Lethbridge Industries Ltd v Alberta (Human Rights Commission), 2015 ABQB 760

Court of Queen ’ s Bench of Alberta Citation: Lethbridge Industries Ltd v Alberta (Human Rights Commission), 2015 ABQB 760 Date: 20151201 Docket: 1206 00204 Registry: Lethbridge Between: Lethbridge Industries Ltd. Appellant - and - Alberta Human Rights Commission and Thomas Schulz Respondents _______________________________________________________ Memorandum of Decision of the Honourable Mr. Justice C.M. Jones _______________________________________________________ Introduction [ 1 ] This is the fourth judgment I have issued on this matter as between these parties.

It is an appeal of a decision by the Human Rights Tribunal (the “Tribunal”) that Lethbridge Industries Ltd. (the “Company”) was discriminatory in its termination of Mr. Schulz: 2012 AHRC 3 (the “Tribunal Decision”). On August 12, 2014, I allowed an appeal by the Company on the issue of damages as granted by the Tribunal; I reduced the period of reasonable notice from 30 to 20 months: 2014 ABQB 496 (the “2014 Decision”). On January 16, 2015, I issued a decision regarding the collateral benefits problem: 2015 ABQB 32 (the “2015 Decision”). I found that the damage award

granted in the 2014 Decision would be reduced by the amount received under Mr. Schulz’s Long Term Disability (“LTD”) benefitpayments. I decided the costs of the 2014 Decision on March 17, 2015: 2015 ABQB 179. Issue [2] The issue now before me is the quantum of damages owed to Mr. Schulz. I previously ruled that the LTD payments receivedthroughout the notice period must be deducted from his earnings during that time; 2015 Decision, paras 11, 52-54. The question now iswhether the deduction ought to be made from the gross, pre-tax earnings or net, post-tax earnings Mr.

Schulz would have receivedthroughout the notice period. [3] The parties have been unable to agree on this issue, and both provided written submissions on the matter. Mr. Schulzsubmits that the LTD payments ought to be deducted from his gross earnings, while the Company argues that the deductions ought to befrom Mr. Schulz’s net earnings. [4] For the reasons that follow I agree with Mr. Schulz. Analysis [5] In the 2014 Decision I reduced the number of months in the reasonable notice period from 30 to 20: paras 216-217. For 16 ofthe 20 months, Mr.

Schulz received $2322.78 in LTD benefits. [6] Although I varied the order of the Tribunal in the 2014 and 2015 Decisions, the damage award in this case remains an awardunder

section 32 of the Alberta Human Rights Act, RSA 2000, C-A-25.5 (“Act”). The issue before me must therefore be determined inaccordance with human rights principles. [7] The Tribunal, like human rights tribunals in other jurisdictions, is granted flexibility in its governing statute to order damagesas it sees fit.

This flexibility is not unrestricted, however; it must “compensate [the victim] for all or any part of any wages or income lostor expenses incurred by reason of the contravention of this Act": section 32(1)(b)(iv) of the Act. [8] Toward achieving the ends of the Act in answering the question now before me, I will consider the treatment of deductionand net versus gross income assessments in the wrongful dismissal context. I will also look at awards for unjust dismissal in the labourlaw context, as the labour arbitral regime is similar to that of the Tribunal: Tribunal Decision, para 80.

Calculation of income for damagepurposes in other Tribunal decisions is also helpful. Finally, I will briefly discuss some relevant principles of tax law. While none ofthese areas is determinative, each is helpful in answering the question in Mr. Schulz’s case. [9] I further note that the Tribunal initially awarded Mr. Schulz $85,239.30 “based on a monthly average of $2841.31 for 30months”: Tribunal Decision, para 83. This $2841.31 figure reflects Mr. Schulz’s gross monthly earnings.

While I reduced the noticeperiod from 30 months to 20 months in the 2014 Decision, I did not change the base amount of monthly earnings set by the Tribunal. I donot intend to change it now. A. Wrongful Dismissal [10] Damages in employment-based human rights cases are not exclusively governed by wrongful dismissal principles; Marcil vVantage Contracting Ltd, 2004 ABQB 247, 370 AR 191 at para 7. Employment law is nevertheless helpful in assessing a reasonablequantum of damages in a human rights matter involving termination of employment.

As stated in the 2014 Decision at paras 161-162, adamage award from the Tribunal must be reasonable and must accord with the root principle that an employer compensate an employeefor any financial loss suffered as a result of discrimination; Walsh v Mobil Oil Canada, 2013 ABCA 238, 553 AR 360 at paras 33-34. Itis therefore useful for the present question to consult the treatment of damages in cases of wrongful dismissal. [11] Sumner v PCL Constructors Inc, 2011 ABCA 326, 515 AR 231, was concerned with deductibility of income earned by therespondent, Mr. Sumner.

He was wrongfully dismissed and the reasonable notice period was assessed at 22 months. During that time,Mr. Sumner was able to mitigate his lost income by way of contractual work.

The issue before the Court of Appeal was whether todeduct the mitigated income from damages based on his gross or net 22-month salary. [12] The Court concluded at para 36 that “both the damage award and the mitigation amount should be calculated on a pre-taxbasis.” The Court referenced the Ontario case of Carrick v Cooper Canada Ltd (1983), 2 CCEL 87, OJ No 2392 (Ont HC), which statedat para 92 “since gross income is the basis for assessing damages… gross earnings should be credited in mitigation.” I find the sameprinciple to be applicable here. [13] While Sumner was concerned with the deduction of mitigated income and not LTD payments, the principle of calculatingdamages on pre-tax income is relevant to the matter now before me.

It is logically sound to calculate damages on a gross income basis toensure consistency. Though not all cases involve mitigation or other deductions from the damage award, some form of deduction issufficiently common to warrant a general gross income principle be applied across the board. [14] PCL Construction Management Inc v Holmes, 1994 ABCA 358 , 157 AR 306, [1994] AJ No 850 (Alta CA), alsoprovides guidance on the deduction of mitigated income from wrongful dismissal damages. In Holmes, unlike Sumner, the Court ofAppeal found it proper to deduct the mitigated income from damages on a net tax basis.

The Court in Holmes noted at para 31, however,that its decision on this point was to be the exception to the rule rather than the norm: “In the usual case, where no corporate entity isinvolved, there would be no basis for using after-tax earnings in determining the real loss sustained by the dismissedemployee.”(Underlining added).

[ 15 ] The Court went on to reference Carrick v Cooper Canada Ltd , [1983] OJ No 2392, 2 CCEL 87 (Ont HCJ) , which summarized the deduction of expenses from a damage award at para 74: It is submitted that since gross income is the basis for assessing damages that gross earnings should be credited in mitigation. In my view, the expense items must be analyzed. Income tax and similar items should not be deducted from revenue earned during the period .

However, expenses such as automobile and office are proper as these are additional costs to the plaintiff in attempting to mitigate his loss. (Underlining added). [ 16 ] The first excerpt from Holmes , above, mentions the “usual case” where there is “no basis for using after-tax earnings.” An analysis of damage quanta in wrongful dismissal cases supports this finding.

Though many judgments do not expressly clarify a net or gross basis in their calculations, the large majority use “base salary,” which is the amount earned before tax as expressed on T4 slips. [ 17 ] It is common that courts divide a plaintiff’s annual base salary by twelve to determine the amount earned monthly. Those monthly earnings are then multiplied by the appropriate notice period to produce the total amount for lost wage damages.

This was the approach taken by the trial judge in Waterman v IBM Canada Ltd , 2010 BCSC 376 , [2010] BCWLD 3380 at paras 10 and 28 , and was not altered by the Supreme Court of Canada in Waterman v IBM Canada Ltd , 2013 SCC 70 , [2013] 3 SCR 985. [ 18 ] Several wrongful dismissal judgments expressly reference “gross” or “pre-tax” in their assessments, and confirm the approach I have described above. In Davis v Partec Lavalin Inc , [1993] AJ No 1310 , Justice Lomas evaluated the damage award of a senior engineer who was terminated without just cause.

At para 41 he summarized his findings: “[the] applicable notice period is 18 months. Damages are calculated on the agreed gross salary plus value of benefits and pension at the time of termination of $6,210 per month.” The word “agreed” was not referencing agreement that damages be assessed on a gross salary basis; rather the agreement was inclusion of benefits in the damages calculation. [ 19 ] In Crimi v Sun Holding Ltd , 2009 ABPC 394 , [2010] AWLD 369, the court found that the plaintiff was terminated without just cause, and was therefore entitled to damages.

At para 35 the court concluded that “Crimi will have judgment for three and 1/2 months gross salary in lieu of notice , less the gross amounts received by him during the notice period in mitigation, for a net judgment of $15,500.” (Underlining added) B. Labour law and unjust dismissal damages [ 20 ] As noted in the Tribunal Decision at para 80 and the 2014 Decision at para 25, human rights damages are similar to those awarded for unjust dismissal under the Canada Labour Code , RSC, 1985, c L-2, as both human rights and labour law damage schemes are statute-based.

Unjust dismissal damages comprise the basic award and the compensatory award; the basic award is determined by a fixed statutory formula, and can be complemented by an additional compensatory award: section 242(4) of the Code . This is similar to the approach under the Human Rights Act at

section 32 . [ 21 ] Some unjust dismissal cases use the gross earnings of the complainant to determine the portion of damages ascribed to lost wages: Thornton v Toronto Dominion Bank , [2008] CLAD No 216 ; 70 CCEL (3d) 235 at para 164 ; and Ash v Flying Colours Corp , [2012] CLAD No 56 , 2012 CarswellNat 689 at 56 . [ 22 ] In other cases, adjudicators allow employers to withhold the appropriate amounts of income tax from damage awards made under the Code : Mayea v Pegasus Express Inc , [2000] CLAD No 153 (Can Arb) at para 32 (CLA Adj) ; and Woodlock v Transx Ltd , [2001] CLAD No 210 (Can Arb) at para 38 (CLA Adj) . [ 23 ] Another alternative is when the employee is ordered to indemnify the employer for any tax liability incurred as a result of the payment: Taylor v Tiger Trucking & Logistics Corp , [2000] CLAD No 214 (Can Arb) at para 14 (CLA Ref) . [ 24 ] Awards in recent unjust dismissal decisions also reflect the use of gross income: Rusher and Schneider National Carriers Inc, Re , [2014] CLAD No 50 ; Ellis and Berens River First Nation, Re , [2014] CLAD No 101 ; Elkelani and NutraSun Foods Ltd, Re , 2014 28 DELD 166.

This is consistent with the calculations in the wrongful dismissal context, and provides further support for calculating Mr. Schulz’s damages on a gross income basis. C.

Damages in other human rights cases [ 25 ] Decisions of the Tribunal are not often explicit as to gross or net income in their calculations; however an analysis of the numbers again reveals that a majority are based on pre-tax salary or wages. [ 26 ] There are several decisions which expressly calculate using gross amounts; Horvath v Rocky View School Division No 41 , 2015 AHRC 5 at para 73 ; L’Archeveque v City of Calgary , 2002 AHRC 7 ; Andric v 585105 Alberta Ltd o/a Spasation Salon & Day Spa, 2015 AHRC 14 at para 52 . [ 27 ] While precedent does not bind the Tribunal, adjudicators will often follow a prior decision on a similar subject.

This is to ensure consistency in the law; it is therefore significant that the calculation of damages in human rights decision are most often calculated on a gross, pre-tax basis. D. Tax law principles [ 28 ] Counsel for the Company argues that deducting the LTD payments from Mr. Schulz’s gross earning would result in overcompensation, and disregards the distinction between taxable and non-taxable receipts. I disagree.

[ 29 ] Damage awards from the Tribunal are taxable as income under “retiring allowances” pursuant to the Income Tax Act , RSC 1985, c 1 at s 56(1)(a)(ii), s 248(1); see also Income Tax Act ,

Interpretation Bulletin No IT-337R4 (Consolidated), February 1, 2006, subject: Income Tax Act Retiring Allowances at p 4. The taxpayer must include the full amount of the payment in the year in which it is received; see Vern Krishna, Income Tax Law 2nd ed (Toronto: Irwin Law Inc) at p 334. [ 30 ] Non-pecuniary damage awards in human rights cases are not taxable; the $10,000 portion of Mr. Schulz’s award for injury to dignity is exempt from income tax:

Interpretation Bulletin No IT-337R4 at p 4 . However, the amount awarded based on salary that would have been paid during the notice period is taxable income. This is consistent with the surrogatum principle: that tax consequences of a damage payment depend on the treatment of the item which the payment is intended to substitute: Tsiaprailis v R , 2008 SCC 8 at para 7 . [ 31 ] In the case at bar, Mr. Schulz will be required to include his damage award as taxable income, not including the $10,000. If the LTD payments were deducted from his monthly salary net of taxes, as per the Company’s submissions, Mr.

Schulz would essentially be paying tax two times over; once in the assessment of the damages from after-tax salary, and again upon receiving the award. This result would frustrate the fairness objective; one of the base principles governing income tax law: Krishna at 24. [ 32 ] By calculating the damages owing to Mr. Schulz on a gross income basis, the ends of taxation will be achieved when he includes the final amount as income for the year in which it is received. Conclusion [ 33 ] Looking at the numbers in Mr. Schulz’s case, this finding also makes practical sense.

His monthly earnings net of tax totalled $2123.88. As stated above, he was receiving $2322.78 in LTD benefits. If Mr. Schulz’s net income was used in the calculation, the dollar amount of his damage award would be negative for 16 of the 20 months; -$191.80. He would be left with an amount of $5405.45; this could hardly be considered compensatory. [ 34 ] For these reasons, it is accurate and consistent with the law to deduct the long-term disability payments from Mr. Schulz’s gross pre-tax income during the 20-month notice period. Dated at the City of Calgary, Alberta this 1 st day of December, 2015. C.M.

Jones J.C.Q.B.A. Appearances: For the Appellant: C. I. Lam For the Respondents M. Pollard