The question of what sums should be deducted from a wrongful dismissal award is somewhat regrettably complicated. Let’s go under the hood and see just how all these things work together.

Statutory Sums & New Income

The good news is that nothing comes off the statutory sum for termination due for notice or severance pay. These amounts can be substantial, depending on years of service. Notice caps at 8 weeks and severance at 26 weeks’ pay. Any sums earned as income within these time periods do not reduce the payments due.

New Income

Presuming that the income in a new role is the same or close to the former income, these new earnings will reduce the claim for wrongful dismissal. If the new income is modest and quite different in substance, there is a good argument that this income will not offset the claim.

Contractual Severance

Under current law, the court must examine the employment contract terms to see if there is a specific provision stating that new income will offset the severance amount, to allow for an interpretation in the employer’s favour. Just to keep you on your toes, the reverse was true six years ago.

Employment Insurance

These payments will not reduce the claim but generally will create a repayment obligation. If you received EI payments during a period later covered by a wrongful dismissal claim, the EI payments received for that period will have to be repaid. The EI sum is also insurable income and hence the employee may be able to establish a new benefit claim where they have remained unemployed beyond the severance period.

Short Term Disability

Generally, these sums are paid by the employer directly and not by an insurer. Where there is a possible double payment of short term disability and severance for a concurrent time period, double recovery (successfully receiving both payments for the same time period) will be difficult.

Long Term Disability

Again, where there is the possibility of double recovery, the rules just became more complicated. The law today is that where the employee pays for the premiums directly or indirectly, there is a possibility for the employee to recover both severance and LTD benefits for the time period. That is, however, only dealing with the aspect of the employer’s liability. The insurer may also enter the argument by asserting a “subrogated” claim against the employee which is dependent on the wording of the policy. The issue is complicated and needs more space than allowed here.

Private Pension Plan Payments

The facts are unusual where the employee receives a pension plan sum concurrent with a severance. When this does happen, the pension is usually discounted to reflect an earlier entitlement and hence there is no gain. That said, occasionally it does unfold where the employee receives a benefit by an earlier pension date allowed by termination and hence this question does emerge, although rarely. The Supreme Court of Canada spoke to this question and concluded that the pension benefits would not reduce such a claim.

Workers Insurance Benefits

The law is clear that such sums will offset a severance claim and further that the employee will be obliged to apply for these sums.

Canada Pension Plan

With an ageing workforce and no mandatory retirement, these facts may occur more frequently where a worker is entitled to CPP concurrent with the severance period. These sums will not reduce the claim.

Tax

Yes, indeed, tax at source will come off the payment based on the quantum of the sum tendered. Payments over $25,000 are subject to taxation of 30% at source. There is no withholding on legal fees or sums attributed to aggravated damages in good faith or similarly to punitive damages. This sum is a withholding tax, and not the final amount of tax that will ultimately be due, which is based on normal marginal rates of tax.

Get Advice Before You Act

For advice on this and similar issues and, indeed, any employment issue, contact the offices of Toronto employment and labour lawyers Mallins Law. We regularly advise employees and employers on legal workplace issues. Contact us online or by phone at 647-792-0310 to schedule a consultation.