Wednesday, November 16, 2011

Ontario Employment Law: Prejudgment Interest On Wrongful Dismissal Damages

In Chandran v. National Bank, Pollak J. in his endorsement on costs dated July 21, 2011, neatly summarizes how prejudgment interest is calculated in a wrongful dismissal action as follows:
... [T]he prejudgment interest on the damage award is calculated as follows: - first, the interest owed from the beginning of the notice period to the end must be calculated monthly on the basis of what was owed at that time; - second, the interest on the total amount of the award outstanding at the end of the notice period must be calculated from the end of the notice period to the date of judgment.
Two calculations essentially need to perform to arrive at a figure for prejudgment interest. In the case, prejudgment interest was determined to be $15,931.93 for an employee with an annual salary of $98,824.00 and an entitlement to 14 months of pay in lieu of reasonable notice.
Pollick J. neatly set out his calculation of prejudgment interest, as follows:
This Court’s calculation of appropriate prejudgment interest on a monthly basis prior to the expiry of the notice period in this case as follows:
(i) Annual Salary of $98,824.00/ 12= $8235.33 a month
Interest Calculated Monthly:
Month 1
$8235.33 x 4.5% per annum for 14 months
$432.32
Month 2
$8235.33 x 4.5% per annum for 13 months
$401.44
Month 3
$8235.33 x 4.5% per annum for 12 months
$370.56
Month 4
$8235.33 x 4.5% per annum for 11 months
$339.68
Month 5
$8235.33 x 4.5% per annum for 10 months
$308.80
Month 6
$8235.33 x 4.5% per annum for 9 months
$277.92
Month 7
$8235.33 x 4.5% per annum for 8 months
$247.04
Month 8
$8235.33 x 4.5% per annum for 7 months
$216.16
Month 9
$8235.33 x 4.5% per annum for 6 months
$185.28
Month 10
$8235.33 x 4.5% per annum for 5 months
$154.40
Month 11
$8235.33 x 4.5% per annum for 4 months
$123.52
Month 12
$8235.33 x 4.5% per annum for 3 months
$92.64
Month 13
$8235.33 x 4.5% per annum for 2 months
$61.76
Month 14
$8235.33 x 4.5% per annum for 1 month
$30.8
Total
$3242.40
(ii) Lump-sum prejudgment interest on the damage award from the end of the notice period to the date of the decision:
the notice period ended mid November 2008. The award was made on April 26, 2011. The Plaintiff calculated the exact number of days in this period as being 893.
the total damage award was $115,294.66 x 4.5% a year= $5,188.26 a year
$5,188.26/365 days in a year= $14.21 interest a day
$14.21 x 893 days= $12, 689.53 (total lump sum prejudgment interest owed)
On the basis of these calculations a total of $15,931.93 prejudgment interest is owed on the damage award.

This case demonstrates that  the method of calculation for prejudgment interest in a wrongful dismissal action is not something that can be ignored or taken lightly - it can amount to a significant add-on to the damage award.

- Robert Tanha, Toronto

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