Friday, June 05, 2020

Statutory Layoffs, Constructive Dismissal and Covid-19

The Covid-19 pandemic has proven just how adaptive and resilient we are as a society. In the face of this crisis, we have embraced drastic changes to how we live, work, shop and even interact with one another.

Consider the actions that have been necessary in the employment law context.

With businesses across the province forced to shut down with little to no notice, many employers have had to make the difficult decision to lay off or downsize their workforce to stay financially afloat.

While in the normal course, such actions would be governed by the Employment Standards Act (ESA) and the common law, there are real questions in these unusal, pandemic times about whether the applicable laws will change or be re-interpreted.

It is generally settled law that despite the ESA's explicit layoff provisions, at common law, an employer in Ontario is not permitted to temporarily lay off an employee unless there is an employment contract permitting such action, or implied or express acceptance by the employee.

If the employer nonetheless imposes a layoff, the employee can treat such action as a constructive dismissal of her employment, and seek common law notice entitlements in a court acion for damages.

As the Ontario Court of Appeal affirmed in Elsegood v Cambridge Spring Service 2001 Ltd., 2011 ONCA 831 (CanLII):
[14] At common law, an employer has no right to lay off an employee. Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee's employment, and would be a constructive dismissal.
If the usual law is strictly applied to Covid times, any employer who has laid off employees to comply with the state of emergency may have constructively dismissed the laid off employees, unless the employer is relying on a layoff provision in an employment contract, or it has the employee’s consent.

To put this in context, as a result of Covid-19 closures, thousands of business across Ontario may have inadvertently severed their employment relationships with their employees, making them liable to pay hefty severance packages or damages awards.

The million dollar question remains, will our courts really allow this to happen, or will exceptions be made in interpreting the usual law of layoffs, in order to address the present reality?

Ontario Regulation 228/20, enacted by the Ford government on May 29, 2020, seems to signal that a new approach to Covid-related employment law claims may emerge.

This Regulation amends the Employment Standards Act to retroactively deem employees whose hours or wages have been temporarily reduced or eliminated due to Covid-19 to be on an infectious disease emergency leave, as opposed to being subject to a statutory layoff or constructive dismissal. 

It further deems that complaints filed with the Ministry on this basis as not having been filed at all, and protects employers from statutory termination and severance pay obligations otherwise arising from unlawful layoffs that may otherwise have given rise to constructive dismissal.

The Regulation, however, does not address the common law of constructive dismissal, nor does it bar an employee from bringing a civil claim for damages for constructive dismissal.

That, of course, brings us back to the question of what Ontario's Courts are likely to do with such claims

It would not be surprising if the Courts take a cue from the Ford government, finding that temporary layoffs necessitated by Covid-19 did not amount to a constructive dismissal.

The concern is that if employers are held liable for unlawful layoffs relating to Covid-19, there will be a floodgate of claims before the court, with a domino effect to follow of permanent business closures and bankruptcies. From a policy perspective, limiting constructive dismissal claims, at least temporarily, would provide much needed economic relief and stability, particularly to small and medium sized businesses that are otherwise on the brink of financial ruin. 

On the other hand, such an approach would eliminate an employee’s choice to assess whether an employment relationship has truly been severed. This will not always lead to a fair outcome. Legal advice should be obtained as to your rights and entitlements, if you wish to consider advancing a constructive dismissal claim.  

Many employees will be keen to return to work, irrespective of whether a Covid-19 layoff was technically sound. It may only be in circumstances wherein an employment relationship already stood on shaky ground that a layoff will be challenged. 

Even then, the context in which the layoff occurred will almost certainly be taken into account.

Going back to the basics, the act of unilaterally laying off an employee has typically been considered a constructive dismissal because it repudiates the expectation of continued paid employment.  There can be no such expectation if an employer is mandated by law to temporarily shut down its business due to the pandemic. The same cannot be said however, for an employer who seeks to take advantage of circumstances.

Our courts have always favoured a balanced approach when faced with competing interests and concerns.

Perhaps the most likely outcome is for the court to leave the door slightly ajar for exceptional claims of constructive dismissal, which arise during the Covid-19 period, looking closely at the actions and motivation of the parties.

- Simran Bakshi, Toronto

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