The Deductibility of Pension Benefits from Wrongful Dismissal Damages

The Deductibility of Pension Benefits from Wrongful Dismissal Damages

Kalen Ingram
Posted February 21, 2014 Category: Businesses

Recently, I gave a presentation on the deductibility of disability benefits from wrongful dismissal damages as part of our firm’s Labour and Employment Group’s Annual Breakfast Seminar.  The issue I was concerned with was whether an employee is entitled to receive both their disability benefits and their termination entitlements if they are disabled at the time of termination or if they become disabled during the notice period.  The employers in these cases have argued that the disability benefits should be deducted from the wrongful dismissal damages so that the employee is not receiving more than they would be had they continued working.

In the presentation, I discussed how Canadian decisions are trending toward allowing employees to “double dip” (i.e., receive both their disability benefits and the full wrongful dismissal damages).  The key factors are whether the employee has made any contributions towards the disability benefit and the intention of the parties.

On December 13, 2013, the Supreme Court of Canada revisited this issue in a slightly different context. IBM Canada Limited v. Waterman, 2013 SCC 70, considered the deductibility of pension benefits from wrongful dismissal damages.  In this case, the employee was terminated without cause at the age of 65 after 42 years of service.  The employee had a vested interest in IBM’s defined benefit pension plan.  Upon termination, the employee was entitled to a full pension, and his termination had no impact on the amount of his pension benefits.  IBM told the employee that on termination, he would be treated as a retiree and that he must begin receiving his pension as of that date.

The employee sued for wrongful dismissal and the trial judge found that the appropriate notice period was 20 months.  The issue then became whether the employee’s pension benefits should be deducted from his wrongful dismissal damages.  Following on the trend of the disability benefits cases, the SCC allowed the employee to “double dip” and receive both his pension and his full salary and benefits for that 20 month period.  The key factors in the decision were:

  1. The pension benefit was not intended to be an indemnity for wage loss but rather a form of retirement savings.
  2. The employee made indirect contributions towards the pension benefit through his years of service (the employer made all the financial contributions to the plan).
  3. Allowing the employer to deduct the pension benefit from wrongful dismissal damages would provide an incentive to dismiss employees who are eligible for their pension over other employees.

The decision of Justice Cromwell provides a very helpful overview of the issue of “collateral benefits” and deductions from wrongful dismissal damages and further reinforces the recent trend of decisions regarding deductibility of damages towards favouring employees.

Kalen Ingram
Employment and Labour Group, Kalen Ingram
February 21, 2014

Kalen Ingram
Posted February 21, 2014 Category: Businesses

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