Lay-Off is Constructive Dismissal and Deductibility of CERB

Young woman holding head in hands looking at computer

At Hutchison Oss-Cech Marlatt, we pride ourselves on providing up to date advice and information in employment law, including the impact of the COVID-19 Pandemic on employment law and the assessment of employment law claims. Dana G. Quantz provides the follow summary of an important case in employment law.

Is a unilateral lay-off a constructive dismissal?

In short, the answer is yes. In 2020, there were a significant number of lay-offs by employers with closures of businesses, government shut-downs, and employers and employees needing to accommodate themselves to the new reality of employment in the COVID-19 era.

In today’s case, we have a decision from the BC Supreme Court where an employer chose to unilaterally lay-off an employee in an industry that does not typically have lay-offs or periods of down time (e.g., forestry or fishing). You can find more information on our COVID-19 employment law page. This individual worked at Mercedes-Benz Vancouver and was laid off during the shut-down in late March 2020. However, the employee did not consent or accept the lay-off. As the decision was the employer’s alone, the court found that this constitutes a constructive dismissal allowing the employee to claim common law damages, which was 22 months of salary. Accordingly, this lay-off has resulted in a significant award for an employee.

The case name is Hogan v 1187938 BC Ltd, 2021 BCSC 1021, and was decided by the Honourable Madam Justice Gerow. Her Ladyship reasons about finding constructive dismissal the following:

[33] In this case, the defendant’s decision to layoff the plaintiff was unilateral. There is no evidence that the plaintiff consented or acquiesced to being laid off. Although the defendant points to the fact the plaintiff signed the temporary layoff notice, the plaintiff deposes he was asked to sign and return the layoff notice so that human resources could issue him a record of employment. At the time, the plaintiff was told the layoff was temporary and he expected to be called back to work. Instead, on August 30, 2020, the plaintiff received a letter from the defendant advising his employment was permanently terminated.

[34] The defendant did not provide any evidence that the contract of employment authorized it to unilaterally place employees on temporary layoff.

[35] The defendant points to the fact that the layoff and termination were the result of the economic fallout of the pandemic.

[36] While the employer may have been acting in good faith for a legitimate business interest in laying off the plaintiff, the employer’s act had a significant impact on him. The plaintiff was not paid during the layoff, and the layoff was not temporary as promised. He was not called back to work. Rather the defendant sent the plaintiff a letter of termination in August.

[37] Given the unilateral nature of the layoff and the subsequent termination, it is clear from the defendant’s conduct that it no longer intended to be bound by the contract at the time it laid off the plaintiff. Accordingly, I find the plaintiff was constructively dismissed when he was laid off.

[38] I have concluded the plaintiff was constructively dismissed as of March 30, 2020 as he was on scheduled vacation from March 22 to March 30.

What was the reasonable notice?

The importance of the constructive dismissal finding also factors into when the notice period becomes relevant. As the notice period starts in the height of the pandemic, it results in the employee getting wages from March 30 forward instead of when the economy started to open up. Further, Her Ladyship concluded that the automotive industry being depressed because of the pandemic means a higher notice period is required, reasoning as follows:

[50] For the following reasons I conclude the reasonable period of notice is 22 months.

[51] At the time of his dismissal, the plaintiff was 52 years old, and was an assistant service manager. His job duties were managerial and included the oversight and supervision of all operations and staff of the service department. However, he did not have independent authority to hire or terminate employees, or to set budget or financial goals for the service department or the Dealership generally. As noted earlier, the plaintiff completed an apprenticeship program in the UK and a Canadian technical program as an automotive technician but has no formal training beyond that.

[52] The defendant points to the fact the plaintiff has applied for at least 9 comparable positions. The defendant argues the prevalence of those positions suggests a lower notice period is warranted.

[53] However, there is evidence from the defendant that the automotive industry is depressed because of the pandemic. The plaintiff deposes that the results of his job search have been disappointing. As a result, I cannot agree with the defendant that a lower notice period is warranted.

[54] After considering the factors set out in the case law, as well as the submissions and cases provided, and I have concluded that the plaintiff was entitled to a notice period of 22 months.

Deductibility of Canada Emergency Response Benefit (“CERB”)

Lastly, we have authority now in British Columbia from this case on whether the CERB is deductible from wrongful dismissal damages. The issue came squarely before the court in this case and Her Ladyship, after reviewing the relevant authorities, concluded that the CERB benefit is deductible. Her Ladyship reasoned as follows:

[89] The governing principle in damages for wrongful dismissal is that the employee should be put in the economic position he would have been had reasonable notice been given. There are exceptions to the strict application of this principle of contract law: IBM Canada Limited v. Waterman, 2013 SCC 70 at para. 2 3, 16.

[90] In Waterman, the Court dealt with the issue of when a collateral benefit or “compensating advantage” received by a plaintiff should be deducted from damages otherwise payable for a wrongful dismissal. The case concerned whether pension benefits should be deducted from damages for wrongful dismissal.

[91] The Court found that the pension benefits in issue were not deductible because they were a form of deferred compensation for the employee’s service and were not intended to compensate for wage loss. The court a para. 32, stated that in determining the question of whether a benefit that would result in compensation to the employee beyond his or her actual loss should be deducted, it must first be determined if the benefit would not have been received “but for” the employer’s breach, and whether the benefit is intended to indemnify the type of loss arising from the breach.

[92] In Waterman at para. 44- 47 and 56, the court discussed the private insurance exception, and distinguished two cases in which the exception was not applied to sick leave benefits and disability payments. Generally, benefits received from private insurance payments are not deducted from damage awards. In the two cases where the benefits were deducted it was found that the benefits were intended to be an indemnity for the type of loss that resulted from the employer’s breach but the employee had not contributed in order to obtain the entitlement: Sylvester v. British Columbia, [1997] 2 S.C.R. 315; and Ratych v. Bloomer, [1990] 1 S.C.R. 940.

[93] The only authority I have been provided with dealing with CERB payments is the case of Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998. The court at para. 21 found that the CERB paid “was considerably below the base salary previously earned by the plaintiff to say nothing of his lost commission income”. The plaintiff received a base salary of $60,000 but his compensation for his last year of employment was $145,186.30, including commissions. The court declined to deduct the CERB payments, finding that it would not be equitable to reduce the employee’s entitlement to damages given his limited entitlement from the employer post-termination relative to his actual pre-termination earnings.

As you can see the authorities to date have not squarely addressed the CERB benefit but several factors favoured it being deductible, including that it was not funded by employees and not a form of indemnity or deferred salary. After reviewing the above authorities, Her Ladyship concluded that:

[99] The EI benefits should not be deducted. Section 45 of the Employment Insurance Act, S.C. 1996, c. 23, requires a claimant to repay any unemployment benefits if an employer becomes liable to pay their earnings.

[100] The plaintiff received $14,000 in CERB payments in 2020. The CERB payments raise a compensating advantage issue. If the CERB payments are not deducted the plaintiff would be in a better position than he would have been if there had been no breach of the employment contract.

[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 Iriortakis 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.

[108] Having considered the case law and the evidence, I have concluded the CERB benefits of $14,000 should be deducted from the award of damages.

Take Away

The primary take-aways from this blog post are that a unilateral lay-off in an industry that does not regularly have down time is constructive dismissal and the CERB is deductible from wrongful dismissal damages.

Book Your Consultation