Canadian Employment Law Today

CANADIAN EMPLOYMENT LAW TODAY Published by Canadian HR Reporter, a Thomson Reuters business 2014 3 Don't deduct pension benefi ts from wrongful dismissal damages: Supreme Court Contribution by employee and purpose of pension benefi ts key to determining if they are part of compensation lost BY RONALD MINKEN AFTER A HARD fought fi ve-year battle, and in a 7-2 decision, the Supreme Court of Canada has decided an employee can keep his pension benefi ts as well as the full damages awarded to him for wrong- ful dismissal. Richard Waterman was terminated by IBM Canada after 42 years of service and was provided with two months' no- tice. At the time of termination, Water- man was 65 years old and entitled to a full pension in accordance with IBM's defi ned benefi t pension plan. Over the course of his employment, IBM made all of the contributions to fund the pen- sion plan on Waterman's behalf as part of his annual compensation package. Waterman began receiving his monthly pension following his termination, but commenced legal proceedings against IBM seeking damages for wrongful dis- missal. The trial judge determined Waterman was entitled to a total of 20 months' notice from IBM. IBM took the posi- tion that Waterman's pension payments over the notice period should be de- ducted, as otherwise Waterman would be placed in a greater economic position than he would have been in had he not been terminated. IBM argued this would be contrary to the general rule of con- tract damages, being the compensation principle. The trial judge disagreed and IBM appealed the decision to the British Columbia Court of Appeal, which dis- missed the appeal. IBM appealed again to the Supreme Court of Canada. The Supreme Court of Canada ana- lyzed the situation and determined that, although the pension was a "collateral benefi t" or "compensating advantage," — a gain or advantage fl owing to. Wa- terman that was connected to IBM's breach of contract — there are well es- tablished exceptions to the general rule of damages where collateral benefi ts are not deducted from damages awarded and the employee is entitled to both the damages and the collateral benefi ts. The majority of the Supreme Court of Cana- da ruled that the pension benefi ts Wa- terman received fell into the exception carved out for private insurance and similar benefi ts and this analysis was in keeping with the decision in Sylvester v. British Columbia, despite the fact the outcome in Waterman was the opposite result to that in Sylvester. The court's analysis in Waterman to determine whether or not the pension benefi ts should be deducted from the wrongful dismissal damages was exten- sive. It considered the following: • Whether the collateral benefi t was suf- fi ciently connected to the defendant's breach • Whether the collateral benefi t would not have accrued to the employee "but for" the employer's breach • Whether the collateral benefi t was in- tended to indemnify the employee for the loss resulting from the employer's breach. • Whether the plaintiff had contributed, directly or indirectly, to the collateral benefi t. In analyzing the case law, the court established the following general prin- ciples: • Collateral benefi ts are not deducted if they are not intended to be an indem- nity for the loss caused by the breach and the employee has contributed to the collateral benefi ts • Collateral benefi ts are not deducted where the employee has contributed to the indemnity collateral benefi ts • Collateral benefi ts are deducted when they are intended to be an indemnity for the loss caused by the breach and the employee has not contributed to obtain entitlement to the collateral benefi ts. The court determined that the pension benefi ts were not intended by the parties to be an indemnity for lost wages and Waterman had contributed to the acqui- sition of the pension through his years of service. It acknowledged that pension benefi ts are different from wages and are not meant to be compensation for the loss of wages, stating that wages are a reward for contemporaneous work but pension benefi ts are a form of deferred compensation for the employee's ser- vice — a form of savings plan. The court also noted that in other sce- narios, pension benefi ts are not deduct- ed from wrongful dismissal damages or income earned from another employer. For example, an employee who is termi- nated prior to being eligible for retire- ment is entitled to damages for wrongful dismissal plus all entitlements under the pension plan, including the loss of any pension entitlements during the notice period. Similarly, a retired employee is entitled to receive full pension ben- efi ts as well as any employment income earned from new employment without any deduction of the pension benefi ts. Accordingly, the court determined pen- sion benefi ts should be viewed as analo- gous to private insurance benefi ts and should not be deducted from damages for wrongful dismissal. This analysis and result was consistent to the Su- preme Court of Canada's analysis in Syl- vester, where an employee's disability benefi ts were deducted from damages for wrongful dismissal because the ben- efi ts were meant to be an indemnity for loss of wages and where the employee did not contribute to the acquisition of the disability benefi ts. The Waterman decision demonstrates there are exceptions to the compensa- tion principle — being the general rule regarding damages — which, depending on the facts, can either work in favour of the employee or the employer. The key factors are the nature and purpose of the collateral benefi ts; specifi cally, whether they are meant to compensate or be an indemnity for the defendant's breach, and whether the plaintiff has contrib- uted to the acquisition of the collateral benefi ts. For more information see: • Waterman v. IBM Canada Limited, 2013 CarswellBC 3726 (S.C.C.). • Sylvester v. British Columbia, 1997 CarswellBC 1025 (S.C.C.). Ronald S. Minken is a senior lawyer and mediator at Minken Employment Lawyers, an employment law boutique located in Markham, Ontario. He can be reached at www.MinkenEmploymentLawyers.ca. Ron gratefully acknowledges Sara Kauder and Kyle Burgis for their assistance in prepara- tion of this article. The court determined the pension benefi ts were not intended to be an indemnity for lost wages.

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