BC Court Deducts CERB From Wrongful Dismissal Award

Author: Mike Weiler, KSW Lawyers Employment & Labour Group (mweiler@ksw.bc.ca)

Many clients have wondered what the impact of COVID would have on terminations and wrongful dismissal claims. It was inevitable that we would see decisions dealing with these issues as we come out of (hopefully) the worst of the pandemic and move into Phase #2 and beyond. A recent case involving a car dealer touched on many important issues including those related to COVID.

In Hogan v 1187938 B.C Ltd., 2021 BCSC 1021 the Plaintiff was employed by a car dealership since 1998. He began as a mechanic and had been promoted to Assistant Service manager at the time of his dismissal in 2020. He was, like many employees, issued a temporary layoff notice on March 24th 2020 with the expectation of being called back to work. The pandemic continued to impact the dealership and on August 28th, 2020 the Plaintiff was formally dismissed and was paid $13,255 in severance pay. While on layoff, the Plaintiff received $14,000 in CERB benefits, plus EI benefits.

The Plaintiff was offered work with a related car dealership in the lower position of service advisor effective April 1st 2021. The offer was conditional on the settlement of the claim and included a further payment from the Defendant of lost wages up to the date of rehire (April 1, 2021) plus any additional shortfall between wages from the previous job and the new job. The Plaintiff turned the offer down—a really gutsy call but ultimately was successful at trial.

A number of issues were canvassed by the Court. Time and space do not allow a full detailed analysis so I will simply highlight key points. If you want to learn more about the case please give Mike or Chris a call.

Procedure – Summary Trial

The Rules of Court allow a Plaintiff to proceed by way of summary trial instead of a full trial. The procedure is based on affidavit evidence and examination for discovery transcripts only versus live witness testimony in full trials. It is cost effective and efficient and will be allowed so long as the evidence on critical points does not turn on credibility. The parties here agreed to the procedure. The Court endorsed its use pointing out that it was proportionate, timely and cost effective. Plaintiffs often use this procedure as the notice period might extend well beyond the trial thus minimizing the impact of potential mitigation.

A word of caution. Parties are encouraged to ensure they follow the procedures and rules of evidence. In one recent case involving a car dealership the defendant failed to follow the court’s rules and protocols resulting in delay, extra costs and the ire of the court. It was not surprising that the court awarded the Plaintiff in that case the high end notice period he sought.

 

Constructive Dismissal

The Plaintiff argued he was constructively dismissed in March 2020 when he was temporarily laid off due to COVID. The Defendant argued he accepted the temporary layoff so his termination occurred in August 2020.

The Court held that the Plaintiff was constructively dismissed in March 2020. There was no evidence the contract of employment allowed the Defendant to unilaterally place employees on temporary layoff and in fact this was not a temporary layoff. The court accepted that the Defendant acted in good faith for legitimate business reasons but at the end of the day the layoff was a termination.

It does not appear that the Defendant argued that the temporary layoff brought about by COVID 19 was a frustration of contract.

 

Notice Period

The court considered the Plaintiff’s age, (52), length of service (22 years), position (mid manager) and availability of alternate positions. It accepted the Plaintiff’s argument and awarded 22 months’ notice.

This decision is important – many argued that the courts would sympathize with employers and would lower the notice periods given the impact of the pandemic on employers. Indeed here the Defendant argued that the automotive industry was depressed but that factor actually worked in favour of the Plaintiff’s argument for a longer notice period as it was difficult to find employment. The Court of Appeal has held that economic circumstances can be used to increase the notice period for employees but it cannot be given undue weight. It appears that remains good law as in this case although it was considered it did not lead to an unreasonably high notice period when compared to other decisions.

Mitigation

The offer of employment by a related company coupled with the Defendant’s offer to make the Plaintiff whole up to the point of the new employment, on its face suggests a strong mitigation defense. However the court rejected the mitigation argument. It was concerned about the fact that the job was a demotion and it required a lot of overtime that the Plaintiff would have trouble doing as he had to care for his sick children. But the key reason appears to be the requirement that the Plaintiff compromise his legal claim in order to get the job—something the court felt was unreasonable.

Damages and Deductibility of CERB Payments

The Plaintiff claimed that damages should be based on his 2019 income which included a bonus. The Court rejected that argument because there were no bonuses paid in 2020 and none likely to be paid in the foreseeable future. Therefore damages were based on salary.

The most important aspect of the decision is the fact the Court agreed with the Defendant that the $14,000 in CERB payments should be deducted from the damage award. Unlike EI that has a clawback provision, there was no evidence that the Plaintiff would have to pay the CERB benefits back. Neither the employer nor the employee contributed to the benefits. This is an important win for employers. Interestingly, in Ontario two different judges have issued opposing decisions on this CERB deductibility issue – we expect the Ontario Court of Appeal will decide for that province soon. It is also possible that the Plaintiff will appeal this BC decision – we will keep you posted on any developments!

Takeaways for Employers

For over 35 years I have counselled employers to consider limiting their liability for wrongful dismissal claims by having enforceable written contracts. Such contracts should also include other provisions for clarity such as a provision for temporary layoffs, suspensions and clear descriptions of bonuses and incentive payments. In this case it could have been possible for the employer to limit its liability to 8 weeks’ (2 months) severance pay as per the Employment Standards Act versus a 22 month damage claim. Why pay 20 months extra plus all the legal fees? As employers come out of COVID it would be worthwhile to once again consider this option.

Note to Readers: This is not legal advice. If you are looking for legal advice in relation to any workplace matters, please contact Mike Weiler.

Mike Weiler is senior counsel with the Employment & Labour Group at KSW Lawyers (Kane Shannon Weiler LLP). Mike specializes in labour law and helping unionized employers, and has more than 35 years of experience practicing employment, labour and human rights law, and related areas, including governance and shareholders rights (and corporate defences to same). He represents employers, management, executives and other senior employees.

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