Following almost a year of uncertainty, the Ontario Superior Court finally clarified that temporary layoffs during the COVID-19 pandemic can amount to constructive dismissal under the common-law. Ontario employers should take note of this important decision if they have or are considering temporary staffing cuts, including temporary reductions in hours.

Background

Pre-COVID, it was fairly settled law in Ontario that employers cannot temporarily lay off an employee without his/her consent or a well-established practice in the industry. Doing so could lead to a claim for “constructive dismissal”, a form of wrongful dismissal that arises when an employer unilaterally makes material changes to employment terms. An employee who has been constructively dismissed may be entitled to seek their full termination entitlements, including termination and/or severance pay.

Early on in the COVID pandemic, it became clear that some businesses were being hit particularly hard by the various lockdowns, travel restrictions, and stay-at-home orders. For many businesses, workforce reductions were a necessary step for long-term survival. The Ontario government took note and amended the Employment Standards Act, 2000 to ease the financial burden on businesses and to incentivize them to temporarily lay employees off instead of dismissing them outright.

Ontario Regulation 228/20: Infectious Disease Emergency Leave provides that a temporary reduction or elimination of hours during the “COVID-19 period”[1] does not amount to a constructive dismissal, and that employees who were not working during the COVID-19 period were deemed to be on an Infectious Disease Emergency Leave. This temporary leave of absence was an important tool for employers, since layoffs of more than 13 weeks (or more than 35 weeks, in certain situations) would normally amount to a deemed termination and require the employer to make certain payments to employees.

Under the new Regulation, employers took some comfort in knowing they could avoid this statutory liability. But the question remained: could employees still sue for constructive dismissal outside of the ESA? In late April 2021, the Court confirmed that they can.

The Decision

In Coutinho v Ocular Health Centre Ltd., the employer temporarily laid off Ms. Coutinho on May 29, 2020, after closing the clinic where she worked. Ms. Coutinho sued Ocular for $200,000 for constructive dismissal. In its Statement of Defence, Ocular argued that Ms. Coutinho’s temporary layoff did not amount to constructive dismissal because of the Regulation.

The Court found that, according to the ESA itself, the Regulation did not affect Ms. Coutinho’s common-law right to sue for constructive dismissal. The Court also referred to a Ministry of Labour publication, released around the same time as the Regulation, in which the Ministry emphasized that the Regulation does not address what constitutes constructive dismissal under the common-law.

While the Court dismissed this aspect of Ocular’s defence, it did not rule on other aspects, including Ocular’s allegation that Ms. Coutinho was properly dismissed for just cause. Those parts of the claim have yet to be determined.

Key Take-Aways

The right to sue for constructive dismissal is meant to provide employees with protection when their employer’s comments or actions suggest they will no longer abide by the terms of an employment agreement, but their conduct falls short of a clear termination. But the concept is ill-applied to situations where employers must temporarily lay employees off to survive. In such situations, an employer is not suggesting they no longer intend to be bound by the employment contract. Rather, they are doing what is necessary to preserve the business, so that the employment relationship can continue.

While it was open to the Court to refer to the Ministry of Labour’s publication to better understand the Regulation, there is some danger in overreliance. Read closely, it becomes clear that the Ministry is not saying that the Regulation cannot oust an employee’s common-law rights, just that it does not necessarily do so. Further, since it is not clear that the Ministry of Labour drafted or introduced the bill that led to the Regulation, the Ministry may not be in the best position to discuss the Regulation’s intended application.

As a general matter, an employee’s common-law rights will govern until they are replaced by legislation or contract. Since the provincial government explicitly allowed employers to temporarily lay employees off during COVID, it seems counter-intuitive that the same conduct would result in liability under the common-law. Not only does this lead to inconsistency and confusion, but it also encourages employees to bring claims through an already backlogged court system, against financially-strapped employers.

However, there is still hope for employers that this decision will be appealed. We will provide an update if and when this happens. In the meantime, employers should seek expert advice when faced with employee claims or planning workforce changes.

[1] The “Covid-19 period” runs from March 1, 2020 until July 3, 2021. However, the period may be extended by way of an amendment to Ontario Regulation 228/20, or otherwise.