In a 7-2 decision, the Supreme Court of Canada has ruled that an employee’s pension payments cannot be deducted from an award of damages for wrongful dismissal. Pension benefits, being a form of deferred compensation for the employee’s service, are not intended to be an indemnity for wage loss upon unemployment.

In IBM Canada Ltd v Waterman, the plaintiff, Mr. Waterman, was a 65 year old employee with 42 years of service. After being terminated without cause, he began collecting payments from his defined benefits pension plan and sued the defendant employer, IBM, for wrongful dismissal. If Mr. Waterman had not been dismissed, he could not have received both pension and employment income until he reached the age of 71. IBM  sought to deduct those pension payments from any wrongful dismissal damages that may be owed to Mr. Waterman on the ground that payment of both salary-related damages and pension would amount to double recovery for Mr. Waterman.

Both the trial court and appeal court in British Columbia held that the pension benefits could not be deducted. In dismissing IBM’s appeal and affirming the lower courts’ decision, the Supreme Court noted that “the parties could not have intended that the employee’s retirement savings would be used to subsidize his or her wrongful dismissal”. The Court declined to deduct Mr. Waterman’s pension benefits from his wrongful dismissal damages because it determined the that benefit was not an indemnity for wage loss due to unemployment and that Mr. Waterman, through his years of service, contributed to the benefit.