This issue has arisen in several recent mediations that I have conducted. As regular readers will know, Employment Insurance benefits are usually deducted from money paid out in lieu of notice of dismissal. At mediation, the plaintiff will be asked if they received EI benefits; if they did, then a mechanism for obtaining a statement of account/debt from Service Canada, and a holdback of funds to cover any repayment obligation, is typical.
EI during the pandemic
However, like just about everything else in our lives, the pandemic has changed the way we do things. As part of its efforts to support workers who had their income reduced or eliminated altogether, the Federal government issued an Interim Order which effectively means that for anyone that lose their job on or after September 27, 2020 and before September 25, 2021, any termination pay, severance pay or wrongful dismissal damages they receive will not affect their EI entitlement.
This will make negotiations and mediations much simpler in many ways, especially since the duty to check with Service Canada and obtain confirmation of any repayment option can delay the finalization of a settlement for months. Based on the Interim Order, that process is not necessary for dismissals between the dates above.
At mediation, some defence counsel have asserted that in light of this, employers should get a “discount”; that they should be able to reduce the amount they have to pay to effectively avoid having the plaintiff “double dip”. Plaintiff counsel reject this, primarily on the basis that employees contribute to the EI coverage and therefore should not have their damages reduced.
CERB
Unfortunately, much like the issue of whether temporary layoffs caused by the COVID-19 pandemic will be treated as constructive dismissals, the question of whether CERB payments must be deducted from settlement funds in a wrongful dismissal action has received inconsistent judicial treatment, leaving us in a state of uncertainty.
With respect to CERB and how it impacts a plaintiff’s economic recovery, we have had a few judicial decisions so far. In Iriotakis v Peninsula Employment Services Limited, the Court treated CERB differently than our traditional way of treating EI benefits, since according the Justice Dunphy, “…CERB cannot be considered in precisely the same light as Employment Insurance benefits when it comes to calculating damages for wrongful dismissal. CERB was an ad hoc programme and neither employer nor employee can be said to have paid into the program or “earned” an entitlement over time beyond their general status as taxpayers of Canada.”
Notably, the Court in that case held that “…on these facts, I am of the view that it would not be equitable to reduce Mr. Iriotakis’ entitlement to damages from his former employer by the amount of CERB given his limited entitlements from the employer post-termination relative to his actual pre-termination earnings.” That wording certainly leaves open the possibility that other factual scenarios could result in a different outcome.
The next relevant decision is Hogan v 1187938 B.C. Ltd, in which the Supreme Court Of British Columbia found that damages for wrongful dismissal should be reduced by the amount of CERB benefits received during the relevant time period. The reasoning is instructive:
[101] But for his dismissal, the plaintiff would not have received the benefit. The nature of the benefit is an indemnity for the wage loss caused by the employer’s breach of contract. There is no evidence that the plaintiff contributed to obtain the benefit by paying for it directly or indirectly.
[102] In my view, this case is distinguishable from Iriotakis where the CERB payments were not deducted. In Iriotakis, the plaintiff was terminated after 28 months. The court determined the reasonable notice period was three months, and determined that on the specific facts of the case, particularly the disparity between the payments and the employee’s loss of salary and significant loss of commission, it would not be equitable to reduce his entitlement to damages by the CERB payments. In Iriotakis, the employment contract provided the plaintiff was not entitled to commission income upon termination. The evidence in Iriotakis was that the plaintiff’s salary on which his past wage loss was based amounted to less than half of his actual income.
[103] In this case, the plaintiff’s damages per month are based on the income he would have earned if he had continued to work during the reasonable notice period. In other words, the plaintiff will be compensated for the income he would have lost. He did not suffer additional losses due a loss in commission income. As a result, there is not a large disparity between the plaintiff’s actual loss and the amount of damages he will receive.
[104] In Iriotakis the award for the lost wages was reduced by more than half as a result of the plaintiff’s employment contract, and retaining the CERB payments would not have put the plaintiff in a better economic position than he would have been but for the breach. In this case, if the CERB payments are not deducted the plaintiff will be in a better economic condition than he would otherwise be.
[105] The CERB payments are not private insurance, and neither the employer nor the employee contributed to them. As a result, they are not delayed compensation or part of the plaintiff’s earnings. There is no evidence that the plaintiff will have to repay the CERB.
[106] The CERB payments were intended to be an indemnity for the type of loss resulting from the employer’s breach but the employee had not contributed in order to obtain the entitlement. In my view, this is similar to the situation in Sylvester and Ratych, where the benefits were deducted as the employee had not contributed in order to be entitled to the benefit.
[107] As a result, I see no basis to depart from the general rule that contract damages should place the plaintiff in the economic position he would have been in had the defendant performed the contract.
For mediators, this uncertainty can be a blessing, as I can go into each room (physical or virtual) and say that their odds of success are unclear. For counsel and particularly for the parties, the uncertainty is far less helpful.
By Stuart Rudner
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