Why COVID-related layoffs could result in constructive dismissal claims

Matt Chapman

A key ruling on the issue of constructive dismissals during COVID-19 has considered an employee’s rights to common law damages for constructive dismissal in light of temporary layoffs by employers pursuant to emergency legislation. An endorsement released by the Ontario Superior Court of Justice in the matter of Coutinho v. Ocular Health Centre Ltd. [2021] O.J. No. 2237 on April 27, 2021, opens the door for claims of constructive dismissal as a result of temporary COVID-19 layoffs.

Confusion reigned in all sectors when COVID-19 struck Ontario in early 2020 and the legal field was not immune from the disruption this caused. The crisis has required constant re-evaluation, and it has resulted in the rapid production of legislation to deal with major issues. Our legal system is not particularly well equipped to deal with frequent transformation. In fact, participants in our legal system often benefit from the slow pace of legal change as it allows for greater certainty with respect to how the courts may handle issues. Certainty has been anything but the norm this past year, and it has resulted in lawyers having much to argue about.

One significant employment law question has loomed large, namely: Will the reduction of an employee’s hours of work or wages result in the finding of a constructive dismissal at common law?

As many employers were forced to substantially limit their operations or close their doors completely because of government orders, they were forced to consider what to do with their employees for whom they now had no work. The termination of an employee can bring with it significant obligations for termination pay and severance pay under the Employment Standards Act, 2000 (ESA), and often even greater obligations in lieu of reasonable notice at common law. It was not uncommon to hope that these closures would be short-lived, so employers sought options for temporarily reducing their workforce in a manner that would not result in a termination.

When faced with a work shortage, many employers will consider the option of a temporary layoff. However, when COVID-19 hit, many employers were surprised to learn that the option of a layoff was not an inherent right for most classes of employee. Without a contractually agreed upon layoff provision, an employer’s attempt to lay off an employee could result in the employee pursuing a claim for constructive dismissal. If successful, the employee could be entitled to payments pursuant to the ESA and/or the common law.

With so many businesses being forced to temporarily close, the provincial government sought to limit the overall impact as best they could. One way it did so was through s. 7(1) of the Infection Disease Emergency Leave (IDEL), a regulation passed under the ESA. Section 7 of IDEL states that a temporary reduction of an employee’s wages and/or a temporary reduction or elimination of hours of work for reasons related to the designated infection disease does not constitute a constructive dismissal. Essentially, the government allowed employers to cut wages and hours for their employees without the fear that the employee could seek ESA termination and severance pay for a constructive dismissal.

This then raised the question posed earlier in this article. Would this hastily drafted provision apply to limit constructive dismissals at common law as well? After a year of waiting to find out, the issue has finally been heard in the Superior Court. In Coutinho, Justice David Broad held that the IDEL Regulation does not affect an employee’s right to pursue a civil claim for constructive dismissal at common law. In the court’s reasons, Justice Broad relied on s.  8(1) of the ESA which states that (subject to some exceptions) no civil remedy of an employee against his or her employer is affected by the Act.

What does this mean for, and employees?

This is the first time that an Ontario court has ruled on this issue, and it is still possible that it will not be the last word on the matter. In the meantime, employers will want to be particularly careful with any temporary layoffs they impose, especially for long service employees to whom they may owe significant notice periods at common law. It may be helpful to seek the agreement of the employee, and it would certainly be wise to seek the advice of a qualified employment lawyer in advance of any decision regarding layoffs.

For employees who have been forced to languish on unwanted layoffs, it may mean that a claim for constructive dismissal would be warranted. Immediate legal advice should be sought regarding that possibility.

Matt Chapman is a lawyer with Cohen Highley LLP in Kitchener, Ont. Cohen Highley has offices in London, Kitchener, Stratford, Chatham and Sarnia. Chapman is an employment lawyer and commercial litigator, representing employers and employees to find practical and effective legal solutions. He can be reached at mchapman@cohenhighley.com.

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