When engaging employees (or acquiring a business that engages employees) in the Canadian province of Québec, employers and prospective employers should note two unique pension and benefit law requirements, which are absent in the other Canadian jurisdictions. With all the other regulatory requirements in place in Québec, these pension and benefit items are not always top of mind, but non-compliance can prove costly.
It is important to note at the outset that the requirements discussed below apply only to provincially regulated employment in Québec. They do not apply to employees engaged in Québec who are employed in federally regulated undertakings (such as certain aerospace, rail, banking and telecommunications activities).
Mandatory Retirement Plan Coverage: Voluntary Retirement Savings Plan and Alternatives
The Québec Voluntary Retirement Savings Plans Act (the “VRSP Act”) generally requires employers to make a voluntary retirement savings plan (“VRSP”) available to which their eligible employees may contribute. As the name suggests, employee participation is voluntary. Smaller employers or employers with few Québec employees may be exempt from this requirement, as further discussed below.
VRSPs (a type of “pooled registered pension plan” also available in other Canadian jurisdictions) are multi-employer defined contribution retirement plans registered with the province’s pension regulator (Retraite Québec) and administered by an authorized, independent third-party financial institution (usually an insurance company). VRSPs purport to offer all the advantages of a defined contribution “registered pension plan” but without the employer being required to make contributions (though the employer may choose to contribute to a VRSP). In addition, the fees associated with the investment options made available to VRSP members are regulated by the VRSP Act and are intended to ensure “a low cost”.
Employers who, on June 30 of a given year, employ ten eligible employees or more in Québec are required, by December 31 of the same year, to make available a VRSP and automatically enroll those employees in the plan. Employees, in turn, have the right to elect to opt out of enrollment. “Eligible employees” are employees working in Québec, aged 18 years of age or over, with at least one year of uninterrupted service with the employer.
As an alternative to the VRSP requirement, the VRSP Act states that employers may instead provide eligible employees with the opportunity to contribute to a group “registered retirement savings plan” or a “tax-free savings account” or to accrue benefits under a registered pension plan (essentially, a traditional defined benefit or defined contribution pension plan). Even if an employer maintains one or more of these alternative arrangements, there is no prohibition on the employer also making available a VRSP, although annual contributions across all arrangements will be limited by tax law maximums.
The Commission des normes, de l’équité, de la santé et de la sécurité du travail (“CNESST") regulates the requirement to make a VRSP available (even though Retraite Québec regulates the VRSP itself). The maximum penalty under the VRSP Act for failing to provide a VRSP or other qualifying plan is $10,000. The potential penalty is discretionary and does not toll for each day that a VRSP or other qualifying plan is not made available. Nevertheless, to mitigate the risk of a penalty, it is better for an employer to rectify any omission proactively rather than waiting for regulatory action.
Currently, the VRSP Act does not require employers who have fewer than ten eligible employees as of a particular June 30 to make any qualifying retirement arrangement available (but of course such employers are free to do so). At a future date (the timing of which is uncertain), additional provisions in the VRSP Act will come into force extending the VRSP/alternative qualifying plan requirement to employers with between five and nine employees in Québec as of a particular June 30.
No Pension and Benefits Distinctions Solely Based on Hiring Date
In 2018, the Quebec legislature expanded the scope of provisions in the Québec Act respecting labour standards (the “ALS”) prohibiting “orphan clauses” or “grandfathering clauses”, to apply them to pension and benefit plans specifically.
As such, as of June 11, 2018, the ALS prohibits 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”.
The ALS currently does not apply retroactively, meaning that any such distinctions that were made prior to June 11, 2018, may continue to apply. For example, employers who provide a defined benefit pension plan to employees hired before a particular cutoff date that is prior to June 11, 2018, but a defined contribution pension plan to those hired after that date, are not currently in breach of the ALS. That being said, the Quebec government has indicated on multiple occasions interest in potentially revisiting that rule in the coming years to prohibit all distinctions of treatment based solely on the hire date, even those with a cutoff date prior to June 11, 2018.
Of course, as in most other jurisdictions, Quebec does not permit any disparity in treatment of employees based on prohibited grounds of discrimination in accordance with human rights legislation.
Employees who believe that they are subject to a distinction in treatment prohibited under the ALS in respect of their pension or benefit entitlements may file a complaint with the CNESST within 12 months of the distinction becoming known to the employee. In turn, the CNESST is empowered to represent the employee in a proceeding before the Administrative Labour Tribunal, which adds the weight of a government body’s larger resources to the employee’s claim. If the employee is wholly or partially successful, the tribunal may ultimately order a broad range of remedies (it may render any decision it believes fair and reasonable, taking into account all the circumstances of the matter), including binding orders that (1) the distinction cease to be made; (2) the employee be enrolled in the plan or component of the plan (or at the level of benefits) in respect of which the distinction had previously deprived him or her; and (3) the employer pay the employee an indemnity for any losses resulting from the distinction (i.e., monetary damages).
Key Takeaways
These requirements illustrate how Québec law departs from the other Canadian jurisdictions with respect to pension and benefit matters and constrains employers’ discretion as to the type and design of employee benefits provided to employees. Employers subject to the VRSP Act and ALS are reminded to keep these requirements in mind, since non-compliance can lead to regulatory or employee actions, which could be costly depending on the circumstances. Employers considering expansion into Québec and potential purchasers of a business that engages employees in Québec will also want to be mindful of these requirements and proactive in their compliance measures.
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