Jun 15, 2020

Pandemic Layoff and Severance Provisions

Elsegood v. Cambridge Spring Service, 2011 ONSC 534 (CanLII)

On March 19, 2020, the Government of Ontario created a new regulation under the Employment Standards Act, which created a new emergency leave to protect workers who were sick from COVID-19.

This was an important protection to ensure that workers were not dismissed as a result of being sick during the pandemic. As the pandemic drags on, and social isolation and distancing rules create significant economic barriers for businesses, many lawyers have been considering whether there would be an enormous wave of employment litigation following the conclusion of the pandemic.

Many employers have had to reduce wages, modify the terms of contract, or place employees on temporary leave. On May 29, 2020, this regulation was replaced and expanded to include special provisions for termination and severance during the “COVID-19 period,” between March 1, 2020 and six weeks after the declared emergency under s. 7.0.1 of the Emergency Management and Civil Protection Act is over.

It also expanded the pandemic emergency leave to employees whose hours have been temporarily reduced or eliminated due to COVID-19, and provides certain exemptions around benefits contribution during the COVID-19 period.

The emergency leave does not apply to employees terminated on or after March 1, 2020, or if there is a constructive dismissal or temporary layoff before May 29, 2020. A reduction of hours or wages under this emergency regulation will not be considered a layoff or constructive dismissal.

This is important because many lawyers had considered that the large number of temporary layoffs during the pandemic under the Act would still be considered constructive dismissal at common law, and could give rise to a significant number of actions.

For example, the Ontario Court of Appeal held in Elsegood v. Cambridge Spring Service (2001) Ltd. that an employer does not have a right to impose a layoff unless it is specifically agreed upon in the employment contract,

[14] 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.
Whether a layoff is conducted in accordance with the temporary layoff provisions under s. 56(2) of the Act is irrelevant to that determination, unless the employee agrees to the temporary layoff.

In Potter v. New Brunswick Legal Aid Services Commission, the Supreme Court of Canada described constructive dismissal as follows,

[30] When an employer’s conduct evinces an intention no longer to be bound by the employment contract, the employee has the choice of either accepting that conduct or changes made by the employer, or treating the conduct or changes as a repudiation of the contract by the employer and suing for wrongful dismissal. This was clearly stated in Farber, at para. 33, the leading case on the law of constructive dismissal in Canada. See also In re Rubel Bronze and Metal Co. and Vos, [1918] 1 K.B. 315, at p. 322. Since the employee has not been formally dismissed, the employer’s act is referred to as “constructive dismissal”. The word “constructive” indicates that the dismissal is a legal construct: the employer’s act is treated as a dismissal because of the way it is characterized by the law (J. A. Yogis and C. Cotter, Barron’s Canadian Law Dictionary (6th ed. 2009), at p. 61; B. A. Garner, ed., Black’s Law Dictionary (10th ed. 2014), at p. 380).

[31] The burden rests on the employee to establish that he or she has been constructively dismissed. If the employee is successful, he or she is then entitled to damages in lieu of reasonable notice of termination. In Farber, the Court surveyed both the common law and the civil law jurisprudence in this regard. The solutions adopted and principles applied in the two legal systems are very similar. In both, the purpose of the inquiry is to determine whether the employer’s act evinced an intention no longer to be bound by the contract.
The Court described two types of constructive dismissal. The test for the first type requires a review of specific terms of the contract, and has two parts:
  1. the employer’s unilateral change must be found to constitute a breach of the employment contract
  2. it must be found to substantially alter an essential term of the contract
The second type consists of the type of conduct that contextual leads to a reasonable conclusion that the employer no longer intends to be bound by the terms of the contract. In a temporary layoff situation during the pandemic, either type of constructive dismissal could occur, depending on the terms of the contract and a contextual analysis of how the job may have changed.

The new regulation will not apply where an employee has resigned following a perceived constructive dismissal before May 29, 2020.

Whether this regulation will actually displace common law considerations of the ESA provisions or existing contractual terms for employees is unlikely and remains to be seen, but this does provide some justifiable basis for employers to maintain business continuity, and hopefully continue to employ as many workers as possible following the pandemic.