Canada: Is A Layoff Still A Constructive Dismissal During The COVID-19 Pandemic?

Due to the COVID-19 outbreak and government mandated shutdowns, temporary layoffs shot up exponentially throughout 2020. Employers laid off staff in great numbers with the promise that they would return when the outbreak was lessened. We are still waiting.

On May 29, 2020, the Ontario Government issued the Infectious Disease Emergency Leave ("IDEL") regulation under the Employment Standards Act 2000 ("ESA"). The regulation provides that a temporary reduction or elimination of an employee's hours and/or wages for reasons related to COVID-19 does not constitute a constructive dismissal.¹ IDEL was meant in part to protect employers from claims for constructive dismissal by employees on temporary lay off. Under the ESA (and in the common law/judge-made law), an employee is constructively dismissed if the employer makes significant changes to the employee's terms and conditions of employment without the employee's consent, including a reduction in hours or wages.

This IDEL legislation stopped claims for constructive dismissal under the ESA. It was unclear whether the legislation prevented an employee from claiming constructive dismissal under the common law against an employer when temporarily laid off during COVID-19.

On April 27, 2021, in Coutinho v Ocular Health Centre Ltd. 2021 ONSC 3076, the Courts provided the first judicial pronouncement on the interaction between the IDEL regulations, the ESA and civil remedies regarding constructive dismissal during COVID-19. This case has provided much-needed clarity but, if followed, may cause significant problems for employers.

Decision

The case involved a Plaintiff employee, employed by the Defendant, who was advised that due to the impact of the pandemic, she would be placed on temporary layoff without pay. The Plaintiff employee brought an action against the Defendant employer seeking damages of $200,000.00 for constructive dismissal. In July 2020 shortly after her termination, the Plaintiff employee was reemployed by a different employer.  

There are both common law and statutory entitlements for constructive dismissal when there has been a temporary layoff without pay. Prior to the pandemic, the law was well established that a layoff without pay can constitute a constructive dismissal.² In light of the pandemic, the Defendants argued that the law had changed – that temporary layoffs could not constitute constructive dismissal during COVID-19 pursuant to the IDEL regulations.

The Court held that the IDEL affects only what constitutes a constructive dismissal under the ESA. The regulation does not address what constitutes a constructive dismissal at common law. At common law, an employer has no right to lay off an employee without an agreement to the contrary or the employee's consent.

The Court ruled that while it may be the case that employees cannot claim they were constructively dismissed under the ESA pursuant to the IDEL, the regulation does not affect civil remedies – including the common law right to sue for constructive dismissal.

Additionally, as the Plaintiff was reemployed soon after the layoff, she had fully mitigated the damages. The Defendant employer argued there was no entitlement to statutory termination pay on this basis.

The Court held that even a Plaintiff who has fully mitigated damages maintains their statutory entitlement to termination pay. The Court found as a fact that subject to the merits of the Defendant's defence of cause for termination – which would be assessed at trial – that the Plaintiff's statutory entitlement to termination pay is $6,103.85 plus pre-judgment interest.

Key Takeaways

The holding of this case reinforces the notion that an employer cannot, at common law, lay off an employee absent an agreement – IDEL or no IDEL.

From this decision, the IDEL regulation does not affect an employee's right to claim for constructive dismissal at common law. As held by the Court, a unilateral layoff constitutes a constructive dismissal, even in light of the regulations.

The intent of the IDEL was to protect both employees and employers. The pandemic has affected all parties, and the interpretation of the regulation should be in line with the circumstances. This case is an example that the law of constructive dismissal needs to adapt to the unique and difficult circumstances presented by the pandemic.

Footnotes

1. O. Reg. 228/20: INFECTIOUS DISEASE EMERGENCY LEAVE under Employment Standards Act 200 c. 41 s.7

2. Elsegood v Cambridge Spring Service (2001) Ltd., 2011 ONCA 831 para 14

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.