Pension plans and notice periods

Worker awarded more than $330,000 in pension benefits, courts seem settled on notion that notice period counts as service for pension purposes

Stuart Rudner
Typically, the determination of what is owed to an employee at the time of termination is a fairly straight-forward calculation of lost salary, with perhaps some amount to compensate for the loss of employment-related benefits.

Pension benefits are often not considered in any detail. In some cases, however, the reality is that the loss of pension benefits that occurs due to termination can have a dollar value far greater than the loss of salary. In such cases, the employer may end up on the hook for far more than it bargained for when it made the decision to terminate the employment relationship.

In Taggart v. Canada Life Assurance Co., a recent decision of the Ontario Superior Court, damages for loss of pension was the only issue before the court. All other issues, including the notice period, had been agreed upon by the parties before trial.

However, Fred Taggart alleged he was entitled to $333,526 as a result of the loss of pension benefits. The employer disputed that notion.

Taggart was 56 and had worked for the defendant for 20 years. At the time of termination, he was vice-president of individual life. When Canada Life was acquired by Great-West Life, a number of people, including Taggart, were let go. He received a letter providing an eight week period of working notice, following which he would be eligible to start early retirement pension and retiree benefits.

At the same time, Taggart received notice of the company’s intention to wind-up the pension plan, the effect of which was to potentially enhance the benefits to which he would otherwise have been entitled.

The issue between the parties was whether an appropriate notice period should be counted as service with the company for pension purposes. Taggart alleged that if it was, his pension would be worth an additional $333,526. The defendant relied on the pension plan itself, the wording of which suggested that only active employment would be credited. Taggart denied ever having seen the policy.

In reaching a decision, Justice Colin Campbell reviewed the existing authority, commenting that, “as in so many areas of the law … the result will be driven by the individual facts — in this case, the wording of the plan and the supplemental plan.”

To demonstrate the conflicting jurisprudence, in a 1985 decision it was held that pension rights are collateral to and separate from a claim for wrongful dismissal, and the pension should therefore start following the date of termination and not following the notice period.

The following year, a different judgment, considering the very same pension plan, reached the opposite conclusion.

It now appears to be settled that unless the applicable plan states otherwise, a terminated employee would be entitled to the present value of the vested pension on the last day of the applicable notice period.

The question to be addressed in Taggart was whether the wording of the plan itself restricts such a finding. The court agreed an employee can contract out of a potential claim for loss of pension benefits.

However, the next issue to be determined was whether they can be found to have done so solely based upon the language in the pension plan. The court held that this, “could only occur when the employee knows in an informed way — by it being brought to his or her attention some time before dismissal takes place — and expressly or by implication agrees to the limitation.”

The court found Taggart did not know of the language in the policy which purportedly restricted his entitlement. As a result, the employer was ordered to pay damages in the amount of $333,526, being the present value of the pension benefits that would have accrued had Taggart been able to work through the notice period.

The lesson: When making the decision to terminate employees who may have substantial pension entitlements, consider any potential damages that might arise aside from the loss of salary. They can be substantial.

The other lesson: If an employer wants to restrict such rights, it should do so explicitly in the applicable employment agreement, or ensure it brings such restrictions to the attention of the employee.

For more information see:

Taggart v. Canada Life Assurance Co., 2005 CarswellOnt 491 (Ont. S.C.J.)

Stuart Rudner practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or by e-mail at [email protected]. To read more of his articles online, enter Rudner as a search term.

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