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Pension Benefits Cannot be Deducted from Employee Entitlements on Termination

Last week the Supreme Court of Canada delivered a ruling to clarify what has been an unsettled issue in employment law.  In a wrongful termination dispute, IBM Canada Limited v. Waterman  (2013 SCC 70) Canada’s highest Court heard an appeal from the British Columbia Court of Appeal with regard to Waterman’s entitlements on termination.

Waterman was a long-term employee who had been wrongfully dismissed by IBM.  After his employment ended, Waterman began drawing from his pension benefits, and then launched his claim for wrongful dismissal damages.  At trial, he was awarded pay in lieu of notice of termination equivalent to 20 months’ salary. 

IBM took the position that since Waterman had been in receipt of pension benefits, he was not also entitled to collect pay in lieu of notice.  In the company’s view, this would be a form of “double-dipping” whereby Waterman would get to collect twice for the same loss.  Its position was that since a wrongfully dismissed employee is only entitled to be compensated for his or her actual losses, IBM ought not be responsible to pay the full amount in lieu of notice if Waterman already mitigated his losses by receiving pension benefits.  Accordingly, the employer argued that the wrongful dismissal award ought to be reduced by the amount  Waterman had already collected from drawing the pension benefits.

The Supreme Court of Canada disagreed.  It ruled that Waterman was not recovering double compensation for the loss of his employment by seeking pay in lieu of notice after having drawn from his pension benefits.  Rather, the Court drew a distinction by stating, in part:

In general, a benefit would not be deducted if it was not an indemnity for the loss caused by the breach and the plaintiff had contributed in order to obtain entitlement to it.

The pension benefits, to which Waterman had contributed throughout his employment, were never intended to be an indemnity for the type of loss suffered as a consequence of the wrongful dismissal.  On the other hand, the intent of wrongful dismissal damages in the form of pay in lieu of notice of termination is to ease the burden of loss of employment and help bridge the transition to new employment, or retirement.

The significance of this ruling for employers is a warning to be a more certain and cautious when calculating potential wrongful dismissal damages.  While a terminated employee is required to mitigate his or her losses, and should only recover damages to compensate for the loss of employment, the Supreme Court of Canada has made it clear that a terminated employee’s entitlements for wrongful dismissal damages will not be off-set if they draw from their pension benefits during the reasonable notice period.

If you are trying to determine an employee’s entitlements on termination the lawyers at CCPartners have ample experience and insight to assist you in making the right call.