The Supreme Court of Canada has decided that pension benefits received by a dismissed employee are not to be deducted from an award of wrongful dismissal damages.  The decision in IBM Canada v. Waterman affirms an earlier ruling of the BC Court of Appeal which we discussed here.

Mr. Waterman was a long-service employee who was terminated with two months’ notice when he was 65.  He rejected a severance offer that would have provided him some wages and some pension.  He sued for wrongful dismissal but in the meantime began to get payments under the defined benefit pension plan that was part of  his contract of employment.  He succeeded with his wrongful dismissal claim and was awarded damages based on a 20 month period of reasonable notice.  IBM sought to have the amount of pension payments received during the 20 months deducted from the damages.

The court agreed he had received a “compensating advantage”:  i.e. if he had been given actual notice of termination, he would only have received his regular pay but, because he was terminated, he collected damages for loss of income while also receiving pension payments.  Nevertheless, the court decided to apply the “private insurance exception”.

Seven of the nine judges held that the pension plan was like private insurance, the benefits of which are not deductible from wrongful dismissal damages.  The most common example is an employee who is allowed to keep disability benefits from a private policy even when she or he also receives damages for wrongful dismissal.

The majority noted that Mr. Waterman did not contribute money to his pension plan, but he did contribute his time and service.  In addition, the majority noted that the pension plan compensates for past service; it is not an indemnity for lost wages.  Therefore, Mr. Waterman was entitled to keep both the pension payments and wrongful dismissal damages.

Two of the nine judges disagreed, saying that the private insurance exception has no application to a pension plan that arises from a single contract of employment under which the employee is also claiming wrongful dismissal damages.

While the decision went in favour of the employee in this case, and it will be highly influential in future cases involving pension benefits, each case will have to be examined on its own terms to see if the result will be like “private insurance” (see paragraph 76 of the Waterman case and Sylvester v. British Columbia for details of that principle) or double recovery (see our previous post).