Pension Loss Part of Wrongful Dismissal Damages

By Pushor Mitchell LLP
Categories: Blog, Employment Law

As Canadas population ages, more and more workers are approaching the age of retirement (or, in many cases, early retirement). Because of this trend, many employees have valid concerns about the impact of a termination of employment on their pension entitlement.

Their fears are well-founded as an untimely termination of employment can have a drastic effect on pension value. Fortunately, this lost value can sometimes be recovered in the course of a civil action for wrongful dismissal.

The first thing to understand is the objective of the law of wrongful dismissal. Every employee, unless bound by contractual terms to the contrary, is entitled to reasonable working notice of termination. This is the fundamental element distinguishing Canadian employment law from that of many other jurisdictions (most notably the U.S. states).

There are some other instances when reasonable working notice is not required (such as when just cause for summary dismissal exists or the employment has been frustrated). These are applicable, however, in only a very small percentage of cases.

When an employee is dismissed without reasonable working notice, the employee is said to have been wrongfully dismissed. The common law then provides the dismissed individual with damages reflecting the loss arising from the employer’s failure to provide working notice.

In most cases, the measurement of the damages is done based on calculating the wages the employee would have earned during the working notice period. The idea is to put dismissed employees back in the position they would have been in had the employer complied with its obligation to provide working notice.

The damages can also include the value of any other benefit or entitlement the employee lost as a result of the wrongful dismissal. This is where diminished pension value comes into the picture.

If an employee is wrongfully dismissed, near the retirement date, the loss of the opportunity to work through the notice period may severely affect the value of his pension benefits. Many pension plans, especially defined benefit plans, impose penalties if the individual does not work until her 55th, 60th, or 65th birthday.

Let’s say that I am within a few months of eligibility for early retirement at age 55. If my employment is abruptly terminated (such that I am deprived of the opportunity to work past my 55th birthday) my annual pension benefits could be many thousands of dollars less than if I had been allowed to work.

In that case, if the court awards a reasonable notice period extending beyond my 55th birthday, my employer will be liable for the decrease in my pension. In effect, the court forces the employer to make up the shortfall resulting from its failure to provide me the required working notice period. This obligation to make up the shortfall could continue for the balance of my life expectancy.

The difficulty can be in determining whether or not there has actually been a loss in pension value. That information, especially as it relates to private pension plans, may be difficult to obtain from the employer.

Even if the pension information can be obtained, an actuary may have to calculate the actual loss to the dismissed employee. But, because the loss in pension value can be so significant – it could easily exceed $100,000.00 – these are worthwhile steps. It is worth noting that this form of damages is in addition to the normal damages in lieu of working notice.

All employers contemplating the dismissal of older (especially long term) employees should, before deciding how to implement the termination, assess the impact on the employee’s pension entitlement. This is, I believe, a step that is rarely taken.

All employees dismissed from employment within a year or two of achieving the minimum retirement age should also investigate the impact on their pension value. A little digging might just result in a discovery that will make their retirement years a whole lot more comfortable.