In the aftermath of the COVID pandemic as wrongful dismissal claims go to trial, the courts have been struggling with whether CERB benefits should reduce wrongful dismissal awards. With recent decisions of the Alberta and B.C. Courts of Appeal, it appears likely the final answer is: No. But these decisions raise challenging issues about when employees should be allowed to “double recover” when they lose income due to termination of employment.
In past decades, the courts developed the guiding principle that, as a general rule, if a dismissed employee received other compensation for loss of income (referred to as a “collateral benefit”) during the period covered by a traditional common law severance award over a “reasonable notice period”, that other income did not reduce their severance award if:
- The employee had contributed, even notionally, to fund that collateral benefit. For example receipt of LTD benefits where the employee paid all or part of the premium or receipt of pension benefits, including CPP benefit, was held not to reduce severance owing since the employee funded, in part, the collateral benefit;
- the employee had to repay the collateral benefit on receipt of the severance, as with EI benefit; or
- the collateral benefit was not directly compensating for the same loss of employment income.
However, CERB was a unique case. Employees did not fund the benefit, which was paid by the government to offset exactly the same loss of employment income for which wrongful dismissal severance awards compensate. In many, but not all, cases, the very reason the employee was laid off was the impact of the COVID epidemic and related public health measures such as lockdowns on the employer’s business. This extraordinary economic disruption forced many otherwise viable employers to temporarily or permanently lay-off employees, often due to employer economic hardship.
The courts wrestled with two equally persuasive arguments:
- Why should employees benefit by recovering both severance and CERB benefit for the same period of time when the latter was designed and paid to cover this same loss of income yet was not repayable or employee funded?
- Why should employers who owe contractual severance save on severance costs because the government provided an income replacement benefit for the same period of time?
For an economist focused on efficient allocation of resources, the answer would be (a). But perhaps the ideal solution would have been to include terms in the CERB legislation which force employees and employers to ensure CERB was repaid when and if severance was paid covering the same period, as happens with EI benefits. This was a prime example of unnecessary government over-spending on COVID-19, along with excessive employer wage subsidies through CEWS, for which we are all now paying through higher deficits and interest on government debt.
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