GM Facing Huge Payout with This Loss in Court

General Motors

General Motors (NYSE:GM) may have come a long way since its bankruptcy, yet some scars continue to show. A Toronto judge ruled against the U.S. automaker’s Canadian affiliate this week, ending a class-action lawsuit brought by former GM Canada employees three years ago. GM could lose hundreds of millions of dollars if the decision ends up holding through the appeal process.

According to The Globe and Mail, some 3,000 salaried retirees brought the suit against GM Canada in May 2010, claiming the automaker had no right to cut their health and insurance benefits when experiencing financial troubles during the 2008 crisis. The judge validated the claim, noting that GM hadn’t put the proper language in contracts to allow the automaker to slash benefits to non-executive employees in retirement.

The judge’s ruling says employees were promised in the contract “that they could rely on the promised health care and life insurance benefits” and were left “stunned” when GM cut the amounts by huge margins. In some cases, benefits were cut by more than 80 percent.

Estimates place the settlement amount above $300,000.Life insurance packages worth $100,000 were slashed to $20,000 as part of the cuts made by GM. The judge ruled that while employees on the job were vulnerable to such cuts, retirees were clearly promised these benefits would stay in place. Retired executives, on the other hand, would have to swallow the cuts as dictated by GM, owing to the language in their contracts.

The class-action suit was seeking around $350,000 in damages, which will have to paid back by GM if the company fails to sway the appellate court. GM Canada told The Globe and Mail it was disappointed in the outcome and would start the appeal process in short order.

The plaintiff who brought the suit died before he could see the final verdict. In his place, another one of the 3,000 retirees served as chief plaintiff. The lawyers representing the retirees were predictably pleased with the outcome.

“These are people who were planning their retirement based on what was promised to them,” Louis Sokolov, the group’s lawyer, said in an interview with The Globe and Mail.

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