On April 5, 2012, the Supreme Court of Canada said it would hear
IBM's appeal from the B.C. Court of Appeal decision in Waterman v. IBM Canada Ltd.
(PDF). This important case will likely allow the Supreme
Court to re-examine damages principles arising in a wrongful
dismissal action. The case raises the question of what, if any,
damages a terminated employee is entitled to if that person
immediately starts receiving benefits from a fully funded pension
or disability plan.
In the case under appeal, the court was asked to decide whether
Mr. Waterman was entitled to claim both lost wages and his full
pension from an employer-funded defined benefit plan, in respect of
the period when he should have received reasonable notice of
termination.
The appeal court decided that Mr. Waterman was entitled to both
amounts. IBM had argued that this amounted to "double
recovery" and was inconsistent with damages principles arising
from a breach of contract. Rather than putting the employee in the
monetary position in which he would have been had he worked the
notice period, Mr. Waterman ended up with both full pay and full
pension payments during the notice period, i.e. a "double
recovery".
In 1997, the Supreme Court of Canada, in Sylvester v. British Columbia (PDF),
decided that disability benefits, coming from an employer-funded
LTD plan, should be taken into account to reduce damages for lost
wages during the notice period. The principles set out by the B.C.
Court of Appeal in Waterman appear to fly in the face of
the Sylvester principles.
When the dismissal is without cause, the analysis of damages is
premised on an employee being provided reasonable notice of
termination. During that reasonable notice, the employee would be
at work and entitled to normal wages and benefits. Of course, the
employee would not also be entitled to start receiving his/her
pension. That is permissible only when employment has ceased. Since
the majority of employers do not actually provide reasonable
working notice, but rather severance in lieu of notice, the courts
are often tasked with determining damages which would
"mirror" that which the employee would have earned had
he/she worked the reasonable notice period. An award of full
severance without deduction for pension payments received from an
employer-funded plan, puts the ex-employee in a better financial
position than working the notice period would have produced.
In Waterman v. IBM, the Court placed some significance
on the fact that the entitlement to pension payments was triggered
by IBM terminating Mr. Waterman without cause or proper notice and
thereby "effectively forcing him into early retirement".
While the Court of Appeal acknowledges that the full scope of the
employment relationship should be examined when assessing damages,
the Court appears to drift into the "multiple contracts"
theory of damages, which was rejected in Sylvester. While
not expressly stated, it seems the B.C. Court of Appeal analyzed
the situation, not on a pure contract loss replacement basis but,
at least in part, on a tort or fault basis. More particularly, the
Court, in commenting on the employment relationship, appears to
express certain "moral" concerns about the actions of IBM
(which actions were no different than virtually all employers when
terminating without cause and without working notice), rather than
focusing on the contractual loss of Mr. Waterman.
While no reasons are issued by the Supreme Court of Canada when
agreeing to hear an appeal, it is a positive sign for employers
that the highest Court will examine these fundamental principles
associated with wrongful dismissal damages. Any guidance by the
Supreme Court of Canada about such governing principles and the
scope of damages is always welcome. This should be no
exception.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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