Ontario court finds Canada Emergency Response Benefit is deductible from damages for wrongful dismissal

In the recent decision of Livshin v The Clinic Network Canada Inc., 2021 ONSC 6796 (“Livshin”), Justice ‎Black of the Ontario Superior Court of Justice held that the Canada Emergency Response Benefit (“CERB”) is deductible from wrongful dismissal ‎damages.‎ The Court also provided additional guidance on the interpretation of termination clauses.

Background‎

The employee, Mr. Livshin, founded a medical practice called “Involved Medicine”. In 2018, there was a ‎discussion between Mr. Livshin and The Clinic Network Canada Inc. (“TCN”) regarding TCN acquiring the ‎business of Involved Medicine through a purchase of 993 shares (the “Share Purchase”).‎

As part of the Share Purchase, it was proposed that Mr. Livshin would stay on with TCN as an employee. ‎TCN proposed a three-year fixed term employment agreement (“Employment Agreement”). The parties negotiated various ‎provisions of the Employment Agreement were the subject of back and forth, including the payments to which Mr. Livshin would be entitled in the event of the termination of the Employment Agreement.‎

The parties executed the Employment Agreement, which was dated September 30, 2018, but took effect ‎on the close of the transaction in March 2019. ‎

However, on March 27, 2020, Mr. Livshin was placed on Infectious Disease ‎Emergency Leave under the Ontario Employment Standards Act, 2000 (“ESA”). On August 31, 2020, Mr. ‎Livshin received a letter advising him that his employment with TCN was being terminated effective ‎immediately.  Between the lay-off letter of March 27, 2020 and the termination letter of August 31, 2020, ‎Mr. Livshin did no further work for TCN and was paid no further amounts by way of salary or otherwise.‎ Mr. Livshin did, however, receive CERB.

The Court addressed two issues: (1) was the termination clause enforceable; and (2) if not, was CERB deductible from the final damage award?

Enforceability of the termination clause

Mr. Livshin argued that his termination clause was not enforceable under the Employment Agreement as ‎‎Section 6(c) of the termination clause did not comply with the ESA. Section 6(c) of the ‎Employment ‎Agreement reads as follows:‎

‎“Termination by the Company for Just Cause – The Company has the right, at any time ‎‎and without notice, to terminate your employment under this Agreement for just cause.”‎

Mr. Livshin argued the clause provided less than his ESA entitlements, as the ESA prohibits withholding termination pay for anything less than the employee’s “wilful misconduct, disobedience ‎‎or wilful neglect of duty that is not trivial and has not been condoned by the employer”.‎

TCN argued that Section 6(c) of the Employment Agreement did not in fact limit Mr. Livshin’s ESA ‎entitlements, only his entitlements ‎at common law. TCN also argued that Section 6(c) of the Employment ‎Agreement was negotiated by sophisticated parties, represented by legal counsel, in the context ‎of a ‎corporate transaction, and the Court should not invalidate a hard negotiated term where no ‎‎“imbalance of ‎power” existed at the time the term was negotiated. TCN relied on the Supreme Court of Canada‘s decision in Payette v. Guay Inc., which ‎differentiated ‎between typical employment agreements, where there is an “imbalance of power” between ‎employer-‎employee, versus the commercial context where an imbalance of power is not presumed. TCN ‎argued ‎that the Employment Agreement was more akin to a commercial agreement, and ought to be ‎insulated ‎from strict compliance with the ESA. ‎

Justice Black accepted Mr. Livshin’s argument. However, Justice Black closely considered ‎‎the fact that the Employment Agreement was negotiated in the context of a commercial transaction and ‎whether this would permit its noncompliance with the ESA. ‎Justice Black stated that if there were some ‎‎“commercial imperative” for a particular provision to be at ‎odds with protective legislation, like the ESA, ‎there may be more latitude given by the Court in the future. ‎Still, Justice Black noted that he could ‎not think of any commercial imperative for the Employment Agreement ‎to not comply with the ESA in ‎this case.

Deductibility of CERB payments from wrongful dismissal damages

In finding that the termination clause was unenforceable, Justice Black stated at paragraph eight that, “the amount ‎of $8,000 that Mr. Livshin received in [CERB] should be ‎deducted from the overall award”. This appears to be the first time this deduction has been made in an ‎Ontario court. ‎Justice Black did not engage with prior conflicting case law on the issue or provide the Court’s reasoning for making the deduction.

Key takeaways

Ontario courts continue to read with cause termination clauses narrowly in the wake of Waksdale v Swegon North America, 2020 ONCA ‎‎391 (see our article here). Livshin did not close the door entirely on the argument that there could be a “commercial imperative” justifying an employer’s failure to comply with the ESA. However, it is still unclear in what circumstances that could be relied on.

The one bright spot for Ontario employers is that Livshin supports an argument that CERB ‎payments ought to be viewed as deductible from wrongful dismissal damages by Ontario courts.

If you have any questions about this decision, do not hesitate to contact any lawyer in our Ontario Employment and Labour Law Group listed here.  

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