A British Columbia Court recently ruled that an employer should deduct Canada Emergency Response Benefits (CERB) from an employee's wrongful dismissal damages. This result conflicts with an earlier case from Ontario creating legal uncertainty for employers when considering severance packages and settlements for former employees who received CERB.
The Facts in the B.C. Case
In Hogan v 1187938 B.C. Ltd., 2021 BCSC 1021 (Hogan), the employee had worked at the same car dealership for over 20 years. In an effort to cut costs during the COVID-19 pandemic, the employer laid off a number of employees in March 2020, including Hogan.
Hogan and the employer entered into a temporary layoff agreement under the assumption that Hogan would return to his employment at the dealership at some point in the future. Five months later, the employer terminated Hogan's employment effective immediately. Hogan sued, arguing that he was constructively dismissed at the time of his layoff. Hogan received $14,000 in CERB benefits in 2020.
The B.C. Court Ruling on Constructive Dismissal
Constructive dismissal can occur in one of two ways:
- the employer implements a unilateral action that breaches an essential term of the employment contract, or
- the employer's conduct shows that the employer no longer intends to be bound by the employment contract.
The Court found that even though the employer may have been acting in good faith for a legitimate business interest in laying off Hogan, the unilateral nature of the layoff and subsequent termination indicated that the employer no longer intended to be bound by the employment contract at the time it laid off Hogan. The Supreme Court of British Columbia concluded that Hogan was constructively dismissed when his layoff commenced.
The CERB Issue
After finding that the employer constructively dismissed Hogan, the Court proceeded to assess damages. The Court concluded that the employer owed Hogan a reasonable notice period of 22 months, and that damages are based on the compensation he would have received during this notice period.
The Court then considered how to address the $14,000 in CERB benefits Hogan received in 2020. CERB presented a problem because it potentially created a "compensating advantage." If the CERB payments were not deducted from the damages payable to Hogan, then the CERB payments would leave Hogan in a better financial position than he would have been in had the employer provided him with 22 months' working notice.
The Supreme Court of British Columbia found that CERB payments should be deducted from Hogan's wrongful dismissal damages. Hogan's income was not based on commission and his entitlements on termination were not limited by contract. Additionally, CERB payments were not deemed to be insurance or delayed income that was the result of employer or employee contributions, unlike Employment Insurance. For these reasons, the Court in Hogan found no reason, equitable or otherwise, to depart from traditional contractual damages principles and deduct CERB payments from damages owed.
Contrast the Ontario Case
The B.C. Court's decision on how to address CERB benefits in Hogan can be contrasted with the Ontario Superior Court of Justice's approach in Iriotakis v Peninsula Employment Services Limited, 2021 ONSC 998 (Iriotakis). When the Ontario Court was determining whether to deduct CERB from an employee's wrongful dismissal damages, the Court held that CERB should not be deducted. The employee was able to keep their CERB benefits without having those payments deducted from damages owed by their former employer.
The facts in Iriotakis were distinguishable from those in Hogan. In Iriotakis, half of the employee's income came from commission which, unlike base salary, was not recoverable as damages due to a clause in his employment contract. The employee's CERB benefits were far less than what he typically received in commission. Therefore, even with CERB, the employee in Iriotakis wasn't returned to the economic position he would have been in had his employment continued during the notice period. This was a key factor leading the Ontario Court to decide that CERB benefits should not be deducted from the wrongful dismissal damages awarded in that case.
Key Takeaway for Employers
Based on the limited case law in this area to date, it is not yet clear how Courts will assess the deductibility of CERB payments when calculating damages for wrongful or constructive dismissal. Even if a terminated employee receives CERB after layoff or termination, the CERB payments may not be deducted from damages. Employers may find themselves unable to rely on CERB payments received by an employee during the reasonable notice period to reduce the employer's liability for damages. This is especially important in instances where damages and CERB combined will not fully return the terminated employee to the economic position they would have been in had they not been wrongfully terminated.
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