Can Employers Deduct CERB payments from an Employee’s Severance Package following a Wrongful Dismissal?
Over the course of the past few years, many people who were either terminated from their employment or placed on a temporary layoff received some form of government income assistance, usually EI benefits, Canada Emergency Response Benefit (CERB), more recently, Canada Recovery Benefit (CRB).
In my experience as an employment lawyer representing employees who were wrongfully terminated or temporarily laid off, one issue that has frequently come up during severance package negotiations is whether these government benefits should be deducted from an employee’s severance package payments.
EI Benefits
EI benefits are source of government payments provided to an employee for a specified period of time after they lose their job, as long as they meet the eligibility requirements (typically number of insurance hours). During the EI benefits period, employees must report any other sources of income they receive to the government, including severance pay.
Under the Employment Insurance Act, employees are required repay any EI benefits received from a severance package or award received as a result of a wrongful dismissal. This means that an employee cannot receive EI benefits for the same time period they receive termination pay (or severance pay) from their employer. In practice, this generally means employer’s deduct the EI repayment amount from an employee’s severance package and pay it directly to the government on behalf of the employee.
As a temporary measure, the government announced that, for EI claims established between September 26, 2021 and September 24, 2022, employees willwill be allowed to collect severance package compensation paid to them by their employers as a result of a wrongful termination (including termination pay, severance pay and outstanding vacation pay) at the same time as they collect their EI benefit payments.
Why do employees have to repay their EI benefits if they receive a severance package?
The answer is because EI benefits are designed to compensate an individual’s loss of employment income. However, if there are other sources of income, then EI benefits will not be paid. As a result, in situations where an employee begins receiving EI benefits before their employer provides them with a severance package, the individual will be responsible for the repayment of the amount that has been overcompensated.
CERB Benefits
While the rule requiring EI benefits to be repaid from an employee’s severance package is well known, what many employment lawyers were unsure about is whether CERB benefits would be treated the same way. In other words, since CERB benefits are also a source of government financial assistance paid when an employee who loses their job, should they also be deducted from an employee’s severance package?
When the CERB benefits program was first announced, the government’s CERB FAQ’s specifically noted that:
“A severance payment does not impact an individual’s eligibility for the Canada Emergency Response Benefit.”
This appeared to confirm that an employee receiving a termination package will not disentitle them from their CERB. But the question does the reverse hold true: can an employee still receive their full severance package without reduction for any government CERB payments?
Courts Provide Some Clarity
There is evolving caselaw on whether CERB benefits received by an employee should be deducted from an employee’s damages for wrongful dismissal or severance package award. In fact, in several recent wrongful dismissal (or constructive dismissal) cases, the courts in Ontario have provided some guidance on whether CERB benefits should be reduced from an employee’s severance package.
In Iriotakis v. Peninsula Employment Services Limited, the court refused to deduct an employee’s CERB benefits from an employee’s wrongful dismissal damages. From the court’s perspective, CERB benefits were part of an ad hoc government subsistence program where (unlike EI benefits) “neither the employer nor employee paid into it or “earned” an entitlement over time beyond their general status as taxpayers.” Put simply, in the court’s words: “cannot be considered in precisely the same light as [EI] benefits when it comes to calculating damages for wrongful dismissal”.
In Fogelman v. IFG (a constructive dismissal case), the court held agreed with the Iriotakis decision the “CERB Act payments should not be treated as income for purposes of mitigation,” and ultimately concluding that: “I decline to deduct the CERB Act income support payments received by Mr. Fogelman from the damages awarded.“
Contact Employment Lawyer Today
If you are an employer who would like to know your options before terminating one of your employees, or an employee who has recently lost your job and would like to know if you have the right to sue your employer for wrongful dismissal or negotiate your severance package, our experienced employment lawyer at Bune Law can help. Contact us by phone 647-822-5492 or fill out the contact form to the side. We would be happy to assist in your employment law matter as quickly as possible.
What’s important to keep in mind is that employees who received government income replacement benefits, such as CERB benefits, should get specific legal advice so that they can understand the impact of their termination packages on their entitlements to these benefits.
Disclaimer: The content on this website and blog is not legal advice or legal opinion of any kind, and is only to provide general information. It is in no way particular to your individual case and should not be relied upon in any way. The outcome of a legal matter depends on its unique circumstances, and prior successes are not indicative of future results. No portion or use of this website or blog will establish a lawyer-client relationship with the author, this law firm or any related party. Should you require legal advice for your particular situation, please fill out the form below, or call 647-822-5492, to request an initial consultation.
Employment Lawyer in Toronto | Wrongful Dismissal Lawyer | Employment Law Firm in Toronto | Employment Lawyer in Ontario | Severance Package Lawyer