On December 13, 2013, the Supreme Court of Canada (SCC) issued
its decision in IBM Canada Ltd. v. Waterman, 2013 SCC 70,
confirming that employers may not deduct earned pension benefits
from wrongful dismissal damages.
When IBM dismissed Waterman without cause in 2009, he was a 65
year old employee with 42 years of service. He was also a
long-standing member of IBM's defined benefit pension plan (the
"Plan"). Under the Plan, IBM contributed a percentage of
Waterman's salary on his behalf and the Plan guaranteed
specific benefits, which became vested over time, upon
At the time of his termination, Waterman was entitled to a full
pension under the Plan and his termination had no impact on the
amount of his pension benefits. IBM advised Waterman that on
termination he would be treated as a retiree and that he must begin
receiving monthly benefit payments as of that date.
Waterman subsequently sued IBM to enforce his contractual right
to reasonable notice. IBM took the position at trial that
Waterman's pension benefits should be deducted from the salary
and benefits otherwise payable during the reasonable notice
This argument was rejected by the trial judge and the B.C. Court
The Supreme Court of Canada Decision
The SCC dismissed the appeal, finding that Waterman's
pension benefits were not deductible from his wrongful dismissal
In the Court's view, the general principle of compensation
(i.e. that damages for breach of contract should put the plaintiff
in the economic position that he or she would have been in had the
defendant performed the contract) was not a full answer to the
The Court observed that there are exceptions to this principle,
one of which is the exception for private insurance and other
benefits (the "Private Insurance Exception"). The Court
observed that this exception applies "not only to insurance
benefits... but also to other benefits such as pension payments to
which an employee has contributed and which were not intended to be
an indemnity for the type of loss suffered as a result of the
Thus, the Court relied on the fact that Waterman had earned the
pension benefits through his years of service, and that the pension
benefits were not intended as an indemnity for lost wages, to find
that the Private Insurance Exception applied in this case.
According to the majority, the pension benefits in question were
akin to a property right and, as such, Waterman had an enforceable
right over the benefits.
In reaching its decision, the majority also considered broader
policy objectives. In particular, the majority was concerned that
deducting benefits would provide an incentive for employers to
dismiss pensionable employees before other employees because of the
cost savings. The Court was clear that "[t]his is not an
incentive the law should provide".
Lessons for Employers
This decision affirms that, in general, an employer is not
entitled to deduct a benefit from wrongful dismissal damages if it
is not an indemnity for the loss caused by the breach and the
employee has contributed in order to obtain entitlement to it.
Accordingly, pension benefits cannot be deducted from wrongful
While the Court's ruling is undoubtedly to the benefit of
employees, it remains to be seen what the Court will do if faced
with a provision in an employment agreement that restricts an
employee from receiving pension benefits and employment income
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