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Citation: 2004TCC653
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Date: 20040927
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Docket: 2004-1107(IT)I
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BETWEEN:
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HEIDI FAWKES,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
(Delivered orally from the Bench September 24,
2004)
Hershfield J.
[1] The Appellant appeals the
reassessment for her 2002 tax year wherein the Minister brought
into income the amount of $10,000.00 which the Appellant had
claimed was a tax-free amount received in a settlement of a claim
she asserts was related to a human rights violation that occurred
in connection with the loss of her employment.
[2] The Minister included the subject
amount as a "retiring allowance" as defined in
subsection 248(1) of the Income Tax Act and included it in
income pursuant to subparagraph 56(1)(a)(ii) of the
Act. Accordingly, the sole issue in this appeal is whether
the subject payment is a retiring allowance as defined in the
Act.
[3] The Appellant gave evidence on her
own behalf and the Respondent called a senior officer of the
Appellant's former employer, Investors Group, namely Roger
Blanchette, Vice-President, Financial Reporting, to whom the
Appellant reported while employed at Investors.
[4] The Appellant is a chartered
accountant who was employed by Investors from December 1995 until
her termination in February 2002. Prior to her termination she
had been on maternity leave since February 26, 2001. Having been
advised of her termination a few days before, she met with
Mr. Blanchette on February 8, 2002 at which time
Mr. Blanchette delivered to her an offer of severance (the
"February Severance Offer").
[5] Before addressing the terms of the
offer and subsequent negotiations and events, it would be helpful
to briefly describe the Appellant's employment with Investors
prior to her maternity leave in February 2001. During her
employment she was a manager in the corporate finance department
of Investors Group. There was no dispute that the Appellant was a
valued employee. She performed a supervisory role over accounting
clerks and analysts and her responsibilities included accounts
payable reconciliation and analysis and accounting research and
compliance. The Appellant testified she worked long hours on
month-end and quarterly reports and more particularly worked
seven days a week in January and February each year on annual
reports. I note as well she had won an award for continued
high-level performance of her duties while absorbing a
co-worker's managerial responsibilities while that
co-worker was off, coincidentally, on maternity leave in 1999.
Her nomination for the award was filled with high praise and
acknowledges an impressive ability to accept the additional time
and strain associated with assuming additional
responsibilities.
[6] The Appellant's base pay was
some $60,000.00 per year and her average annual bonuses in the
three years prior to her leave was in excess of $8,000.00. Her
annual compensation including such bonuses and all benefits was
in the area of $77,000.00.
[7] While there is no dispute as to
the Appellant's worthiness as an employee there are two very
different points of view as to the reasons for her
termination.
[8] The Appellant admits that she was
told her position had been eliminated due to a restructuring that
had nothing to do with her maternity leave or parenthood status.
However, she is suspicious if not convinced that there is more to
it than that. Her maternity leave was first granted from February
26, 2001 to June 24, 2001 (Exhibit R-2) but was extended to
ten months and then to one year. When the Appellant called Mr.
Blanchette in early February 2002 to confirm particulars as to
her return, she was told that there was no longer a job there for
her. While she was informed that her termination was due to
cutbacks, financial restraints and restructuring, she was and
remains suspicious. She testified that she had spoken to former
co-workers and got the impression somehow that her termination
might not have been due to the alleged cutbacks and
restructuring. Her testimony in this regard was vague and
uncorroborated heresay at best. Still, I accept the
Appellant's sincerity as to her suspicions and speculation
that her extended maternity leave and motherhood had harmed her
employer's perception of her work ethic or her ability to
accept the workload demanded by her position. With a child she
would not be as available and that, she is convinced, was the
real reason for her termination. She testified that after her
termination she called the Human Rights Commission's office
in Manitoba and was told, on the phone, that she may have a valid
complaint. She did not file or pursue a complaint with the
Commission.
[9] Mr. Blanchette testified that the
Appellant was a valued worker and that a restructuring within
Investors Group had been the sole reason for the elimination of a
job for the Appellant. Investors had recently merged with
McKenzie Financial which created a need to eliminate duplication.
Further, there had been a protracted downturn in the markets and
mutual funds in particular were hit upon by significant
redemptions. Investors was exercising financial restraint in the
form of tighter controls and eliminating expenses. There was a
hiring freeze and a directive to reduce staff costs. Mr.
Blanchette testified that by reassigning duties, the position
held by the Appellant had been eliminated. He denied that there
was any other reason than the restructuring for the termination
of the Appellant's position and for the resulting situation
of there being no other position available for her in the
company.
[10] The February Severance Offer was
prepared by the Human Resources Department of Investors Group and
signed by Mr. Blanchette. Although the employment was to cease
effective immediately, wages for the month of February 2002 were
paid. Mr. Blanchette explained that even though the
Appellant's maternity leave had not expired and even though
the Appellant's employment was being terminated effective
immediately, wages for the month of February along with other
benefits was thought to be an appropriate gesture in addition to
severance equal to 18 weeks or three weeks per year of
employment. The total termination package in the February
Severance Offer was as follows:
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February wage:
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$5,025.00
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Vacation pay:
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5,221.00
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Severance
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21,000.00
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(3 weeks per year of service
based on "base" salary)
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Lost bonus:
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8,185.00
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(average of last 3 years)
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Continued mortgage
discount program
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400.00
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(approximate value)
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$39,831.00
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[11] The offer confirmed that the
termination was in no way a reflection of performance or
character and a letter of reference was said to be attached. She
was encouraged to seek independent legal advice as well.
[12] Following the receipt of the February
Severance Offer the Appellant did seek legal representation and
on February 19, 2002 the Appellant's lawyer wrote to Mr.
Blanchette (the "February Reply") and asserted a breach
of legislative requirements of subsection 60(2) of the
Employment Standards Code of Manitoba and an apparent
breach of the provisions of the Human Rights Code of
Manitoba - the latter prohibiting
discrimination in respect of any aspect of employment based on
sex, including pregnancy, the possibility of pregnancy, or
circumstances related to pregnancy. Subsection 60(2) of the
Employment Standards Code provides that employers shall
reinstate an employee to the same position or a comparable
position on the expiry of maternity leave. The February Reply
goes on to suggest that "wholly apart" from the
legislative issues, the termination was a wrongful dismissal
entitling the Appellant to a payment in lieu of reasonable
notice.
[13] As I read the February Reply, a
counter-proposal was being made to the February Severance Offer
with focus on the 18-week severance compensation amount while
being generally accepting of other aspects of the offer. The
counter-proposal suggests that the termination, in the
circumstances of the Appellant, should afford her eight to nine
months' salary in lieu of notice and that the calculation
should be based on the $77,000.00 total value of her compensation
package (not her base salary). On this basis, using nine
months' severance pay in lieu of notice, the severance amount
would be $57,750.00. The February Reply goes on to assert that
additional compensation might be justified given the bad faith
conduct by the employer in light of the circumstances surrounding
her dismissal. Such additional compensation was suggested to be
in the area of one to two additional months. This would bring the
severance pay to $70,583.00 before considering the
legislative breaches referred to above. The February Reply then
goes on to say that a proper quantification of the compensation
must take into account that the "apparent breaches" of
such legislation which would entitle the Appellant to
reinstatement to her employment. It asserts that waiving such
entitlement should result in a significant additional payment to
the Appellant.
[14] Taking all of the above considerations
into account the counter-proposal in the February Reply was:
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February wage
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$5,025.00
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Vacation pay
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5,221.00
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Severance (all claims)
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55,000.00
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Lost bonus
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8,185.00
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Continued mortgage discount
program
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2,000.00
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(extended value)
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Legal fees
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1,000.00
$76,431.00
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[15] At this point I note that this
proposal, less statutory vacation pay, is roughly equal to the 11
months' severance suggested in the February Reply
before any suggestion is made that additional compensation
is appropriate for a waiver of asserted reinstatement rights that
arise from legislative breaches including asserted human rights
violations. While such reconstruction of a negotiating process as
a means to assist in an allocation of a payment between one
asserted damage and another is inevitably flawed, at the least it
demonstrates that the Appellant cannot establish, even on a
balance of probability, that her lawyer was seeking any
particular amount in respect of an asserted human rights
violation. It was a threat that bolstered her lawyer's
position to seek a high-end severance package.
[16] The February Reply was responded to by
Investors' legal department. It denied wrongful dismissal and
asserted compliance with the Employment Standards Code and
the Human Rights Code given restructuring within the
Appellant's department. To avert the cost of retaining
outside counsel an enhanced offer was made. The severance amount
was increased to $25,142.00, being five months' base salary.
The Appellant's participation in the Mortgage Discount
Program was extended to the end of the mortgage term as requested
in the February Reply and a career counselling program worth
$2,500.00 was offered as well.
[17] In response, the Appellant's
counsel suggested that five months' severance based on
total compensation (amounting to some $32,000.00) would be
appropriate if the only claim was wrongful dismissal. An
additional compensation claim was again asserted in respect of
the legislative breaches and the Appellant foregoing pursuit of
her reinstatement rights before the Human Rights Commission. The
response also noted further damage in the amount of $6,200.00
suffered in respect of the loss of RRSP contribution room and
requested the $2,500.00 career counselling program value be added
to the lump sum severance amount. A lump sum severance amount in
satisfaction of all these claims (inclusive of the $32,000.00
wrongful dismissal amount) of $45,000.00 was proposed (down from
$55,000.00 in the February Reply).
[18] After a further exchange of
correspondence in the nature of "negotiation" the final
severance package looked as follows:
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February wage
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$5,025.00
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Vacation pay
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5,221.00
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Severance (all claims)
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40,000.00
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Lost bonus
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8,185.00
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Continued mortgage discount
program
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2,000.00
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(extended value)
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Legal fees
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1,300.00
$61,731.00
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[19] The Appellant's counsel argues that
the increase in the total severance offer (some $22,000.00) must,
in part, be taken to reflect compensation for the human rights
violation or as a separate payment to effect a release of the
Appellant's claim to pursue a remedy for the human rights
violation. He asserts that the Appellant's estimation as to
$10,000.00 being so attributable is reasonable. Respondent's
counsel argues that no allocation was made in the settlement and
that no allocation is appropriate given that the entire severance
amount was in respect of the loss of employment and taxable as a
"retiring allowance" as defined in subsection
248(1).
[20] "Retiring Allowance" is
defined in section 248 of the Act as follows:
Retiring allowance means an amount (other than a
superannuation or pension benefit, an amount received as a
consequence of the death of an employee or a benefit described in
subparagraph 6(1)(a)(iv)) received
(a) on
or after retirement of a taxpayer from an office or employment in
recognition of the taxpayer's long service, or
(b)
in respect of a loss of an office or employment of a
taxpayer, whether or not received as, on account or in
lieu of payment of, damages or pursuant to an order or
judgment of a competent tribunal,
by the taxpayer or, after the taxpayer's death, by a
dependant or a relation of the taxpayer or by the legal
representative of the taxpayer; (emphasis added)
[21] Respondent's counsel relies on
Niles v. Canada, [1991] T.C.J. No. 118 and Jolivet v.
Canada, [2000] T.C.J. No. 48.
[22] In Niles the appellant claimed
he was laid off under circumstances amounting to
discrimination and a formal complaint was filed. A settlement was
reached prior to a finding by the Ontario Human Rights
Commission. It was argued that some part of a $5,000.00
settlement was for general damages relating to the discrimination
claim and that, based on the authority of Re Piazza et
al and Airport Taxicab et al, (1989), 60 DLR 759
(Ontario C.A.), such damages were not the same as damages for
wrongful dismissal. While Judge Sobier agreed that compensation
ordered for a breach of a human right's code was not the same
as damages for the wrongful dismissal, he distinguished the case
where no award for damages was given by a commission in respect
of a discrimination claim per se. More particularly
he found that all factors relating to the payment in question
pointed to it being made as a result of loss of employment and
that the settlement was to compensate for that. While there is a
suggestion in that case that settlement of a discrimination claim
would not be sufficient to disengage it from damages for loss of
employment, I do not agree that the case should stand for that.
The ratio seems to me to be that if the relevant factors point to
a settlement as being in respect of the loss of employment, then
the settlement amount is a taxable retiring allowance.
[23] The phrase "in respect of"
used in the definition of "retiring allowance" has a
wide scope as recognized in Niles. It includes
"in connection with". It is interesting to note here
that the Notice of Appeal referred to the amount received in
respect of a human rights violation as received in respect of a
violation that "occurred in connection with the loss of the
Appellant's employment". It is difficult to express the
two claims without recognizing the "connection" unless
the relevant factors concerning the award or settlement, point to
a violation unconnected with the loss of employment per se
such as damages for personal injury or injury to one's human
dignity that go beyond the mere loss of employment and that would
stand alone as a distinct claim aside from the loss of
employment. In the case at bar, any allocation of the settlement
amount to the human rights claim seems to be related to
reinstatement - foregoance of which is clearly and materially
connected to compensation for loss of employment. That is, it
seems the Niles case is properly relied on by
Respondent's counsel in that, as in Niles, all factors
relating to the payment arise in the case at bar in respect of or
in connection with the loss of employment and the settlement was
to compensate for that.
[24] In Jolivet, Justice Lamarre
considered a claim that amounts paid not to pursue any claim
under the Canada Labour Code, the Employment Standards
Act (Ontario) and other similar legislation was not a
retiring allowance. The claim arose as a result of an alleged
arbitrary termination of employment. Justice Lamarre found a
sufficient nexus between the receipt and the loss of employment.
She noted that the release signed by the Appellant in that case
specifically provided that there was no admission of liability on
the part of the employer and that liability was denied.
Appellant's counsel in the case a bar acknowledged that the
release signed by the Appellant had similar denials in respect of
any human rights violation. While, I do not think a denial of
liability is fatal to a claim that damages are for something
other than a loss of employment, there must still be factors
pointing to that other claim as existing apart from the loss of
employment. In Jolivet no such factors existed. That is
also the situation in the case at bar so the Jolivet case
as well as the Niles case are properly relied on by
Respondent's counsel.
[25] Appellant's counsel relies heavily
on Interpretation Bulletin IT-337R4 Retiring Allowances and
Stolte v. The Queen, [1996] 2 C.T.C. 2421.
[26] In respect of IT-337R4, Appellant's
counsel refers to paragraph 12 where the CRA acknowledges that
personal injury damages may be viewed as unrelated to loss of
employment and therefore not taxable. Examples of harassment
during employment or defamation after dismissal are
given presumably in the context of allocable damages lumped
together in a loss of employment payment. These are relevant
factors that would justify an approach that
"disconnects" the damages for loss of employment from
the personal injury damages. The Bulletin goes on however to
state that "When a loss of employment involves a human
rights violation and is settled out of Court, a reasonable amount
in respect of general damages can be excluded from
income".
[27] I cannot fault Appellant's counsel
for being persistent in his assertion that this statement
reflects good law and it is frustrating when the CRA does not
seem to adhere to its own guidelines. Respondent's counsel
argued that the apparent differential treatment here is justified
on the basis that a complaint was not filed with the Human Rights
Commission. That should not be the criteria. The criteria should
be whether there exists a sufficient nexus between the receipt
and the loss of employment. However in cases like the one at bar,
where the threat of an "apparently" supportable human
rights claim for reinstatement or of a claim for ambiguous
additional damages is used to exact a high severance package, the
nexus between the receipt and the loss of employment is
sufficient to bring the entire receipt into the scope of a
retiring allowance defined in the Act regardless of
inferences to the contrary in the Bulletin.
[28] A.J.C. Bowman's decision in
Stolte does not in my view assist the Appellant either. In
that case there was accepted evidence that damages paid were not
for loss of employment but rather were for mental and physical
injuries sustained at the hands of the employer prior to
termination of employment. A.C.J Bowman confirmed that not
all amounts received on termination of employment are retiring
allowances which is to say separation of damages sustained prior
to termination but recognized and included in a termination
package is appropriate when considering amounts included as a
retiring allowance under the Act. That principle does not
assist the Appellant here. There is no pre-termination injury
alleged by the Appellant in the case at bar.
[29] Lastly, I wish to comment on the
premise of counsel for the Appellant that payments beyond normal
recognized severance amounts for termination of employment
without notice or for wrongful dismissal should be accepted as
being in respect of personal injury arising from a human rights
violation in a case such as the one at bar where the
circumstances tend to support both that a viable claim exists and
that the recipient of the extra amount honestly believed she was
receiving some payment as compensation for releasing her right to
pursue the claim. Firstly, I am not convinced an extra amount was
paid. The authorities presented demonstrate that rules of thumb
such as one-month severance for each year of service are rough
guidelines at best. In Whelehan v. Laidlaw Environmental
Services Ltd., 1998-04-15 Docket C974146
Canadian Legal Information Institute, the Supreme Court of B.C.
ordered eight months severance in respect of a valued upper
middle management employee employed for five and one-third years
and terminated under very similar circumstances as the Appellant
in the case at bar. In the case at bar, the settlement (some
$71,000.00 net of statutory vacation pay), was for approximately
11 months based on the Appellant's annual total
compensation package which is what the February Reply suggested
was appropriate before considering the legislative breaches (see
paragraph 13 of the Reasons). Further, it includes extras
intended as good faith gestures such as the February salary and
the value of a career-counselling program. It also covers a claim
for damages relating to lost RRSP room. Further, Mr. Blanchette
made it clear that the settlement was arrived at, from
Investors' perspective, on the basis that retaining outside
counsel would be more expensive than the negotiated settlement.
From the Appellant's perspective I accept that she believes
that she was terminated for reasons other than restructuring at
Investors, but her compensation package was negotiated by her
lawyer - he is her agent. What he negotiated as her agent is not
reflective of compensatory damages unrelated to the loss of
employment. Indeed what he got was a very good severance payment
based on a variety of claims all related, directly related, to
the Appellant's loss of employment. The claim relating to a
human rights violation was couched by her lawyer in various ways
but in particular it was advanced in the February Reply as a
claim for reinstatement - the release from which is inextricably
linked to damages for loss of employment.
[30] In any event, as noted earlier, the
Appellant is unable to meet her burden of proof that any of the
amounts received are properly attributable to a human rights
violation. The negotiations were cluttered with alternative
posturing so that any number of allocations can be reconciled.
That one reconciliation might be on the basis of an allocation
for releasing a human rights claim is not sufficient.
[31] To conclude, the appeal is dismissed on
the basis that the full amount of the payment received was
damages in respect of loss of employment and thereby a retiring
allowance. The nexus between the receipt and the loss of
employment is more than sufficient in this case and there are no
amounts received that can reasonably be found to be unconnected
with the loss of employment per se. Further, there is
insufficient evidence to support an allocation to an unconnected
claim even if one existed.
Signed at Ottawa, Canada, this 27th day of September 2004.
Hershfield J.
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