CERB Payments are not Deductible from Wrongful Dismissal Damages

The Canada Emergency Response Benefit (“CERB”) was a form of income replacement offered by the Government of Canada at the start of the COVID-19 pandemic. Eligible recipients could receive $2,000.00 per month during the program’s 28-week duration (which ran from March to September 2020).

While CERB was a welcome source of financial support for many, its introduction had knock-on effects. One such issue was how CERB payments would be treated by the courts in the context of wrongful dismissal claims.

Generally, employers are entitled to seek a dollar-for-dollar offset of new employment income received during any period where additional severance is claimed. To provide a simple example, imagine an employee seeks severance for a six-month period post-dismissal (valued at $60,000.00) and earned $12,000.00 from new employment during that time. Our hypothetical employee would then presumptively be entitled to $48,000.00 in wrongful dismissal damages.

The introduction of CERB, however, complicated matters and forced the courts to deal with the so-called “compensating advantage” problem (i.e. receipt of a windfall).

As explained by the Supreme Court of Canada:

…a potential compensating advantage problem exists if the plaintiff receives a benefit that would result in compensation of the plaintiff beyond his or her 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. These factors identify a potential problem with a compensating advantage, but do not decide how it should be resolved.

CERB Deductibility: Competing Arguments

Employers and employees quickly took opposing positions on the issue of CERB deductibility. Here is summary of the typical arguments raised by each side:

• Employers: CERB was an income replacement program that employees did not pay into as part of their payroll earnings (unlike Employment Insurance). It was also made available regardless of whether workers were entitled to severance. If no offset is allowed, employees may nonsensically end up financially better off (by receiving both severance and CERB for the same period) than if they had not been dismissed in the first place.

• Employees: CERB was an emergency measure designed to support individual Canadians during a global pandemic. It would be perverse to instead allow it to be used as a cost savings measure for employers who wrongfully dismissed their workers. Authorizing a CERB offset would effectively reward employers who breached their contractual obligations at the expense of Canadian taxpayers.

Canadian courts were initially split between these two arguments. Ontario trial decisions, for instance, favoured no deduction, while in British Columbia it became common to deduct CERB from wrongful dismissal damage awards.

Courts of Appeal Weigh-In

In late 2022 and early 2023, appellate courts in British Columbia and Alberta issued the first higher-level decisions in Canada addressing CERB deductibility. Both agreed that CERB payouts should not be deducted from wrongful dismissal damage awards.

The appellate courts based their judgments primarily on public policy grounds. In summarizing its decision, the Court of Appeal for British Columbia concluded with the following statement:

Overall, the underlying logic of the compensating-advantage problem addresses a situation in which the individual employee is better off after their employer’s breach than before. I cannot conclude that this is the result if CERB is not deducted. CERB was an emergency measure delivering financial aid during the early weeks and months of an unprecedented global pandemic. The program’s goal was to mitigate harm to individuals in a moment of great uncertainty. CERB payments notwithstanding, many people lost their livelihoods as a result of the pandemic. It strikes me as out of step with that reality to conclude that the combination of CERB and damages awards leaves individuals “better off” after their employment was terminated than before.

Ontario Follows Suit

Ontario courts are not bound by the decisions of either the Alberta or British Columbia Courts of Appeal. That said, they are following suit.

The recent decision of Tan v. Stostac Inc., 2023 ONSC 2121 (issued April 4, 2023) is the first Ontario case we are aware of where CERB deductibility was addressed following the appellate decisions from Alberta and British Columbia. Justice Dineen chose to adopt the reasoning of these courts as being equally applicable in Ontario.

As such, the question of CERB deductibility seems to have been settled: no deductions from wrongful dismissal damage awards are allowed.

Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.