On August 2, 2011, the British Columbia Court of Appeal unanimously dismissed an appeal by an employer to have an employee’s pension benefits received during an appropriate notice period offset against wrongful dismissal damages for the same period.
See Reasons for Judgment in Waterman v. IBM Canada Limited, 2011 BCCA 337 (CanLII).
The court alluded to a possible policy argument against interpretation of the employment contract in favour of deductibility of pension benefits, while stating that such a policy argument had not been advanced in this case. The policy argument was that contracts of employment should not be interpreted, in wrongful dismissal cases, in a manner which might encourage employers to terminate more senior workers, in the expectation that such workers would receive deductible pension benefits.
The BCCA wrote:
[1] This appeal raises an issue as to the deductibility of pension benefits from an award of damages for wrongful dismissal. The trial judge found that pension benefits paid to Mr. Waterman during the period of reasonable notice were not deductible from damages on the basis of the majority judgment in Girling v. Crown Cork & Seal Canada Inc. 1995 CanLII 954 (BC CA), (1995), 9 B.C.L.R. (3d) 1 (C.A.), as applied in MacGillivray v. Telus Communications Inc., 2004 BCSC 1394 (CanLII), 2004 BCSC 1394. He rejected IBM’s submission that Girling had been overruled, by necessary implication, by the Supreme Court of Canada in Sylvester v. British Columbia, 1997 CanLII 353 (SCC), [1997] 2 S.C.R. 315 (“Sylvester SCC”).
[13] This Court’s decision in Girling dealt with pension benefits, rather than disability benefits, in the context of an action for wrongful dismissal. Mr. Justice Carrothers, speaking for the majority, stated the issue before the Court at para. 1:
At issue in these appeals is whether a terminated employee is entitled to receive benefits under a non-contributory company pension plan by way of unreduced early retirement pension effective from termination of employment, as well for the same period as payment by way of damages in lieu of reasonable notice of such termination without any adjustment of either such payment to compensate for the apparent overlap.
[14] In that case, as here, the employer argued that the employee would not have been entitled to receive a retirement pension while still working and still receiving salary and that the same result should apply in determining damages for wrongful dismissal. This Court rejected that submission. At para. 10 of the decision, Mr. Justice Carrothers stated:
I am in accord with the resolution of this conundrum by the Chambers judge who determined that the 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 damages which are income in lieu of notice. The damages (pay in lieu of notice) flow from breach of the employment contract and the collateral pension benefits are payable pursuant to the contractual arrangements therefor. They are not to be modified by the appearance of duplication.
[19] It is apparent from Sylvester SCC that the question of whether Mr. Waterman is entitled to both salary and payment of his pension benefits during the notice period in these circumstances turns on the construction of the contractual arrangement between the parties. The principal difference between the Supreme Court of Canada analysis, and the analysis of this Court in Sylvester, Girling and related cases, is that the former treated the contractual arrangement as consisting of one contract encompassing both salary and disability benefits, whereas this Court regarded the contractual arrangement as consisting of two separate and distinct contracts; one being the basic contract of employment, pursuant to which the employee was entitled to his salary, and the other a contract for disability (or pension) benefits, both of which had been breached, and both of which attracted a separate and independent remedy. (emphasis added)
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[29] I begin this discussion by observing that Sylvester SCC is distinguishable from this case in that it was dealing with disability benefits rather than pension benefits. Because of the difference in the nature of these benefits, it cannot be assumed that Sylvester SCC dictates that pension benefits, like the disability benefits under consideration in that case, are deductible from an award of damages for wrongful dismissal, even where the pension benefits are payable under a plan fully funded by the employer. Rather, as stated by the court in Sylvester SCC, the question of deductibility will depend on an interpretation of the contractual arrangement between the employer and the employee, taking into account the nature of the benefits in issue.
[30] Applying the contractual analysis in Sylvester SCC, I am satisfied that the DB Plan constitutes part of one overall employment contract between Mr. Waterman and IBM. In other words, I adopt the “one contract” approach of Mr. Justice Major in Sylvester SCC, as contrasted with the “two contract” approach taken by this Court in Sylvester CA, Datardina, Bohun and Girling. Whether one contract, or two, however, the critical question is what conclusions can be drawn from that contract with respect to the deductibility of paid pension benefits from damages for wrongful dismissal.
[31] Under Mr. Waterman’s’ employment contract, including the provisions of the DB Plan, there is no express provision which governs the issue before the Court. In other words, the parties did not expressly provide for Mr. Waterman’s rights in the event IBM terminated his employment, without cause or reasonable notice, at a time when he was entitled to a fully paid-up pension.
[32] In the absence of an express provision, the question arises whether one can ascertain, or infer, from the provisions of the contract whether the parties intended that Mr. Waterman would be entitled to receive both salary and pension benefits in these circumstances. It is common ground that he would not have been entitled to simultaneous receipt of pension benefits and salary at the time of his termination but/for the failure of IBM to provide him with reasonable notice of his dismissal.
[33] In Sylvester SCC, the court attempted to ascertain the intention of the parties by reference to the terms of the contract and the nature of the benefits in issue. It found that the disability benefits in issue were intended to be a substitute for the employee’s regular salary during the period that the employee was disabled. Further, payment of the benefits was premised on the employee being unable to work. The court in Sylvester SCC concluded from these facts, and the fact that the employer had fully funded the disability plan, that the parties must be taken to have intended that disability payments paid during the notice period would be deductible from damages; that is, the parties could not have intended that the employer pay both salary and disability benefits during the period of reasonable notice. Disability payments were a proxy for salary. As with other forms of salary replacement, for example, salary earned with another employer during the period of reasonable notice, such payments were deductible from damages, at least where the disability plan was fully funded by the employer. (The court did not decide that disability payments were not deductible where the employee contributed to the disability plan, but declined to decide that issue one way or the other.)
[34] IBM submits that pension payments, like disability payments, are a substitute for salary and should be treated the same as the disability payments in Sylvester SCC in terms of deductibility. It says that Mr. Waterman would not have been entitled to receive salary and pension payments while working for IBM, unless he continued to work for IBM past age 71. (It relies on the Interpretation Document in that regard but, as earlier noted, there is no express provision in either the Interpretation Document or the DB Plan to that effect.)
[35] In short, IBM submits that the disability benefits at issue in Sylvester SCC are not significantly different than the pension benefits payable to Mr. Waterman in relation to deductibility.
[36] In considering this submission, I have reviewed the authorities to which counsel have referred which discuss the nature of pension benefits, on the one hand, and disability benefits, on the other. Those authorities indicate that, historically, and with particular reference to the issue of double recovery in tort, pension benefits and disability benefits have been regarded as being different in kind, and requiring different treatment in terms of deductibility from damages. While it is clear that the measure of damages in tort and contract are different, and that contract principles apply in this case, I find these authorities to be of assistance in characterizing the nature of the benefits in issue. The characterization of these benefits, in turn, informs the analysis of whether these parties would have intended the pension benefits to be deductible from salary during the period of reasonable notice.
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[57] As a practical matter, I have little doubt that, at the time Mr. Waterman entered into his contract of employment with IBM in 1967, he did not turn his mind to what his contractual rights would be if he were dismissed 42 years later at a time when he was entitled to full pension benefits. There is no evidence as to whether IBM turned its mind to this eventuality (in relation to its employees generally) by way of memoranda or legal opinions.
[58] I am satisfied, however, that Mr. Waterman never would have intended that his fully earned pension benefits could be utilized to reduce the amount of damages IBM would be required to pay him during the notice period if he were wrongfully dismissed. This would have been viewed by him as adding insult to injury. How could IBM force him into retirement, on the one hand, and then effectively claw back the very pension payments they had triggered in so doing, on the other?
[59] Nor am I persuaded that IBM would have intended this result. To find this was IBM’s intention would require an assumption that IBM intended to target its older employees – those who had put in the most years of service on IBM’s behalf – as being the first to be subject to dismissal in the event of downsizing, on the basis that the pension benefits of those employees could be used to offset damages for wrongful dismissal. Undoubtedly, one of the enticements IBM used, and continues to use, to attract loyal and capable employees, is a generous and competitive wage and benefits package. A benefits package which was not competitive would adversely affect its success in the employment market. No one has suggested that using pension benefits to offset damages for wrongful dismissal was, or is, a common employer practice, whether in a depressed economy, or otherwise. That being the case, I am not prepared to attribute the intention to do so to IBM, despite the position taken by its counsel on this appeal.
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[61] All of these provisions support the view, reflected in Parry, Chandler and other decisions that the pension benefits available to IBM employees are earned by and belong to the employee. The suggestion that the parties would have intended to treat Mr. Waterman’s pension benefits as a trade-off or offset against salary owing during the notice period is, in my view, incompatible with these provisions. Although pension benefits provide an income stream when paid, they are not a substitute for salary. In that respect, they are not like the disability payments in Sylvester SCC which the court found were intended to replace salary at a time when the employee was incapable of working. Here, there is no inherent inconsistency between an employee receiving both salary and pension; there are many instances of that in the workforce, including those who receive statutory pension benefits, private pension benefits from former employment, and even payments from IBM where the employee has earned a pension, retires, and is later hired back. These are benefits IBM employees enjoy in addition to salary. Once they have earned the benefit according to the terms of the DB Plan, they have rights to it similar to those enjoyed by individuals with private pensions, subject to any specific restrictions which may be contained in the Plan.
[62] Although I am attracted to the analysis of the pension benefits as earned property rights analogous to private pension plans, to which the employee is entitled upon meeting the vesting and other qualifying requirements of the DB Plan, I am satisfied from my review of the authorities that the pension benefits in issue are also properly characterized as a form of non-deductible, non-indemnity insurance, as described by Madam Justice McLachlin in Cunningham.
[63] Whether regarded as the property of Mr. Waterman in the sense of an investment or RRSP earned by him over many years of labour, as discussed in Chandler, or as the equivalent of a non-indemnity insurance policy provided by IBM through “premiums” paid on his behalf, the payments are not payments of salary, or in lieu of salary. While these benefits would normally not be triggered until Mr. Waterman chose to retire at the end of his working career, the benefits were triggered by IBM in terminating Mr. Waterman without cause or notice and thereby effectively forcing him into early retirement. Having effectively compelled him to take the benefits, IBM cannot now complain that he is entitled to retain those benefits together with the salary to which he is entitled for breach of the term of his contract providing for reasonable notice of termination. IBM could have avoided this result by providing reasonable notice, but they chose not to do so. To the extent that choice was made for sound economic reasons (which I assume to be the case), they have presumably benefited from it.
Summary and Conclusion: In this extremely thoughtful and thorough analysis, the BC Court of Appeal has, we think, at least for the province of BC, put to the rest the attempts by employers to seek offset from wrongful dismissal damages, by reason of pension benefits to which the dismissed employee becomes entitled at or near the end of employment.