The Saskatchewan Court of Appeal has dismissed a worker’s appeal against his former employer, Kelturn Drywall Ltd., affirming the lower court’s decision that the company was not obligated to make additional contributions to his retirement compensation arrangement (RCA) beyond his annual bonuses.
The appeal centered on the interpretation of the worker’s RCA established under section 248(1) of the Income Tax Act.
S.F., who worked as a drywaller for Kelturn from 2005 until his termination in 2017, argued that the company breached the RCA by not making contributions above and beyond the bonuses he directed into the RCA from 2012 to 2014.
Justice McCreary, writing for the Court, explained that the RCA documents, including the Participation Agreement, RCA Plan Text, and RCA Trust Agreement, collectively did not impose an obligation on Kelturn to make additional contributions. Instead, these documents allowed Kelturn to allocate contributions at its discretion.
“The terms of the RCA Contract, and specifically the RCA Plan Text, did not oblige Kelturn to contribute to the RCA over and above the payment of an employee bonus into the RCA,” Justice McCreary wrote. The Court emphasized that the RCA was primarily a tax deferral vehicle designed to benefit employees by allowing them to defer tax on bonuses.
S.F.’s claim had initially been denied by a Chambers judge, who found no basis for his interpretation that Kelturn was required to contribute additional funds. The judge noted that the RCA was meant to defer income taxes on bonus payments and that Kelturn’s contributions were discretionary.
Justice McCreary upheld this interpretation, stating, “In my view, the parties have ‘created their own dictionary’… based on which party remits the amount in question into the RCA Trust and consequently deducts that amount from its taxable income.” The Court found that the contributions were correctly classified as “Company Contributions,” meaning Kelturn was not obligated to match employee bonuses with additional funds.
Lessons from this ruling
- Clear contractual language: Ensure that retirement compensation agreements clearly define terms and obligations. Ambiguities can lead to legal disputes and unexpected liabilities.
- Discretionary contributions: Employers should explicitly state whether contributions to RCAs or similar plans are discretionary. This clarity can prevent misunderstandings and litigation.
- Employee communication: Regularly communicate the details and implications of retirement plans to employees. Providing comprehensive explanations can help manage expectations and ensure informed participation.
For more information, see Friedrick v Kelturn Drywall Ltd., 2024 SKCA 54 (CanLII).
