Labour and Employment Law Blog

In Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398 the British Columbia Court of Appeal (“BCAA”) recently resolved much of the uncertainty surrounding whether or not payments received under the Canada Emergency Response Benefit program (“CERB”) could be deducted from damages awarded for wrongful dismissal.

The BCCA unanimously held that CERB payments cannot be deducted from damages awarded for wrongful dismissal, and that if that results in a windfall, it should be one that benefits the wrongfully dismissed employee and not the employer.

Background Facts

Ms. Yates was employed by Langley Motor Sport Centre Ltd. (“Langley Hyundai”) as marketing manager and event coordinator. As a result of the COVID-19 pandemic, Ms. Yates was placed on a temporary layoff in March 2020, which was extended for various periods under the Employment Standards Act, R.S.B.C 1996, c. 113 (the “ESA”) and the Employment Standards Regulation, B.C. Reg. 396/95, until it ended on August 30, 2020. During her temporary layoff, Ms. Yates applied for and received CERB payments, which from the end of March 2020 to August 30, 2020, totaled $10,000.

Pursuant to the terms of the ESA, as Ms. Yates was never recalled to work or advised that her layoff would be permanent, her employment was deemed terminated retroactive to March 2020 when she was initially placed on temporary layoff. Ms. Yates commenced a civil action against Langley Hyundai for wrongful dismissal.

Trial Court’s Decision

At trial, Ms. Yates sought pay in lieu of notice equivalent to eight months’ salary. Langley Hyundai conceded that Ms. Yates was entitled to pay in lieu of notice but argued that the appropriate notice was one to two months.

At the time of her termination, Ms. Yates was 30 years old, had worked for Langley Hyundai for approximately eight months and had an annual salary of $60,000. The court determined Ms. Yates was entitled to five months’ notice.

With respect to the deductibility of the CERB payments received by Ms. Yates during the five month notice period, Langley Hyundai argued that they should be deducted from the award because, based on the Government of Canada website, Ms. Yates would not be required to repay the CERB payments such that not deducting them would constitute impermissible double recovery. Essentially, Ms. Yates would be in a better position than she would have been had her employment not been terminated.

The trial judge, relying on the Supreme Court of Canada’s decision in IBM Canada Ltd. v. Waterman, 2013 SCC 70 [Waterman] regarding when a collateral benefit (such as CERB payments) should be deducted from damages, the BC Supreme Court’s decision in Hogan v. 1187938 B.C. Ltd., 2021 BCSC 1021, and the fact that the available evidence showed that Ms. Yates would not be required to repay the CERB payments as a result of being awarded damages for wrongful dismissal, held that the $10,000 in CERB payments received by Ms. Yates during the notice period should be deducted.

BCCA Decision

Ms. Yates’ appealed the trial court’s decision to deduct the CERB payments from her notice period damages.

The BCCA started by noting that the general rule is that damages for breach of contract should place the plaintiff in the economic positon they would have been in had the defendant performed the terms of the contract. However, difficulties arise where there is a “compensating advantage” or “collateral benefit”, which may place the plaintiff in a better positon; this was the issue before the Supreme Court of Canada in Waterman. The BCCA reviewed Waterman in detail, noting:

1. a compensating advantage arises where a plaintiff receives a benefit that results in compensation beyond their actual loss and either: (i) the plaintiff would not have received the benefit but for the defendant’s breach, or (ii) the benefit is intended to be an indemnity for the sort of loss resulting from the defendant’s breach;
2. there are “well-recognized exceptions” where certain compensating advantages are not deductible, including charitable gifts and private insurance;
3. there are “three main policy considerations” to explain why a benefit should or should not be deducted: “punishment, deterrence, and the provision of incentives for socially responsible behaviour”; and
4. when determining if a compensating advantage is deductible, “broader policy considerations” such as 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 should be considered. ^[1]

Having found that the CERB payments amounted to a compensating advantage, the BCCA found that the trial judge had erred by not considering or grappling with the broader policy considerations identified by the court in Waterman. Having weighed the broader policy considerations, the BCCA found that they properly militated against CERB payments being deducted from wrongful dismissal damages, because:

1. it would be wrong for an employer who has breached the employment contract to enjoy a windfall from an income support program designed to benefit those impacted by the COVID-19 pandemic;
2. if a windfall is the result, it seems to better reflect the intention of Parliament that it go to the worker;
3. CERB payments were akin to employment insurance benefits, in that they are a matter between the employee and the appropriate authority and do not concern the employer; and
4. 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, tipped the balance in favour of non-deductibility.^[2]

Accordingly, the BCCA allowed Ms. Yates’ appeal and reversed the deduction of the CERB payments.

Summary

Until now it was unclear whether CERB payments were properly deductible from damages for wrongful dismissal as the limited case law on this point was unsettled, with CERB payments being deducted in some but not all cases.

The BCCA’s decision is now strong authority for the proposition that employers will no longer be able to benefit from CERB payments received by employees during a reasonable notice period, which may increase an employer’s liability for damages for wrongful dismissal occurring during the COVID-19 pandemic.

_{[1] Yates v. Langley Motor Sport Centre Ltd., 2022 BCCA 398 [Yates], at paras. 27 – 34}

_{[2] Yates at paras. 47 - 65}