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Is a Layoff a Constructive Dismissal (COVID-19)?

Many are wondering, is a temporary layoff caused by Coronavirus COVID-19 related business slowdowns and closures a “constructive dismissal”?

Temporary layoff and constructive dismissal

A “temporary layoff” is a procedure enshrined in government minimum employment standards legislation called the Employment Standards Act (“ESA”), which permits employers to temporarily layoff employees without triggering a “Termination” as per the ESA.

A “constructive dismissal” is a “common law” concept, meaning it is judge made law. Accordingly, we don’t yet know if a temporary layoff caused by Coronavirus COVID-19 related business slowdowns and closures is a “construcuve dismissal” because no judge has made a decision on this issue.

Generally, before Coronavirus, the common law is that unless an employment contract or industry practice contemplates a temporary layoff, a temporary layoff is a constructive dismissal, to which an employee can treat herself as being “terminated without cause” despite what the ESA says.

Case law

For example, in Stolze v. Addario et al., 1997 CanLII 764 (ON CA), the Ontario Court of Appeal considered the situation of an employee who said he was constructively dismissed when he was laid off because neither the express nor implied terms of his employment contract permitted the employer to invoke an unpaid layoff. The court further found that there was no evidence of discussions, industry practice or a company policy respecting layoffs of salaried employees during his years of employment. The Court of Appeal held that in the absence of evidence of a policy or practice within the employer company of laying off key employees, the layoff constituted a constructive dismissal.

But what about these unique circumstances (COVID-19, Coronavirus)?

There is chance that a future court would not consider a by-the-book and economically required layoff during this pandemic a constructive dismissal. COVID-19 presents unique circumstances.

We can learn from one case that held that a temporary layoff would not have amounted to a construcuve dismissal had the financially strained employer followed the ESA temporary layoff mechanism by-the-book during its economic crunch.

In Trites v. Renin Corp, 2013 ONSC 2715 (CanLII), the company was facing hard times and the loss of 300 jobs. To help remedy the situation, some 50 workers were laid off by the Defendant company. One laid-off employee sued, claiming the layoff was a constructive dismissal.

The court began its decision by saying:

“this case involves circumstances that give rise to a novel and perplexing legal issue of whether a financially struggling employer can unilaterally and arbitrarily impose a temporary layoff upon an employee absent an express or implied term in the contract of employment to support the employer’s action.”

The Defendant company argued that a temporary layoff is contemplated by the ESA and does not constitute a constructive dismissal or termination of employment either by operation of the ESA or the common law.

The court agreed in effect, stating that when a temporary layoff complies with the exact requirements of the ESA, there is no possibility that the layoff can result in a constructive dismissal. The court went on to opine, “in my view, there is no room remaining at law for a common law claim for a finding of constructive dismissal in circumstances where a temporary layoff has been rolled out in accordance with the terms of the ESA.”

However, because in this case, the employer did not follow the exact ESA procedure for a temporary lay off, it was still a constructive dismissal.

Update, June 2, 2020: In a surprise regulation issued on May 29, 2020, retroactive to March 1, 2020 and until Ontario’s emergency order is no longer in place, all covid related temporary lay-offs will be deemed an infectious disease emergency leave. Call us for more on this issue. Furthermore, the Ontario government’s May 29, 2020 regulation under the Infectious Disease Emergency Leave provision in the Employment Standards Act says a temporary reduction or temporary elimination of an employee’s hours or wages for COVID-19 reasons are not considered a constructive dismissal per the Employment Standards Act. However, as Professor Doorey of Osgoode Hall pointed out very quickly after the regulation was posted, this regulation would likely not apply to “common law” constructive dismissal. In addition, Andrew Monkhouse, the founder of my firm, Monkhouse Law, has the same opinion in that this new regulation does not bar common law constructive dismissal. Hence, employees deemed to have taken this Infectious Disease Emergency Leave cannot make a constructive dismissal complaint to the Ministry of Labour, but they still, likely, could claim common law constructive dismissal through the courts. None of this information has been tested, all we have now are just theories. Call us for more info on this regulation.

Desperate times, desperate measures

Thus, I believe this case ( Trites v. Renin Corp ) may stand for the proposition that there is a chance that if the current financial situation becomes desperate, economically rattled employers who lay-off employees by perfectly following the layoff procedure in the ESA may not have constructively dismissed their laid-off employees. Otherwise, we are going to have a lot of constructive dismissal cases…

Still, this is just my opinion, not a fact. Furthermore, cases that came after Trites v. Renin Corp, but did not have a global pandemic in the foreground, gave it negative treatment. Readers are encouraged to call an employment lawyer.

Frustration of Contract

While under the Employment Standards Act, it may or may not be constructive dismissal if an employer temporarily lays off an employee, as described above. However, under the common law, it may be that in this pandemic and the resulting mass business closures, some employment contracts are “frustrated” and incapable of being performed and therefore no party is owed damages.

Frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes “a thing radically different from that which was undertaken by the contract”….

Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58 (CanLII), [2001] 2 S.C.R. 943, at paras 53 and 55

Frustration of contract in employment law traditionally occurs when a disability prevents an employee from carrying out the requirements of her employment.

If there is a “frustration”, termination of the contract occurs automatically and both the employer and employee are relieved from the employment contract without damages: Fraser v. UBS, 2011 ONSC 5448 (CanLII), at para. 15. In other words, there is no obligation to provide notice or pay in lieu of notice (i.e. severance).

In these circumstances, there is a chance that COVID-19 “frustrated” the employment contract because such an event makes the operation of the employer and work of the employee radically different than what was first contemplated.

Mitigation of Damages

Alternatively, if an employer recalls a laid off employee who claimed or was going to claim constructive dismissal, then the good news for employers is that an employee may only be entitled to common law damages for the time the employee was laid off, not the entire reasonable notice period. Once an employer recalls a laid off employee, the employee’s damages are “mitigated”. See Bevilacqua v Gracious Living Corporation, 2016 ONSC 4127 (CanLII) at paragraph 27.

Take Away

Employees are encouraged to seek legal advice before making a claim for constructive dismissal, while employers are encouraged to seek legal advice before making a temporary layoff.

How can employers avoid layoffs? There are two legislative options: the Work Sharing program and the Supplementary Unemployment Benefit program.