A Temporary Layoff Without Employee’s Permission is a Constructive Dismissal

Is the Dust Finally Settled?  Ontario Court Rules an Unauthorized Temporary Layoff is a Constructive Dismissal

In a recent decision, the Ontario Superior Court concluded that if an employer unilaterally decides to place an employee on a temporary layoff, it will amount to a constructive dismissal entitling the employee to a financial severance package. This will help to quell an issue of contention amongst the employment law bar in Ontario (and indeed, across Canada).

What is a Temporary Layoff?

A temporary layoff occurs when an employer suspends an employee’s job for a temporary period of time, but does not actually terminate (end) the employment relationship. In other words, the employer temporarily reduces an employee’s working hours and compensation, but intends to recall the employee back to work when circumstances improve (e.g., after a certain number of weeks, or when financial circumstances improve).

As has been discussed previously in this employment law blog (see here), an employer does not have an automatic right to place an employee on a temporary layoff – even if the layoff is due significant financial difficulties. Generally, in order for a temporary layoff to be lawful, the employee must have explicitly agreed and signed off on an employer’s right to impose a temporary layoff as part of a written employment contract with the employer.

In fact, this is exactly what the Court recently held in a few recent decisions called Coutinho v. Ocular Health Centre Ltd. and Ristanovic v. Corma Inc.: the Ontario government’s introduction of the “Infectious Disease Emergency Leave” did not give employers permission to temporarily layoff their employees, since they are required by common law to ensure the employee has agreed to the temporary layoff – either previously in an employment agreement, or at the time the employer intends to enforce the layoff.

1. The Case of Coutinho v. Ocular Health Centre

Facts

In Coutinho, the court was asked to decide whether an office manager earning with 6 years of service was constructive dismissal when her employer placed her on an unpaid temporary layoff on May 1, 2020 as a result of the COVID-19 pandemic.

In particular, the employer claimed, in part,  that due to the Covid 19 pandemic, it could not continue to employ all of its staff, and therefore had to place some of its employees on a temporary layoff. The employer also argued that a recent regulation passed by the Ontario government allowed employers to place employees on temporary layoff if they result from the Covid-19 pandemic. As such, a temporary layoff does not constitute a constructive dismissal. Rather, the employee is deemed to be on an Infectious Disease Emergency Leave (IDEL), enacted under the Ontario Employment Standards Act, 2000 (ESA). For its part, the employer relied on section 7 of the IDEL regulation, which states that an employee’s temporary layoff is not a constructive dismissal if its occurred during the COVID-19 pandemic:

1. A temporary reduction or elimination of an employee’s hours of work by the employer for reasons related to the designated infectious disease.
2. A temporary reduction in an employee’s wages by the employer for reasons related to the designated infectious disease.

In response, the employee argued that the IDEL regulation only applies to prevent a claim of constructive dismissal for the purposes of the ESA, such that the employee is not deemed to have terminated the employee’s job, thereby requiring the employer to provide the employee with the minimum statutory entitlements to notice of termination (or termination pay), benefits continuance and severance pay. However, if the employee has never agreed to a temporary layoff in the first place, the IDEL regulation did not remove the employee’s right under common law to sue the employer for constructive dismissal for the temporary layoff. The Court, as expected, agreed with the employees position: an unauthorized temporary layoff is a constructive dismissal.

What the Court Ruled

Before the COVID-19 pandemic, Ontario employment law was generally understood to say that an unpaid temporary layoff is unlawful if not agreed to by the employee (specifically in an employment agreement). For instance, in the leading case of Elsegood v. Cambridge Spring Service, the Court held:

“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.”

Based on this well settled principle, the court rejected the employer’s argument that the Ontario government’s IDEL regulation had changed the legal landscape as a result of the COVID-19 pandemic. Moreover, the Court held that while the employee Court held employees cannot claim they were constructively dismissed under the ESA due to section 7, they were still protected by a common law right to sue the employer in court for the unpaid temporary layoff, and then pursue their full severance entitlements without having to to inquire with their employer as to whether or when they will be recalled back to work.

In further support of its decision in favour of the employee, the Court also relied on the government’s own announcement when it introduced the IDEL regulation, which demonstrates it did not intend to affect the employee’s rights under common law:

“establishes that there is no constructive dismissal under the ESA where a non-unionized employee’s wages or hours of work are temporarily reduced or temporarily eliminated by their employer for reasons related to COVID-19 from March 1, 2020 to July 3, 2021. These rules affect only what constitutes a constructive dismissal under the ESA. These rules do not address what constitutes a constructive dismissal at common law.”

Therefore, the Court concluded that, while it may be true that employees cannot claim they were constructively dismissed under the ESA due to section 7, the regulation did not affect their right to sue in court under the common law and they could therefore continue to pursue their full severance entitlements (also called “pay in in lieu of reasonable notice”).

2. The Case of Ristanovic v. Corma Inc.

Facts

What the Court Ruled

As in the Coutinho case, the court once again summarized what appears to be the continuing state of the law: Absent an agreement to the contrary – and there is no such agreement in this case – the unilateral action of an employer in laying off an employee represents a material change in the terms of employment that amounts to constructive dismissal. Among other cases, the court cited the leading decision of Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831 (CanLII).

For its part, the employer argued that employers should have an implied (inherent) right in employment contracts to place their employees on an unpaid, temporary layoff whenever they are faced with the extraordinary circumstance of a global pandemic – “a once in a lifetime occurrence,” as the employer put it.

Not surprisingly, the court disagreed and refused to rule that employers have an implied “global pandemic” exception to the well-settled law prohibiting non-consensual temporary layoffs. While this is certainly a positive and welcome development for employees, the Court did not completely reject the idea. In fact, it stated that its decision to reject the employer’s right to enforce an implied  “global pandemic” exception into the employment agreement was based “on the facts of this case.”

“First, the lay-offs in this case arose significantly before the facts had evolved to the point of a global pandemic impacting our entire Province or country. The lay-off letters sent did not, in fact, purport to justify the lay-offs of either plaintiff on the basis of an emergency that was global in scope impacting all sectors of the economy. The defendant itself told the plaintiffs in writing that they were being laid off because of “political instability” and a fall-off in orders. “

In other words, this decision appears to have left the door open, as the court did not rule on the question of whether a global pandemic could imply a right to temporarily layoff – as long as a case comes up with the facts necessary to make such a finding. In fact, as the court put it:

“Whether it may be reasonable to imply some kind of a force majeure clause in the case of a business prohibited from operating or placed under severe and unforeseen operational limitations by government action…”

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Were you temporarily laid off by your employer? Are you an employer dealing with an employee’s claim that their temporary layoff was a constructive dismissal, entitling to severance pay?

Whether you are an employee who has been laid off and would like to pursue their severance package compensation, or an employer wondering whether you have the ability to temporary layoff employees in order to manage temporary disruptions in business operations, please call Bune Law at 647-822-5492, or fill out the contact form on the side, to get help and assistance with your situation.

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