Two Court Decisions Out of Three (So Far) Say Temporary Layoffs During the Pandemic are Constructive Dismissals

Constructive Dismissal | COVID-19 | Employment Standards

And how the employer behaves can lead to punitive damages

It seems like the dam has burst, and we will now see a flurry of court decisions on the issue of whether a temporary layoff in the context of the COVID-19 pandemic constitutes a constructive dismissal.

We have reported on the first decision (Coutinho v. Ocular Health Centre) extensively, and Brittany Taylor has prepared a video blog on the second decision (Taylor v. Hanley Hospitality Inc.), but before we even had a chance to post it, a third decision has come to light.

For those keeping score, the first decision was a victory for employees, finding that laid off employees were entitled to compensation. The second decision was welcomed by employers, finding that a temporary layoff during the pandemic was not a constructive dismissal at common law, and the new decision in Fogelman v. IFG is consistent with Coutinho; so right now, employees are winning 2-1.

However, just like the NHL playoffs, being down 2-1 does not mean the series is over. Frankly, we expect a plethora of decisions on this point, likely with contradictory results; hopefully the Ontario Court of Appeal will provide some clarity, though it is possible that this issue will make its way to the Supreme Court of Canada.

In the meantime, this is intended to briefly summarize the decision in Fogelman. By way of brief background, Mr. Fogelman was employed by IFG as Managing Director of Recruiting from July 13, 2009 until he was placed on a temporary lay-off on March 16, 2020, as a consequence of the downturn in its business resulting from the COVID-19 pandemic.

Temporary Layoffs are Constructive Dismissals, even During the Pandemic

As the Court found:

  • IFG continued to operate at the time of Mr. Fogelman’s lay-off during the pandemic, albeit at a reduced capacity, since IFG’s business was deemed by the Province of Ontario to be an essential service.
  • Fogelman did not acquiesce or accept IFG’s decision to lay him off nor did he elect to rely upon his lay-off rights under the ESA.
  • There was no provision in his contract that permitted IFG to lay him off.
  • In Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831, 109 O.R. (3d) 143, at para. 14, the Court of Appeal held that “[a]t 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.”

The Court rejected all the employer’s arguments, including those which tried to distinguish COVID-related layoffs from temporary layoffs in the past. It also rejected the notion that Regulations introduced by the Ontario government related to Infectious Disease Emergency Leave (IDEL) impacted the common law, which is what the Court in Taylor relied upon to find in favour of the employer.

The Court found that IFG did not have the contractual right to lay-off Mr. Fogelman. Furthermore, the lay-off provisions of the ESA are not available to IFG because Mr. Fogelman was a non-union employee and is not asserting his rights under the ESA to seek pay in lieu of notice or severance pay.

With respect to whether the IDEL regulations removed the right to sue for constructive dismissal at common law, the Court noted that

The Ontario Ministry of Labour bulletin entitled “COVID-19: temporary changes to ESA rules” states: “These rules do not address what constitutes a constructive dismissal at common law.”

The ESA provides the answer to this issue under s. 8(1): 8 (1) Subject to Section 97, no civil remedy of an employee against his or her employer is affected by this Act.

As Mr. Fogelman was not pursuing his rights under the ESA but rather was pursuing his civil remedies, O. Reg. 228/20 does not apply to Mr. Fogelman’s claims made under the common law pursuant to s. 8(1) of the ESA.

CERB Payments are not to be Deducted from Severance

There has been a fair amount of confusion on this issue. Employment Lawyers are accustomed to deducting Employment Insurance benefits from severance payments. However, the Court followed previous decisions by finding that CERB payments are not to be treated the same way.

No Moral Damages, but Punitives were Awarded

This is perhaps the most interesting aspect of the decision, and the element of greatest concern for employers. While the Court declined to award moral damages for bad faith, it found that punitive damages were appropriate. This conclusion was based on several factors, including the fact that IFG refused to pay Mr. Fogelman his statutory or contractual entitlements. Such an analysis could easily apply to thousands of employers.

As the Court held:

…IFG refused to provide Mr. Fogelman with any statutory entitlements under the ESA once it received notice that Mr. Fogelman considered the lay-off to be constructive dismissal…It is also my view that the failure to comply with the ESA is an independent wrong that is outrageous and reprehensible behaviour deserving of punitive sanction.

Among other things, the Court also noted that

  • IFG has not behaved well in its dealings with Mr. Fogelman over the termination. First, it took the position that Mr. Fogelman was an employee since 2009 and produced sworn evidence to this effect…Then, later, by way of a supplementary affidavit, IFG changed its position and stated that Mr. Fogelman was actually an independent contractor for the first five plus years of his employment and produced an employment contract.
  • Initially, it will be recalled, IFG took the position Mr. Fogelman had no employment contract. Even after IFG acknowledged that an employment contract existed, IFG did not pay the notice and severance requirements stipulated by the employment contract.
  • Efforts by Mr. Fogelman’s lawyer to initiate settlement discussions and his demands that Mr. Fogelman be paid at least his minimum entitlements under the ESA were met with radio silence after an initial letter from IFG’s lawyer saying that IFG would consider the proposal and would respond.
  • IFG made it unnecessarily difficult for Mr. Fogelman to effect service of the statement of claim, effectively playing games during the pandemic.

As a result, the Court awarded an additional $25,000 in punitive damages.

Being Paid Through their Corporation Does not Make a Worker an Independent Contractor

A sub-issue in this case was the fact that Mr. Fogelman provided services and was paid through his corporation during the first five years of the relationship. IFG asserted that he was an independent contractor, but as we have said on countless occasions, courts will not be swayed by how the parties define their relationship or by one factor, such as how they are paid. Courts will look at the degree of the worker’s integration into the company in order to assess if they are providing services as an independent business person, or are really part of the organization.

Final Words

This is far from the final word on the issue of whether temporary layoffs during the pandemic will be treated as constructive dismissals or not. We will have to wait for our appellate courts to address that; in the meantime, parties considering or engaged in these disputes should settle for the very unsatisfactory reality that their odds of success are 50-50.

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