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Temporary Layoffs During COVID Could Mean Wrongful Termination Lawsuits

By June 1, 2021February 22nd, 2023Employment Law

Welcome back to our least favourite game show – Ontario Courts vs Ontario Employers: COVID-19 Edition. As too many of you know, over the last 18 months, we have seen multiple examples of how the COVID-19 pandemic has hit independent dental practice owners especially hard. And the constantly changing regulations, guidelines and requirements have only added to the costs and stress. Unfortunately, a new case in Ontario could mean even more battles for Ontario employers.

A recent decision by the Ontario Superior Court of Justice found that employees who are temporarily laid off as a result of COVID can still sue for constructive dismissal. Even though the Infectious Disease Emergency Leave (“IDEL”) was extended to July 3, 2021, it may now offer little to no protection against constructive dismissal suits against employers who had to use temporary layoffs to stay afloat during the pandemic.

Before diving into the latest case results, let’s review how layoffs and constructive dismissal intersected before the pandemic and what has and hasn’t changed.

Layoffs in the “Before” Times

As an employer, you DO NOT have an automatic right to lay off an employee. A layoff (a reduction/elimination in hours or wages) is a statute-based maneouver that is only available to an employer if you have a written agreement with your employee that permits you to lay them off. Even with such an agreement in place, layoffs can only be done in accordance with the stringent and narrow requirements of the Employment Standards Act, 2000 (the “ESA”). And without such an agreement, trying to “lay off” an employee may trigger a constructive dismissal.

Constructive dismissal is a type of wrongful termination where an employer makes a significant unilateral change to the terms of an employee’s job without the employee’s consent. A layoff, regardless of its reasons or timing, could be considered a significant unilateral change. Thus, the employee would be within their right to resign from their position and claim constructive dismissal, seeking their full termination entitlements. Depending on the circumstances, this could mean paying up to one month’s wages for every year the employee worked (to a maximum of ~30 months depending on the circumstances of each case).

Layoffs in “COVID” Times

In March 2020, when COVID hit, the ESA was amended to include a new COVID-related, unpaid, and job-protected leave of absence called the “Infectious Disease Emergency Leave ” (“IDEL”). Both employees and employers could (and still can) use the IDEL leave in the event of suspected or confirmed COVID illness in the workplace, among other reasons.

In May 2020, under pressure from employers who were unable to give employees their usual pay or hours because of the pandemic-related downturn, the government passed a new regulation under the ESA. The O. Reg 228/20 (“Regulation”) extended the application of IDEL as follows: employees whose hours or wages were reduced or eliminated because of COVID-19 would automatically be “deemed” to be on an IDEL leave of absence. The Regulation clarified that such a reduction or elimination of wages or hours would NOT result in a constructive dismissal claim against the employer and would NOT trigger the employee’s termination rights (including payments) for the purposes of the ESA until the Regulation expiresIDEL is set to expire on July 3, 2021.

The government of Ontario touted this Regulation as the saviour of many small and mid-sized businesses that would otherwise go under. And although the Regulation did not explicitly oust the common law (being that layoffs are not permitted without valid written agreements), it was thought that courts would recognize that the unprecedented economic circumstances presented by the pandemic would require an unprecedented response by not only the government but also the courts who are tasked with interpreting the laws. Therefore, employers saw this Regulation as their “saving grace”, whether they had an employment contract permitting layoff or not. In a world where they were facing months of economic uncertainty and the possibility of permanent closures, this Regulation gave employers a break. They could temporarily lay off their employees instead of tackling exorbitant termination payments.

The Coutinho Case

In May 2021, the case of Coutinho v. Ocular Health Centre Ltd. was released. Based on this decision, employers are again questioning their liability towards the employees laid off due to COVID-19, despite there being approximately one month left before IDEL expires.

Here are the specifics of the case:

In May 2020, Ocular Health Centre closed the clinic where Ms. Coutinho worked, and she was temporarily laid off as a result. Ms. Coutinho resigned and commenced a suit against Ocular, claiming $200K in damages for constructive dismissal at common law.

The employer argued that Ms. Coutinho was deemed to be on IDEL under the Regulation, and thus the temporary reduction in duties and hours did not constitute a constructive dismissal.

The Ontario Superior Court considered whether a temporary reduction in wages or hours constitutes a constructive dismissal at common law, despite the Regulation. The Court found that, according to the ESA, the Regulation did not affect an employees’ common law right to sue for constructive dismissal. The reasoning included a reference to the Ministry of Labour website, which emphasizes that the Regulation does not address what constitutes constructive dismissal at common law.

Was the Coutinho Decision Right?

It is my opinion (and the opinion of many other lawyers with whom I’ve discussed this case) that the Coutinho decision misses the mark, by a long shot, for several reasons.

Mandatory Leave

On my reading of the words themselves, it appears that this Regulation is not about layoffs at all but about when an employee must take a mandatory or “deemed” leave of absence – in this case, IDEL. The words of the Regulation are clear:

an employee who does not perform the duties of his or her position because of [reasons related to COVID-19] is deemed to be on infectious disease emergency leave under [IDEL] in respect of any time during the COVID-19 period that the employee does not perform such duties because of that reason.

The Regulation goes on to state that an employee who is deemed to be on IDEL won’t be considered to be laid off or terminated for the purposes of the ESA. To my knowledge, Coutinho did not challenge the validity of IDEL or the government’s right to legislate mandatory leaves of absence, which is what this Regulation effectively does. How this mandatory leave of absence will affect the ESA layoff and termination provisions is a secondary consideration only.

Constructive Dismissal

Furthermore, “constructive dismissal”, while referred to many times, is not defined in the ESA itself. Constructive dismissal is a creature of the common law and defined through the myriad of cases that have developed over time. So, for the Regulation to explicitly state what may not be considered “constructive dismissal” is, in my opinion, a clear-cut attempt to augment the common law, despite the Court’s assessment otherwise. Here are the exact words of the Regulation on this point:

The following does not constitute constructive dismissal if it occurred during the COVID-19 period:

(a) A temporary reduction or elimination of an employee’s hours of work by the employer for reasons related to the designated infectious disease.

(b) A temporary reduction in an employee’s wages by the employer for reasons related to the designated infectious disease.

Beyond the words of the Regulation, the common law is clear that an employee’s right to sue for constructive dismissal stems from the need for employee protection. It is meant to protect employees from an employer who unilaterally changes the terms of employment, suggesting that they no longer wish to be bound by the employment contract. In my opinion, an employer who reduces an employee’s hours or wages to preserve their business so that the employer/employee relationship can continue into the future cannot be said to be shirking their responsibility towards the employee.

Given the unprecedented circumstances of the COVID-19 pandemic and how it has affected small and medium employers, the reduced work/hours should be considered within this context. It would be unjust and unfair to allow employers to take on the burden of constructive dismissal claims amid a pandemic that has otherwise ravaged their businesses and left some struggling to stay afloat.

Where Do We Go From Here?

Once again, we are faced with an Ontario Court decision that offers protection to employees but no protection for employers dealing with the effects of the pandemic. And we are forced to wait and hope for this decision to be overturned on appeal so that employers won’t have to worry about yet one more difficult decision they had to make during the pandemic. We will keep you posted as things develop.

In the meantime, if you have placed an employee on a temporary layoff in reliance on the Regulation, send DMC an email or give our Employment Law Team a call directly at 416-443-9280 extension 206. We would be happy to give you guidance on what to do next. And for more information on an employer’s responsibilities during the pandemic, please refer to our Employment Law Changes & Updates section for the latest announcements in provincial and federal policies.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.