COURT FILE NO.: CV-08-358931
DATE: 20141217
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL FLAMMIA and SILVANA FLAMMIA
Plaintiffs
– and –
ARTHUR HAGERMAN and ROYAL GLEN EAGLE INVESTMENTS LTD.
Defendants
Michael Smitiuch, Peter Cho and Megan Self for the Plaintiffs
Jack Fitch, and Jason Arcuri for the Defendant Royal Glen Eagle Investments Ltd.
HEARD: 17 December 2014
REASONS FOR JUDGMENT
mew j. (Orally)
[1] During the course of the trial of this personal injury action, an issue has arisen as to whether a "severance allowance" payable to the plaintiff, Michael Flammia, should be deducted from any amount otherwise payable to Mr. Flammia as damages for loss of income.
[2] Michael Flammia was injured in an incident which occurred on 18th of September 2007. While attending a corporate golf event at the defendant golf club, Mr. Flammia fell from a golf cart operated by one of the defendant's employees and suffered a traumatic head injury. Although, after periods of hospitalization and rehabilitation, Mr. Flammia returned to his employment at Canada Bread, where he had held the position of Vice-President Operations, Ontario, he experienced two demotions and was ultimately terminated on 29 January 2013.
[3] The plaintiffs assert that Mr. Flammia's demotions and his ultimate termination were the result of the injuries he sustained in the 2007 incident. The defendant disputes that.
[4] The severance package accepted by Mr. Flammia on termination included the following elements:
• A combined notice/severance allowance, inclusive of any required statutory notice, for a maximum of 104 weeks at Mr. Flammia's current salary of $155,420 per annum, to be paid over the period beginning 30 January 2013 and ending 30 January 2015. This severance allowance is payable in biweekly instalments "as per current practice", subject to withholding tax.
• A monthly vehicle allowance of $1200 gross per month up to the earlier of 30 January 2015 or Mr. Flammia's date of re-employment.
• A covenant that for a period of 52 weeks after 30 January 2013, Mr. Flammia will not engage in or be engaged or interested directly or indirectly in soliciting or brokering the sale of or selling and/or manufacturing and/or distributing any product in competition with any or all products manufactured or distributed by Canada Bread or any of its divisions or subsidiary companies during such period.
• A covenant that for a period of 52 weeks after 30 January 2013, Mr. Flammia will not directly or indirectly encourage or solicit the resignation, or engage in the recruitment of any employee from their employment with Maple Leaf Foods, Canada Bread Company Limited or any of their divisions or subsidiary companies.
• In the event of re-employment, which is defined in the severance package, within the two-year period following termination, the severance allowance would cease but a lump sum payment equal to 50 percent of the remaining unpaid allowance would be paid to Mr. Flammia.
[5] The plaintiff argues that but for the injuries he sustained, Mr. Flammia would have continued to be employed by Canada Bread, earning an annual income, including bonuses, at levels equivalent to his earnings before his first demotion. On this basis, the plaintiffs have presented evidence at trial that Mr. Flammia's past loss of income is $496,200 and that his future loss of income is in the range of $2,621,800 to $3,048,900.
[6] The defendant's case is that Mr. Flammia's demotions and termination are unrelated to the injuries which he sustained and that, accordingly, he has suffered no compensable loss of income.
[7] The plaintiff seeks a ruling on whether, as a matter of law, the severance allowance received by Mr. Flammia should be deducted from any amounts which the jury awards him for past or future loss of income. The plaintiff relies on the private insurance rule established by a line of authorities culminating in IBM Canada Limited v. Waterman, 2013 SCC 70, whereby benefits received by a plaintiff as private insurance are not deducted from damages awards.
[8] The defendants argue that a proper application of the compensation principle, also known as the rule against double recovery, requires the deduction of the severance allowance payments that Mr. Flammia has received and will continue to receive until 30 January 2015.
[9] The private insurance rule is an exception to the general principle against double recovery. It traces its origins to the decision in Bradburn v. Great Western Rail Co., [1874 – 80] All ER Rep. 195 (Ex. Div.), in which it was held that a plaintiff who had received a sum of money from a private insurer to compensate him for lost income as a result of an accident was entitled to receive full damages from the defendant, as well as the payment from the insurer. The court reasoned that there would be no justice in setting off an amount for which the plaintiff had prudently entitled himself to under a contract of insurance. Pigott B. wrote, at page 197:
“I think that it ought not, upon any principle of justice, to be deducted from the amount of the damages proved to have been sustained by him through the negligence of the defendants.”
[10] In Cunningham v. Wheeler, [1994] 1 SCR 359, Mr. Justice Cory came to a similar conclusion at page 401:
“Tort recovery is based on some wrongdoing. It makes little sense for a wrongdoer to benefit from the private act of forbearance and sacrifice of the plaintiff.”
[11] The private insurance exception has been extended to analogous benefits. In IBM v. Waterman, the Supreme Court of Canada applied the private insurance exception in holding that pension benefits should not be deducted from wrongful dismissal damages. In doing so, the court reached the following conclusions in respect of the general application of the exception. As per Cromwell J. at para 76:
“(a) There is no single marker to sort which benefits fall within the private insurance exception.
(b) One widely accepted factor relates to the nature and purpose of the benefit. The more closely the benefit is, in nature and purpose, an indemnity against the type of loss caused by the defendant’s breach, the stronger the case for deduction. The converse is also true.
(c) Whether the plaintiff has contributed to the benefit remains a relevant consideration, although the basis for this is debatable.
(d) In general, a benefit will not be deducted if it is not an indemnity for the loss caused by the breach and the plaintiff has contributed in order to obtain entitlement to it.
(e) There is room in the analysis of the deduction issue for broader policy considerations such as the desirability of equal treatment of those in similar situations, the possibility of providing incentives for socially desirable conduct, and the need for clear rules that are easy to apply.”
[12] The plaintiffs argue that the severance payments received by Mr. Flammia are based on the sacrifices made by him during more than 30 years of employment with Canada Bread. They note that the payments are not simply a continuation of wages, but represent compensation for, among other things, Mr. Flammia's agreement not to compete with Canada Bread or try to recruit its employees.
[13] In Henderson v. Canadian General Life Insurance Company (1994), 17 O.R. (3d) 154 (Gen. Div.) the plaintiff had become disabled in August 1988. Her employment with the defendant, an insurance company, was terminated in March 1989, at which time she was receiving long-term disability benefits from the defendant, the same insurance company that employed her. She received severance pay equivalent to 17.18 months' salary. Although she continued to be disabled, the defendant took the position that under the terms of its policy it was not obliged to also pay disability benefits to the plaintiff for the period of 17.18 months after termination. While the issue addressed by the court was one of contractual interpretation, Mr. Justice Mandel concluded that the severance allowance received by the plaintiff was a cash consideration for the agreement of the plaintiff to terminate her employment. Such a payment should, at common law, he said, be regarded as a capital payment rather than as income. The provision in defendant's policy, which would have permitted the withholding of benefits if the severance payments were earnings from employment, was not accordingly applicable in the circumstances.
[14] In Young v. Sutherland, the plaintiff was injured in a motor vehicle accident. For five months after the accident he received his full salary from his employer even though he was not able to work. Mr. Justice Scanlan was satisfied on the evidence that the payments made by the plaintiff’s employer were completely discretionary and, accordingly, that such amounts had to be deducted from the amount recoverable by the plaintiff from the tortfeasor. However, the plaintiff then took a severance package from his employer which enabled him to take early retirement. The defendant argued that certain benefits payable as part of the severance package should also be deductible. Mr. Justice Scanlan disagreed with that submission. He said as follows:
“The benefits obtained in the severance package were not gratuitous payments. The severance benefits package was obtained as a result of the plaintiff giving up his rights in exchange for the total severance package. In that sense they are more akin to insurance payments and are not deductible from the amount now recoverable, see Guy v. Trizec Equities Ltd. (1979) 99 D.L.R. (3rd) 243. The defendant cannot now ask the court to go behind the negotiations and try and determine what specifically was given up by the plaintiff to obtain the severance package. I am satisfied the plaintiff had rights and he exchanged those rights and entitlements in return for the severance package. The plaintiff paid for the benefits he received upon retirement and the defendant should not now be able to reap the bounty. The retirement package included among other things a lump sum payment equal to one year wages and bridging of C.P.P. and pension benefits. This does not mean the plaintiff recovered one year’s wages and therefore did not suffer the loss of that one year’s wage. It simply means that he acquired certain rights over the 20 years he worked for his employer and monetary amounts were negotiated as being a suitable compensation for those rights.
It would be improper for the defendant to benefit from something the plaintiff has paid for. This is consistent with the line of cases that allow a plaintiff to recover when there are payments such as sick leave or disability insurance. This is also consistent with the approach taken by the New Brunswick Court of Queen’s Bench in Daley v. Wittaker, [1997] N. B. R. (2d) (Supp.) No.56. “The one year salary, bridging of C.P.P. and pension benefits shall not be deducted from the amounts owing by the defendant.”
[15] The plaintiffs also argue that the defendant bears the onus of proving the deductibility of the severance allowance and, to successfully do so, would have to establish how the allowance was determined. There being no such evidence, there should be no deduction for the severance allowance received by Mr. Flammia.
[16] The defendant acknowledges that there are no cases which deal directly with the issue presently before the court in a direct and unambiguous way. That said, the defendant points to a number of features of the severance package received by Mr. Flammia which support the proper characterisation of the payments as income from employment.
[17] The defendant argues that Canada Bread could have elected, rather than provide Mr. Flammia with a severance package, to give him reasonable notice of the termination of his employment and then require him to work the notice period. Had that occurred, it is difficult to see what objection there would be to deductibility of the income received.
[18] In contrast to the severance package received by the plaintiff in Young v. Sutherland, Mr. Flammia's benefits have come in the form of bi-weekly payments"as per current practice", presumably referring to the salary payments Mr. Flammia was receiving until he was terminated, and subject to withholding tax.
[19] A review of Mr. Flammia's income tax return for 2013 discloses employment income of $130,203 and "other income" on line 130 of his income tax return (Retiring allowance) of $77,757. A description of this line item from the Canada Revenue Agency website notes that retiring allowances are an amount received on or after retirement from an office or employment in recognition of long service or an amount paid upon loss of office or employment, whether the individual is dismissed or resigns.
[20] The defendant also makes reference, in addition to the authorities already discussed, to Musselman v. 875667 Ontario Inc., 2010 ONSC 3177, where the court followed Young v. Sutherland in disallowing a claim for loss of income by the daughter who took time off work to look after her injured mother but who was gratuitously paid in full by her employer while she was away.
[21] In the present case, the plaintiff claims for past loss of income starting on 1 January 2012. 2012 was the year in which Mr. Flammia was first demoted.
[22] The jury will determine in due course the extent to which, if at all, Mr. Flammia is to be compensated for past and future loss of income arising from his injuries. There is no dispute that Mr. Flammia is limited in what he can recover between 1 January 2012 and the date of his termination to the difference between what the jury decides he would have earned, but for the accident, and what he actually earned.
[23] What, then, is the difference between the salary payments which Mr. Flammia received up until he was terminated, and what the defendant, in argument, characterised as "salary continuation" payments thereafter?
[24] In my view the answer is yielded through a careful review of the severance package. It is more than simply an agreement to continue to pay Mr. Flammia salary for two years. For the first year following termination, Mr. Flammia could not have taken any other employment without being in breach of the terms of the severance package. In the second year, he could have taken other employment but would immediately have surrendered his entitlement to ongoing biweekly payments, although he would have been entitled to a lump sum payment equal to 50 percent of the unpaid severance allowance.
[25] In IBM v. Waterman, Cromwell J. for the majority explained at paragraph 35, that the compensation principle cannot be, and is not, applied strictly or inflexibly in a manner that is divorced from other considerations.
[26] In Guy v. Trizec Equities Ltd., [1979] 2 SCR 756, which Cromwell J. discusses in paragraph 44 of his opinion in IBM v. Waterman, Mr. Justice Ritchie accepted the principle that pension payments, whether contributory or non-contributory in nature, flowed from past work, which equated them to rights which flow from an insurance privately effected by the employee. Mr. Justice Scanlan in Young v. Sutherland makes reference to the same authority in concluding that the benefits obtained by the plaintiff in that case in a severance package were the result of him giving up his legal rights as a long-term employee.
[27] In my view the application of the insurance exception to the severance package received by the plaintiff in Young v. Sutherland is consistent with this flexible approach, bearing in mind that Young v. Sutherland was decided many years before the IBM v. Waterman decision. I do not regard it as necessary to characterise the package as a capital payment rather than a payment in the nature of income in order to give effect to the insurance exception in the circumstances presented by this case.
[28] There was no evidence as to what Mr. Flammia's rights as an employee would have been if he had not accepted the package offered by Canada Bread. Nor was there evidence as to what, if any, negotiations took place before the package was agreed. Nevertheless, it can be said with confidence, that in the absence of just cause for his termination, of which there is no suggestion, as an employee of Canada Bread since 1977 when he joined the company at the age of 16 as a part-time cleaner in the Sanitation Department, Mr. Flammia would have been entitled to substantial damages representing compensation in lieu of notice as a result of his many years of service, and that the package he took was, as a consequence, obtained as a result of him giving up those rights in exchange.
[29] With respect to the issue of onus raised by the plaintiffs, the general rule is against double recovery. The insurance principle is an exception to that rule. In my view the party seeking to take the benefit of the insurance rule bears the onus of bringing itself within the rule. In considering the discharge of that onus, while there could well be an element of salary continuation in the severance package received by Mr. Flammia, it would place an unwarranted and unfair burden on the plaintiff to be required to unpick the severance package to determine what that element amounted to in monetary terms. It should be sufficient to discharge the plaintiffs’ onus in this case if, looking at the package as a whole, it can be said that it amounts to consideration given for the surrender of the rights which Mr. Flammia would otherwise have had on termination and that the nature of the consideration received can fairly be said to be more than merely a continuation of the plaintiff’s employment income for a defined period of time.
[30] I am reinforced in this conclusion by considering the following scenario. If, on the expiry of the first 52 week period following his termination from Canada Bread, Mr. Flammia had found another job, he would have started to receive a salary from that new employer. There is no question that he would have to give the defendant full credit for any salary he received from that new employer against any award for loss of income made by the jury for the same period. But under the terms of the severance package, he would also receive a lump sum equivalent to 50 percent of the remaining unpaid allowance. It is much easier to conceptualise such a payment as more akin to an insurance payment. To borrow the language used by Cromwell J. at paragraph 76 in IBM v. Waterman, the nature and purpose of such a lump sum payment would seem to have little to do with indemnity for lost income.
[31] By reason of the foregoing, in the event that the jury awards Mr. Flammia damages for past or future loss of income, no deduction will be made for payments received by Mr. Flammia as a result of his severance package with Canada Bread.
Mew J.
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
MICHAEL FLAMMIA and SILVANA FLAMMIA
Plaintiffs
– and –
ARTHUR HAGERMAN and ROYAL GLEN EAGLE INVESTMENTS LTD.
Defendants
REASONS FOR JUDGMENT
Mew J.