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Supreme Court of Canada confirms pension benefits should not be deducted from damages for wrongful dismissal

In the recent decision of IBM Canada Limited v. Waterman 2013 SCC 70 (CanLII), the Supreme Court of Canada confirmed that an employee’s pension benefits should not be deducted from his/her common law entitlement to pay in lieu of notice arising from a wrongful dismissal. In doing so, the Supreme Court squarely addressed the issue known as the “collateral benefit” or “compensating advantage” issue. Specifically, the compensating advantage issue addresses whether or not two payments arising from the same breach of contract would result in double recovery for the employee (i.e. damages for wrongful dismissal and pension payments arising from the same wrongful dismissal), and should therefore be deducted.

In this case, Mr. Waterman was 65 years old and had 42 years of service with IBM when IBM decided to terminate his employment and it only paid him 2 months of pay in lieu of notice. Throughout his employment, Mr. Waterman had been part of a defined benefit pension and he was entitled to commence collecting his full pension effective the date of his wrongful dismissal. IBM’s position was Mr. Waterman’s pension benefits should be subtracted from any common law notice period he was entitled to. The Trial Judge rejected this position on the basis that pension benefits were a deferred payment and different to damages for wrongful dismissal. The Trial Judge awarded a 20 month common law notice with no deduction.IMB appealed the case to the Supreme Court of Canada.

The Supreme Court began its analysis by observing that the general principle in assessing damages for wrongful dismissal was to place the employee in the same economic position they would have been in if the termination had not taken place. Under this general principle, it would appear that Mr. Waterman’s pension benefits should be deducted because if he were to receive both his damages for wrongful dismissal and his pension benefits, he would be in a better economic position then if there was no breach of his employment contract.

However, the Supreme Court held that the issue was more complex and required an analysis of whether or not there was an intention to have pension benefits subtracted from damages for wrongful dismissal. The Supreme Court held that pension benefits are a form of deferred compensation for the employee’s service and constitute a type of retirement savings. Pension benefits are not intended to compensate an employee for the loss of employment and therefore employee’s are entitled to both damages for wrongful dismissal and pension benefits.

It is easy to see situations where employers would want to deduct the amount of payments made to employees during a period of reasonable notice to avoid double recovery. This could arise in the situation where an employee is in receipt of benefits or some other type of contractual payment during the notice period. The Supreme Court held that in general, a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and the employee has contributed in order to obtain entitlement to it. Therefore, if the benefit compensates an employee for something different then the loss of his/her employment and the employee contributed to the costs of the benefit, it will likely not be deductible.

Simon Heath LL.B, M.I.R.
Heath Law, Employment Lawyers

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Simon Heath, BA, MIR, LLB, Heath Law

Employment Lawyer and principal at Heath Law, Employment Lawyers
Simon Heath, BA, MIR, LLB, is the Principal of Heath Law, Employment Lawyers in Mississauga, Ontario. Simon represents both public and private-sector employers and employees (unionized and non-unionized) at all stages of the employment relationship with a focus in the areas of employment law, labour law and human rights law; these representations are made at all levels of courts and all administrative tribunals. Read more
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