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In a recent decision, the British Columbia Supreme Court (“BC Court“) ruled that Canada Emergency Response Benefit (“CERB”) payments earned during the notice period would be deducted from wrongful dismissal damages. This decision stands in stark contrast to that recently issued in Ontario, where the Superior Court of Justice (“Ontario Court“) refused to deduct CERB benefits from a damages award. The apparent inconsistency between the cases will have to be resolved in future litigation. In the meantime, employers should consider in each case whether it is appropriate to adopt the approach in Hogan when structuring severance packages.

The BC Decision

In Hogan v. 1187938 B.C. Ltd, 2021 BCSC 1021 (“Hogan“), Mr. Hogan was temporarily laid off and subsequently terminated from his employment with an automotive dealership. Mr. Hogan sued the dealership for constructive dismissal.

The BC Court held that the dealership’s unilateral decision to layoff Mr. Hogan amounted to a constructive dismissal, and as a result, he was entitled to pay in lieu of 22 months of reasonable notice. The dealership argued that all CERB benefits earned by Mr. Hogan during the notice period should be deducted from the damages it was ordered to pay.

The BC Court agreed with the dealership. CERB is not a private insurance benefit for which the employee paid premiums. Further, unlike Employment Insurance benefits, which are subject to repayment following receipt of a severance payment, there is no evidence to suggest that CERB benefits will need to be repaid. Therefore, if Mr. Hogan received both CERB benefits and wrongful dismissal damages during the reasonable notice period, he would end up in a better position than he would have been had he been given advance notice of termination.

Applying the general rule of damages for breach of contract, the BC Court found that Mr. Hogan should be put in the same position he would have been in had the dealership not breached the employment contract. This requires deducting CERB benefits from the damages ultimately awarded.

The Ontario Decision

The Ontario Superior Court of Justice took a seemingly different approach in Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998 (“Iriotakis“). In that case, the Ontario Court refused to deduct CERB benefits from wrongful dismissal damages. The Ontario Court looked at the disparity between the CERB benefits the employee earned, and the overall amount of money the employee lost as a result of being terminated. A large portion of the employee’s earnings were based on commissions, most of which he was not entitled to during the reasonable notice period. As a result, the Ontario Court determined that it would not be equitable to reduce the employee’s damages by the CERB benefits he earned during that time. In Iriotakis, the Ontario Court emphasized that their decision was specific to the facts of the particular case—facts which were distinguished from Hogan.

Key Takeaways

To date, Hogan and Iriotakis are the only two decisions in Canada on the issue of whether CERB benefits should be deducted from wrongful dismissal damages. Although the two cases are factually distinct, the principles set out in these cases are difficult to reconcile. The BC Court took a principled approach, ensuring the plaintiff was not put in a better position than he would have been had the defendant complied with its common law obligation to provide him with reasonable notice (or payment in lieu). Conversely, the Ontario Court took a fact-based approach, and decided it would not be fair to deduct CERB benefits from the plaintiff’s damages, given the plaintiff’s limited entitlements from the employer post-termination, relative to his actual pre-termination earnings.

It will be interesting to see how courts across Canada continue to address this issue, particularly in light of the discrepancy between the different approaches taken in British Columbia and Ontario. Given the volume of employment litigation arising from the pandemic, we suspect that there will be many more decisions on this issue.