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Breaking Employment Law News: Layoffs are Constructive Dismissals, Even During a Pandemic!


Stuart Rudner here on April 28th, 2021 with breaking employment law news.

I’ll get right to the point: a judge of the Ontario Superior Court has confirmed that laying an employee off is a constructive dismissal, even during a pandemic.

I cannot overstate the importance of this case – what it means is that many if not most of the employers that laid people off during the pandemic are at risk of being liable for constructive dismissal. We are expecting a deluge of claims of constructive dismissal arising out of the pandemic, first and foremost for temporary layoffs, but also for pay cuts, or reduction in hours, and this is a very important case.

There is one very important exception, if an employer had a contractual right to lay somebody off, either in a collective agreement, or in a contract, that would not be a constructive dismissal. And I will take a brief moment here to pat my team on the back, because we have been recommending that our clients include temporary layoff clauses in our contracts for years, and many of our clients were quite relieved to learn that they had the right to impose temporary layoffs when the pandemic started. They reaped the benefits of that and they continue to do so. The other exception is, even if it wasn’t in the contract, if the employee consents to the layoffs. We work with many other clients to get that consent in writing before the layoff was imposed.

Unfortunately that’s not what most employers did. What most employers did was exactly what the company in the case I’m going to talk about did, was that they simply told employees that they were being laid off, in other words a unilateral change. So it’s important to remember the definition of a constructive dismissal, it’s a unilateral change and a substantial change to a fundamental term of the employment relationship. So remember what the fundamental basis of that employment relationship is: the employee will work and the employer will pay them for that work. If the employer unilaterally decides and declares that the employee is not going to be allowed to work for a period of time and is not going to be paid for that time, it’s hard to imagine a more substantial change to a fundamental term than that. So let’s rewind now to over a year ago, when the entire world changed, seemingly overnight, and businesses were massively impacted. Many were shut down entirely, others had dramatic reductions in revenue, and they had to try to find ways to reduce costs. Many resorted to temporarily laying off their employees.

As a side note, several months later in Ontario, the government imposed, or enacted, new legislation which created the Infectious Disease Emergency Leave, or IDEL as we often refer to it, which effectively and retroactively changed all of those layoffs that were COVID related to be leaves of absence and allowed employers to impose leaves of absence that were COVID related. That was in Ontario, although it was made very clear in the regulation that that impacted, and would not be a constructive dismissal, under the Employment Standards Act, but did not impact the common law.

So think back to about a year ago again, when employers started to lay people off, and we started to see these stories in the news, I was very public in my comments and saying that there was a very genuine risk here that these employers would be liable for constructive dismissal, and I got a lot of push back on that from employers, from other lawyers, and I understand why, employers were in an impossible situation, on the one hand they had little or no revenue, on the other hand they were being told that they could not simply lay people off, that they had to continue paying their employees even if their revenues were down 70, 80, 90, 100 percent. It’s really impossible, and I have a lot of sympathy for these business owners. Think of all the restaurants and the shops that we’ve seen close their doors over the past year because of the pandemic. And I was quoted in many media outlets, I wrote a lot of articles, and I’ll quote from one particular article I wrote, what I said was that “businesses are in an impossible situation. Many have been ordered to cease operations altogether, most others have seen a dramatic decrease in revenue. The status quo cannot continue, as these businesses will not continue to be viable unless they can dramatically reduce their costs. As a result, they often turn to layoffs”. And then I said, “unfortunately, the common misconception that employers automatically have the right to lay people off means that many businesses have already done so, entirely unaware of the legalities”. And then I said, “it is quite possible that a court will, when asked to interpret the current set of circumstances, decide that the law of constructive dismissal cannot be applied in its current state to the entirely new situation we face. Or, it is possible that a government body will intervene, however, neither of those things have happened yet. How our courts will treat this unprecedented situation in the future remains to be seen”.

So fast forward a year, and now we’ve seen it, at least one. In the case which is called Coutinho v Ocular Healthcare, and I hope I’ve pronounced that plaintiff’s name right. On May 29th, 2020, the plaintiff was put on a layoff, she almost immediately sued for constructive dismissal. The defendant pleaded that when the IDEL was put into place, that the layoff was therefore deemed to be a leave of absence, therefore not a constructive dismissal in accordance with the regulation. The court rejected that argument completely, and effectively said that the changes in the regulation were purely to have an impact on the Employment Standards legislation and had no impact on the common law. And as the judge said, it is well established that at common law, an employer has no right to lay off an employee, and that absent an agreement to the contrary, a unilateral layoff by an employer is a substantive change in the employee’s employment and would be a constructive dismissal. Which is, effectively, exactly what I have been saying for the last year.

Now interestingly, the case did not address what I think is the more interesting and more compelling issue, which is the fact that the common law is not written in stone, it does evolve over time, and the question to me is, should the traditional interpretation of what a constructive dismissal is, be adapted to reflect the impact of a global pandemic on an employer? In other words, even though we’ve always said a temporary layoff is a constructive dismissal, should the rules be adapted to reflect the fact that some employers really had no choice other than to lay employees off, or they would not survive. And I suspect that at some point, a judge is going to look at that issue, and I think that’s one of the important points to take out of this. We now have the first word on the subject, it is far from the final word.

There are going to be many more trial decisions across the country, there will be decisions from courts of appeal in probably every province, and the Supreme Court of Canada may well decide to weigh in on this issue which is not only federal, it’s international and global.

So the bottom line is we’re not going to know the final answer to this question of whether a temporary layoff constitutes a constructive dismissal, even in the COVID 19 pandemic, for many years, but right now we have one case on point which says that it is a constructive dismissal even though there was a pandemic going on. So this is certainly good news for employees, not so good news for employers. We expect to see a tremendous amount of litigation arising out of the pandemic generally, and particularly on this point, so this is not going to be the last word.

I encourage everyone to keep up to date on employment law developments by following our social media platforms and also signing up for our newsletter.

Lastly, but not least, I will wish everyone well and encourage you to take care and stay safe, and stay tuned for the next development. Thanks for tuning in.

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