Employers May Not Deduct CERB From Wrongful Dismissal Damages

When an employee’s employment contract is terminated without notice or without cause for the termination (that is, no wrong doing on the part of the employee) they are entitled to compensation in lieu of notice.

Generally, an employee who is dismissed without reasonable notice of their termination is entitled to damages from their employer for breach of contract based on the income they would have earn during the “notice period.” The amount of income that the employer has to pay for the notice period is reduced by any amounts the employee receives as a result of their mitigation. As an example, this means that if a court were to decide that a reasonable notice period is six-months but the employee obtained a new job after one month of unemployment, the previous employer would likely have to pay one-month of income to the employee. This is because employers should not have to compensate an employee for damages that the employee did not actually experience.

It not uncommon for an employer and former employee to disagree about the impact of mitigation in calculating an employee’s damages for pay in lieu of reasonable notice. The COVID-19 pandemic has created additional considerations when it comes to mitigation, specifically as it relates to the receipt of the Canadian Emergency Response Benefit (“CERB”). The question courts have had to grapple with is whether an employee who was dismissed and is entitled to damages in lieu of notice should have those damages reduced if they received CERB.

This question has been before different courts across Canada and the courts have not always agreed on what the correct answer is. Some early decisions have found that CERB benefits should reduce the damages that an employer has to pay. Other decisions have determined that the CERB payments were emergency ad hoc benefits that employees received in response to a pandemic which should not reduce their entitlement to damages from employers. The recent Ontario case of Gracias v Dr. David Walt Dentistry indicates that in Ontario, courts will not reduce damages that an employee is entitled to if they received CERB. The Court of Appeal (a higher court) in British Columbia has similarly adopted this reasoning. Both of these cases were heard in 2022. These more recent decisions suggest that going forward, the receipt of CERB is not likely to reduce an employees’ pay in lieu of notice.

It is noteworthy than in one of the original Ontario cases deciding that CERB should not reduce damages, the court considered the fact that CERB payments of approximately $2,000 per month were significantly lower than the employee’s income. As a result, the court found that CERB should not reduce the employee’s damages. It remains to be seen if a court will require an employer to pay damages in lieu of notice if the employee was earning approximately the same amount of money from their job that they received through CERB. If an employee that was dismissed was earning approximately $2,000 per month and received CERB, not deducting CERB from their damages would effectively double their income. On the other hand, it may appear inequitable to not permit those who earned less during the pandemic to not experience the same benefits as others.

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