Is Pension Income Deductible from Wrongful Dismissal Damages as Mitigation Income?
Income a person receives from their pension is not considered "mitigation income" and does not reduce the wrongful dismissal damages payable by a former employer.
Pay in Lieu of Notice
Employees in Ontario are entitled to advanced notice of termination or to equivalent pay instead of actual notice.
At a minimum, employees are entitled to advanced notice as spelled out in employment standards legislation. But many employees are owed more under the terms of their employment contract or as an implied term of their employment contract through what is called “common law reasonable notice.”
Duty to Mitigate
Minimum entitlements under employment standards legislation are non-negotiable and not typically subject to any kind of reduction. But greater “common law” contractual amounts owed by employers for “pay in lieu of reasonable notice” are subject to an employee’s “duty to mitigate.” Essentially, the employee has to look for new work. If the employee does find new work before the end of the reasonable notice period, the former employer’s obligation to pay will be reduced dollar-for-dollar by any new income earned.
No Reduction for Pension
But what about pension income? If a terminated employee begins drawing income from their pension during the reasonable notice period, is that pension income treated the same as income earned from a new job? Does it reduce the former employer’s obligation to provide pay in lieu of reasonable notice?
One line of cases suggests that pension income is treated differently. It is not considered mitigation income and does not reduce the former employer’s liability to pay:
"…paid pension benefits are, quite simply, not deductible from an employee's claim for lost salary over the notice period, whether or not the pension plan was fully funded by the employer. …Pension payments [are] "akin to a registered retirement savings plan, other savings, or investments.” …Allowing such a deduction would "in effect, reward the employer for its breach of an implied term of the employment agreement.” … Dismissed employees who are eligible to take pension benefits should be free to do so without being penalized by having them deducted from damages for wrongful dismissal.”
This approach was summarized in Emery v. Royal Oak Mines Inc., 1995 CanLII 7074 (ON SC), citing other authorities in support of the proposition.
Every situation is unique, and employees who receive a termination letter from their employer should speak to an employment lawyer about their entitlements.
