In a decision released on November 29, 2022, the B.C. Court of Appeal ruled that payments received under the Canada Emergency Response Benefit Program (“CERB”) are not deductible from wrongful dismissal damages, overturning a 2021 decision of the B.C. Supreme Court.
In Yates v Langley Motor Sport Centre Ltd., 2021 BCSC 2175, the plaintiff alleged that she was wrongfully dismissed from her employment and sought damages including eight months’ pay in lieu of notice of dismissal, amounting to approximately $40,000. The trial judge held that the plaintiff was entitled to five months’ pay in lieu of notice of dismissal, or approximately $25,000 (the “Award”).
Generally, in wrongful dismissal cases, an award of damages for pay in lieu of notice is reduced by the amount of any new income that a dismissed employee earns during their notice period. In this case, although the plaintiff did not earn income from new employment after her dismissal, she received $10,000 in CERB payments over her five-month notice period. The defendant argued that the Award should be reduced by $10,000, on account of CERB payments received by the plaintiff, while the plaintiff argued that the Award should not be reduced on account of CERB payments.
At trial, the B.C. Supreme Court concluded that CERB payments received by the plaintiff should be deducted from the Award.
The plaintiff appealed the trial judge’s decision on the issue of the deductibility of CERB payments from the Award, amongst other issues.
In Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398, the Court of Appeal framed the issue of deductibility of CERB payments from wrongful dismissal damages as one involving a “compensating advantage.” The Court stated that a compensating advantage issue arises when a plaintiff may receive a collateral benefit “that results in compensation beyond their actual loss and either (a) the plaintiff would not have received the benefit but for the defendant’s breach, or (b) the benefit is intended to be an indemnity for the sort of loss resulting from the defendant’s breach.” In these cases, courts must decide whether the collateral benefit or “compensating advantage” should be deducted from the plaintiff’s damages, such that the collateral benefit does not compensate the plaintiff beyond their actual loss, or whether the compensating advantage should not be deducted from the plaintiff’s damages, such that the collateral benefit does not create a windfall for the defendant by reducing the amount of damages otherwise payable.
The Court of Appeal ultimately decided that CERB payments received by the plaintiff should not be deducted from the Award due to public policy considerations. In coming to its conclusion, the Court of Appeal noted that the ultimate decision of whether to deduct compensating advantages depends on public policy and, specifically, factors such as “punishment, deterrence, and the provision of incentives for socially responsible behaviour.” The Court of Appeal placed particular weight on the following public policy factors:
- It is wrong for an employer who has breached the employment contract to receive a windfall, and as a result any potential windfall should go to the employee;
- CERB payments are akin to an unemployment insurance benefit, which is a matter between the employee and the government and does not concern the employer; and
- By providing the worker and not the employer with the benefit the Court would be encouraging socially desirable conduct.
The Court concluded by stating that it would be out of step with reality to conclude that the combination of CERB payments and wrongful dismissal damages leaves individuals “better off” after their employment was terminated than before.
Inconsistent decisions across Canada
While the B.C. Court of Appeal’s ruling in Yates settles the issue of the deductibility of CERB payments from wrongful dismissal awards in B.C., the issue is not settled in other Canadian jurisdictions, as decisions on this issue have been wildly inconsistent from province-to-province.
Courts in Alberta and Saskatchewan, for example, have held that CERB payments are deductible from wrongful dismissal awards, while a ruling in Nova Scotia held that CERB payments are not deductible from wrongful dismissal awards. In Ontario, three decisions have held that CERB payments are not deductible from wrongful dismissal awards, while one decision held that CERB payments are deductible from wrongful dismissal awards. Even Courts in B.C. have been inconsistent, with CERB payments being held to be deductible from wrongful dismissal awards in four cases, and held to not be deductible from wrongful dismissal awards in two cases.
It’s worth noting that the B.C. Court of Appeal’s ruling in Yates is the first decision of a Canadian appellate court on the issue of the deductibility of CERB payments from wrongful dismissal awards. As such, it will carry more weight than prior trial level decisions on this issue and may be persuasive in other jurisdictions. However, until that’s determined, the question of whether CERB payments are deductible from wrongful dismissal awards is still very much open in other Canadian jurisdictions.
Fortunately for employers, as the CERB program has long-since ended, the Court of Appeal’s decision in Yates will not impact severance entitlements for dismissals going forward. However, it will have a dramatic affect on severance entitlements for employees in B.C. who have already been dismissed and who received CERB payments after their dismissal.
Prior to the Court of Appeal’s decision in Yates, employers in B.C. could comfortably reduce any severance owing by the amount of any CERB payments that dismissed employees received during their notice period. If a dismissed employee received $20,000 in CERB payments over their notice period, and would have otherwise been entitled to $50,000 in severance, then their severance entitlement would be reduced to $30,000. That is no longer the case. A dismissed employee’s severance entitlements will not be affected by CERB payments, regardless of the amount or when they were received.
Employers in B.C. who are involved in wrongful dismissal claims against former employees who received CERB payments will be well-served to revise their litigation strategies in light of the Court of Appeal’s decision in Yates. Employers in B.C. who are facing the prospect of such claims would also be wise to take steps to resolve disputes before claims arise.
Employers are also reminded of the importance of having enforceable employment contracts in place which address entitlements on termination. The Yates decisions both concern common law entitlements to notice of dismissal. While common law termination entitlements are presumed at law, they can be altered or removed by a properly drafted employment contract. Employers with such contracts in place that address entitlements on termination will be glad to know that the Court of Appeal’s decision in Yates does not affect their termination obligations.
Should you have any questions or concerns, please feel free to reach out to a member of Miller Thomson’s Labour & Employment group.