BC Court rules CERB is deductible from wrongful dismissal damages

In the recent decision of Hogan v. 1187938 B.C. Ltd., 2021 BCSC 1021, the Supreme Court of British Columbia decided an issue that has been the subject of much speculation since the introduction of the Canada Emergency Response Benefit program (“CERB”) last year.

In what will be welcome news for employers, the Court held that an employee’s receipt of CERB payments post-termination constituted mitigation earnings that should be deducted from an award of damages for wrongful dismissal.

Background

The plaintiff in this case was a 52 year old assistant service manager at an automotive dealership. He had almost 22 years of service with the employer when he was placed on temporary layoff in March 2020. The layoff occurred when business drastically declined as a result of COVID-19.

Following his layoff, the plaintiff received amounts from Employment Insurance (“EI”) as well as $14,000 in CERB payments.

The plaintiff was not recalled from layoff and received formal notice of termination in August 2020. He subsequently brought an action for wrongful dismissal.

Decision

Justice Gerow held that the employee had been constructively dismissed in March 2020 as a result of the temporary layoff. The Court found that 22 months’ was the appropriate notice period given the plaintiff’s circumstances and the depressed state of the automotive industry during the pandemic.

The Court then turned to the issue of damages and mitigation, considering whether CERB payments constituted mitigation income that should be deducted from wrongful dismissal damages.

The Court determined that CERB payments should be deducted from severance awards for numerous reasons:

1. The Court noted that EI benefits 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. In contrast, it does not appear that CERB is required to be repaid.
2. Further, the Court noted that CERB payments are not private insurance, and that neither the employer nor the employee contributed to them, so they could not be considered to be delayed or deferred earnings rightfully belonging to the employee.
3. The Court found that CERB payments raised a “compensating advantage” issue. If the CERB payments were not deducted from the damages award, the plaintiff could end up in a better position than he would have been if there had been no wrongful dismissal at all. The Court held at para. 107 there was “no basis to depart from the general rule that contract damages should place the plaintiff in the economic position he would have been in had the defendant performed the contract”.

Based on this analysis, in this case, the  Court reduced the damage award by the $14,000 he had received in CERB payments.

The Court’s assessment of lost bonus entitlement is also noteworthy for employers. The plaintiff argued that damages should be assessed based on his 2019 income which included significant quarterly bonuses. Due to the impacts of the pandemic, no bonuses had been paid to employees throughout 2020 and the employer did not anticipate paying bonuses in 2021. In other words, the employer argued that no bonus should be awarded because if the plaintiff’s employment had continued during the notice period, he would not have been paid a bonus. The Court accepted the employer’s uncontested evidence in this regard and awarded no damages for lost bonuses.

Key Takeaways

1. This is the first B.C. decision to discuss CERB payments in the context of mitigation. In B.C., CERB may be considered mitigation income that should be deducted from wrongful dismissal damages. This will be an important consideration for employers in negotiating settlements relating to terminations that occurred during the CERB period.
2. Claims for bonuses during the reasonable notice period will be subject to an assessment of whether such bonuses would have been received had active employment continued. Plaintiffs may not simply be able to rely on historical receipt of bonuses where the facts show that circumstances have changed such that subsequent bonuses were not paid or will not be paid in the future. This is both consistent with general principles of damages for breach of contract and is good news for employers impacted by COVID-19.