Are Pension Benefits Deductible From Wrongful Dismissal Damages?

Introduction

The general measure of damages in a wrongful dismissal case is the amount that an employee would have earned had he or she been given proper working notice. In assessing damages, a court will take into account the salary and other benefits that the employee has lost as a result of a termination with insufficient notice, but will also deduct any income that the employee received from other employment during the reasonable notice period. This is on the principle that it would be double recovery to earn income from two different employers at the same time, and double recovery is to be avoided (Ratych v. Bloomer, [1990] 1 S.C.R. 940).

This exercise is less straightforward when considering other payments made to an employee during the reasonable notice period that are not typical "income". For example, a dismissed employee may receive unemployment insurance, disability benefits, or pension benefits. A court must consider whether these benefits are to be deducted from wrongful dismissal damages just as salary income would be deducted.

Each type of benefit payment has its own unique characteristics. This article will focus on the treatment of pension benefits.

General Principle: Pension Benefits are Not Deductible

In Ontario, and generally throughout the common law provinces of Canada, the current consensus is that pension benefits received during the notice period are not to be deducted from wrongful dismissal damages. This is true whether or not the plan is fully funded by the employer (Emery v. Royal Oak Mines Inc. (1995), 24 O.R. (3d) 302 (Gen. Div.); Jardine v. Gloucester (City), (1999) 19 C.C.P.B. 248 (Ont. Gen. Div.)). This is subject to one important exception, described further below.

The rationale for the general principle is two-fold.

First, it has been held that pensions are akin to insurance policies (Guy v. Trizec Equities Ltd. (1979), 99 D.L.R. (3d) 243 (S.C.C.); reaffirmed in the context of employment insurance benefits in Jack Cewe Ltd. v. Jorgenson (1980), 111 D.L.R. (3d) 577 (S.C.C.)). Pension benefits are "collateral" to the main employment contract, i.e., they are related to the employment but are payable under a separate contract. In Girling v. Crown Cork & Seal Canada Inc. (1995), 127 D.L.R. (4th) 448 (B.C.C.A.), the court stated (at para. 10):

... pension benefits of the employment contract are collateral benefits of the employment contract which should not be considered income and should not be deducted from...