Benefit 'should not result in windfall for employer,' says court
The BC Court of Appeal has found that the Canada Emergency Response Benefit (CERB) is not deductible from damages in a wrongful dismissal case stemming from pandemic layoffs. It is the first ruling from an appellate court on the issue.
In Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398, the BC Court of Appeal dealt with how “compensating advantages” applied. Also known as collateral benefits, compensating damages arise when the plaintiff benefits from a gain connected to the defendant’s breach – either an indemnity for the plaintiff’s loss or a benefit that the plaintiff would not have received but for the defendant’s breach.
Since the CERB program ended in September 2020, there has been conflicting case law across the country about whether it is deductible from damages in a wrongful dismissal case, says Lia Moody, managing partner for the Vancouver office and Western Canada practice leader at Samfiru Tumarkin.
She says the B.C. case law has swayed toward deductibility, starting with Hogan v. 1187938 B.C. Ltd., 2021 BCSC 1021, and others have followed suit. But then came Slater v. Halifax Herald Limited, 2021 NSSC 210, which went the other way, and Moody was eager to apply its principles to other CERB-deductibility cases.
“I read that decision, and it just really stuck with me,” she says. “It very quickly became my pet project.”
“I really felt strongly about the fact that CERB should not be deducted from a wrongful-dismissal damages award.”
Marketing manager collects CERB
Moody represented Shelby Yates, the appellant employee in Yates v. Langley Motor Sport Centre. Yates worked as a marketing manager and event coordinator for Langley Hyundai in Langley, B.C. When the COVID-19 pandemic hit, Yates’ employer put her on a temporary layoff, and she began collecting from CERB at the end of March 2020.
Following the amended provisions of the Employment Standards Act, once Yates remained laid off past Aug. 30, her termination date was deemed retroactive to the beginning of the layoff period. She brought a claim for wrongful dismissal against Langley Hyundai, and BC Supreme Court Justice Andrew Mayer awarded her five months’ salary instead of notice but deducted $10,000 – representing the CERB payments – from her damages.
“One of the reasons why this really bothers me is because there’s a finding that the employer had breached the contract, that the employer was in the wrong in not having provided her severance,” says Moody.
“The argument that I made at the Court of Appeal, and the driving basis behind my feelings and argument on it, is that an employer shouldn’t be able to subsidize their breach of contract with a government-funded, taxpayer-funded program that’s designed to help the employees get through the COVID-19 pandemic.”
Three main policy considerations
In Yates v. Langley Motor Sport Centre, Chief Justice of the Court of Appeal Robert Bauman wrote the reasons for the panel, including Justice Susan Griffin and Justice Joyce DeWitt-Van Oosten. They allowed the appeal on the issue of CERB deductibility.
Justice Bauman sets out three main policy considerations, identified by the Supreme Court of Canada, which are relevant in determining whether a benefit should be deducted from a plaintiff’s damages: “punishment, deterrence, and the provision of incentives for socially responsible behaviour.”
Justice Mayer had erred in his analysis of the deductibility issue by “failing to allude to or grapple with” these three policy considerations, said Justice Bauman.
Because CERB payments are intended to be an indemnity for workers’ losses because of COVID, which caused Langley Hyundai to lay off Yates and breach the employment contract, the appellate court found that the case did present a compensating advantage problem. Considering the “broader policy considerations,” however, they concluded that these benefits should not be deducted from the damages.
“First, as a matter of overall impression, it seems wrong for a defendant employer who has breached the employment contract with the plaintiff to enjoy, effectively, a windfall from an income support program designed to benefit workers impacted by the COVID-19 pandemic,” said Justice Bauman. “If a windfall is to result, it seems to better reflect the intention of Parliament that it go to the worker.”
He said the policy consideration that “tips the balance against deductibility” involves three issues: “the desirability of equal treatment of those in similar situations, the possibility of providing incentives for socially desirable conduct, and the need for clear rules that are easy to apply.”
Where an employee’s temporary layoff period expires, the ESA puts the termination date at the beginning of the layoff period, and CERB benefits for that entire period are in question. But for the employee terminated the day before the end of the temporary lay-off period, their notice period begins at that point and benefits received beforehand are not deductible. “Overall, the desirability of equal treatment of those in similar situations favours not deducting CERB,” said Justice Bauman.
Non-deductibility removes incentives
This example also represents the opposite of socially responsible conduct, he said, and non-deductibility removes “incentives for undesirable conduct” by eliminating the incentive for employers to “manipulate matters by the timing of their termination” in allowing the temporary lay-off period to lapse.
As to the “need for clear rules,” CERB was intended as a brief “exceptional benefits program designed to apply broadly, quickly, and simply.” In Yates’ case, “the actual deduction from the award must await the realization of any income tax impacts,” which threatens that goal, said Justice Bauman.
Ultimately, he adds, the compensating-advantage problem addresses a situation where, with both the benefit and damages, the employee is better off after the breach than before. But CERB was an “emergency measure” during an “unprecedented global pandemic” where, despite CERB, many people still lost their livelihoods. “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.”
Most of the decisions that have dealt with CERB’s deductibility have grappled with the “open-ended” question of whether the plaintiff will be required to pay CERB back to the government, says Moody.
But Justice Bowman called this “a bit of a fruitless exercise.” Whether CERB is repayable has nothing to do with the employer. It is between the employee and the government, he said.
