Alberta Court of Appeal rules CERB income is not deductible from wrongful dismissal damages

The Alberta Court of Appeal has weighed in on an issue that has divided courts for the better part of two years – whether receipt of Canada Emergency Response Benefit (CERB) payments following a wrongful dismissal reduces the damages an employer owes to its former employee for failing to provide notice of termination. Until recently, lower courts across Canada were divided, with some finding CERB benefits are deductible, and others holding the opposite. Following Oostlander v Cervus Equipment Corporation, we now know that in Alberta, CERB benefits are not deductible.

The compensating advantage problem

Generally, when employees are terminated without the notice they are entitled to at common law or under contract, they can bring a wrongful dismissal claim against their former employer for the amounts they would have received during that notice period. If they are successful, a court may award employees damages for the income they would have earned during the required notice period. 

In some scenarios, sudden unemployment triggers benefit payments for employees. For example, they might receive statutory termination pay, employment insurance, pension payments, and so on. In these scenarios, employees might receive a windfall (they might “double dip”) if they receive those new forms of income as well as damages for wrongful dismissal. Courts call this a “compensating advantage,” because the payment only arises due to the employee’s termination.

There is a large body of case law dedicated to determining whether a benefit payment is a “compensating advantage,” and whether it should reduce the damages an employer owes to the employee to avoid a windfall to the employee. For example, statutory termination pay is deductible from wrongful dismissal damages, but employment insurance and pension payments are typically not deductible.

A new “compensating advantage” problem has arisen out of the public support programs created by Canadian governments to respond to the COVID-19 pandemic. In particular, courts have been divided on the question of whether CERB payments should be deducted from wrongful dismissal damages. If they are not, and employees are not required to repay the benefits following a damages award, an employee receives a windfall. If they are deducted, the employer effectively receives the benefit of the CERB payment as an offset against the damages it owes.

The trial decision in Oostlander

The lower court decision, Oostlander v Cervus Equipment Corporation, 2022 ABQB 200, involved a heavy-duty mechanic who was owed 24 months’ notice of termination, but received only one month of notice. The trial judge awarded damages of nearly $150,000, but deducted CERB payments the employee received after termination. 

The trial judge acknowledged Canadian courts were divided on the subject of CERB deductibility. At the time, many decisions focused on whether or not the employee would have to repay CERB income upon receiving overlapping wrongful dismissal damages. The Canadian government has not been clear on whether such repayment will be required. In the absence of evidence, the trial judge assumed the employee would not have to repay the benefits and deducted them from the damages award. 

The employer and employee both appealed the trial judge’s decision on different grounds, with the employee arguing the CERB benefits should not have been deducted.

The Yates decision in British Columbia

Before the Oostlander appeal was heard, the British Columbia Court of Appeal released Yates v Langley Motor Sport Centre Ltd., 2022 BCCA 398, which addressed the CERB deductibility issue. In Yates, the court held that CERB payments were a “compensating advantage,” but are not deductible based on broad policy considerations. The court noted CERB payments are a matter between the employee and the Canadian government, and do not concern the employer. It held that the issue of repaying CERB was uncertain and, again, of no concern for the employer. Ultimately, the court stated that three policy considerations tipped the scales against deductibility:

• The desirability of ensuring all CERB deductibility cases are decided on the same basis;
• Avoiding the possibility that employers will be incentivized to terminate employees without notice in the hopes of reducing their liability through deduction of CERB benefits; and 
• The need for clear rules that are easy to apply.

The appeal decision in Oostlander

In the Oostlander appeal (2023 ABCA 13), the Alberta Court of Appeal found the analysis in Yates to be compelling and adopted that reasoning. The Court of Appeal concluded that, “Broader policy considerations militate against the deductibility of CERB from damages for wrongful dismissal.” 

To date, Alberta and British Columbia are the only provinces to have appellate-level decisions confirming CERB payments are not deductible from damage awards in wrongful dismissal cases.  

The takeaway

Going forward, Alberta employers likely will not succeed in arguing CERB income is deductible from wrongful dismissal damages. This development is likely to have a material impact on wrongful dismissal case law that arises from terminations that occurred as a result of, or in the same timeframe as, the COVID-19 pandemic.

The author would like to thank Saveria Poletto, articling student, for her help in preparing this legal update.