BC Court reduces Wrongful Dismissal Damages finding that CERB Payments are to be considered Mitigation Income

Introduction

The recent decision in Hogan v. 1187938 B.C. Ltd., 2021 BCSC 1021 (“Hogan”), is the first British Columbia Supreme Court case to address the treatment of Canada Emergency Response Benefit (“CERB”) payments in connection with wrongful dismissal claims.

In doing so, the Court confirmed that damages for wrongful dismissal are intended to restore an employee to the economic position they would have been in had they received reasonable working notice of termination, not beyond. Accordingly, CERB benefits received during the applicable notice period should be deducted from wrongful dismissal damages claimed by a former employee.

Background

Mr. Hogan brought an action for wrongful dismissal against his former employer of over twenty years, an auto dealership. In March, 2020, the auto dealership placed Mr. Hogan on temporary lay-off after the COVID-19 pandemic caused a significant loss in business. The auto dealership subsequently terminated Mr. Hogan’s employment in August, 2020.

Mr. Hogan was unable to quickly secure new employment. He received both general employment insurance payments and approximately $14,000 in CERB payments from the government.

The Court concluded that Mr. Hogan was constructively dismissed when he was placed on temporarily lay-off in March, 2020, and that the appropriate reasonable notice period was twenty-two months. The Court then considered whether the CERB payment he received constituted mitigation income that should be deducted from his damages for wrongful dismissal.

Consideration of the CERB Payments

The Court concluded that the CERB payments should be deducted from Mr. Horgan’s damages based on the following:

  1. The CERB payments were intended to be an indemnity for Mr. Hogan’s lost earnings caused by his employer’s breach of the employment contract, but neither the employee nor his employer had contributed to the CERB payments in order to obtain the entitlement;
  1. Unlike general Employment Insurance (EI) payments where a claimant is required to repay any unemployment benefits if they receive pay in lieu of notice from their former employer, there is no similar requirement to repay the CERB payments; and
  1. Allowing Mr. Hogan to retain the CERB payments would be contrary to the purpose of wrongful dismissal damages because it would place him in a better economic position than he would have been in if he had received reasonable working notice of his termination.

Contrasted with the Ontario Decision

The Court distinguished its decision with an earlier Ontario Superior Court decision where CERB payments were not deducted from damages for wrongful dismissal.

In Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998 (“Iriotakis”), which we previously blogged about here, the plaintiff was wrongfully dismissed and received CERB payments. The majority of the employee’s remuneration had been commission-based, however, the employment contract disentitled the employee to any commission after termination. The plaintiff received a base salary of $60,000 but his remuneration for his last year of employment was $145,186.30 (mostly from commissions).

The Ontario Court determined that it would not be equitable to deduct the CERB payments due to the large discrepancy between the employee’s expected notice-period income and the damages for lost wages. Unlike in Hogan, retaining the CERB benefits in the Iriotakis case would not put the plaintiff in a better position than he would have been in if he had received reasonable working notice and had continued to earn commissions during the reasonable notice period.

Takeaways for Employers

In BC, the Hogan decision sets a clear precedent for deducting CERB payments from damages for wrongful dismissal if retaining the CERB payments would put the employee in a better position than what they would have earned during the reasonable notice period.

As a result of Hogan, employers should request information regarding CERB payments from any former employee claiming wrongful or constructive dismissal and factor such payments into their offers to settle and their mitigation evidence.

If you are an employer and need assistance, please reach out to any member of our Labour & Employment Group.

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