A W Prociuk (orally: January 24, 1975):
1 The appellant, E A Pollard, appeals from the respondent's reassessment for the taxation year 1972 wherein the sum of $6,500, less $200 allowed by the respondent for legal costs, was added to the appellant's income and taxed accordingly.
2 The appellant's position is that this sum was a capital receipt in respect of damages sustained by him as a result of his employer wrongfully dismissing him without cause.
3 At the commencement of the hearing of this appeal the respondent moved, by Notice of Motion duly served and filed and supported by affidavits setting out the pertinent facts, for leave to file a Reply to the Notice of Appeal in accordance with the provisions of Rule 7 of the Rules of Practice and Procedure of the Tax Review Board. The Motion was granted.
4 Counsel for the respondent further moved to amend the said Reply to the Notice of Appeal to include among the statutory provisions on which he relied the provisions of 5(1), 6(1)(a), 6(3) and 8(1)(b) of the Income Tax Act, the last, 8(1)(b), referring to the allowance of the $200 as legal expenses.
5 The amendment which he was permitted to submit reads as follows:
By reassessment made July 24, 1974, the appellant was allowed a deduction in computing his income for the 1972 taxation year in the amount of $200, which sum constituted an amount paid by the appellant as legal expenses incurred by the appellant in collecting his salary or wages owed to him by his employer, or former employer, in accordance with the provisions of paragraph 8(1)(b) of the Income Tax Act.
6 Paragraph 5 of the Reply was also amended to include the sections that I have just indicated.
7 The respondent's position is that the sum of $6,500, less legal costs, is income pursuant to subsection 5(1) by virtue of subsection 6(3) or, in the alternative, paragraph 6(1)(a) of the Income Tax Act.
8 Subsection 6(3) under the heading of “Payments by employer to employee” reads as follows:
6. (3) An amount received by one person from another(a) during a period while the payee was an officer of, or in the employment of, the payer, or
(b) on account or in lieu of payment of, or in satisfaction of, an obligation arising out of an agreement made by the payer with the payee immediately prior to, during or immediately after a period that the payee was an officer of, or in the employment of, the payer, shall be deemed, for the purposes of section 5, to be remuneration for the payee's services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received
(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,
(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or
(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.
Subsection 5(1) headed “Income from office or employment” reads as follows:5. (1) Subject to this part, a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.
Paragraph 6(1)(a) reads as follows:6. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:(a) the value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer's contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of or by virtue of an office or employment;
9 The facts herein are brief and not in dispute. The appellant, aged 56, is a professional engineer, having obtained a bachelor's degree from the University of Saskatchewan in engineering physics with distinction in 1941. He did some post-graduate work at McGill University towards his master's degree. His record of work on research projects and other employment until 1951 is impressive and is stated in some detail in the resumé filed by him as Exhibit A-1. He testified in person in support of his appeal.
10 In 1951 he obtained employment with Federal Wire and Cable Co Ltd, at Guelph, Ontario, as a specifications engineer. He was promoted in 1952 to the position of assistant chief engineer and in 1956 to the position of chief engineer, which position he held to January 14, 1972, when he was summarily dismissed.
11 In 1958 F.ederal Wire and Cable Co Ltd was purchased by Pirelli Cables Limited with head office at St-Jean, Québec, which is a wholly-owned subsidiary of Pirelli Cables (International) of Italy.
12 He stated that he had never had a written contract in respect of his employment, but it was understood and agreed to by the company and by himself that he would continue to work in his capacity as chief engineer until his retirement at age 65. His salary was determined on a yearly basis and he was paid every two weeks.
13 His principal duties as chief engineer were: the responsibility for all research and development; product design; and quality control. Accordingly, he addressed himself in the 21 years of his employment to this very narrow field of specialization.
14 As quality control engineer he was obliged on occasion to exercise his authority in that regard if the product did not meet the required standards and this, apparently, was not well received by the parent company sales department, which was more concerned with sales volume than with the quality of the product.
15 He further stated that a year or so earlier he discussed with some of the officers of the company the question of the possibility of taking an early retirement at age 60, and suggested to them that consideration should be given to providing his department with a suitable future replacement in sufficient time to enable the appellant to train him for the job. This suggestion was apparently received by the officers with appreciation.
16 He continued to carry on his duties as before. On January 13, 1972, the vice-president of the company handed him a terse note of termination of his employment, which notice was filed as Exhibit A-2. The note is on the Pirelli stationery, dated January 13, 1972, and reads as follows:
Mr E A Pollard
Following your voluntary desire and intention to take early retirement from our Company, expressed to several officers of the Company at various times and made known to me on various occasions, we have now completed our arrangements to carry on our business in your absence.
I must therefore inform you that as from the 14th of January 1972, we have decided to terminate your employment with our Company, and at the same time I wish to express the Company's sincere thanks for the services you have rendered as Chief Engineer (Guelph Division) during our association.
Yours sincerely,
(Signed) G B Maund,
Director and Vice-
President (Engineering).
17 Concurrently he received a cheque for the net sum of $3,003.42, the total being $3,892.84 which, less the usual deductions, resulted in the net amount stated (see Exhibits A-4 and A-5). The cheque was for two weeks' earned salary, holiday pay and eight weeks' salary in lieu of notice in accordance with the statutory provisions then in force in the Province of Ontario.
18 The appellant states that he was shocked and taken aback by this totally unexpected turn of events. He consulted his solicitor, H Guthrie, Esq, QC, of the then law firm of Hungerford & Guthrie, of Guelph, Ontario, who wrote a letter to Pirelli Cables Limited, for the attention of Mr Maund, copy of which was filed as Exhibit A-6 and reads as follows:
Dear Sirs,
Our ref: 330-71-HG—
E A Pollard
We have been consulted by E A Pollard with respect to his termination by your Company. The settlement which you have offered to him, under date of January 13th, 1972, is not commensurate with his ability and years of service and, of course, is not satisfactory. Would you be good enough to advise your Solicitors that our client intends to make a claim and if necessary, issue a Writ accordingly. If they will be good enough to get in touch with the writer as soon as possible, as [ sic] settlement might be explored.
Yours very truly,
HUNGERFORD & GUTHRIE.
19 The appellant states that he was wrongfully dismissed without cause while he had every reason to believe that he was secure in his tenure until age 60, assuming he could make arrangements for early retirement and providing he performed his duties. He thus found himself without a job at age 53. He started making inquiries by telephone and letter (see Exhibits A-8 and A-9) about similar employment elsewhere but has been unable to obtain any such employment to this date.
20 The obstacles he encountered in his endeavour to obtain employment in his field are his age, scarcity of similar positions, his specialized knowledge and experience in a narrow field and the fact that his qualifications and experience command a salary that prospective employers are not willing to pay when they can get along with less qualified personnel whom they train on the job.
21 On receipt of the original of Exhibit A-6, Pirelli turned it over to its solicitors, Messrs Kearns, McKinnon, Gifford, Hamilton & Bean, of Guelph, Ontario, who replied on February 10, 1972 (Exhibit A-7). That letter, in reply to the letter filed as Exhibit A-6, was addressed to Mr Guthrie, QC, and reads as follows:
Dear Sirs,
We act for Pirelli Cables Limited to whom you wrote on 17th January 1972 intimating that the settlement offered by the Company to your client on the termination of his employment on 13th January 1972 was not satisfactory and advising that your client intends to make a claim and if necessary issue a writ.
We have received instructions from Pirelli Cables Limited to act for them in the matter and to meet with you to explore the possibility of a settlement.
In these circumstances, we request that you defer issuing the writ until we have had a chance to go into the matter together.
22 Following the receipt of this letter negotiations between the two solicitors went on for a period in excess of three months and settlement was reached on or about May 10th whereby Pirelli paid $6,500 to the appellant following his execution of a general release from all claims (see Exhibits A- 10 and A-11).
23 Exhibit A-10 is a letter from Mr Kearns to the appellant's solicitor, Mr Guthrie, advising that the Release had been prepared for the appellant's signature and, also, that, as the company's solicitor, he was in possession of the necessary funds to complete this settlement. The Release reads in part as follows:
... NOW, KNOW ALL MEN BY THESE PRESENTS that I Pollard, in consideration of the payment to me by Pirelli of the sum of $10,326.84, the receipt whereof I hereby acknowledge and delivery by Pirelli of the undertaking attached hereto, do hereby remise, release and forever discharge Pirelli and its predecessor Companies of and from all actions, causes of action, suits, debts, duties, accounts, bonds, covenants, contracts, claims and demands whatsoever which against Pirelli or its predecessor Companies I, Pollard, now have or which I or my personal representatives hereafter can, shall or may have for or by reason of or in any way arising out of any cause, matter or thing whatsoever existing up to the present time and in particular, without in any way limiting the generality of the foregoing, for or by reason of or in any way arising out of my employment with Pirelli or its predecessor Companies ...
24 Upon execution of the said Release by the appellant he received the sum of $6,500 and paid his solicitor the sum of $200 in respect of legal costs.
25 In filing his income tax return for the taxation year 1972, the appellant included in his income the sum of $3,892.84, the amount of the original cheque mentioned earlier, but not the above sum of $6,500.
26 Learned counsel for the respondent argued that this was an additional payment of salary in lieu of notice and was referrable to the agreement mentioned in subsection 6(3) of the Act into which must be read an implied term that notice of termination must be reasonable notice in terms of time or payment of salary in lieu thereof.
27 He cited a number of cases, of which the principal one was the case of Quance v Her Majesty the Queen, [1974] C.T.C. 225, 74 D.T.C. 6210, in support of his argument.
28 With deference to the very able submission by counsel for the respondent, I do not think the authorities cited in that situation are decisive with regard to the issue herein.
29 The facts in the Quance case are substantially different from the facts in the instant appeal. Here the appellant was under no illusion as to the duration of his employment. It is also a proper and fair inference to make that his employer had no illusions about the duration of the appellant's employment, it being to retirement at age 65, or age 60 if the appellant chose to take early retirement, other things being equal.
30 Accordingly, the facts of this case do not permit a finding that there was any other agreement with an implied term for reasonable notice of termination of employment. In my view, this was a wrongful dismissal without cause, and it is distinguishable from a wrongful dismissal by reason of insufficient notice, in which damages recoverable would be the salary which would have been earned during the period of notice.
31 I was impressed by the modest and humble manner in which the appellant related the story of his employment without rancour or ill will toward his former employer but certainly with a feeling of having been unjustly or unfairly treated.
32 The settlement he received is not within the ambit of subsection 6(3) of the Act nor was it a benefit under paragraph 6(1)(a). I am of the opinion that the sum of $6,500 was a capital receipt by way of damages for reasons stated above. The provisions of paragraph 8(1)(b) of the Act with reference to deduction of legal costs of $200 do not apply.
33 I also entertain considerable doubt as to whether the appellant ought to have been taxed on the major portion of the earlier sum he received, that is the $3,003.42, but that issue is not before me.
34 The appeal is allowed.
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