The legal challenge, which has become a political black eye for the Conservative government, was put into abeyance recently at the B.C. Supreme Court, two federal sources said Thursday.
The decision — effectively a time-out from legal proceedings — was taken because both sides were facing court-imposed deadlines to file further submissions in the case.
Don Sorochan, the lawyer for the soldiers, confirmed settlement talks are underway with the government, but declined to give details.
"When the new minister came in, we'd had approaches to talk," Sorochan said.
"We notified the court — both parties — that we were in that situation and asked that we not bother filing these further materials that had been requested by the court, and they agreed to that."
The soldiers are determined to see change, but are also interested in hearing what the government has to say, Sorochan said — especially now that Erin O'Toole, a former air force navigator, has taken over from Julian Fantino, who had a combative relationship with the veterans community.
"The lawsuit is there for one purpose only and that is to improve the benefits for a broad class of veterans," Sorochan said.
"Legal mechanisms can only go partway and the court can't impose legislation. It can declare it to be unconstitutional. To a certain extent, the relief we were seeking in court can be enhanced by discussion."
The ex-soldiers are challenging the government's 2006 overhaul of veterans benefits, alleging the so-called new veterans charter is discriminatory under the charter of rights because it does not provide the same level of support as the old pension system.
In defending the lawsuit, government lawyers outraged veterans by asserting that the federal government has no extraordinary obligation to those who've fought for the country.
They argued it is unfair to bind the current government to a system of benefits and entitlements promises made nearly a century ago by another prime minister.
Those statements have been politically toxic to the Harper government, which prides itself on supporting the troops, and has led to increasing friction with former soldiers.
Conservatives have been scrambling to fix the battered relationship ahead of the election scheduled for this fall. Plans are underway to roll out a series of measures between now and the summer.
The political campaign began on Monday in Toronto, where O'Toole announced the creation of a retirement fund for moderately and severely wounded soldiers who otherwise might spend their final years in poverty.
Federal sources said the minister would be in Halifax on Friday to announce new measures for wounded reservists and their families, giving part-time members the same access to the same benefits and support as full-time military members during their rehabilitation programs.
Such a plan would address a gap identified by the House of Commons veterans committee in a report last June.
The unequal treatment of reservists, many of whom served in Afghanistan, is another sensitive topic for the Conservatives, who have put a politically charged overhaul of the reserve force organization on hold.
National Defence was supposed to have delivered a new structure for the part-time, volunteer force by this spring's budget, but it likely won't be done until after the election, scheduled for October.