit Illustrates the Importance of Careful Contract Drafting and Justice Belobaba’s decision on is expected to cost GM around $350 million dollars in past and future benefits. Perhaps after this experience GM will have learned, as I have, that not paying attention to detail can cost you. A lot.

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