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Temporary Lay-Offs Deemed Constructive Dismissal in Recent Superior Court Ruling

May 12th, 2021 in Employment & Severance

Overview

As the pandemic continues to persist throughout Canada and with increasing restrictions being implemented by the Ontario government, more and more employers and employees are forced to reconsider their rights and legal obligations. The amendments made to the Employment Standards Act, 2000, S.O. 2000, c. 41 (“ESA”) by the Ontario government on May 29, 2020 left some Ontarians with the misconception that employers were now immune to legal recourse when faced with the decision to unliterally reduce an employee’s hours or wages for reasons relating to COVID-19. However, as we discussed in a previous blog, and recently confirmed by an Ontario Superior Court ruling, the amendments from May 29, 2020, do not extend to an employee’s common law rights. Essentially, unilateral substantive changes made to an employment contract for reasons relating to COVID-19 remain subject to common law obligations of constructive dismissal.

What is the Status of the Law?

On April 27, 2021, the Superior Court confirmed in Coutinho v. Ocular Health Centre Ltd.[1] that the recent amendments do not limit an employee’s common law rights to notice of termination. Therefore, although substantive unliteral changes to an employment contract relating to COVID-19 do not necessarily trigger constructive dismissal under the ESA, there have been no changes to the common law remedy for constructive dismissal. Consequently, unless an employer has explicitly contracted out an employee’s common law right to notice of termination, employees maintain the right to seek civil remedies for wrongful dismissal due to substantive changes in their employment contract, including those changes relating to COVID-19, such as a temporary layoff.

What is Constructive Dismissal?

Constructive dismissal occurs when an employer demonstrates that it no longer intends to be bound by the terms of an employee’s employment contract. This can occur in many different ways, including by unilaterally changing the employee’s position or salary. However, perhaps most relevant during the pandemic is the effects of temporary lay-offs.  Despite the Government of Ontario’s introduction of Regulation 228/20: Infectious Disease Emergency Leave (“IDEL”) suggesting otherwise, many employees that are temporarily laid off can now claim that they have been constructively dismissed and are entitled to significant termination pay.

As discussed in Coutinho v. Ocular Health Centre Ltd.[2], the IDEL Regulation does not affect an employee’s right to pursue a civil claim for constructive dismissal against an employer.  Essentially, unless the employment contract specifically allows the employer to temporarily “lay off” the employee, the employer exposes itself to liability under the common law in doing so, despite the IDEL, because the employee can take the position that the employer no longer intends to be bound by the terms of an employment contract (i.e., full-time employment in return for the payment of wages or salary).  The employee can pursue a civil claim for constructive dismissal and seek termination pay pursuant to the common law.  This is now supported by the finding in Coutinho v. Ocular Health Centre Ltd. that the employee was entitled to treat the employer’s unilateral imposition of a layoff as bringing the contract of employment to an end, which gave the employee the immediate right to sue for constructive dismissal.[3]

Considerations for Employers

In a previous blog, we discussed an employee’s common law rights to notice of termination. It is essential for an employer to properly understand these obligations in order to mitigate their liability. While employers have the right to limit a termination clause to the minimums outlined in the ESA, employers must thoroughly understand the ESA requirements to avoid a termination clause being rendered invalid. As we discussed in an earlier blog, the recent decision in Waksdale v. Swegon North America Inc.[4] reinforced the need for employers to ensure their employment contracts are carefully curated in order to adequately comply with their statutory obligations set out in the ESA. This would allow the employer to avoid having to pay out common law notice of termination, which tends to be far greater than the minimums prescribed by the ESA.

Considerations for Employees

As an employee, it is important to understand your employment contract and what your rights are. If you have recently experienced a change in hours or wages, including changes made for reasons relating to COVID-19, you may be entitled to a common law notice of termination.

How Vice & Hunter LLP can Help Both Employees and Employers

To ensure that you are properly abiding by the requirements, and that your rights are being respected, Vice & Hunter LLP is eager to provide you with the right advice to help you navigate this unprecedented time. Led by Partner J.F. Lalonde who has over 16 years of experience representing both employees and employers, our employment law team is well-versed in vigorously advocating for each and every client.

Contributors for this blog include J.F. Lalonde, Andrew Donaldson and Morgan McCartney

[1] Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076.

[2] Ibid at para 36.

[3] Ibid at para 55.

[4] Waksdale v. Swegon North America Inc., 2020 ONCA 391.