The Saskatchewan Court of Appeal recently confirmed that it was unlawful for an employer to make deductions from statutory severance pay owed to a terminated employee pursuant to Saskatchewan’s Labour Standards Act (similar to the BC Employment Standards Act). While this decision originated in Saskatchewan, its principles are applicable to other jurisdictions, including British Columbia.

In Auto Gallery 1994 Ltd. v. Saskatchewan (Director of Labour Standards), the employee went on medical leave as a result of depression and received workers compensation benefits. However, shortly after reporting her condition to her employer, the employer terminated her employment for unrelated reasons. The employee brought a complaint before Labour Standards Branch (the equivalent of BC’s Employment Standards Branch), seeking statutory severance pay. The employer argued that it was entitled to deduct from that statutory severance, the workers compensation benefits that the employee had received for the same period because workers compensation benefits were compensation for lost wages. The employer argued that by not allowing the deduction, the terminated employee would receive double recovery for the period.

The Court of Appeal upheld both the Labour Standards Branch and lower court decisions, and confirmed that the employer was not entitled to deduct the workers compensation payments from the statutory severance pay owed under the Labour Standards Act. The court’s decision was based on two reasons:

• First, while workers compensation amounts would normally be deductible from a damages award for wrongful dismissal (which is a claim for breach of contract), statutory severance pay was a legally distinct right created by statute. Thus, the usual rules against double recovery, normally applicable in employment damages calculations, did not apply.
• Second, neither the Saskatchewan Workers Compensation Act, nor Labour Standards Act required such deductions.

This case serves as a good reminder about the distinction between statutory notice/pay in lieu (severance), and common law notice/severance. The former is a right created by statute and is owed irrespective if the terminated employee receives income from other sources (WCB, insurance or alternative employment). The common law rights are damages, which are compensatory in nature, and therefore do not permit double recovery.