Pension Benefits Not Deductible from Wrongful Dismissal Damages

January 14, 2014

On December 13, 2013, the Supreme Court of Canada clarified that pension benefits, regardless of the type of pension plan, are not deductible from wrongful dismissal damages: IBM Canada Limited v. Waterman, 2013 SCC 70.

FACTS: 

Waterman was provided with two months’ working notice that his employment with IBM Canada Limited (“IB”) would be terminated without cause after 42 years of service. Waterman was 66 years old at the time of termination. Waterman sued IBM for payment in lieu of reasonable notice. The trial judge held that the reasonable notice period was 20 months. Waterman had been provided with two months’ working notice and thus was entitled to 18 months’ pay.

At the time of his termination, Waterman qualified for a full pension pursuant to IBM’s defined benefits pension plan. Following his termination, Waterman started drawing his pension benefits. At the hearing, IBM argued that Waterman’s pension benefits should be deducted from the salary and benefits otherwise payable during the reasonable notice period. The trial judge rejected this position. IBM appealed this aspect of the decision. The British Columbia Court of Appeal dismissed the appeal.

DECISION:

The Supreme Court of Canada explained that in determining the amount of damages, the general rule is that a plaintiff should only be compensated for his or her actual loss. Pension benefits are, however, an exception to this general rule. Pension benefits are a form of deferred compensation for an employee’s service and provide a form of retirement savings. They are not intended to be an indemnity for wage loss due to unemployment. Accordingly, any pension benefit payments received following a termination are not deductible from the wrongful dismissal damages.

If employers were permitted to deduct pension benefits from wrongful dismissal damages, this would act as an incentive to employers to terminate older employees when they are entitled to pension benefits. The law should not provide this incentive.

WHAT THIS MEANS:

Pension benefits cannot be used to reduce the damages otherwise payable for wrongful dismissal. Pension benefits are a form of deferred compensation for an employee’s service. They are not intended to be indemnity for wage loss due to wrongful dismissal.
Employers seeking to terminate older employees who are entitled to pension benefits ought to carefully consider their options. It may be beneficial to provide employees with working notice of termination, to avoid the employee from simultaneous receiving pension benefits and payment in lieu of notice. However, employers terminating older employees must also ensure their decision to terminate does not constitute discrimination on the basis of age, contrary to the applicable human rights legislation.

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