Deducting Pension Benefits in Wrongful Dismissals, The Law Times (October 22, 2018, p 7)

Deducting Pension Benefits in Wrongful Dismissals, The Law Times (October 22, 2018, p 7)

By Nikolay Y. Chsherbinin

The fundamental principle applicable to quantifying damages in wrongful dismissal cases is that the damages award should place an employee in the same economic position that they would have been in, had they not been wrongfully dismissed. In determining damages, the court will typically include all of the compensation and benefits the employee would have earned during the proper notice period. A pension is a form of benefit that an employee has earned for his years of service. The calculation of a pension’s value is often contention. An employment case in point is Dussault v. Imperial Oil Limited, 2018 ONSC 4345 (“Dussault”), where the court was tasked with resolving whether the increase in the commuted value of the employee’s pension that resulted from his dismissal should be deducted from his damages award and whether, given the increase, the employee should be entitled to the pension contributions the employer would have made during the notice period. Both questions were answered in the negative, with helpful elucidations.

In Dussault, Donald Dussault was employed by Imperial Oil Limited for over 39 years. On September 2, 2016, Imperial gave Dussault notice of termination of his employment, which required him to work until October 31, 2016. At the time of his dismissal, Dussault was 63 years old and served as a manager of real estate development. Following his dismissal, he sued Imperial for wrongful dismissal and, on a summary judgment motion, was awarded damages equal to 26 months’ notice. The court had no sufficient information to calculate Dussault’s damages and requested that the parties attempt to reach an agreement of the quantum of damages, which they were unable to do. The treatment of Dussault’s pension was the most contentious issue between the parties and had significant financial consequences.

Relying on an expert report, Imperial led evidence that the commuted value of Dussault’s pension was $189,117.00 higher as a result of his dismissal than it would have been at the end of his 26 months’ notice. Consequently, Imperial asserted that any damages awarded to Dussault should include a deduction for the increase in the value of his pension. Otherwise, Dussault would be placed in a better economic position that he would have been in had he not been dismissed.

Dussault neither produced a competing expert report nor disagreed with Imperial’s expert’s conclusions. Instead, he argued that the Supreme Court of Canada decision, IBM Canada Limited v. Waterman, 2013 SCC 70, is determinative of the issue of whether the increase in value of the pension attributable to the employee’s dismissal should be deducted from the damages award. In response, Imperial argued that IBM was distinguishable, because it focused on the deduction of pension benefits, whereas in its case Imperial was focusing on the deduction of the increase in the commuted value of Dussault’s pension. Siding with Dussault, the court found Imperial’s argument to be a distinction without a difference.

The court explained that, firstly, in IBM, the rationale for not deducting pension benefits was in part that pensions are not meant to be an indemnity against the loss of employment, but rather are a benefit that employees have earned for their years of service. Secondly, the reason the value of Dussault’s pension was higher at the time of dismissal is because he started receiving benefits sooner. In other words, as of October 31, 2016, Dussault’s pension had more value, because he was expected to derive more money from it than he would have if he had stopped working on October 26, 2018. The court saw no rational difference between seeking to claw back the benefits paid during the notice period and seeking to deduct the increase in value resulting from dismissal.

Having dismissed Imperial’s argument, the court turned to consider Dussault’s argument that he should be entitled to receive the pension contributions that Imperial would have made during the notice period. Imperial argued that, given the increase in his pension’s commuted value, Dussault suffered no pension loss and, as such, it should not be required to pay the pension contributions. Dussault retorted that Imperial should not be allowed to benefit from its wrongdoing, but led no evidence of any loss.

Relying on the Court of Appeal for Ontario decisions in Peet v. Babcock & Wilcox Industries Ltd., 2001 CanLII 24077 and Paquettev. TeraGo Networks Inc., 2016 ONCA 618, the court refused to award damages on this ground, because Dussault suffered no pension loss. Awarding damages under the guise of pension loss would serve to put Dussault in a more favourable economic position under the employment contract than had he not been dismissed, which would be contrary to the fundamental principle of compensation recognized in wrongful dismissal cases.

Dussault is a welcome reminder that when assessing the difference in the value of a pension between the date of termination and the date on which the employment could have been terminated after proper notice, a court will consider the pension’s commuted value. The difference in value determines not only whether a pension loss has occurred, but also whether the employee should be awarded the amount equivalent to the pension payments during the notice period. For these reasons, prudent employers and employees should lead actuarial evidence in support of their positions.

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