Ontario Courts are at a Standstill on whether Temporary Layoff without Employee’s Consent is a Constructive Dismissal
In a recent decision released last week, an Ontario court has now decided that an employee placed on a temporary layoff as a result of the COVID-19 pandemic is permitted under the government’s Infectious Disease Emergency Leave (IDEL) regulation. As a result, employees cannot bring sue their employers for constructive dismissal under common law. Not only is this recent decision an unfortunate development for employees, it also contradicts the same court’s decision from a few weeks prior, which came to the exactly opposite conclusion.
Why is it important for Ontario Employees to know if a Temporary Layoff is a Constructive Dismissal?
Firstly, many of the employees who were suddenly placed on an unpaid temporary layoff once COVID-19 struck were left without income. In other words, the temporary layoff was unpaid (which is the very reason it exists). As a result, many employees were left without financial support (unless they qualified for CERB or EI benefits).
Generally, under common law, the courts have ruled that employers do not have an automatic right to place employees on unpaid temporary layoffs, unless the employee has agreed to it:
- previously in a signed employment contract; or
- at the the time the employer wants to impose the temporary layoff.
The reason for this is obvious: asking an employee to stay home without work and without pay is a right a contractual employer must bargain and, if the employee agrees, must be evidenced in an express or implied term of the employment contract. Without this contractual right, employees have a valid legal claim against the employer for a financial severance package or, alternatively, a court claim of constructive dismissal.
To be fair, once COVID-19 pandemic struck and left the economy in chaos, many employers were left with no option other than to close (or slow down) business operations, especially after the government imposed a wide lockdown. Therefore, employers were unfortunately caught between a rock and a hard place: on the one hand, they had to follow the new law requiring all non-essential business to shut down, but on the other hand, doing so meant risking constructive dismissal claims by their employees (which is precisely what took place).
While in hindsight, it was obviously prudent for employers to have employment agreements in place allowing for an unpaid temporary layoff, very few employers had such protection in place prior to COVID-19. As a result, the many unpaid temporary layoffs have resulted in many court claims of constructive dismissal lawsuits, where employees have sought their financial severance pay compensation.
Still, the general development of the common law was toward a trend of jealously protecting employee rights, so it comes as a significant disappointment for a court to allow employers to unilaterally disrupt an employee’s livelihood by laying them off without pay. While some may fairly argue this was a necessary response to unique financial difficulties caused by the pandemic, the courts have previously made clear an employer’s financial circumstances are irrelevant to determining an employee’s severance entitlements.
Therefore, it would seem a logical extension to conclude that whether an employer has a right to place an employee on a temporary layoff (or impose other detrimental changes to their terms and conditions of employment), the courts will not consider an employer’s financial circumstances (even if those circumstances were the reason for the temporary changes), but only whether there was an employment contract permitting it in the first place.
What is the IDEL Regulation?
As a result of the predicament it created when it imposed a province-wide lockdown as a health measure in response to the COVID-19 pandemic, the Ontario government introduced the IDEL regulation in May 2020 to clarify its impact on workplaces. Specifically, the government sought to achieve the following goals:
(a) provide a legal basis for employers to place their employees on unpaid temporary layoffs (or otherwise make temporary changes to reduce their work hours or wages) for the duration of the pandemic in compliance with the lockdown order; and
(b) ensure employees have a job to return to after the temporary layoff ends and the IDEL regulation is rescinded (i.e., before September 25, 2021).
As a result, one thing became clearly obvious: employees would be prohibited from suing their employers for constructive dismissal to obtain their basic statutory entitlements to termination pay, severance pay and health benefits, as long as the employer relied on the IDEL regulation to place them on the temporary layoff.
However, as I explained in an earlier blog post, this privilege conferred on employers by the IDEL regulation had a significant limitation (some would say fatal flaw): it only applied with respect to the minimum obligations employers have to pay their employees termination pay, severance pay and benefits continuation if the employees are “constructively dismissed” for purposes of the Employment Standards Act, 2000 (“ESA“).
In other words, while the IDEL regulation gave employers an excuse to avoid having to pay out an employee’s minimum termination pay required by the ESA, it did not explicitly remove an employee’s greater right under common law to sue the employer for constructive dismissal following an unauthorized temporary layoff.
Why is that?
Because the IDEL regulation did not expressly state it was removing the employee’s rights under common law to sue for constructive dismissal, or otherwise make it clear it was overriding the common law rule requiring employee consent to be placed on a temporary layoff. So, practically speaking, while the IDEL regulation may have removed an employee’s right to file a claim to the Ministry of Labour for termination pay, it did not remove their right to file a claim in court against their employer for constructive dismissal.
So, given these two conflicting decisions, the law now remains muddy as to whether the IDEL regulation precludes an employee’s right to sue their employer for constructive dismissal under common law. As an employment lawyer, my personal take on this issue (if not already obvious from this blog post) is that the IDEL regulation did not actually displace an employee’s right to sue their employer for constructive dismissal for a variety of reasons, including the following:
1. If the Ontario government intended to remove an employee’s common law right, all it had to do was expressly state that the IDEL regulation removes an employee’s common law right to sue for constructive dismissal for a temporary layoff (or other temporary changes to an employee’s terms of employment forced by Covid-19). It is well known that a government statute could easily overrule or supersede common law rules, so long as it does so clearly and unequivocally. This did not happen in the IDEL regulation.
2. The court’s recent interpretation that the IDEL regulation removes an employee’s right to sue for constructive dismissal would lead to many employers unjustifiably placing employees on temporary layoffs under the false cover of “COVID-19’s impact on business operations”. As an employment lawyer, I have seen firsthand many employers falsely relying on COVID-19 as an excuse to disguise a wrongful dismissal or discriminatory termination of employment.
3. The concept of a “constructive dismissal” exists both under common law and under the ESA. Therefore, the government’s failure to expressly remove an employee’s “common law” right to sue for constructive dismissal makes it more apparent that this was neither the intention nor the effect of the IDEL regulation. In fact, even the Ministry of Labour’s website said as much:
Temporary layoff
During the period (March 1, 2020 – September 25, 2021), non-unionized employees are not considered to be laid off under the ESA if they are not performing the duties of their position because their wages or hours of work have been temporarily reduced or temporarily eliminated by their employer for reasons related in whole or in part to
Where these conditions are met, the layoff clock for the employee is “frozen” during that time. This prevents a termination or severance of employment from happening by way of a layoff exceeding the length of a temporary layoff under the ESA.
As if that were not enough, the Ontario government’s website explaining the purpose and consequences of the IDEL regulation makes it abundantly clear it only applies to the ESA, not the common law:
“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.”
This is a similar caution to the one the Ministry of Labour states when it details all of the other minimum protections employees have under the ESA (and the corresponding obligations on employers).
“If a provision in an agreement gives an employee a greater right or benefit than a minimum employment standard under the ESA then that provision applies to the employee instead of the employment standard.”
What this means is that the ESA only sets out the minimum standards that employees have under the ESA. In other words, it provides a base floor of employee rights that an employer cannot reduce. If the employee has otherwise signed an employment contract that provides her with greater rights than the minimums guaranteed by the ESA, the employment contract takes priority. For instance, if an employment contract provides an hourly wage of $20 per hour, that would take priority over the ESA‘s minimum wage requirement of $14.25 per hour.
Therefore, by the same token, if the employee has never signed an employment contract giving up their their “greater right” under common law to not be placed on an unpaid temporary layoff (and if they are, to sue the employer for constructive dismissal), then it cannot honestly be said that the IDEL regulation displaced an employee’s common law right – especially since the IDEL regulation was specifically limited to the employee’s rights under the ESA.
Conflicting Court Decisions on Temporary Layoffs and Constructive Dismissal Claims
On March 27, 2020, the employee was placed on a temporary layoff by her employer, a Tim Hortons franchise. After a few months, the employer called her back to work, effective September 3, 2020. The employee refused, and then claimed that the temporary layoff had resulted in a constructive dismissal of her employment under common law. As a result, she filed a Statement of Claim alleging that the IDEL regulation did not remove her ability to claim constructive dismissal at common law, but only under the ESA.
In response to the court claim, the employer brought a Rule 21 motion to strike the action for failure to disclose a reasonable cause of action. At the hearing, the Court was asked to consider whether the IDEL regulation displaced the employee’s ability to claim constructive dismissal at common law. In a surprising finding, the court ruled in favour of the employer, and dismissed the employee’s constructive dismissal claim.
In support of its finding, the Court held that the Ontario legislature had clearly intended to displace the common law doctrine of constructive dismissal given the unique and unprecedented circumstances occasioned by the COVID-19 pandemic resulted in temporary layoffs. In the words of the court:
“The Regulation can and did change the common law. Effectively, ‘in these circumstances (COVID), you are not laid off, not constructively dismissed, and you are on a statutory leave of absence.”
For the reasons noted above, I respectfully disagree with the Court’s conclusion in this recent decision (as do many employment lawyers across Ontario). While this decision is certainly good news to employers who have admittedly struggled during the COVID-19 pandemic, it is nonetheless inconsistent with the long-held rule under common law that employers do not have an inherent right to place employees on a temporary layoff without contractual permission (lest face a constructive dismissal claim).
At this time, the previous decision in Coutinho is being appealed to the Ontario Court of Appeal, which will hopefully bring clarity to this now confusing state of the law as to an employer’s ability to lay off an employee in the context of COVID-19, without it amounting to a constructive dismissal at common law. In my estimation, the appeal court will likely uphold the Coutinho decision, and find that the traditional principles of common law apply in the context of COVID-19-related layoffs, regardless of the government’s enactment of the IDEL regulation in response to the COVID-19 pandemic.
In the meantime, employers should be mindful that the IDEL regulation ends on September 25, 2021 before making the decision to place and/or keep their employees on IDEL leave. After this date, employers will likely be required to recall and reinstate their employees to the same job held prior to IDEL leave (or a similar job if the employee’s previous job no longer exists ass a result of business restructuring).
Call Today for Help
Whether you are an employee or employer who would like to inquire about your rights around an unpaid temporary layoff or financial severance package, please contact Bune Law at 647-822-5492 arrange a consultation with an employment lawyer in the Toronto area, so that we can discuss your specific employment matter in detail, explain employment law as it applies to your situation, and then determine whether you need our assistance and how we can help.
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