Regional divide across Canada by courts on whether CERB benefits should be deducted
The COVID-19 pandemic had a devastating effect on individuals and businesses across Canada, leading to mass layoffs and terminations, as well as many novel issues in employment law – including whether COVID-19 related benefits are considered mitigation income.
At the height of the pandemic, the federal government announced the Canadian Emergency Recovery Benefit (CERB) to help employees and self-employed individuals replace lost income relating to the pandemic. CERB lasted until Sept. 26, 2020.
There are conflicting court decisions across Canada over the treatment of CERB benefits when calculating wrongful dismissal awards. Courts in Ontario have not been deducting CERB from such awards, while the courts in British Columba, Alberta, and Saskatchewan usually have been.
Deducting benefits from wrongful dismissal damages
The Supreme Court of Canada concisely summarized the law of deducting benefits from a wrongful dismissal award in IBM Canada Limited v. Waterman, 2013 SCC 70.
The SCC affirmed that there is a collateral benefit when a source other than the damages lessens the losses a plaintiff suffered from the defendant’s breach of legal duty. In wrongful dismissals, this breach of legal duty is the breach of the employment contract without cause and without sufficient notice.
The overarching principle warranting the deduction of a collateral benefit from wrongful dismissal damages is to avoid providing an employee a “double award’ that is more than the compensation they would have received as part of their notice period.
The SCC held that benefits generally will not be deducted from wrongful dismissal damages where:
- they are not intended to indemnify for the sort of loss caused by the employer’s legal breach
- the employee contributed to the entitlement of the collateral benefit.
Some questions to consider when determining the deductibility of collateral benefits from wrongful dismissal damages are therefore:
- What is the nature of the benefit and the loss it is meant to cover?
- What is the nature of the loss and legal breach the employee suffered?
- Did the employee contribute to the benefit?
This is a very fact-specific analysis. Even if an employee does not actively contribute to a benefit, that does not mean their losses were not covered by the benefit and it could be deducted from their wrongful dismissal damages.
As an example, courts usually do not deduct employment insurance (EI) benefits received by an employee from a wrongful dismissal award because the employee is required to remit the amount of EI received from that award back to the federal government. In this context, the employee is not actually receiving any additional benefit over and above their entitlement to compensation for their notice period.
On the other hand, courts typically deduct workers’ compensation payments received during a notice period because they are intended to replace the loss of the employee’s regular salary. Allowing the employee to keep both essentially allows them to receive more salary than they otherwise would have had they worked during their notice period.
There are also gray areas for the deductibility of benefits. One of the most common examples is short- and long-term disability benefits. Whether receipt of such benefits is deductible from a notice award will require a more detailed analysis of the benefits policy and whether the employee contributed to gain access to those benefits.
In the context of these general guiding principles and established law, courts across Canada are making decisions concerning the deductibility of CERB as a collateral benefit from wrongful dismissal damages.
Ontario courts not deducting CERB
The courts in Ontario have mostly held that CERB should not be deducted from wrongful dismissal damages. Despite the overwhelming consensus, there was at least one case in the province to date where the court deducted CERB benefits from an employee’s wrongful dismissal damages.
Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998, was among the first decisions addressing the issue. The Ontario Superior Court of Justice held that CERB should not be deducted from the employee’s wrongful dismissal damages.
The court in Iriotakis distinguished CERB from typical EI benefits and found that CERB was not the same kind of ad hoc program as EI was where both the employee and employer paid into it beyond their general status as taxpayers in Canada.
The court’s decision was largely based on its finding that would not be equitable to deduct CERB benefits from wrongful dismissal damages because the amount was considerably less than the employee’s compensation before his wrongful dismissal.
Iriotakis has since been affirmed by other decisions in Ontario, including include Fogelman v. IFG, 2021 ONSC 4042 and Gracias v. Dr. David Walt Dentistry, 2022 ONSC 2967.
In Henderson v. Slavkin et al., 2022 ONSC 2964, the court considered the evolving case law and refused to subtract CERB payments from wrongful dismissal damages for the following reasons:
- CERB cannot be considered a deductible advantage or gain that flowed to the employee because there was a real risk the employee would be required to repay their CERB benefits eventually.
- There was not enough causal connection between the employee’s receipt of CERB benefits and the employer’s breach of the employment contract for the court to consider CERB payments mitigation income.
- CERB was intended to cover an employee’s COVID-19-related wage loss and not wage loss from an employer’s breach of an employment contract.
Read more: Revisiting reasonable notice in light of COVID-19
Livshin v. The Clinic Network Canada Inc., 2021 ONSC 6796, is the only case at this point in Ontario where CERB benefits were deducted from a wrongful dismissal award. The court did not provide an analysis as to why deducting CERB was appropriate, rendering this case an irregularity to the trend. However, this exceptional decision in Ontario is the rule in other provinces.
Provinces deducting CERB
In contrast to Ontario, courts in other provinces have treated CERB as a collateral benefit that should be deducted from wrongful dismissal awards.
In Nicolas Jr. v. Ocean Pacific Hotels Ltd., 2022 BCSC 1052, the BC Supreme Court held that CERB was deductible since it is a benefit employees could access for breach of an employment contract and was intended as a replacement for loss of salary from such a breach. The court relied on and affirmed Yates v. Langley Motor Sport Centre Ltd., 2021 BCSC 2175 and Hogan v. 1187938 B.C. Ltd., 2021 BCSC 1021.
In Abdon v. Brandt Industries Canada Ltd., 2021 SKPC 37, the Saskatchewan Provincial Court specifically referenced Hogan as a basis to deduct CERB from a wrongful dismissal award. Notably, the court held that it did not have the power to render a decision to not deduct CERB based on equitable principles, as the Ontario Superior Court of Justice did in Iriotakis.
In Oostlander v. Cervus Equipment Corporation, 2022 ABQB 200, the Alberta Court of Queen’s Bench determined that CERB should be deducted as there was no basis to assume the employee would have to repay the CERB benefit at a later date.
What to expect
The rules for repayment of CERB upon receipt of wrongful dismissal awards are not clear. There also appears to be dispute across a variety of scenarios whether an employee’s eligibility for CERB is in fact connected to a breach of employment contract. CERB is comparable to EI in many ways, but it was available to employees even if they did not qualify for EI.
A review of the cases across Canada suggests the overall trend regarding the deductibility of CERB from wrongful dismissal awards is a fact-specific analysis, similar to the deductibility of short- and long-term disability benefits.
There will be no one answer to the question because the facts determine whether an employee’s receipt of CERB was in fact connected to an employer’s breach. Based on the current decisions, it appears that the deductibility of CERB will increasingly depend on factors including, but not limited to:
- whether an employee was terminated for reasons relating to COVID-19
- whether an employee can adduce evidence they were or likely would be required to pay the government back for the CERB benefits they received
- whether there are other equitable considerations warranting no deduction of CERB benefits from a wrongful dismissal award.
The trajectory of decision-making on these issues may change if the federal government provides clearer rules and guidelines about repayment of CERB out of severance pay. If the conflict of decisions on this issue cannot be reconciled, it may require the Supreme Court of Canada’s analysis and final decision.
Many employees and self-employed individuals accessed CERB in 2020 to replace income they lost relating to the pandemic. Some of those employees were terminated in this period and accessed CERB benefits instead of EI.
The dispute over whether CERB should be deducted from wrongful dismissal damages is based on whether it is considered a collateral benefit. While most court decisions from Ontario have found that CERB is not a collateral benefit and should not be deducted, most coming out of BC have held the opposite view.
The Supreme Court of Canada would have the final word on this issue, but the decisions can be somewhat reconciled by looking at the unique circumstances in each case to determine CERB’s deductibility from wrongful dismissal awards. CERB would arguably be a collateral benefit in some cases, but it would not be in others.
The law on this issue, and potentially other pandemic benefits, will continue to develop over time. We can only hope the federal government steps in to clarify what kind of creature CERB really is – to provide employees, employers and courts more certainty.
