Case Brief: On Deduction Of Pension Benefits From Wrongful Dismissal Damages

In August 2011, the British Columbia Court of Appeal held that pension benefits received by an employee during the reasonable notice period were not to be deducted from wrongful dismissal damages for that period: 2011 BCCA 337. A 7-member majority of the SCC agreed with that approach in IBM Canada Limited v Waterman, 2013 SCC 70.

The majority noted that, under what has been described as the 'private insurance exception', a benefit received by the employee is not generally deducted from wrongful dismissal damages if (a) the benefit is not in the nature of an indemnity for the loss caused by the breach of the employment contract and (b) the employee has contributed to obtain the benefit. Although the employee in this case had not made financial contributions to the pension plan, he had earned the pension benefits through his years of service. The benefits were a form of deferred compensation intended as retirement savings. They were not intended to indemnify the employee against wage loss arising from a loss of employment. Policy reasons also supported non-deductibility, as the law should not make it cheaper for an employer to dismiss pensionable employees.

The Court confirmed the employee's entitlement to an additional 18 months' salary, on top of the 2 months' salary provided by IBM, on dismissal of the 65-year-old employee, who had 42 years of service at the time of his dismissal on 2 months' notice.

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