Temporary layoff that became permanent was constructive dismissal; damage award replaced lost income, making CERB an extra benefit that should be deducted
A British Columbia worker’s temporary layoff that became permanent was constructive dismissal, but the CERB payments he received after his layoff must be deducted from his 22-month notice entitlement, the B.C. Supreme Court has ruled.
Terence Hogan, 53, worked for Mercedes-Benz Canada at an automotive dealership in Vancouver. He was hired as a technician mechanic in April 1998 and was promoted to service advisor in February 2008. He received another promotion in August 2013, to assistant service manager of the dealership.
The dealership sells and provides service for new and used Mercedes-Benz vehicles. On Dec. 31, 2018, a numbered corporation acquired the dealership and started operating under the name Mercedes-Benz Vancouver. Most of the dealership’s employees, including Hogan, were offered continued employment with the new company — which was part of a larger group of associated businesses called the Dilawri Auto Group (DAG).
In March 2020, the pandemic caused the dealership’s business to plummet. Most customers cancelled their appointments, accept for ones related to essential services. As a result, Mercedes-Benz Vancouver issued a temporary layoff notice to Hogan and several other employees on March 24. Everyone believed that the layoff would be temporary and they would eventually be recalled to work.
Temporary layoff became permanent
However, the dealership’s business and vehicle service appointment continued to be low through the summer. On Aug. 28, the dealership informed Hogan that his employment was terminated, effective immediately. It provided him with $13,255 in termination pay. At the time, DAG’s general manager instructed the HR department to consider whether any positions that became available in other dealerships within the group were suitable for former employees of Mercedes-Benz Vancouver.
Hogan started looking for a new job but was unable to find a permanent position. He collected employment insurance benefits and applied for the Canada Emergency Response Benefit (CERB), which eventually paid him a total of $14,000.
Hogan commenced wrongful dismissal litigation against Mercedes-Benz Vancouver, claiming he was constructively dismissed when he was placed on a temporary layoff. He argued that even though he accepted the layoff, he didn’t have a choice because it was imposed on him. He also pointed out that he had been explicitly told that the layoff was temporary, which turned out to be false. He argued that he was entitled to 21 to 22 months’ notice of termination.
In March 2021, a service advisor position became available at another DAG dealership. There was no common management with Mercedes-Benz Vancouver, but the other dealership was also located in the city. DAG told Hogan that it was prepared to offer this position to him, along with a further payment of $79,000 minus deductions, if Hogan agreed to settle his complaint. It based this amount of the income that Hogan had lost up to April 2, 2021.
The job offer and payment were conditional to the worker settling his constructive dismissal litigation.
Hogan didn’t like the condition to settle the litigation and he considered the service advisor position to be a significant demotion from his previous one. He would also earn a lot less than his previous job without working overtime — which wasn’t easy because of his childcare responsibilities. He rejected the offer.
The court found that the layoff was unilateral and, while Mercedes-Benz Vancouver may have been acting in good faith for a legitimate business interest, it has a significant impact on Hogan — he wasn’t paid during the layoff and it turned out to be permanent. In addition, the dealership didn’t present any evidence that the employment contract authorized it to unilaterally place employees on temporary layoff.
“Given the unilateral nature of the layoff and the subsequent termination, it is clear from [Mercedes-Benz Vancouver’s] conduct that it no longer intended to be bound by the contract at the time,” said the court. “Accordingly, I find that [Hogan] was constructively dismissed when he was laid off.”
The court noted that Hogan was on a scheduled vacation at the time of the layoff notice, so the constructive dismissal was effective on March 30, 2020, the end date of the booked vacation.
The court also found that Hogan was entitled to the lengthy notice period that he claimed. He was 52 years old and, as an assistant service manager, performed managerial duties, including the oversight and supervision of all operations and staff of the service department, although he didn’t have the authority to hire and fire on his own or set financial goals for the department.
Job offer was suspicious
Additionally, it was clear that the pandemic depressed the automotive industry as a whole and Hogan’s job search wasn’t successful, so comparable employment wasn’t easy to find. Although DAG offered Hogan a position at another dealership, it was reasonable for Hogan to reject it because it was a demotion and paid significantly less. It was also understandable that Hogan had concerns about the good faith of the offer — another similar position had been posted more than a month earlier and hadn’t been offered to him — and the dealership wanted him to settle his claim.
“I agree that [Hogan] should not be required to compromise his legal claim as part of his duty to mitigate,” said the court. “In my view, when all of the circumstances, including the intangible element of mutual trust, commensurate with the nature of the employment, are considered, it was not unreasonable for [Hogan] to reject the… job offer.”
After considering the factors, the court determined that Hogan was entitled to 22 months’ notice. It determined that the employment insurance benefits should not be deducted because he would have to repay them “if an employer becomes liable to pay their earnings. However, the court said that the $14,000 in CERB payments that Hogan received should be deducted from the award, because Hogan wouldn’t have received the benefit but for his dismissal and he didn’t contribute to obtaining the benefit, like he did employment insurance.
“The CERB payments were intended to be an indemnity for the type of loss resulting from the employer’s breach but the employee had not contributed in order to obtain the entitlement,” said the court. “As a result, I see no basis to depart from the general rule that contract damages should place [Hogan] in the economic position he would have been in had the [employer] performed the contract.
For more information, see:
- Hogan v. 1187938 B.C. Ltd., 2021 BCSC 1021 (B.C. S.C.).