Norman B Boychuk v. Minister of National Revenue, [1981] CTC 2662, 81 DTC 613

The Chairman:—The appeal of Norman B Boychuk is from an assessment with respect to the appellant’s 1978 taxation year.

The issue is whether an amount of $34,020 received by the appellant from his employer was non-taxable damages for wrongful dismissal, as claimed by the appellant, or was taxable remuneration for the appellant’s services rendered during the period of his employment with his employer within the meaning of subsection 6(3) of the Income Tax Act, as assessed by the Minister. Alternatively, the respondent submits that the $34,020 was a retiring allowance and was properly included in the appellant’s income, pursuant to the provisions of subparagraph 56(1 )(a)(ii) of the Act.

Summary of Facts

The appellant had been employed by MacMillan Bloedel Ltd for some 25 years on the basis of an oral contract. The duration of the employment was not specified in the contract nor was there any agreement as to the length of the notice of termination to be given before the actual cessation of the appellant’s employment.

There is no dispute between the parties that on April 14, 1978, the appellant was advised that his employment would cease on April 30, 1978. Relative to the termination of his employment, the appellant accepted from his employer, other than earned vacation credits, an amount of $34,020, the payment in issue.

The evidence is that the employer, who was discontinuing the operations in which the appellant was employed, offered the appellant the alternative of being transferred to another position within the company. I believe that the position commanded a lesser salary and was felt by the appellant to be unsuitable and he refused the offer. The employer also placed its clerical staff at the disposition of the appellant to help him in applying for employment with other companies.

The appellant’s contention that the payment by the company of $34,020 is non-taxable damages for wrongful dismissal raises a point of law which apparently is still unsettled.

The important question raised by the Supreme Court of Canada by way of obiter dictum in Jack Cewe Ltd v Gary William Jorgenson, [1980] CTC 314; 80 DTC 6233, is whether payments received by an employee from his employer for wrongful dismissal can only have its source and arise from the employment contract and, as such, is taxable income in the hands of the recipient. Fortunately, for purposes of this appeal, the Board need not attempt to answer that more profound question.

The issue here is simply whether the payment received by the appellant can be considered as damages for wrongful dismissal. In this appeal, it may be considerably easier to determine what the payment is not, rather than deciding what it actually is.

Generally speaking, damages arise from the failure of a person in fulfilling specific obligations contained in a written or verbal contract; the law; tacit agreements and even in the principles of natural justice — which failure must be the identifiable cause of damages sustained by the other contracting party because of the contravention of his acquired rights.

This evidently is not meant to be a definition of damages or even an adequate analysis of what can legally give rise to damages, but it is, I believe, sufficient to make the point that before the appellant can claim damages for wrongful dismissal, he must establish that the employer failed to carry out an obligation that was clearly on him; that his rights were ignored and that the losses sustained by the employee are directly related to the employer’s failure to carry out his obligations. In the circumstances, what exactly was the employer’s obligation? Although under the verbal contract it was admitted that the duration of the appellant’s employment was not specified and no period in which notice of dismissal had to be given was fixed, the employer, contrary to what occurred in the Atkins’ case, gave the appellant 14 days notice of the termination of his employment and he offered the appellant an alternative employment, which the appellant refused, but instead accepted the payment of $34,020.

What right can the appellant claim was denied him? Surely, it would not be reasonable for the appellant to expect a life-time employment in the same position in MacMillan Bloedel Ltd and his rights as an employee could not possibly include such a guarantee. What losses can the appellant claim which can be directly attributed to the failure of the employer to fulfill a legal or ethical obligation with respect to the appellant’s employment?

I do not know of any law which exempts employment contracts from being subject to the usual conditions for the award of damages. Whether or not damages that can be linked to salary are taxable has no bearing on the narrower issue of this appeal.

There is no evidence that the payment was made and received as a result of a wrongful or actionable dismissal of the appellant but there is every indication that the payment was made voluntarily by the employer and accepted by the appellant as one of the alternatives to the termination of the appellant’s employment.

In my opinion, the appellant failed to establish any grounds on which to base his submission that the $34,020 received was for damages for wrongful dismissal and I must conclude that the payment was not for damages.

I find it difficult in the circumstances of this appeal to conclude that the payment was a retiring allowance within the meaning of subparagraph 56(1 )(a)(ii) of the Income Tax Act. The facts however do confirm that the payment was in respect of the appellant’s employment and was made in satisfaction of an agreement made by the employer and employee on the termination of the appellant’s employment and is taxable under subsections 5(1) and 6(3) of the Act.

The appeal is therefore dismissed.

Appeal dismissed.