28 December 2022

Employers, CERB Your Enthusiasm: British Columbia Court Of Appeal Rules CERB Is Not Deductible From Wrongful Dismissal Damages

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First Canadian Appellate Court determines that Canada Emergency Response Benefits ("CERB") payments are not deductible from wrongful dismissal damages.
Canada Employment and HR
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First Canadian Appellate Court determines that Canada Emergency Response Benefits ("CERB") payments are not deductible from wrongful dismissal damages.

In Yates v Langley Motor Sport Centre Ltd., the British Columbia Court of Appeal ("BCCA") determined that CERB payments received by terminated employees are not deductible from damages for wrongful dismissal, overturning a previous decision by the British Columbia Supreme Court ("BCSC") finding that CERB was deductible.

Key Facts and Trial Decision

The Plaintiff was employed by the Defendant as a marketing manager and event coordinator when she was placed on a temporary layoff ("TLO") in March 2020 due to the COVID-19 pandemic. The Plaintiff was not recalled by the Defendant prior to the maximum permitted TLO period expiring, and her employment was deemed terminated retroactive to the date her TLO began. The Plaintiff sued the Defendant for wrongful dismissal, and also sought aggravated and punitive damages for the Defendant's alleged bad faith manner of termination.

The BCSC initially found that the Plaintiff was wrongfully dismissed and entitled to 5 months' pay in lieu of reasonable notice. However, the Plaintiff had received $10,000 in CERB payments during the notice period, which the BCSC found was deductible from the damages award. The BCSC reasoned that, given there was no evidence the Plaintiff would be required to repay the CERB payments to the Government of Canada, the CERB payments would result in a windfall to the Plaintiff if not deductible, placing her in a better position than she would have been in had there been no breach of the employment contract.

The BCSC dismissed the Plaintiff's claim for aggravated and punitive damages.

Appeal Decision

The Defendant appealed the BCSC's decision with respect to deduction of the CERB payments, as well as the dismissal of her claim for punitive damages.

On appeal, the BCCA found that the trial judge erred, finding that the Plaintiff's CERB payments should not be deducted from her wrongful dismissal damages on the basis of public policy grounds. In making this finding, the BCCA acknowledged the existence of a potential "compensating advantage" issue, explaining that such an issue can occur where an employee receives a benefit that results in compensation beyond their actual loss and either: the employee would not have received the benefit but for the employer's breach, or the benefit is intended to be an indemnity for the sort of loss resulting from the employer's breach. The BCCA concluded that the CERB payments were benefits clearly intended to be an indemnity for the very sort of loss resulting from the Defendant's breach. However, the BCCA nonetheless determined that CERB payments were not deductible for the following public policy reasons:

  1. it "seem[ed] wrong" to allow an employer who had breached the employment contract to receive a windfall from the CERB program, which was designed as an income support program for employees;
  1. CERB payments are similar to employment insurance ("EI") payments in the sense that they are a private matter between the employee and the administering authority which does not involve the employer. EI payments are not deductible from wrongful dismissal damages, but employees contribute directly to the EI program. However, the BCCA noted that, while a relevant consideration, the fact that employees did not contribute directly to the CERB program was not dispositive of the question of whether CERB payments should be deductible; and
  2. the desirability of equal treatment for terminated employees in similar situations "tip[ped] the balance" against deductibility of CERB payments. Specifically, the BCCA concluded that the non-deductibility of CERB payments would remove any incentive for employers to manipulate the timing of termination of an employee on a temporary layoff by allowing the temporary layoff to expire so that the employee's termination would be retroactive to an earlier date and capture a greater amount of CERB payments.

Finally, the BCCA held that the Defendant's failure to pay statutory amounts owed to the Plaintiff was not deserving of punitive damages in the absence of evidence of an ulterior motive or other grounds suggesting that this conduct was harsh, vindictive, reprehensible or malicious.

Takeaways for Employers

Yates is the first Canadian appellate decision on the issue of the deductibility of CERB from wrongful dismissal damages. While not binding on courts in other jurisdictions, it will be persuasive authority as the issue remains unsettled across Canada as:

  • courts in Alberta and Saskatchewan have ruled that CERB payments are deductible;
  • courts in Nova Scotia, and now the BCCA, have ruled that CERB payments are not deductible; and
  • courts in Ontario have rendered competing decisions that CERB payments are or are not deductible.

Employers across Canada, and particularly in British Columbia, should take note of this decision. It may impact outstanding claims by former employees who were terminated during the COVID-19 pandemic and who also received CERB payments.

The authors would like to acknowledge the assistance of Coltyn Herman in the preparation of this blog.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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