'An employer shouldn't receive taxpayer-funded subsidies for its breach of contract'
The British Columbia Court of Appeal has overturned a ruling that Canada Emergency Response Benefit (CERB) payments an employee received while on temporary layoff should be deducted from wrongful dismissal damages.
It’s the latest in a line of decisions addressing the deductibility of CERB payments, with this one considering the context of CERB and whether it truly puts an employee in a better position than they would be if their employer didn’t breach their employment contract, says Lia Moody, managing partner at Samfiru Tumarkin LLP in Vancouver who was counsel for the employee in the case.
“Sometimes what it really comes down to are these broader concepts of justice and what's fair in the circumstance,” says Moody. “It should serve to remind us that that is what our justice system is for – to ensure that we're not getting bogged down and considering what's fair in the circumstances.”
Worker agrees to layoff extension
The worker was a marketing manager and event co-ordinator for Langley Hyundai, a new-and-used car dealership in Langley, B.C.. In March 2020, the dealship placed the worker on temporary layoff due to the COVID-19 pandemic. The worker applied for CERB payments and received $10,000 over the next few months.
The B.C. government extended the temporary layoff term, first to 16 weeks and then to 24 weeks if the employee consented. The worker indicated that she would be willing to extend her layoff to Sept. 8 if the dealership guaranteed a set date for her to return to work. The dealership said that it continued to consider her layoff temporary and it couldn’t guarantee a return date.
The worker’s layoff extended past 24 weeks on Aug. 30 without a recall, so she filed a claim for wrongful dismissal damages.
The B.C. Supreme Court determined that Langley Hyundai wrongfully dismissed the worker in March 2020 – since the layoff on that date turned out to be permanent – and awarded her five months’ salary in lieu of notice, totalling $25,000.
The court ordered the $10,000 in CERB payments that the worker received to be deducted from the damage award on the basis that the worker would not have received CERB benefits had she been earning her salary during the layoff period and they amounted to a “compensating advantage” or double compensation – CERB benefits weren’t repayable and would put the worker in a better position that she would have been if there had been no breach of the employment contract, while the objective of wrongful dismissal damages was to put the employee in the same position they would have been without the employer’s breach.
Langley Hyundai pointed out that the government of Canada website indicated that severance payments, which were essentially damages arising from wrongful dismissal, did not impact an individual’s eligibility for CERB. The B.C. Supreme Court also noted that it had been established that the only exceptions to the requirement that a “compensating advantage” not be deducted from a damages award were charitable gifts and private insurance.
Initial court decisions indicated that CERB was a relevant consideration for employers when assessing severance packages, according to two employment lawyers.
Appeal of CERB deduction
The worker contested the deduction of CERB payments from her damages.
The B.C. Court of Appeal referred to the Supreme Court of Canada decision IBM Canada Ltd. v. Waterman, 2013 SCC 70, which dealt with the “compensating advantage” issue, which it defined as a gain or advantage to an employee that they would not have received but for the employer’s breach of the employment contract or it was intended to be an indemnity for the loss from the breach.
The Supreme Court ruled in Waterman that in addition to the two exceptions for deductibility, an analysis of the policy considerations of “punishment, deterrence, and the provision of incentives for social responsible behaviour” should be conducted.
The B.C. Court of Appeal found that the trial court failed to address the policy considerations identified by Canada’s top court. The trial court was wrong in finding that the worker’s CERB payments would not have been payable if not for her termination from Langley Hyundai – CERB was intended to provide emergency aid for Canadian workers who lost all or a significant portion of their income because of the pandemic, and the worker received payments because she was temporarily laid off, said the appeal court.
The B.C. Supreme Court deemed it appropriate to deduct CERB payments received after a temporary layoff from a wrongful dismissal damage award in 2021.
No windfall to employer for breach
Although CERB benefits were intended to be an indemnity for a loss resulting from an employer’s breach of the employment contract – the breach being a layoff that normally might not be legally permissible – the Court of Appeal found that weighing the “broader policy considerations” favoured non-deductibilty.
An employer who breached the employment contract should not enjoy a “windfall from an income support program designed to benefit workers impacted by the COVID-19 impact,” said the Court of Appeal, adding that it was the intention of Parliament to have any windfall go to the worker.
It's notable how the Court of Appeal focused on policy considerations and how employers should be incentivized to engage with their employees responsibly, says Moody.
“The overall concept of fairness and justice are really grappled with in these public policy considerations – at one point, Chief Justice Bauman [of the B.C. Court of Appeal] says that it just feels wrong that an employer should effectively get this set-off for its own breach of contract,” she says. “An employer shouldn't receive taxpayer-funded subsidies for its breach of contract, especially when it comes from a program that was implemented and designed to help employees.”
Similar to EI
The Court of Appeal also found that CERB payments were similar to employment insurance (EI) benefits in that they were between the employee and the appropriate authority, as were any potential repayment obligations – the employer was not involved.
In addition, the appeal court noted that deducting CERB payments would result in unequal treatment of employees depending on their termination date, as anyone terminated shortly before the expiration of their temporary layoff period would have a notice period starting then, with any CERB payments received before the termination date not deductible. However, an employee who had their temporary layoff period expire, as in this case, would have their termination date moved to the date of layoff and the notice period would encompass any CERB payments, said the appeal court.
If courts remain conflicted on the deductibility of CERB benefits, it may require the Supreme Court of Canada’s analysis and final decision, say one employment lawyer.
Context of CERB
The Court of Appeal also disagreed with the idea that terminated employees who received CERB payments were in a better position. Most recipients of CERB needed the emergency funds because they lost their livelihoods, so it was “out of step with reality” to conclude that those payments would leave people better off if they received wrongful dismissal damages as well, said the appeal court.
“What I found really interesting about this decision was that there was consideration by Chief Justice Bauman about CERB and the context in which it was rolled out,” says Moody. “What everybody was going through in March of 2020 to September of 2020, just how uncertain that time was and how so many people were worried for their jobs and putting food on the table – Bauman said it's hard to imagine, even if they get to keep that money, that anybody would honestly look at that and say they're in a better position.
“Nobody's taking that extra $10,000 and running away to Belize with it – people were using that to pay their bills at a time when the company wasn't fulfilling their contractual obligations to their employees,” adds Moody. “So the very specific context in which CERB was enacted was also a reason for the distinction.”
Data from Statistics Canada indicate that the CERB program helped workers who needed it the most in 2020.
Settled issue?
The court allowed the appeal and ruled that there should be no deduction to the wrongful dismissal damages owed to the worker.
While there has been a difference of opinion by courts on the deductibility of CERB payments from wrongful dismissal damages, Moody feels that this B.C. Court of Appeal ruling might help settle things to a certain extent.
“Most of the decisions that have dealt with the issue of the deductibility of CERB have really been focused on this entirely speculative exercise of whether or not the government is going to require the CERB payment to be repaid, and Chief Justice Bauman in this appeal said that this is a completely fruitless exercise,” says Moody.
“The government gave an employee money and as of now they don't require repayment – that's something between the governmental authorities and the employee.”
See Yates v. Langley Motor Sport Centre Ltd., 2022 B.C.CA 398.
