n a decision released in December 2013, the Supreme Court has held that employee pension payments should not reduce the severance payment or damages otherwise payable by an employer for wrongful dismissal.
The facts of the Supreme Court’s decision are as follows. Richard Waterman was employed with IBM in British Columbia, when he was terminated at the age of 65 and after 42 years of service with the company. Upon termination, IBM offered Mr. Waterman a severance payment representing 2 months’ pay. At the time of his termination, Mr. Waterman was also entitled to retire with a full pension.
Mr. Waterman sued IBM for wrongful dismissal. The British Columbia Supreme Court trial judge held that Mr. Waterman was entitled to common law notice of 20 months. At trial, IBM took the position that Mr. Waterman’s monthly pension benefit of $2,124 should be deducted from his wrongful dismissal damages for that same 20 month period. Both the BC Supreme Court and the BC Court of Appeal rejected IBM’s position and held that Mr. Waterman’s 20 month severance payment should not be reduced by the value of his pension benefits for 20 months. IBM appealed on the pension issue, and the matter was heard by the Supreme Court.
In the appeal before the Supreme Court, IBM took the position that it was only obligated to make Mr. Waterman “whole” during the reasonable notice period; therefore, under the general rule of contract damages, the pension benefits should be deducted. IBM also argued that Mr. Waterman’s pension benefits should be offset, as the Supreme Court had done with disability insurance benefits in the case of Sylvester v. British Columbia,  2 S.C.R. 315.
The Supreme Court disagreed with IBM and held that pension earnings should not be deducted from wrongful dismissal damages. The Court reasoned that an employee’s pension is tantamount to a retirement savings vehicle that belongs to the employee. The Supreme Court held that retirement pension benefits are akin to private insurance, because the employee contributes to his or her pension directly. As well, pension benefits form an aspect of an employee’s compensation for past service, and are not intended to indemnify an employee for lost wages as a result of termination or an inability to work.
The full text of the Supreme Court’s decision can be found here: IBM Canada Limited v. Waterman, 2013 SCC 70.