Over the past year, numerous Ontario employers have had to downsize their operations and dismiss staff in response to the ongoing pandemic. Many of those who have lost their jobs turned to government income replacement programs while looking for new employment.
There are three primary income replacement programs to which employees have applied during the pandemic: the Canada Emergency Response Benefit (“CERB”) (which closed to retroactive applications as of December 2, 2020); the Canada Recovery Benefit (“CRB”) (which remains in place from September 27, 2020 to September 25, 2021) and Employment Insurance (“EI”).
CERB was an income replacement program introduced by the federal government to restore income lost due to COVID-19. It was available to employees and independent contractors. CERB applicants received $500.00 per week between March 15 and September 26, 2020.
The CRB replaced CERB. It offers income support to employees, and self-employed persons, who are directly affected by COVID-19 and have no entitlement to EI benefits. Those eligible for CRB receive $1000.00 for each 2-week period ($900.00 after tax) and are required to re-apply for the benefit if their need continues past 2 weeks.
EI, unlike CERB and CRB, is a long-standing insurance program into which employers and employees pay. In order to apply for EI, an employee must submit a Record of Employment that shows the individual became unemployed through no fault of their own (i.e. a dismissal without cause rather than a voluntary resignation). EI entitlement is dependent upon both prior earnings and number of insurable hours.
Where a dismissed employee asserts that their former employer has failed to provide adequate notice of termination (or payment in lieu thereof), and the parties are unable to resolve this issue, the individual may bring a court claim seeking damages for wrongful dismissal. Such cases may take months, or years, to reach a conclusion (either in the form of a settlement or a court award). As such, while advancing their case and searching for new employment, individuals often access income replacement programs to offset lost wages.
Addressing EI during Wrongful Dismissal Litigation
In responding to wrongful dismissal claims, employers will often ask whether the individual has received EI benefits. While EI benefits are not deductible from wrongful dismissal damages (see: Brake v. PJ-M2R Restaurant Inc., 2017 ONCA 402 at 101-107), employers are required by s. 46 of the Employment Insurance Act to ensure they do not issue income applicable to a period for which the individual has received EI benefits. This would, in effect, result in the individual receiving a windfall (i.e. double dipping from the employer and EI).
As such, employers are required to establish whether the payment of additional employment income may trigger an overpayment and, if so, remit payment to the federal government so as to avoid any overpayment. If this happens, the employee may requalify for EI at the end of the notice period to which the employer’s payment applies.
While the preceding paragraph sets out the general rules applicable to EI, Interim Order No. 8 under the Employment Insurance Act introduced temporary, albeit important, changes in this regard. Perhaps most significantly, Interim Order No. 8 appears to permit employees dismissed on or after September 27, 2020 (at least on a temporary basis) to receive severance payments and EI benefits applicable to the same period of time. In practical terms, this means employees may not be required to repay EI received during a period of time to which wrongful dismissal damages are applicable.
Interim Order No. 8 remains in effect until September 11, 2021. It remains to be seen whether we will see a return to the usual EI rules at that stage or whether there any retroactive repayment obligations that may be imposed.
Addressing CERB during Wrongful Dismissal Litigation
As discussed above, CERB is distinguishable from EI. CERB is not an insurance program into which employers and employees pay, nor is it subject to any statutory repayment obligation.
In wrongful dismissal litigation over the past year, we have seen employers argue that CERB payments should be viewed by the courts as a type of “mitigation income” (i.e. an amount received by an employee that serves to reduce the wrongful dismissal damages which the employer may otherwise be required to pay). In effect, it would provide the employer with a discount.
The Ontario Superior Court of Justice considered this argument for the first time earlier this year in Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998. The court acknowledged that while EI and CERB do differ, CERB should not be treated as mitigation earnings that reduce the employer’s obligation to pay. Specifically, the court stated:
CERB was an ad hoc programme and neither employer nor employee can be said to have paid into the program or “earned” an entitlement over time beyond their general status as taxpayers of Canada. The level of benefit paid (approximately $2,000 per month) was considerably below the base salary previously earned by the plaintiff to say nothing of his lost commission income. On balance and on these facts, I am of the view that it would not be equitable to reduce Mr. Iriotakis’ entitlements to damages from his former employer by the amount of CERB given his limited entitlements from the employer post-termination relative to his actual pre-termination earnings. I decline to do so.
While the Iriotakis decision turned on the particular facts in that case, this logic is likely to apply equally to other employees. There is an inherent unfairness in allowing an employer to offset its obligation to pay wrongful dismissal damages against payments (to which it did not contribute) and to which the employee reverted in response to its decision to end the employment relationship.
To our knowledge, the Ontario courts have yet to consider the CRB. That said, like CERB, it is not a program into which employers and employees have paid (unlike the EI scheme). The federal government has, however, provided detailed information as to how the CEB will be taxed and, in what circumstances, it must be repaid.
If you are an employee considering a wrongful dismissal claim, or an employer responding to a demand for payment, it is important to be aware of how income replacement programs apply, and how they may impact a claim for damages. If you have further questions, please contact one of our employment lawyers directly.
Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in the National Capital Region and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.