Severance obligations can of course be costly for employers. An
often-tricky issue is the impact of post-termination income on the
obligations of the terminating employer. Employees are often under
the mistaken impression that they have a unconditional entitlement
to a large lump sum severance payment -- even if they were to
quickly start a new job -- and even if they receive other income
during the period for which they are entitled to notice of
termination or pay in lieu of notice.
A recent Ontario court decision, Jensen v. Schaeffler Canada (PDF), has provided some
guidance on the impact of one form of post-termination payments -
workers' compensation benefits. This case may have a bearing on
how various kinds of post-employment income should be treated in
assessing employees' entitlement to damages for wrongful
Facts of the Case
Ms. Jensen was a long-term (28 year) employee of Schaeffler
Canada, working as a production worker. At the time of her
termination, Jensen was enrolled in Ontario's Workplace Safety
and Insurance Board ("WSIB") Labour Market Re-entry
Program. This Program provides one form of benefits under the
statutory workers' compensation scheme. It provides income
replacement benefits when a worker has been injured at work and is
being re-trained for a different occupation.
Jensen and the Company could not agree on her entitlement to
notice of termination or pay in lieu of notice. The trial judge
concluded that Jensen was entitled to a notice period of 15 months,
plus an additional 3 months to compensate for the difficulty her
disability posed for finding new work. So her entitlement totaled
18 months' pay in lieu of notice.
The lost earnings for the 18-month notice period were less than
the funds already received by Jensen from the combination of WSIB
benefits and the termination pay and severance pay provided under
the minimum standards laws, the EmploymentStandards
Act. The employer argued that all such amounts should be set
off from the damages award.
The Court Decision
The trial judge agreed with the employer. The judge followed the
reasoning of the Alberta Court of Appeal in a 1985 decision which
noted that if the money had come from earnings from a complete
stranger, it would be deductible. Thus, as a matter of policy,
income ought also to be deducted from the damages award where it is
paid from a fund sustained by the employer, such as the WSIB. This
is particularly so where the benefits are in lieu of employment
earnings and are to compensate the employee while unable to work
because of a work place injury. As a result, Jensen was found to
have suffered no losses during the notice period.
The Court did note that these WSIB payments would not be
deducted from the minimum entitlements under the Employment
Standards Act, as these entitlements are statutorily
In the result, Ms. Jensen received no additional payments from
Lessons for Employers
This decision provides strong support for employers'
position that pay in lieu of notice should be reduced by any WSIB
loss of earning benefits received by an employee during the notice
period. This argument can also be extended to other benefits
received, such as disability benefits, particularly where the plan
has been purchased by the employer.
One must keep in mind, however, that the impact of other income
on an employer's severance obligations is an individual
determination to be decided on a case by case basis. Much will turn
on the nature and the source of the post-termination income.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
A former teacher at Bodwell High School has learned a valuable lesson from the B.C. Human Rights Tribunal— it is not discriminatory for an employer to offer child-related benefits to only employees with children.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
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