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Saying goodbye to older workers

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Should older workers be treated any differently when they are dismissed from a job? Canada’s highest court does not think so. In a recent decision of the Supreme Court of Canada, the Court ruled that employers cannot deduct pension benefits from pay in lieu of notice (wrongful dismissal damages) owing to pension eligible  employees.

This is an issue that employers will need to pay attention to as the Canadian workforce continues to age. Statistics Canada’s latest Labour Force Survey in January 2014 shows that employment increased by 5.1 per cent for women 55 and over compared with January 2013 and by 3.8 per cent for men aged 55 and over. Between January 2006 and January 2014, overall labour force participation for Canadians 55 and over went from 2,228,000 to 3,409,000. For those 65 and older it more than doubled, from 304,400 to 680,200.

IBM Canada Limited v. Richard Waterman

In the case of IBM Canada Limited v. Richard Waterman[1], Mr. Waterman, an employee of IBM Canada, was dismissed without cause after 42 years of service. At the time of his dismissal, Waterman was 65 years old, and he qualified for a full pension under the Company’s pension plan.  IBM provided  Waterman with a two month severance package and advised him that he would be treated as a retiree and would receive his monthly pension payments as of the termination date.  Not satisfied with this termination package, Waterman sued IBM for wrongful dismissal.
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Waterman was successful at trial and was awarded wrongful dismissal damages representing 20 months’ salary.  IBM appealed, because among other things, Mr. Waterman was getting double recovery – he would collect his pension and receive his severance payment, unlike other employees who would only get their severance payment.

The Supreme Court disagreed with IBM, observing that pension benefits are a retirement savings vehicle to which an employee earns an absolute entitlement over time. Unlike wrongful dismissal damages, pension benefits are not meant to compensate an employee for the loss of his employment or loss of salary.   An employee’s interest in the pension bears many of the hall marks of a property right and as such, pension plan payments should generally not reduce the damages otherwise payable to an employee for wrongful dismissal.

The Court also observed that there was no clear provision in Waterman’s contract which provided that pension entitlements should be deducted from Waterman’s notice entitlements. Similarly, there was no provision in the pension plan expressly prohibiting concurrent receipt of salary and pension benefits.   The Court was satisfied that in looking at the employment contract as a whole, there was no indication that the parties agreed that pension benefits could be utilized to reduce the amount of damages IBM would be required to pay Waterman during the notice period if he were wrongfully dismissed. 

What this means for employers

Employers are not generally permitted to deduct pension benefits from wrongful dismissal damages, regardless of the type of pension plan – whether it is a defined contribution or a defined benefit plan or whether the employee made any contributions to the plan. There may be exceptions, however, if there is a clear provision in the employment contract or pension plan text permitting the employer to make such deduction.

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[1] 2013 COURT 70