Appellate Court Finds that CERB is not Deductible from Wrongful Dismissal Damages

By Jeremy Schwartz and Haadi Malik

In 2020, the Federal Government introduced the Canada Emergency Response Benefit (“CERB”), which was a governmental benefit payment eligible individuals could receive if they were directly affected by COVID-19, including those who lost their jobs or suffered a significant reduction in earnings because of COVID-19.

In the recent case Yates v. Langley Motor Sport Centre Ltd. (“Yates”), the BC Court of Appeal considered whether CERB is deductible from wrongful dismissal damages. This is the first appellate decision on the matter and is important given that courts in various jurisdictions have differed as to whether CERB is indeed deductible. See for example Hogan v 1187938 B.C. Ltd., where the B.C. Supreme Court found that CERB was deductible from wrongful dismissal damages, and Slater v. Halifax Herald Limited, and Iriotakis v. Peninsula Employment Services Limited, where the Nova Scotia Supreme Court and Ontario Superior Court of Justice, respectively, came to the opposite conclusion.

In Yates, the Plaintiff/Appellant worked as a marketing manager and event coordinator for Langley Hyundai. She was put on a temporary layoff in 2020 when the COVID-19 pandemic began. She then began collecting CERB in March 2020. Per the requirements of the B.C. Employment Standards Act (the “Act”), once the Appellant remained laid off for a longer period than allowed for in the Act, her termination date was deemed retroactive to the beginning of the lay-off period. Accordingly, she sued for wrongful dismissal.

At trial, the Appellant was found wrongfully dismissed and entitled to five months’ pay in lieu of notice, assessed at $25,000. The trial judge concluded that these damages should be reduced by the $10,000 in CERB the Appellant had received, which finding the Appellant appealed to the B.C. Court of Appeal (in addition to appealing the trial judge’s finding that she was not entitled to punitive damages).

On Appeal, the B.C. Court of Appeal overturned the trial judge’s finding that CERB should be set off against the Appellant’s damages (whilst upholding the ruling against an order of punitive damages). The Court found that CERB was not a “compensating advantage” capable of being deducted from wrongful dismissal damages. Such an advantage occurs when, in connection with the employer’s breach of the contract, the employee receives a benefit that would over-compensate them beyond their actual loss.

Rather, the Court stated that broader policy considerations and the purpose of the CERB program support the conclusion that these payments should not be deducted from damages awards. The Court noted that CERB was an emergency aid program designed to support Canadian workers who lost all or a significant portion of their income due to the COVID-19 pandemic, and that “it is a matter between the individual and the appropriate authority and should not result in a windfall for the employer.”

While appellate courts have yet to rule elsewhere in Canada, the Yates decision will likely be persuasive (though not binding) outside BC. For employers facing wrongful dismissal actions from employees who received CERB, a more viable means of seeking a reduction in the employee’s damages would be to obtain evidence of the employee’s mitigation efforts in finding a new job. If an employee has found a reasonably comparable position quickly, this would have the effect of reducing their damages significantly. Moreover, if an employee limited their search efforts because they were receiving steady CERB income, which is likely more relevant for lower income earners, that may give rise to an argument that damages should be reduced for failure to take reasonable steps to mitigate.

In similar situations where employees have received employment insurance (EI) benefits following termination, before paying the employee monies earmarked in lieu of notice or on loss of office employers are required by law to first repay any resulting EI overpayment to Service Canada.  Employers may be subject to penalties, interest, and enforcement activity for failing to do so.  Similar statutory provisions and regulatory guidance do not exist in respect of CERB (which is perhaps not surprising, giving the urgency with which it was promulgated). Likewise, in contrast with EI, it is unclear from the legislation whether employees who receive wrongful dismissal damages must report and repay CERB benefits to which they would not have been entitled, had they received working notice or pay in lieu thereof at the time of termination.

For more information, please contact:

Jeremy D. Schwartz at [email protected] or 416-862-7011

Haadi Malik at [email protected] or 416-849-2552

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