Two recent cases shed some light on the issue of whether the Canadian Emergency Response Benefit (CERB) reduces long term disability (LTD) benefits.
LTD policies typically contain direct and indirect offset provisions, which permit the insurance company to deduct specified sources of income from the amount it is required to pay. The most common example is Canada Pension Plan (CPP) disability benefits. The insurer is usually entitled to a credit for any CPP disability benefits received, thereby reducing the amount it has to pay. For example, if the LTD benefit amount is $3,000, and the insured then qualifies for CPP disability at $1,300 per moth, the insurer would only have to pay $1,700. The recipient still receives $3,000, but the insurer pays less because of the offset.
Direct and indirect offsets are not limited to CPP disability. Most policies include offsets for earned income, WSIB benefits, severance pay, and Employment Insurance. Insurers take the position that CERB is also deductible, citing several reasons. First, there is a general principle against double recovery. Receipt of long term disability benefits and CERB could create an overpayment. Second, in order to qualify for CERB, the individual must declare they are capable of working, but not working due to COVID-19. If someone is capable of working, they are not entitled to long term disability benefits. Finally, insurers argue CERB is income, and therefore deducted under the plain wording of the policy.
There are currently no known cases where a judge has considered the issue, but two recent employment law decisions may provide some insight.
Iriotakis v. Peninsula Employment Services Limited, 2021 ONSC 998 (CanLII) is wrongful dismissal case where Mr. Iriotakis was terminated after two years of service. The judge determined Mr. Iriotakis was entitled to 3 months of notice. His employer argued the amount it had to pay should be reduced by the amount its former employee received for CERB.
The judge distinguished CERB payments from Employment Insurance benefits, which are typically deductible both in a severance claim and in the long term disability context, reasoning EI is an earned entitlement that employees are required to pay into and it would not be equitable to reduce the employee’s severance:
I agree with the defendant that CERB cannot be considered in precisely the same light as Employment Insurance benefits when it comes to calculating damages for wrongful dismissal. 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.
In another recent employment case heard by the Ontario Labour Board, Shana Marie Gray v Safecross First Aid Ltd., 2021 CanLII 18879 (ON LRB), the Vice-Chair reasoned CERB should not be deducted from the award:
I do not find it would be fair or appropriate, in these circumstances, to reduce Ms. Gray’s damages by the amount of CERB benefits she received (and by a notional statutory deduction amount). The way to ensure that she is made whole is to require the Employer to pay the entire amount owing. There will be no “double award” as suggested by the Employer as Ms. Gray may be required to repay any amounts determined to be in excess by the CRA. Ms. Gray should not have to bear the risk of not being whole as a result of the Employer’s reprisal. Accordingly, the Employer’s payment is to be made without offset or deduction for CERB payments received.
It therefore remains to be seen whether CERB is properly deductible from long term disability benefits, but this recent caselaw provides strong arguments that it is not, at least in the litigation context.
About The Author
Michael Jordan is a long term disability lawyer with more than 17 years experience litigating all types of insurance claims. He is a founding partner of the Bay Street firm Jordan Honickman Barristers. Michael represents clients across all of Ontario, with satellite offices in Ottawa and London.
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