This is Canada’s equivalent of Parry v Cleaver; both cases are correctly decided in my opinion.

 

However, Justice Cromwell says that the case 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”

 

What exactly are these ‘damages otherwise payable’? What is the unstated starting point here? The same question may be asked of all the cases in English and Canadian law that discuss “avoided loss” – what exactly is the loss that has been “avoided”?

 

If the application of the compensatory principle was really just a factual exercise, then the only damages ever payable would be those equal to the amount of the claimant’s factual loss (i.e. the net total of all benefits and detriments factually caused by the breach). Recovery of factual loss might sometimes be limited by legal rules (e.g. remoteness or mitigation), but any starting point greater than factual loss (from which a “reduction” could be made) would be conceptually impossible.

 

The answer must be that application of the compensatory principle is not just a purely factual exercise. Instead, legal rules (like the one raised here in relation to pensions) sometimes require that the claimant’s position is assessed contrary to fact i.e. by ignoring or substituting some element of reality (e.g. the fact that C received the pension).

 

Once this is appreciated, the problem of collateral benefits is just one of mapping all of these relevant legal rules. We shouldn’t get hung up on the supposedly fundamental objection that the claimant gets awarded more than they factually have lost. This outcome doesn’t contradict the compensatory principle; it just requires a better understanding of how the claimant’s position is defined for the purposes of applying that principle. Recovery greater than factual loss frequently occurs in relation to several areas of damages (besides pensions), for example benevolent donations and insurance payouts (and, I would suggest, many many cases usually headed under “mitigation in fact”).

 

Andy

 

 

 

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