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Factoring Fringe Benefits into Severance

March 7, 2017

When deciding to offer or accept a severance package at the end of an employment relationship, both employers and employees should be alert to whether any fringe benefits flow from the termination. Such benefits (that are not strictly tied to business-related activity) may include company vehicles, club memberships, pensions, disability and medical insurance benefits.

 

The courts in British Columbia have generally declined to grant damages for lost benefits unless the employee can prove than he or she actually expended money to replace the benefits following termination. For example, in Hooge v. Gillwood Remanufacturing Inc., 2014 BCSC 11, the court clarified that the plaintiff was not entitled to recover vacation pay or the personal use of a company cell phone because “[he did not show] evidence of losses he suffered or out-of-pocket expenses he paid for replacement coverage items that would otherwise be covered by his benefits.”

 

A recent trend in the jurisprudence, however, suggests that the court may allow damages for lost benefits to be measured by the total value of the employer’s contributions in respect of the benefits:

  • In Stanley v. Advertising Directory Solutions Inc., 2014 BCSC 376, an employee who held the title of Executive Director of Finance was entitled to wrongful dismissal damages that factored, among other things, the monetary value of her company car and various medical, dental and health benefits;

  • In Dhatt v. Kal Tire Ltd., 2015 BCSC 1177, the court held that a disabled employee who served as an automotive mechanic was entitled to recover damages equivalent to the disability benefits (at a discount) he would have received had he remained an employee until the end of the notice period;

  • The court in McLeod v. Lifelabs BC LP, 2015 BCSC 1857 held that a process improvement manager was entitled to recover wrongful dismissal damages that included the monetary value of her MSP premiums during the reasonable notice period.

 

In sum, it is never easy when an employment relationship comes to an end, whether via lay off or “early retirement”. However, employers can soften the blow by providing fringe benefits to terminated employees, while noting that it is possible to yield beneficial after-tax consequences for both sides depending on the structure of the severance package.

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