Under employment law, any reasonable notice or payment in lieu that is due and owing to an employee at termination is not meant to reward the employee for past service or punish the employer. Instead, it is designed to put the terminated employee back into the same position they would have been had they not been terminated and provide enough notice for them to find new employment.

The Duty to Mitigate

In a claim for wrongful dismissal, there is a legal duty imposed on the terminated employee to mitigate their damages. This duty begins at the date of termination and requires the employee to take reasonable steps to find new employment. Any mitigation amounts received during the reasonable notice period would be deducted from the total amount awarded to the employee. With the introduction of the pandemic related federal income supports, the Courts have had to determine whether receipt of these supports impact an employee’s duty to mitigate and whether they are deductible from any damage award.

Throughout the COVID-19 pandemic, the federal government provided the following income supports:

1. Employment Insurance Benefits (“EI”); and
2. The Canada Emergency Response Benefit (“CERB”).

Employment Insurance

The law is well established in that any regular EI benefit received during the reasonable notice period does not reduce an employer’s liability in the event of a wrongful dismissal.[1] Any compensation advantage gained by a dismissed employee is dealt with by the overpayment and repayment requirements under the Employment Insurance Act.[2] In other words, if an employee receives a severance amount by way of either settlement or court order, any EI payments received during the reasonable notice period may be required to be returned.

Usually, an employee has an obligation to inform Service Canada who will then issue the employee a “Notice of Debt” certificate for the sum of money that it requires to be repaid. It is worth noting that in light of the pandemic, the federal government introduced an interim order providing employees dismissed between September 27, 2020 and September 11, 2021 may not be obligated to repay any EI received over the same period reasonable notice of a severance amount.[3]

But What About CERB?

CERB was an income replacement program introduced by the federal government to restore income lost due to the COVID-19 pandemic. Eligible applicants received $500.00 per week between March 15 and September 26, 2020. To date, the case law on how the receipt of CERB impacts a terminated employee’s entitlement amount is mixed.[4]

In Ontario Irotakis v Peninsula Employment Services dealt with a wrongful termination matter where the employee was terminated from his employment without cause after just 28 months of employment. At the time of his termination, the employee was 56 years hold and held the position of Business Development Manager. The Court found the employee had been wrongfully dismissed and awarded the employee 3 months in reasonable notice damages.  In assessing mitigation, the employer asked the Court to deduct the CERB payments Mr. Iriotakis received during the applicable notice period from the total damage award.

The Court ultimately held that it would not be equitable to reduce an employee’s entitlement to damages by the amount of CERB payments, especially since the level of benefit paid from CERB was considerably lower than the employee’s salary. The Court stated that CERB could not be considered in same light as EI benefits when it came to calculating damages for wrongful dismissal. Instead, CERB was an ad hoc program that neither the employer or employee paid into or earned entitlement to over time beyond their general status as Canadian taxpayers.

In the BC decision Hogan v 1187938 BC Ltd, the Court distinguished the matter from Irotakis and held the CERB payments were to be deducted from the award of damages. Having received $14,000 in CERB, the Court determined that if the CERB payments were not deducted from the damage award, Hogan would be in a better economic condition than he was prior to his termination, which is contrary to the general rule of contractual damages. In its reasons the Court deemed the CERB payments to be a collateral benefit, with repayment requirement and no significant disparity between the employee’s employment compensation and the CERB payment.

Conclusion

These two cases fall on opposite sides of the argument, leading to two conflicting decisions on whether CERB impacts an employer’s liability for damages. While both decisions turned on the particular facts of each case, a key consideration in determining whether it is appropriate to deduct CERB may be an equitable one: whether there is a significant disparity between the CERB payment and the employee’s compensation.

The courts in Alberta have yet to provide any guidance on the subject, however we can expect more decisions on this subject in the coming months and years as pandemic era wrongful dismissal claims make their way through the judicial system.