Supreme Court of Canada Rules on Pension Income and Damages in Wrongful Dismissal

The Supreme Court of Canada's recent ruling in IBM Canada Ltd. v. Waterman provides a great deal of clarity on the issue of collateral benefits such as pensions in a wrongful dismissal action and whether such a benefit ought to be deducted from the amount owed by the employer on account of pay in lieu of notice.

Facts

On March 23, 2009, IBM Canada terminated Richard Waterman's employment, after forty-two years of service, on a without cause basis. At the time of his dismissal, Mr. Waterman was sixty-five years of age and was entitled to a full pension under IBM's defined benefit pension plan. Further, "IBM told Mr. Waterman that on termination, he would be treated as a retiree and that he must begin receiving monthly pension payments as of that date" (IBM v. Waterman, para 7).

Mr. Waterman sued for wrongful dismissal and was awarded 20 months pay in lieu of notice at trial. IBM appealed this decision arguing Mr. Waterman's benefits ought to be deducted from the salary and benefits payable during the notice period.

Issues Before the Court

On appeal to the Supreme Court of Canada, IBM argued two positions:

1. Damages for wrongful dismissal are compensatory: The purpose of wrongful dismissal damages is to only indemnify an employee for the loss suffered as a result of the dismissal. However, in awarding Mr. Waterman damages for the full notice period without deduction of the pension benefits received during that period, Mr. Waterman is in a better economic position than he would have been in had IBM not breached the employment contract.
2. Sylvester v. British Columbia: In this 1997 decision, the Supreme Court of Canada held that disability benefits and damages for wrongful dismissal are based on a contrary assumption about the ability of the employee to work. As a result of this decision, disability benefits received during notice period were deducted from damages for wrongful dismissal. IBM argued that similar to disability benefits, pension benefits also ought to be deducted.

Pension Benefits

Rejecting both of IBM's arguments, the Supreme Court concluded that unlike disability benefits, pension benefits received during the notice cannot be deducted from wrongful dismissal damages.

The Court went on to describe pension benefits as a "collateral benefit" which is a source of income other than wrongful dismissal damages payable by an employer to ameliorate the loss suffered by an employee as a result of a wrongful dismissal. The precedent established in Sylvester does not imply that all benefits received by a plaintiff raise a collateral benefits problem. In order for there to be deduction, the following factors ought to be considered:

• The benefit has to be be sufficiently connected to the defendant's breach - just because a benefit is loosely connected to the defendant's wrongful conduct, the defendant should not get the credit for having it deducted from wrongful dismissal damages;

• The purpose of the benefit - if the benefit is specifically intended to indemnify the plaintiff for the loss resulting from the defendant's breach (such as employment insurance benefits), the benefit should be deducted from wrongful dismissal damages; 

• Benefits received by a plaintiff through private insurance - whether its disability benefits, employment insurance or pension benefits, if provided by a private insurer, such benefits are not deductible from damage awards.

Where the Law Stands

Although this case is clearly a win for employees, surprisingly Sylvester remains good law.  As some leading professionals in the employment law community have noted, rather than distinguishing this case from Sylvester, the Supreme Court could have just as easily done away with the earlier precedent.

Considering mandatory retirement is no longer permitted and that Canadians face an impending pension crisis, it is conceivable that the Supreme Court foresaw the struggles pension-eligible employees would be facing in the coming years.

Last year, the Supreme Court dealt a blow to pensioners in Sun Indalex Finance, LLC v. United Steelworkers, ruling against the claims of workers and retirees wanting to place pension plans to rank ahead of creditors in corporate bankruptcies.With this ruling, the Court prevented the pendulum from swinging too far away from protection of wrongfully dismissed employees.

- Nitin Pardal, Toronto

Visit our Toronto Law Office website: www.wiselaw.net

Ontario's New Family Law Pension Regulations Still MIA

While Bill 133, Ontario's Family Statute Amendment Act, became law in May, regulations to establish Ontario's new pension calculation rules are still in limbo - leaving a bit of a black hole for parties and professionals in the Province's family law system.

Under Bill 133,the valuation, or "net family law value," of a pension plan member's entitlements will be provided to spouses directly by pension plan administrators on the request of either spouse. Additionally, up to 50% of a spouse's pension entitlement attributable to the period of a marriage may be paid out to his or her spouse from the pension plan itself, if the transfer is provided for by a Court Order, a family arbitration award or Separation Agreement.

This brings significant modification to the calculation of equalization entitlements under the Family Law Act and in most cases, will streamline the determination of spouses' net family property in family law negotiations and proceedings.

The Bill was intended to significantly reduce the expense of divorce proceedings, by eliminating the current need for costly, actuarial valuations of each spouses' employment pension entitlements in most cases.

However, until the method of calculating "net family law value" of a pension is determined by anticipated Regulations, it is not possible to utilize the new law or to take advantage of the streamlined system that is contemplated by it.

Penny Hebert of Pension Appraisal Solutions provides the latest on the pension-regulation waiting game in a September newsletter:

We had a call from a lawyer recently asking for our advice on how to word their separation agreement according to Bill 133. Much to their dismay, we had to tell them that the pension portion of Bill 133 has not come into force yet!

Family law pension buzz that dominated the pension scene from the spring of 2008 to the spring of 2009 has been silenced, but only for the short term. The buzz will be back in 2010, probably later in the year than earlier.

Bill 133, the Family Law Statue Amendment Act, 2009, received royal assent May 2009 and we are all waiting for a look at the regulations. Many lawyers are asking us when the new pension rules will be finalized. As estimated in our April 2009 newsletter, John D. Gregory, General Counsel for the Ministry of the Attorney General, recently confirmed that it is unlikely that the new pension rules will be in force before the new year.

Pension plan administrators cannot finalize their systems for calculating the new family law, pension value and for initiating a division of the pension when the marriage breaks down until the regulations have been finalized. Some of the larger pension administrators are suggesting they will need six months or more to get their new systems developed and activated.

Some of you are carrying on as usual when presented with a case that involves a pension. Most of you are playing the waiting game, and understandably so. Although the new rules will simplify the pension issue for your clients who have pensions when they separate, it may not be better.

Family law practitioners wanted pensions simplified and plan administrators wanted a single pension value. The LCO responded by offering an ‘Immediate Settlement’ regime for dealing with the pension. The Ministry of the Attorney General responded by enacting an ‘Immediate Settlement’ regime with the plan administrator alone providing the value of the pension for NFP purposes and for pension division purposes. Both stakeholders received their wish with Bill 133. Only on review of the regulations to Bill 133, will the major stakeholders to an individual’s pension find out how the new pension rules will work.

- Garry J. Wise, Toronto

Visit our Toronto Law Firm website: www.wiselaw.net

EMPLOYMENT LAW • CIVIL LITIGATION • WILLS AND ESTATES • FAMILY LAW & DIVORCE

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B.C. Court Decides Competing Survivor Pension Claims Between Widow, Ex-Spouse

Stan Rule has another excellent post at Rule of Law today.  He reports on MacMichael v. Strocel, a January 2009 ruling of the B.C. Supreme Court that decided between the competing entitlement claims of a widow and a deceased's former wife to payment of federal survivor benefits under the Public Service Superannuation Pension Plan.

The former spouse was entitled to the husband's monthly survivor benefit pursuant to a 1971 separation agreement.  He remarried in 1973.

Subsequently, the terms of federal employees' Superannuation Pension Plan changed - under the current pension plan, only the deceased's widow has an entitlement to the monthly $1,200.00 benefit.

The Court ruled in favour of the widow.  As Mr. Rule points out:

Fern MacMichael asked the court to declare that James MacMichael held the survivors’ benefits in trust for her. She argued that the separation agreement created a trust, or alternatively that allowing Marie MacMichael to keep the benefits would unjustly enrich her.

Madam Justice Stromberg-Stein ruled that the widow was entitled to keep the survivors’ benefits. The separation agreement did not contain wording that would create an express trust for the benefits.

The Court also rejected the argument that the widow was unjustly enriched.

- Garry J. Wise, Toronto

Visit our Toronto Law Firm website: www.wiselaw.net

EMPLOYMENT LAW • CIVIL LITIGATION • WILLS AND ESTATES • FAMILY LAW & DIVORCE

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Bill 133: Ontario's Family Statute Law Amendment Act

Sweeping change will come to Ontario family law as a result of Attorney General Chris Bentley's introduction of Bill 133 yesterday in the provincial legislature.

The legislation includes major change to the calculation and distribution of employment pension plan entitlements between separating spouses. It also introduces new procedures for changing a child's surname, enhances availability and enforcement of restraining orders, and simplifies procedures for annual recalculation of child support obligations.

Under the Bill, the valuation, or "net family law value," of a pension plan member's entitlements will be provided to spouses directly by pension plan administrators on the request of either spouse. Additionally, up to 50% of a spouse's pension entitlement attributable to the period of a marriage may be paid out to his or her spouse from the pension plan itself, if the transfer is provided for by a Court Order, a family arbitration award or Separation Agreement.

This brings significant modification to the calculation of equalization entitlements under the Family Law Act and in most cases, will streamline the determination of spouses' net family property in family law negotiations and proceedings.

The Bill will also significantly reduce the expense of divorce proceedings, by apparently eliminating the current need for costly, actuarial valuations of each spouses' employment pension entitlements in most cases.

Other highlights of the Bill include:

• Provision for annual financial disclosure by child support payors and automatic recalculation by the Family Responsibility Office of the quantum of child support then payable for the subsequent year;


• Strengthened provision for restraining orders in short-term cohabitations;


• Amendments to provincial Change of Name legislation to permit a parent to apply to a Court to have his or her surname added to a child's name, if consent is refused by the other parent;


• Police checks, criminal record searches, current prosecution searches, and Children's Aid Society record searches will be mandatory for any non-parent who makes an Application for the custody of a child. These records will be admissible in evidence in custody Applications.


• The Bill enhances confidentiality of court records in custody and access applications under the Children's Law Reform Act by requiring courts to consider whether to make an order limiting access to the court file, or to prohibit the publication or the making public of information that identifies anyone referenced in the court file.


• The Bill excludes from the calculation of the value of property owned by a spouse on the date of marriage any debts directly related to the acquisition or significant improvement of a matrimonial home.

The full text of Bill 133 is online. See: Ontario's Family Statute Law Amendment Act, 2008

- Garry J. Wise, Toronto

Visit our Toronto Law Firm website: www.wiselaw.net

EMPLOYMENT LAW • CIVIL LITIGATION • WILLS AND ESTATES • FAMILY LAW & DIVORCE

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