Are COVID-19 Unemployment Payments Deductible From Wrongful Dismissal Damages?

• Published date: 14 July 2021
• Subject Matter: Employment and HR, Coronavirus (COVID-19), Unfair/ Wrongful Dismissal, Employment and Workforce Wellbeing
• Law Firm: Siskinds LLP
• Author: Mr Liam Ledgerwood

When the COVID-19 pandemic led to widespread layoffs in Q2 2020, the Canadian government introduced the unprecedented Canada Emergency Recovery Benefit (or 'CERB'). CERB was retired in September 2020 and was replaced with (among other things) the EI Emergency Response Benefit ('EI ERB') and the Canada Recovery Benefit ('CRB') for those not entitled to the EI ERB. Since introduction, these programs have undergone multiple rounds of revisions, but what has remained consistent is that they provide income support to individuals that are unemployed or under-employed for reasons related to COVID-19. Many employees have also applied for, and received, these benefits after their employment was terminated by their previous employers during the pandemic. A question that has come up several times in recent wrongful dismissal cases is whether CERB or equivalent payments can be deducted from wrongful dismissal damages.

The short answer appears to be: it depends.

Basic principle: employees should not profit from a termination

In a wrongful dismissal action, the employer is alleged to have failed to provide reasonable notice of termination to the employee. If the employee is successful, the court will award compensatory damages to put that employee in the same financial position he/she would have been in if the employer had provided reasonable notice of termination. In short, the goal is to compensate the employee for his/her actual losses from the termination without reasonable notice - not have them come out ahead. That's why we generally deduct mitigation income (i.e. income earned at other new jobs during the notice period) from wrongful dismissal damages.

The 'collateral benefit' issue

This basic principle can be harder to put in practice when the employee also receives other 'collateral' payments/benefits after the termination. The issue of the deductibility of collateral benefits or side payments from those damages is not new. Before CERB, employers previously raised the issue with regular EI unemployment benefits, and STD/LTD benefits under private insurance plans. And when faced with these questions, courts generally consider whether there is a collateral benefits problem. As stated by the Supreme Court of Canada in IBM Canada Limited v. Waterman, 2013 SCC 70, there is arguably a collateral benefits problem if the employee receives collateral benefits that, if combined with unreduced wrongful dismissal damages, would exceed the employee's actual losses from the...