NOVA SCOTIA WORKERS COMPENSATION APPEALS TRIBUNAL Appellant: [X] (Worker) Participants entitled to respond to this appeal: [X] (Employer) and The Workers Compensation Board of Nova Scotia (Board) APPEAL DECISION Representatives: Form of Appeal: WCB Claim No. [X] written submission [X] Date of Decision: July 29, 2009 Decision: The appeal of the April 7, 2008 Board Hearing Officer decision is allowed, according to the reasons of Appeal Commissioner Alison Hickey.
2 CLAIM HISTORY AND APPEAL PROCEEDINGS: This is an appeal from a decision of a Hearing Officer of the Board dated April 7, 2008, in which the Hearing Officer found that the Worker s severance payments constituted postaccident employment earnings and were appropriately deducted from her temporary earnings-replacement benefits [TERB]. The Worker appealed that decision to the Workers Compensation Appeals Tribunal on May 13, 2008. This appeal proceeded by way of written submission. Written submissions were received from the Workers Adviser on August 29, 2008. The Tribunal provided an opportunity for further submissions following release of the Court s decision in Canada Post Corporation v. Nova Scotia (Workers Compensation Appeals Tribunal), 2009 NSCA 41, [Canada Post]. Submissions were received from the Board on June 23, 2009 and from the Workers Adviser on June 1, 2009. ISSUE AND OUTCOME: Are severance payments received by the Worker properly considered post-accident employment earnings so as to be deducted from her TERB? No. The Worker s severance payments are not earnings under s. 38 of the Workers Compensation Act, S.N.S.1994-95, c.10, as amended [the Act ] and, therefore, are not properly deducted from her TERB payments. ANALYSIS: The legislation applicable to this appeal is the Act. Section187 of the Act requires me to give the worker the benefit of the doubt, which means that if the disputed possibilities are evenly balanced on an issue of compensation, then the issue will be resolved in the Worker s favour. The Worker sustained an injury to her left shoulder on November 18, 2000, while in the course of her employment. She received TERB from the Board for various periods of time following her injury. Her most recent period of benefits commenced in October of 2007, when she underwent surgery for repair of a rotator cuff tear. On December 19, 2007 the Worker executed a Release in favour of the Employer, agreeing to the severance pay as set out in the Plant Closure Agreement between the Employer and the Unions, signed May 11, 2007. According to the Worker s statutory declaration, filed with the Tribunal and sworn August 28, 2008, she was paid TERB in the amount of $457.00 per week until the Employer s plant closed on December 21, 2007. Since that time, the Worker s TERB payments have
3 been reduced by the bi-weekly payments the Worker receives pursuant to the severance agreement. The Worker was receiving a TERB payment of $16.90, bi-weekly until July 12, 2008, when she was cleared to return to work on modified duties. The Board characterizes the severance payments as salary continuation benefits and takes the position that they are properly considered earnings within the meaning of s. 38 of the Act. The Worker takes the contrary position. Section 37 of the Act provides that where a loss of earnings results from an injury, an earnings-replacement benefit, [ERB] is payable. Section 38 sets out how the loss of earnings is to be calculated and states as follows: 38 For the purpose of this Part, the loss of earnings of the worker is the difference between (a) (b) the worker s net average weekly earnings before the loss of earnings commences; and the net average weekly amount that the Board determines the worker (i) (ii) (iii) is earning, is capable of earning in suitable and reasonably available employment, is receiving or is entitled to receive as a periodic benefit pursuant to the Canada Pension Plan or the Quebec Pension Plan, in which case, the Board shall include fifty percent of the benefit, after the loss of earnings commences. I am assisted in my analysis of the issue before me by the Court s decision in Canada Post. In that case, the Court considered whether a disability payment to a worker pursuant to an employer/employee contributory plan, constituted earnings under s. 38 (b)(i) of the Act, and was, therefore, deductible from the ERB paid to her under the Act. The Court first considered the plain meaning of the word earnings as it appears in s. 38. It is not defined in the Act and the Court looked to the definition of the word provided in the appellant s factum, and quoted it as follows at paragraph 23: Webster s Third New International Dictionary defines earnings as
4...something (as wages or dividends) earned as compensation for labor. To earn is defined as...to receive equitable return for work done on [sic] services rendered; have accredited to one as remuneration... In applying this definition, the Court found that the labour, work or services that the worker had performed entitling her to the disability payment, was work that was performed before the cessation of her employment. The payment had been earned. The Court rejected the argument that the worker continued to earn the disability payment by continuing, after the cessation of her employment, to be disabled. The only occasion when she was seen to have earned what later became her disability benefit was before her loss of employment. The payment was not for present work. The Court declined to find that the worker s disability payments constituted earnings and stated at paragraph 26 of its judgement: Similarly, in my view, Ms. Almon did not earn her disability benefit after her injury and cessation of employment. She earned the contributions to the Plan s Fund by her employment before her injury. And further at paragraph 30: In my respectful view, notwithstanding Hamilton and Lowe, Ms. Almon s continued disability did not earn the disability payment in the sense intended by s. 38(b). Rather, her continuing disability was an eligibility condition for receipt of a benefit derived from contributions that she earned by her service before disability. In applying the same reasoning to the Worker s severance payments, the same result would follow. The Worker s severance payments according to the agreement, were based on her years of service. She did not earn them again when the plant closed. The only reason the Worker was entitled to severance payments was because of her previous work for the Employer. The payments she received were not made for any present work performed, but rather, were made after the plant closed. On the basis of the plain meaning of the word earnings the Worker s severance payments would not be considered earnings, but the matter does not end there. Moving on in its analysis, the Court in Canada Post considered the legislative context for the meaning of what was to be considered earnings. It looked to what the legislature considered earnings in the pre-loss of earnings context. Section 38(a) refers to net average weekly earnings before the earnings loss commences. Net average weekly earnings are defined in s. 39(1) as gross average earnings calculated in accordance with Section 42" less deductions for income tax, the worker s own Canada Pension Plan and Unemployment Insurance premiums, and deductions prescribed by Regulation.
5 Section 42 defines gross average earnings as the worker s regular salary or wages and other types or amounts of income prescribed by Regulation. Paragraph 20 of the Workers Compensation General Regulations, NS Reg 22/96 as amended by NS Reg 146/2002, states in part that: 20(1) A worker s gross average earnings are the total of (a) the worker s regular salary or wages; and (b) after the first 26 weeks of earnings-replacement benefits or for the purposes of benefits other than earnings-replacement benefits and extended earnings-replacement benefits, income from (i) overtime that is not regular salary or wages, and (ii) federal employment insurance benefits other than those payable as maternity or paternal leave benefits. The Court in Canada Post stated at paragraph 33 of its judgement as follows: Nothing in ss. 38(a), 39(1) or 42 or Regulation 20 suggests that a disability benefit further to an employer Plan is included in gross earnings. Following the Court s view of the legislative scheme, I find that the only way that the Worker s severance payments could be considered earnings based on the legislative context would be if they were to be either set out in the Act to be, prescribed by regulation to be, or included within the term regular salary or wages. Nothing in ss. 38(a), ss. 38(a), 39(1) or 42 or Regulation 20 suggests that a severance payment is included in gross earnings. There is, however, specific reference in Regulation 20 to overtime and federal employment insurance benefits being included in gross average earnings. I accept the submission made on behalf of the Worker, that had the legislature intended that severance payments be considered earnings they could have been referred to in the Regulation. The Court in Canada Post, stated that it did not read the term regular salary and wages in Regulation 20(1) as including a disability benefit paid by a trustee or insurer after the employee ceases employment due to disability. The benefit in the instant case may not have been be paid by a trustee or insurer, but it was paid after the plant closed. In my view, to consider that regular salary and wages includes severance payments, would be to stretch the term beyond reasonable limits. As submitted by the Workers Adviser, upon the termination of her employment, the Worker could not even be considered an employee. To include payments premised on, and paid as a result of the loss of employment, within
6 the meaning of regular salary or wages does not seem reasonable. Regular would suggest the wages and salary that the Worker could count on to be paid on a consistent basis as a result of doing the work she was hired to do. I cannot read regular salary and wages as including payments to which the Worker may or may not be entitled upon the cessation of her employment. Section 49 of the Act provided for the reduction from a worker s ERB of his collateral benefits, which are defined in s. 2(j)(ii) of the Act, as any payment to the worker by the worker s employer, including any benefit, gratuity or allowance, payable in connection with the injury for which compensation is payable. Section 49 has been repealed, but the definition of collateral benefits remains. I accept the Worker s submission that her severance payments are not collateral benefits as they are not paid in connection with her injury. The Worker would have received those benefits upon closure of the plant regardless of whether or not she had been injured. Given this finding, I do not need to consider the deduction from the Worker s ERB of the worker s severance payments on the basis that they are collateral benefits. The Hearing Officer noted contact sheets for conversations with the Employer where the Employer had stated that workers in receipt of severance packages would not be eligible for employment insurance until expiration of the severance payments. The Employer also advised that the severance income would be subject to regular deductions and that T4 slips would be issued for the severance income. The severance agreement itself says the money is to be paid as a normal weekly paycheck. Regardless of the structuring of the payments, the fundamental nature of the benefit, in my view, is not changed. For the reasons set out above, the payments are not earnings within the plain meaning of the word, and they have not been included in the Act or Regulations as earnings, either explicitly or implicitly. The Board submitted that Policy 3.1.1R2 which sets out what is to be included by the term regular salary and wages, supports the conclusion that the Worker s severance payments would fall within the meaning of the term. Among the items listed, are other types of employment income allowable on the Employment Income and Other employment Income lines of an individual tax return. The Board indicated that it has always taken the position that if Revenue Canada considered the income to be employment income or other employment income, then the Board would consider it earnings for the purpose of calculating both pre and post losses of earnings. Policy 3.1.1R2 was argued before the Court in Canada Post, as support for the position that the disability payments received by the worker were earnings. The Court stated that it was unclear how the Policy would apply to contributions or benefits under a disability plan, and declined to draw the conclusion sought. Further, the Court reiterated its interpretation of the Act and Regulation and noted that any policy inconsistent with the Act or Regulations would not be valid.
7 The Board distinguishes Canada Post from the instant case, and states that the disability benefit in Canada Post was not considered by the Board to be earnings for the purpose of calculating the worker s post loss of earnings. It referred to information it received in this case from the Employer that the Worker would receive a T4 slip for the severance payments, and to Revenue Canada s position that the payments would constitute taxable income under line 101 of the tax return. I have concluded that the Act and the Regulations do not provide for the inclusion of the Worker s severance payments in her gross earnings. An inconsistency would result from their inclusion by policy or Board practice. While what Revenue Canada considers a taxable benefit, reportable on a T4 slip, is of assistance to the Board on these types of questions, it cannot be seen as a substitute for what is mandated by a reasonable interpretation of the Act and the Regulations. The Tribunal in Decision 2004-126-AD (February 15, 2005, NSWCAT) determined that payments to the worker pursuant to a long term disability policy would constitute other employment income on line 104 of the worker s tax return. Given that the Tribunal found that the disability payment at issue in that case was included in the term earnings in s. 38(b)(i), Policy 3.1.1R2 was not found to be inconsistent with the Act. In this case, I have found that the payments at issue are not included in the term earnings and, therefore, I find that an application of Policy 3.1.1R2 which would result in the payments being considered post-accident earnings, would be inconsistent with the Act. CONCLUSION: This appeal is allowed. The Worker s severance payments are not earnings under s. 38 of the Act and are not properly deducted from her TERB payments. TH DATED AT HALIFAX, NOVA SCOTIA, THIS 29 DAY OF JULY. Alison Hickey Appeal Commissioner
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