In Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398, the Court of Appeal for British Columbia (BCCA) decided that Canada Emergency Response Benefit (CERB) payments should not be deducted from damage awards for wrongful dismissal.  Yates is the first appellate court decision to consider this issue.  The BCCA also upheld the lower court’s refusal to award the employee punitive damages for the employer’s alleged misconduct in the dismissal process.

Background

The employee in this case was temporarily laid off from her employment as a marketing manager and event coordinator when the COVID-19 pandemic began in March 2020. Her layoff was extended until its expiry on August 30, 2022.  Under British Columbia’s Employment Standards Act (ESA), because the employer allowed the August 30 date to pass without recalling the employee or advising her that her layoff would become permanent, her termination date was deemed to be retroactive to the start of the layoff period at the end of March 2020.

Between the end of March 2020 and August 30, 2020, the employee received $10,000 in CERB payments.  The employee brought an action against the employer for damages for wrongful dismissal and for aggravated and punitive damages for the employer’s alleged misconduct in the dismissal process.

Decision of British Columbia Supreme Court 

The British Columbia Supreme Court (BCSC) awarded the employee five months’ salary ($25,000) in lieu of notice and deducted the $10,000 in CERB payments from her damages.  The court declined to award the employee aggravated or punitive damages. 

Decision of BCCA

The employee appealed the BCSC’s decision to deduct the $10,000 in CERB payments from her damages of $25,000, and its decision not to award punitive damages.  The BCCA allowed the appeal on the CERB payment deduction issue and upheld the decision on punitive damages.   

The BCCA characterized the CERB issue as about the deductibility of “compensating advantages” from wrongful dismissal damages and explained that prior caselaw established that:

…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.

The BCCA indicated that the caselaw emphasized the existence of “’well-recognized exceptions’ in which benefits flowing to a plaintiff are not taken into account, even though the result is they are better off, economically speaking, after the breach than they would have been had there been no breach,” and noted that charitable gifts and private insurance benefits are the clearest of these exceptions.   

The BCCA stressed that the caselaw explained that the following “broader policy considerations” explained why a benefit should or should not be deducted: “punishment, deterrence, and the provision of incentives for socially responsible behaviour.” 

The BCCA concluded that the BCSC erred in its analysis of the CERB issue because it failed to consider the broader policy considerations identified in the caselaw.  The BCCA did not agree with the lower court’s view that the reason why the employee received CERB payments was because she was terminated.  It determined that, in fact, the employee received the CERB payments because she was laid off for reasons relating to COVID-19. 

The BCCA acknowledged that a compensating advantage issue existed on the facts because CERB payments were a subsidy for the loss of wages that resulted from the employer’s breach of the employment contract. Regardless, the BCCA concluded that the CERB payments should not be deducted based on the following broader policy considerations:

• “It seems wrong” for an employer that breached the employment contract to enjoy a windfall from an income support program that was designed to benefit workers impacted by the COVID-19 pandemic. The government’s intention is that any windfall should go to the worker.
• The CERB payments are a matter between the employee and the appropriate authority and do not concern the respondent company [i.e., the employer].
• 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:
  
  • With regard to equal treatment of those in similar situations, the BCCA noted that employees who were terminated the day before the expiration of the temporary layoff period presumptively have their notice period run from that point forward and CERB payments received before that date are not deductible.  When an employer allowed the temporary layoff period to expire without terminating the employee’s employment, however, as in this case, the ESA deems the termination date to have occurred at the beginning of the temporary layoff period.  The BCCA stressed that the deductibility of CERB payments becomes a more significant issue in these circumstances and found that, “Overall, the desirability of equal treatment of those in similar situations favours not deducting CERB.”
  • With regard to providing incentives for socially desirable conduct, the BCCA found that, “non-deductibility would remove the incentive for an employer to manipulate matters by the timing of their termination of an employee on temporary layoff by allowing the temporary layoff period to expire.”  The court noted that it is in society’s best interests for laid-off employees to be provided with notice of their termination within the time prescribed by law, and it determined that recipients of CERB should be entitled to their full damages award even if their employer did not terminate their employment within the temporary layoff extension period.
  • With regard to the need for clear rules, the BCCA noted that CERB was “a short-lived exceptional benefits program designed to apply broadly, quickly, and simply.”  It expressed concern that this goal would be threatened if the deduction from the award did not occur until the realization of any income tax impacts on the employee.

Noting that “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,” the BCCA concluded that this would not be the result if CERB was not deducted.  The court noted that the following policy considerations, not addressed by the BCSC, did not favour the deductibility of CERB payments from the award:

• CERB was an emergency measure delivering financial aid during the early weeks and months of an unprecedented global pandemic.
• Although the goal of CERB was to mitigate harm to individuals in a moment of great uncertainty, many people lost their livelihoods due of the pandemic despite CERB. It would be “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.

The court allowed the appeal and took the opportunity to note that in the BCSC cases that favoured deductibility (including its decision in this case), the court’s decisions were influenced by the judge’s prediction whether the CERB payments might be repayable by the wrongfully dismissed employee.  The BCCA disagreed with this approach, noting that this factor did not concern the employer and was, instead, a matter between the employee and the authorities administering the CERB program.

Finally, the BCCA decided that the lower court judge’s findings of fact precluded an award of punitive damages because there was no evidence of an ulterior motive or other grounds that would render the employer’s conduct “harsh, vindictive, reprehensible and malicious.”

Bottom Line for Employers

We have seen some inconsistency in the approach Canadian courts have taken as to whether an employee’s entitlement to damages in lieu of reasonable notice should be reduced by the amount of CERB they received.  In Yates, the BCCA was the first appeal court to render a decision on this topic.  This decision has provided a measure of relief from the ambiguity created by inconsistent lower court decisions.

We will continue to report on any decisions rendered on this topic.