Dear Colleagues:

Some of you might be interested in the newly released case of IBM Canada Limited v. Waterman .


EMPLOYMENT LAW: TERMINATION; DEDUCTIBILITY OF PENSION BENEFITS
IBM Canada Limited v. Waterman (B.C.C.A., August 2, 2011) (34472) 

“IBM dismissed W without cause on two months’ notice.  W was 65 years old, had 42 years of service, and had a vested interest in IBM’s defined benefit pension plan.  Under the plan, IBM contributed a percentage of W’s salary to the plan on his behalf.  Upon termination, W was entitled to a full pension, and his termination had no impact on the amount of his pension benefits.
 
W sued to enforce his contractual right to reasonable notice.  The trial judge set the appropriate period of notice at 20 month and declined to deduct the pension benefits paid to W during the notice period in calculating his damages.  The Court of Appeal dismissed the appeal.”

The S.C.C. (7:2) dismissed the appeal.

Justice Cromwell wrote as follows (at paras.1-5, 76, 96-98):

“When IBM Canada Ltd. wrongfully dismissed its long-time employee, Richard Waterman, he had to start drawing his pension.  The question before the Court is whether his receipt of those pension benefits reduces the damages otherwise payable by IBM for wrongful dismissal. The British Columbia courts decided not to deduct the pension benefits and IBM appeals.
 
The question looks straightforward enough at first glance.  The general rule is that contract damages should place the plaintiff in the economic position that he or she would have been in had the defendant performed the contract. IBM’s obligation was to give Mr. Waterman reasonable notice of dismissal or pay in lieu of it.  Had it given him reasonable working notice, he would have received only his regular salary and benefits during the period of notice.  As it is, he in effect has received both his regular salary and his pension for that period.  It therefore seems clear, under the general rule of contract damages, that the pension benefits should be deducted. Otherwise, Mr. Waterman is in a better economic position than he would have been in had there been no breach of contract.
 
On closer study, however, the question raised on appeal is not as simple as that.  The case in fact raises one of the most difficult topics in the law of damages, namely when a “collateral benefit” or a “compensating advantage” received by a plaintiff should reduce the damages otherwise payable by a defendant. The law has long recognized that applying the general rule of damages strictly and inflexibly sometimes leads to unsatisfactory results. The question is how to identify the situations in which that is the case.
 
In my view, employee pension payments, including payments from a defined benefits plan as in this case, are a type of benefit that should generally not reduce the damages otherwise payable for wrongful dismissal. Both the nature of the benefit and the intention of the parties support this conclusion. Pension benefits are a form of deferred compensation for the employee’s service and constitute a type of retirement savings. They are not intended to be an indemnity for wage loss due to unemployment. The parties could not have intended that the employee’s retirement savings would be used to subsidize his or her wrongful dismissal. There is no decision of this Court in which a non-indemnity benefit to which the plaintiff has contributed, such as the pension benefits in issue here, has ever been deducted from a damages award.   
 
I would dismiss IBM’s appeal and affirm the result arrived at by the British Columbia courts."

-- 
Jason Neyers
Professor of Law
Faculty of Law
Western University
N6A 3K7
(519) 661-2111 x. 88435