Law regarding government funds in relation to wrongful dismissal damages unsettled across Canada
Historically, courts award an employee their full entitlement to severance and benefits during a notice period when they are dismissed wrongfully by their employer. When assessing appropriate severance packages, employers have always had to weigh the appropriate notice period with any mitigating factors. Now, as a result of COVID-19, a new consideration forms part of that assessment.
Over the course of the pandemic, many businesses experienced unprecedented times which included supply issues and a decrease in customers. Understandably, many business owners and companies were forced to temporarily or permanently lay off employees, but that did not absolve employers from their responsibility for severance in the event of a permanent layoff. The major difference, however, was that the Canadian federal government swiftly moved in to provide monetary support to those impacted.
Specifically, the government introduced the Canada Emergency Response Benefit (CERB) to help alleviate the financial pressure on those directly impacted by COVID-19. Specifically, CERB was a government-funded initiative which provided financial support in the amount of $2,000 to all employees or self-employed Canadians who were directly impacted by COVID-19.
CERB was the first of its kind, and as a result of the monetary relief it offered, the question was raised as to how these funds would be treated in a wrongful dismissal claim. While employees would argue that CERB was nothing more than emergency relief – as the name suggests – employers would take an opposite view and characterize it as a mitigating factor to an employee's claim that ought to be considered mitigation income.
B.C. and Ontario decisions
It was not long before the question was put to the courts. In answering this question, the British Columbia Supreme Court issued its first decision in the case of Hogan v. 1187938 BC Ltd., 2021 BCSC 1021, and determined whether CERB payments would be deducted from severance awards in a claim for wrongful dismissal. Siding with the employer, the court determined that CERB payments should be treated as a mitigating factor and deducted it from the total damage award issued to the employee. The decision serves to highlight the overarching principle that ensures that dismissed employees are treated equitably but do not receive a windfall as a result of collecting CERB payments.
Terrance Hogan was an employee for almost 22 years and was temporarily laid off in March 2020 as a response to the impacts of the pandemic. He was ultimately dismissed in August 2020. He received $14,000 in CERB payments prior to his dismissal.
Read more: The federal government is trying to recoup advance payments of CERB from people who ended up not being entitled to them.
The court determined Hogan was constructively dismissed and that he was entitled to 22 months of notice given his length of service. It then turned to the issue of damages and mitigation, including how to consider the CERB payments that he had received. The court found that CERB payments constituted mitigation income and should be deducted from wrongful dismissal damages, outlining the following reasons:
- Unlike employment insurance (EI) benefits (which are not deductible from a wrongful dismissal award as an employee may be required to repay EI benefits to the government upon receipt of severance), CERB payments are not required to be repaid.
- CERB payments are not private insurance and therefore are not considered to be delayed or deferred earnings rightfully belonging to the employee.
- The CERB payments raised a “compensating advantage” issue. If the CERB payments were not deducted from the damages award, the dismissed employee could end up in a better position than they would have been if there had been no wrongful dismissal at all.
The B.C. court's decision is not in line with other cases on CERB across the country. The Hogan decision is a departure from and distinguished the case of Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998.
In Iriotakis, the Ontario Superior Court made a different determination and did not reduce the employee’s entitlement to damages in lieu of reasonable notice by the amount of CERB he had received. The primary reason for the differing outcome was that in Iriotakis it was evident that the employee would not be compensated for all of the income he lost. Particularly, the CERB would not account for the significant loss of commission that he received in addition to his salary. In other words, there was no risk of a windfall.
Read more: Wrongful dismissal damage award replaced lost income, making CERB an extra benefit that should be deducted, the BC Supreme Court ruled.
Hogan is the first B.C. decision to discuss the impact of CERB payments on severance awards and is a reminder of the uncertainty of Canadian authorities on the matter. While the decision confirms that CERB may be considered mitigation income properly deducted from severance awards, whether it will in fact result in a reduction will be determined on a case-by-case analysis.
Since the decision, we know that, at least in some cases, CERB payments have been required to be paid back, which would negate one of the reasons for the court's decision in Hogan. In light of this, there is presumably room for an employee to argue that the CERB payments received should not be deducted in those cases. Ultimately, it seems a court's decision will hinge on whether not deducting the payment will result in a windfall to the employee.
Takeaways for employers
In light of the court's decision in Hogan, when assessing or negotiating an appropriate severance package, an employer should weigh the amount of CERB, if any, that was received by the employee. There is a direct impact that CERB could have in an award for damages and this information should be actively sought from employees disputing their severance packages or making claims of wrongful dismissal during the pandemic era.
Regardless of what a court ultimately decides on the issue of CERB, two things are certain in B.C.: first, CERB payments are now a relevant and possibly important consideration for employers when assessing severance packages; second, if the severance award is disputed, there is a prima facie presumption that CERB should be deducted from any damages award.
Melanie Samuels is a partner with Singleton Reynolds in Vancouver and is chair of the firm’s Employment and Labour Group. Harpreet Dosanjh is a senior associate with Singleton Reynolds in Vancouver and is a member of the firm’s Commercial Business, Construction and Infrastructure, and Insurance law Practice Groups.