A Litigation Lawyer’s Perspective on the Benefits and Risks Associated with Providing Financial Education to Employees
As a litigator, I often meet employers for the first time when they are being sued by their employees. This gives me a unique perspective on employee financial education. My focus is on how employers can conduct their business in order to try to avoid or win lawsuits. Coming from this perspective, I see both risks and benefits in educating employees on financial issues.
What are the risks?
Words matter. Employers need to remember that they may be legally responsible if they provide incorrect facts or bad advice to their employees. As a result, you should always exercise caution when discussing financial issues with your employees.
Employers who want to minimize the risk of being sued should remember the following:
Know the statutory requirements. Legislation requires the administrators of registered pension plans to provide certain information to members (e.g.: notices of plan amendments). For registered pension plans, there are also prescribed forms that must be used when interacting with plan members. Everyone who deals with employees needs to be aware of these statutory requirements.
Know the industry standards. Best practices, industry standards and guidelines are not laws, but they can affect judges’ decisions. They are like the instruction manual for a snow blower. You are not breaking any law by disregarding the operating instructions. If you injure someone, a judge must decide whether you acted reasonably. That judge will consider the fact that you did not follow the instructions.
Whenever possible, give facts, not advice. When you provide facts to your employees, you will only be liable for damages if the facts were wrong. If you provide advice to employees, you will have to prove that the advice was reasonable if you are sued. A court is not supposed to evaluate the reasonableness of the advice by using hindsight. However, it can be hard to prove that advice that produced a bad result was reasonable. Suppose, for example, that you are discussing with your employees a particular investment option under a group RRSP. When you tell your employees the historical rates of return for the option, you are providing facts. This is unlikely to result in liability. When you tell individual members to choose that particular option, you are giving them advice. This is more risky.
Call in the experts. When you hire an outside consulting firm to provide financial education, you benefit from their expertise. This is particularly important if your company does not have that expertise itself. If you select the right consultant and put the right agreement in place, this may also protect you from liability.
Keep records. It will be easier to prove that you acted reasonably if you have detailed records of the information you provided to your employees.
What are the benefits?
There are two major benefits that flow from providing financial education to employees:
Happy employees don’t sue their employers. Anyone can start a lawsuit by drafting a Statement of Claim and paying a filing fee. There is no way to prevent someone from suing you. The best insurance against employee claims is a happy workforce (and happy retirees). Helping employees achieve their financial goals is the best way to make sure they will have no reason to sue you.
Education can be a way to manage expectations. Whether your employees are happy or unhappy depends largely on whether their financial situation ends up being better or worse than they expected. Keeping employees informed about risks and ensuring that their expectations are reasonable can prevent future problems.
What they don’t know could hurt you. Employees have to prove that they relied on incorrect facts or bad advice that their employers provided to them. It will be harder for your employees to prove blind reliance if they are well-educated. An unsophisticated workforce is more likely to follow advice without using their own judgment. If this results in financial losses, they will look to you for compensation.
The last word …
Providing financial education to employees is not without its risks. However, if it is done properly, it may decrease the likelihood that your employees can sue you successfully.
Markus Kremer is a partner in Borden Ladner Gervais LLP’s commercial litigation group, specializing in pension litigation. Markus has appeared as counsel on pension matters before all levels of Court in Ontario, before the Federal Court and the Supreme Court of Canada, and before Ontario's Financial Services Tribunal. He is a former member of the Ontario Bar Association's Pension & Benefits Section Executive and has published articles on a wide range of pension topics. He has litigated pension cases involving issues as diverse as: the ownership and distribution of surplus in a pension plan; payment of administrative expenses from pension funds; negligent administration of pension plans and negligent investment of pension funds; and employee misrepresentation claims. He has represented both plaintiffs and defendants in pension class actions. Markus was selected for inclusion in the 2010, 2011 and 2012 editions of The Best Lawyers in Canada in the area of Employee Benefits Law.