Thursday, April 5, 2012

Waterman v. IBM - Going to the Supreme Court

I don't follow developments in extra-Provincial case law quite as closely as I do Ontario case law, so sometimes there are really interesting cases that escape my attention until they go up to the Supreme Court.

Waterman v. IBM Canada Limited is an interesting B.C. case.  Here's the trial decision, decided by Justice Goepel in March 2010.  And here's the unanimous decision by the B.C. Court of Appeal.

This morning, the Supreme Court allowed the application for leave to appeal, meaning that they will hear the case.

The Trial Decision

Mr. Waterman was hired by IBM in the U.K. in January 1967.  He was 24 years old, and it was his first full time job.  Two years later he transferred to IBM Canada.  And he continued working there for some forty more years, through thick and thin, including when he was diagnosed with Parkinson's disease in 2003.  Fortunately for him, IBM reversed its mandatory age 65 retirement policy in December 2006, meaning that he didn't have to retire in June 2008, when he turned 65.

However, due to changing economic circumstances, he was advised in March 2009 that his employment would end on April 27, 2009.  Because he had planned a vacation for the full month of April, he convinced IBM to extend the actual notice a further month, resulting in a termination date of May 22, 2009.  Length of service:  42 years, 5 months.

Still not ready to retire, he looked into the finite number of employers who could use his highly specialized skills from IBM - not as if his technology education from the early 60s is very useful these days - and found that they were downsizing too.  So he trained to work in the insurance industry instead, including taking a part-time job starting in September 2009.

Mr. Waterman sought a 24-month notice period.  It's quite surprising to me that he didn't get it - B.C. is usually relatively generous with notice periods.  Despite his exceptional length of service and his advanced age, his character of employment, without managerial responsibilities, was still a factor pushing the award downwards to 20 months.  (B.C. hasn't yet caught on to the trend which has been adopted in other Provinces, including Ontario, of minimizing or rejecting the importance of the character of employment.)  His illness didn't contribute to a longer notice period - the Court cited a precedent from 1984, decided by Beverley McLachlin (now Chief Justice of the Supreme Court of Canada) when she was a judge of the British Columbia Supreme Court (equivalent of Ontario's Superior Court), for the authority that illness doesn't affect notice periods.  And the full two months' actual notice he received was credited to the employer, though he was on a pre-planned vacation for a month of that time and argued that this rendered him unable to seek re-employment in that time.  (Food for thought:  If I'm entitled to 1 month's notice, and have a 1 month vacation scheduled and am fired the day before it starts, I get my accrued vacation pay plus the month's notice.  Nobody could argue that taking a pre-scheduled vacation was a failure to mitigate.  If I'm given notice that my employment ends the day I come back, meaning simply that I'm not coming back, I actually get the vacation pay, and not a dime more following termination.)

Waterman lost significantly on the components of his remuneration which continued through the notice period, too.  He failed to establish an entitlement to his annual bonus, overtime pay, and stock purchase plan.

So Waterman was unsuccessful at trial in many respects.  There is no doubt that his $90,000 judgment was substantially lower than what he had hoped for.

However, he won on a few critical points, too.  The Court found that his decision to seek employment in another field was reasonable; he didn't fail to mitigate.  More importantly, IBM funds a defined benefit pension plan, with no employee contributions, which Mr. Waterman was entitled to collect following the end of his employment, and accordingly the pension plan has paid Mr. Waterman over $2,000 per month since his termination.  IBM argued that his entitlements through the notice period should be reduced by the pension benefits received, and was unsuccessful.  This has become the basis for the appeals.

The Court of Appeal

IBM relies on a Supreme Court of Canada decision from 1997 called Sylvester v. British Columbia, which is a seminal case dealing with deductibility of disability insurance benefits during the notice period.  Where an employer provides disability benefits, and the employee claims those benefits during the notice period, do those benefits get deducted from the employer's liabilities?

The Supreme Court said "yes" in that case, that the parties couldn't have intended the double-recovery that would result otherwise.  It's a decision that has garnered some criticism, and rightly so:  The basis for the decision was, in a nutshell, that it is 'unequal' to give a disabled employee notice plus disability benefits, where the able employee gets only notice.  Yet "equal" treatment does not always require "identical" treatment.  If an employee is unable to work or meaningfully seek work for a six month period due to disability, then six months of disability benefits - intended to replace income for the period during which he can't work - plus a full measure of pay in lieu of notice - intended to replace income for the period of time needed to find new work - are not double-recovery, and put the disabled employee into no better a position than the able employee.

Courts have often distinguished Sylvester, however.  The Ontario Court of Appeal, in Sills v. Children's Aid Society of the City of Belleville, dealt with a scenario in which the employee had made contributions to the disability insurance, and in that case felt that an employer should not be relieved of its obligations because of an insurance benefit paid for by the employee.

In Mr. Waterman's case, the Court of Appeal also distinguished Sylvester, finding that the differences between a pension plan and an insurance policy were sufficient to warrant different treatment, and looked to the intention of the parties in 1967.  The contractual provisions didn't speak to the question, and the Court concluded that the parties would not have intended a clawback of the pension benefits in the event of dismissal.  More substantively, even though the contributions were made by IBM, they were made on behalf of the employee, and for all intents and purposes the plan appeared to be treated as property of the employee.

The Court of Appeal, as a matter of obiter, expressed some concern about the consequences of IBM's position, that it would have the impact of inviting employers to focus their layoffs on older employees with vested pension entitlements.

My Thoughts

Relying too heavily on Sylvester seems a poor approach to this.  Sylvester is a case which has been often attacked as being largely inconsistent with the Supreme Court's usual approach to employment law, and has been routinely distinguished.  One can't be surprised that the lower Courts are continuing that tradition in this case.  This will end up going to the Supreme Court as an opportunity to either broaden Sylvester, or to pull it back as an endorsement of the lower Courts' reluctance to apply it.  Frankly, I think the latter is far more likely.

That being said, I'm not so sure that IBM is wrong on the point.  While the Court of Appeal seems to be concerned about IBM's ability to trigger the pension entitlement itself via a termination without notice, and then to use that act so triggering to reduce its own liability, I think that may actually cut the other way.  Until his employment ended, he had no entitlement to draw on the pension.

This goes to the first principles of compensation and mitigation.  A dismissed employee is entitled to be put into the same position he would have occupied actual notice been given.  There are major nuances to contend with in context of disabled employees, but less so here.  We have a pension plan which vested, but which he could not draw (as far as I can tell from my review of the facts) until the end of his employment.  Fairly simple.

Had he been given actual notice, he would have continued to be paid until the end of the notice period, and his pension benefits would have started thereafter.  Simple, right?  (Of course, if his benefits were reduced because of having to draw on the earlier, that reduction would be compensable over time, too.)

Or let's look at this from another angle:  What is mitigation income?

Usually, in an employment context, it's pretty simple.  You get fired, you get a new job, your new employment income is mitigation income.  What happens if you already had a part-time job, though?  Does your old employer get full credit for your earnings in the other job?

No.  The central principle of mitigation income is that it arises as a result of the breach of contract.  In other words, if it can be said that I wouldn't have had the opportunity to make that money but for the breach of contract, it's mitigation income.  Ordinarily, when I'm fired from a full-time job and I pick up another full-time job, it's fair to say that I wouldn't have been able to work both full-time jobs.  But in the scenario of the part-time job, if I picked up additional hours in the time that I used to work for the other employer, those additional earnings would be mitigation income...but the income from the shifts I always worked even when maintaining both jobs would not be in the nature of mitigation.

Where am I going here?  It's simply this:  But for the termination of Mr. Waterman's employment without notice, he would not have received pension benefits over the relevant period of time.  He was given access to those benefits by the fact of the termination itself.  He made the money as a direct result of the breach, and could not have made it while still employed.

It's a simple and straightforward application of the mitigation principle:  By dismissing him, IBM entitled him to a new revenue stream, and so is entitled to the benefit of that through the notice period.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

1 comment:

  1. Update: The hearing is two months out, but I watched via webcast the Annual Employment Law Summit today, and Barry Fisher - a former lawyer and very well-respected mediator in the employment law field - made exactly the same First Principles observations I did above, that IBM might be right: As awful as the conclusion seems, the simple fact is that, had he been employed through the notice period, he would not have been drawing salary and pension payments at the same time.

    So I'm not alone in thinking that IBM has a case; let's see what the SCC has to say.