British Columbia Court of Appeal Confirms CERB Income Not Deductible from Wrongful Dismissal Damages

In the first appellate decision to address the issue, the British Columbia Court of Appeal (the “Court”) confirmed with a sense of finality that the Canada Emergency Response Benefit (“CERB”) is not deductible from an award of wrongful dismissal damages.

Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398, concerned an employee who was terminated in March of 2020, at the very outset of the COVID-19 pandemic. The employee collected $10,000 in CERB payments following her termination. At trial, the employee was awarded 5 months’ notice, amounting to approximately $25,000. The trial judge then deducted the employee’s CERB payments on the belief that to not do so would constitute an “impermissible double recovery.” There was no evidence that the employee would be required to repay the CERB payments, thus the CERB payments were deducted from the award.

On appeal, the Court found the trial judge had made an error in principle and necessarily undertook a fresh review of the deductibility issue. Ultimately, the Court held CERB income should not be deducted from damages for wrongful dismissal.

CERB Payments and Uncertainty in the Law

CERB was introduced in March of 2020 as emergency financial aid for employees who lost all or a significant portion of their income due to the COVID-19 pandemic. The pandemic was catastrophic for many businesses and inevitably resulted in employees being laid off or terminated en masse. CERB was the federal government’s way of helping the innumerable
workers who had suddenly lost their livelihoods through no fault of their own.

Many dismissed employees turned to the courts for relief. In addition to receiving CERB, workers could also pursue their employers for wrongful dismissal damages. Those who were successful encountered a new problem: the risk that their CERB income could be deducted from their award of wrongful dismissal damages. Dismissed employees generally have a duty to mitigate the damages flowing from their wrongful dismissal, and any income earned in mitigation of those damages will cause a deduction in those damages.

Was CERB mitigation income? Should CERB be deducted? Since the very introduction of CERB, this has been a source of conflict in Canadian jurisprudence.

Many decisions said CERB should be deducted: Hogan v 1187938 B.C. Ltd., 2021 BCSC 1021; Livshin v. The Clinic Network Canada Inc., 2021 ONSC 6796; Shalagin v Mercer Celgar Limited Partnership, 2022 BCSC 112; and Reotech Construction Ltd. v Snider, 2022 BCSC 317.

On the other hand, many decisions also said CERB should not be deducted: Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998; Slater v. Halifax Herald Limited, 2021 NSSC 210; Gracias v. Dr. David Walt Dentistry, 2022 ONSC 2967; and Henderson v. Slavkin et al., 2022 ONSC 2964.

Evidently, the law was unsettled, and opinions varied within Canadian courts and across jurisdictions. Much of the uncertainty depended on whether the employee would ultimately be required to repay the CERB income if awarded wrongful dismissal damages. If they did not, they would receive what our courts refer to as a “compensating advantage.”

“Compensating Advantages” and Deductibility

Our understanding of what makes a “compensating advantage” derives from the Supreme Court of Canada decision IBM Canada Ltd. v. Waterman, 2013 SCC 70. A compensating advantage is a benefit which compensates the plaintiff beyond his or her actual loss, and the plaintiff either would not have received the benefit if not for the defendant’s breach or the
benefit is intended to be an indemnity for the sort of loss resulting from the defendant’s breach.

CERB was indeed a “compensating advantage.” In the Court’s view, CERB was clearly intended to be “an indemnity for the sort of loss resulting from the defendant’s breach.” CERB, as a form of “income support” for workers, was intended as a wage subsidy. As lost wages are the sort of loss one would expect to result from an employer’s breach of contract, CERB met the definition for “compensating advantage” as put forward by the Supreme Court of Canada.

Compensating advantages typically should be deducted from awards of damages. There exist a narrow range of exceptions wherein they are not deducted, including charitable gifts and private insurance benefits. However, the Supreme Court also noted that “broader policy considerations” can also justify not deducting a compensation advantage. Three main policy consideration include punishment, deterrence, and the provision of incentives for socially responsible behaviour.

The Court found the trial judge erred in not considering these policy considerations. It was due to these “broader policy considerations” that the Court ultimately opted not to deduct CERB.

The Decision Not to Deduct CERB

The Court believed policy considerations justified not deducting CERB.

For starters, the Court noted that it was wrong to allow employers to breach an employment contract and then have their damages reduced thanks to an income support program that was intended to benefit workers. If CERB was to benefit anybody, it must have been Parliament’s intent for it to benefit employees.

Furthermore, much of the disagreement in the jurisprudence concerned whether the particular judge believed the employee would be obligated to repay CERB in the end. If the employee would have to repay it, then there was no deduction, and there was a deduction if the employee would not have to pay it. The Court addressed this line of reasoning. In their view, it was a “fruitless exercise.” Whether a dismissed employee might be obligated to repay CERB to the government is none of the employer’s concern. If the employee must repay CERB, that is a matter between the employee and the government.

Courts are concerned with compensating advantages where an employee is better off after their employer breaches the contract of employment than before. However, in the context of the COVID-19 pandemic, it is difficult to say that simply not deducting CERB places employees in a better position than they had been before the breach. As the Court noted:

“many people lost their livelihoods as a result of the pandemic. It strikes me as out of step with that reality to conclude that the combination of CERB and damages awards leaved individuals ‘better off’ after their employment was terminated than before.”

Consequences Moving Forward

It is now clear that CERB will almost never be deducted from wrongful dismissal damages in the province of British Columbia. This is noteworthy as many decisions in British Columbia initially went in the opposite direction. CERB income was less likely to be deducted in Ontario, although such an outcome is possible: Livshin v. The Clinic Network Canada Inc., 2021 ONSC 6796. While this new appellate decision is not binding in Ontario, it certainly will be persuasive.

For that reason, and as a consequence of this new decision by the British Columbia Court Appeal, it is highly unlikely that we will see CERB income being deducted from awards of wrongful dismissal damages.

The COVID-19 pandemic was unprecedented. Our legislation and our common law was necessarily unequipped to handle it. While hopefully we will not encounter another global pandemic like COVID-19, the holding in this case would presumably apply in any context where an external and uncontrollable factor universally disrupts labour, causes mass job loss, and necessitates the government stepping in to provide financial aid like CERB. This decision would
then stand for the proposition that such financial aid should not serve as a windfall to employers but should instead be applied in a manner consistent with Parliament’s intent, which is to assist workers.

This article was written by Shane Burton-Stoner and was originally published by The Lawyer’s Daily on December 15, 2022. Shane is licensed by the Law Society of Ontario and is an Employment Lawyer at Monkhouse Law. 

Monkhouse Law is an employment law firm located in Toronto focusing on workers’ issues. Give us a call at 416-907-9249 or fill out this quick form. We offer a free 30-minute phone consultation.

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