CERB is Not Mitigation Income
Update by Parmvir Padda, Lawyer and Erin Brandt, Cofounder
When an employee is dismissed from their employment, they have a duty to look for new work to mitigate their losses. If they are able to find new work during the period of reasonable notice, the employer’s liability to pay severance may be reduced.
In Yates v Langley Motor Sports Centre Ltd., 2021 BCSC 2175, the British Columbia Supreme Court (the “BCSC”) concluded that payments an individual received under the Canada Emergency Response Benefit program (“CERB”) is mitigation income, and therefore deductible from a wrongful dismissal severance award.
The BCSC decision was appealed to the British Columbia Court of Appeal (“BCCA”), and the BCCA took a different stance (see Yates v Langley Motor Sports Centre Ltd., 2022 BCCA 398 (“Yates”)).
Background
Ms. Yates was laid off from her employment due to Covid-19. While laid off, Ms. Yates collected $10,000 in CERB payments.
Langley Hyundai, Ms. Yates’ employer, extended Ms. Yates’ layoff period for as long as the British Columbia Employment Standards Act (the “Act”) allowed, and ultimately, never brought Ms. Yates back to work. Ms. Yates was dismissed, with her termination date backdated to the start of her initial layoff.
Ms. Yates brought a wrongful dismissal claim against Langley Hyundai.
Decision
The BCCA reconsidered the question of whether CERB was deductible from an award of severance. The BCCA focused their inquiry on whether the receipt of CERB payments caused the employee to receive compensation beyond their actual loss (known as a “compensating advantage”), and if so, whether policy reasons justified not deducting CERB payments.
To explain in plain language, a compensating advantage arises where an individual receives a benefit, such as CERB, that results in compensation beyond their actual loss and either:
The benefit was received because the individual’s employer breached their employment contract, or
The purpose of the benefit is to reimburse the individual for the type of loss resulting from the employer’s breach of their employment contract.
The BCCA determined that Ms. Yates received a compensating advantage. Ms. Yates lost her job for reasons related to Covid-19, and she received CERB payments for reasons that fell under category (2).
Nonetheless, the BCCA still found that policy considerations supported not deducting CERB payments from severance awards. Specifically, the BCCA concluded that it is wrong for an employer who breached an employment contract to enjoy a windfall from a program designed to benefit workers impacted by Covid-19. There were also broader policy considerations at play here, including:
The need for equal treatment for all in similar situations: whether an individual received CERB payments through a layoff period, or after they were dismissed, should not result in different treatment with respect to deductibility.
Providing incentives for socially desirable conduct: it is in the best interest of society if employers provide their laid off employees with notice of termination within the time prescribed by the Act.
The need for clear rules that are easy to apply: CERB was a short-lived program designed to apply broadly, quickly and simply. This goal is threatened by uncertain scenarios, such as having to adjust deductions from severance awards in the future due to unknown income tax impacts of CERB payments.
The BCCA found it unfair for businesses to rely on CERB to reduce their severance liabilities after they allowed temporary layoff periods to expire before expressly dismissing their employees.
In the end, Ms. Yates was successful, and her CERB payments were not deducted from her severance award.
Takeaway for Employees
Yates is a positive decision for employees. It establishes that an employee can receive both CERB and severance pay following dismissal. The government has not yet expressed any intention to claw back CERB payments that overlap with severance, which may, for some employees, result in a nice windfall.
Takeaway for Employers
Since CERB was introduced, the BC Supreme Court has issued opposing decisions on whether CERB payments should be deducted from severance awards. Yates is the first appellate decision on this issue and will therefore have a significant impact on future cases. In short, now that the BC Court of Appeal has weighed in, employers who dismissed employees while CERB was active will no longer be able to argue that an employee who received CERB should have their severance award reduced.
