CASUAL LEGAL: Pensions and the Duty to Mitigate

Pensions and the Duty to Mitigate

By Greg Weber

Reynolds Mirth Richards Farmer LLP

AMSC Casual Legal Service Provider

When the COVID-19 pandemic was declared, many employers, including municipalities, opted to temporarily layoff employees. Temporary layoffs are automatically deemed terminations if there isn’t a recall within a certain amount of time. As a result, many municipalities who initiated temporary layoffs need to decide whether they will be bringing these employees back. When deciding not to bring an employee back, it is very important to be have a good understanding of the law of reasonable notice and how pension income operates.

The employment relationship is a matter of contract at common law. As in all breach of contract cases, the measure of damages is what the employee would have been entitled to had the employment contract been performed. In the employment context, there is an implied contractual term that an employee is entitled to reasonable notice upon termination. All employers have the right to terminate employees so long as reasonable notice is provided or pay in lieu thereof. Identifying the length of the reasonable notice period is a key factor in assessing what the damages would be in a wrongful dismissal case. Determination of the period of notice required for it to be truly “reasonable” is a factually specific determination that takes into account a number of factors including, among other things, the length of service, age, past experience, degree of specialty of the position, and availability of other work. Age and length of service will particularly serve to increase the reasonable notice period.

When adequate notice is not provided, it is a breach of contract that creates a duty on employees to mitigate. This means that employees should be actively looking for work throughout their notice periods to replace the income lost from their employment with the municipality. Any money earned from new employment would be deducted from what the municipality is obligated to pay.

It might be natural to conclude that pension income would mitigate an employee’s damages such that it would be subtracted from their damage award as mitigating income. This might make terminating long term employees who are eligible for their pensions an attractive option in terms of the economics. However, that is not the case. In IBC Canada Limited v Waterman, 2013 SCC 70, the Supreme Court of Canada confirmed that pension income is not a substitute for employment income that would have been earned through the reasonable notice period. Rather, pensions are a form of retirement planning and do not constitute employment income. As a result, terminated employees who are eligible are free to start drawing on their pensions without compromising their claims for wrongful dismissal. As employees eligible for pensions, they are also likely longer serving employees which will attract longer notice periods and higher risks of liability if a municipality decides to terminate them.

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To access AMSC’s Casual Legal Helpline, AUMA members can call toll-free to 1-800-661-7673 or email casuallegal [at] amsc.ca and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] auma.ca, or call 310-AUMA (2862) to speak to AUMA’s Risk Management staff. Any Regular or Associate member of the AUMA can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.