Employers May Deduct Statutory Payments from Wrongful Dismissal Damages

Facts

Stevens predates the 2000 amendments to Ontario’s Employment Standards Act. However, its core holding— that wrongful dismissal damages can be reduced by statutory termination payments— remains good law (See eg Nassar v. Oracle Global Services, 2023 ONSC 2131, at para 13.)

Geoffrey Stevens was managing editor of The Globe and Mail when, in 1989, the newspaper terminated his employment without cause. He sued both the newspaper and its publisher, alleging wrongful dismissal, deceit, fraudulent or negligent misrepresentation and intentional infliction of harm. He claimed general, aggravated, punitive and exemplary damages.

The action was tried by Gibson J. In written reasons for judgment, he found that Stevens had been wrongfully dismissed. He awarded general damages for wrongful dismissal against the newspaper, calculated on the basis of a reasonable notice period of 21 months. He dismissed all of the other claims.

Following release of the reasons for judgment, the newspaper and the publisher made submissions on three specific issues: the deduction of severance pay under the Employment Standards Act, R.S.O. 1990, c. E.14, from the damages for wrongful dismissal; prejudgment interest on the award of general damages; and the costs of the action. In written supplementary reasons for judgment, Gibson J. refused to order deduction of the severance pay.

Decision of the Court of Appeal for Ontario

Justice Marvin Catzman provided the following reasons for the court’s decision to allow the employer’s appeal of Justice Gibson’s decision on such point, writing:

Like termination pay under s. 57, severance pay under s. 58 is measured by the number of years of employment. Unlike termination pay, severance pay is couched strictly in terms of money, not notice. Termination pay is limited to the equivalent of eight weeks’ wages, whereas severance pay is limited to the equivalent of twenty-six weeks’ wages (s. 58(4)). Severance pay is payable to the employee in addition to any other payment under the Act or contract of employment without set-off or deduction (s. 58(7)). Thus, a 15-year employee who is terminated without notice by an employer whose payroll is less than $2.5 million a year will receive a maximum of eight weeks’ pay under s. 57. The same employee, terminated by an employer with a payroll of at least $2.5 million, is entitled to eight weeks’ pay under s. 57 and a further 15 weeks’ pay under s. 58.

There is no controversy respecting the deductibility of termination payments under s. 57 of the Act from awards of damages for wrongful dismissal. The uniform practice of trial judges has been to order such a deduction. [Numerous citations omitted.]

The deductibility of severance payments under s. 58 does not, however, reflect a similar unanimity. Many decisions by judges at the trial level have ordered the deduction of severance pay under the Act from damages for wrongful dismissal: [Citations omitted.]

But Gibson J., who decided to the contrary in the judgment under appeal, has adhered to the same position in two subsequent decisions.

The majority approach is synthesized in the following passage from the reasons for judgment of Corbett J. in Mattocks v. Smith & Stone (1982) Inc., supra, at p. 279: . . . the nature and purpose of severance pay is similar to the nature and purpose of common law damages for failure to give reasonable notice of termination of employment. The triggering event is the same, namely, termination of employment. Severance pay cushions economic hardship and provides some compensation for loss of employment. While this payment is made whether or not the employee gets another job, the Legislature has recognized that termination of employment generally results in economic upset. Both termination pay and severance pay are intended to cushion the economic dislocation of the employee.

I agree with this assessment of the substantial overlap between the nature and purpose of severance pay and the nature and purpose of damages for wrongful dismissal.

I have adverted to the established practice of deducting termination payments under s. 57 from damages for wrongful dismissal. In the present case, Gibson J. found a reasonable period of notice to be 21 months. Had any termination pay been ordered under s. 57, it would have been deducted from Stevens’ damages calculated with reference to that period of notice. But termination pay under s. 57 and severance pay under s. 58 are essentially distinguished only by their respective ceilings and by the qualifications of employer and employee who fall within their respective provisions: the length of service, the number of employees terminated and the size of the terminating employer’s payroll. Indeed, this court, in another context, has observed that both termination payments and severance payments constitute “a statutory benefit arising from the termination of employment which is payable in lieu of damages for such termination.”

I can discern no policy reason for deducting termination payments, but not severance payments, from damages for wrongful dismissal. While, by the terms of the Act, a termination payment under s. 57 and a severance payment under s. 58 (both deemed by s. 4, it will be recalled, to be minimum requirements only) are cumulative and not subject to set-off against or deduction from each other, I can see no reason why, in the absence of a clear legislative direction to the contrary, both types of payment should not be deducted from an award of damages for wrongful dismissal. Despite the fact that, as the cases indicate, this remains a live issue in wrongful dismissal actions, and despite three occasions of statutory amendment in the past decade, the legislature has not seen fit to give any such direction.

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