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Employment & Labour

Valuing employee pensions in wrongful dismissal cases

By Doug MacLeod

A long service, older worker is terminated. Under the terms of the individual’s pension plan, the employer is not permitted to continue his participation in the pension plan. So the question arises: when calculating wrongful dismissal damages, how do you calculate damages for pension benefits?

A recent case considered this question.

The facts

A company terminated an employee’s employment after 39 years of service when he was 63 years old. The company immediately discontinued the employee’s participation in its pension plan and the employee decided to start collecting his pension benefits.

A judge concluded that the employee was entitled to compensation in lieu of 26 months’ notice of termination. One component of his compensation was his pension.

Commuted value of pension

The company called an expert witness who concluded that the employee’s pension was worth $189,117 more than if the company had kept him in its pension plan for the 26-month period after his termination. The employee did not call an expert witness of his own on this issue.

Employee claim for damages for the employer’s contributions to his pension during notice period is denied

Since the employee would have been enrolled in the pension plan if the company had provided him with 26 months’ notice of termination, and since the company would have made contributions to his pension during this notice period, the employee sought damages equal to these contributions. The court concluded that the value of his pension was higher than if the company had continued paying into his pension plan until the end of the 26-month notice period. However, the court refused to order the requested damages because the employee could not prove any damages.

Employer claim to reduce employee damage award by the value of the pension benefits he received during the notice period is denied

The employee collected pension benefits during the 26-month notice period. The company asked the judge to deduct this amount from the employee’s wrongful dismissal damages. However, the judge refused to do, concluding that pension benefits are a benefit employees have earned for their years of service and are not meant to be an indemnity for the loss of employment.

Lessons to be learned

  1. Every employer should require all employees to sign an employment contract with a legally enforceable termination clause. In this case, the company could have reduced a 26-month common law reasonable notice period to as little as eight weeks’ termination pay and 26 weeks’ severance pay. This is another case where a judge concluded that the common law notice period was more than 24 months.
  2. For long-service employees who are entitled to a lengthy common law reasonable notice period, damages for a reduced or an enhanced pension can be significant. I have represented clients who have not taken pension benefits during the notice period and the value of lost pension value (as opposed to an enhanced pension value in this case) has been significant.
  3. When valuating pension benefits, it is important to retain an expert. A slight change in actuarial assumptions can result in significant differences in a pension’s valuation.

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