Pension Payments Generally not Deducted from Damages for Wrongful Dismissal

The debate over whether pension benefits ought to be deducted from damages for wrongful dismissal appears to have been addressed and settled in the recent decision of the Supreme Court of Canada in IBM Canada Limited v. Waterman.

In that case, the Plaintiff was dismissed without cause and was provided with two months’ notice. At the time of his termination, the Plaintiff was 65 years old, had worked for 42 years and had a vested interest in a Defined Benefit Pension Plan. IBM paid a percentage of the Plaintiff’s salary to that pension plan on the Plaintiff’s behalf. As a result of the termination of employment, the Plaintiff was entitled to receive his full pension. IBM sought to deduct pension benefits from the amount of damages awarded for wrongful dismissal, which was set at 20 months by the trial judge.

In summary, the Supreme Court of Canada held that pension payments generally should not be deducted from damages otherwise payable for wrongful dismissal. The premise upon which the decision appears to be based is that such pension payments constitute a form of deferred compensation, and are a type of retirement savings; they are not intended to indemnify the employee for a loss resulting from a termination of employment.

The Court noted that the Plaintiff’s contract of employment was silent on the issue of deducting pension payments from damages for wrongful dismissal, which appears to leave open the possibility of employers setting their mind to such a deduction within their contracts of employment. In one sense, the benefits paid appear to be an indemnity benefit, as the Plaintiff would not have received his pension payments during the notice period had he received actual notice of his termination. However, the court noted that the pension benefits here were clearly not an indemnity benefit for loss of salary due to inability to work, and instead alluded that they bore many of the hallmarks of a property right.

It will be interesting to see whether employers respond with employment agreements attempting to deduct pension benefits from damages for wrongful dismissal and how the courts will treat such clauses moving forward.