ONTARIO EMPLOYMENT STANDARDS: A TEMPORARY LAYOFF DEEMED AN “INFECTIOUS DISEASE EMERGENCY LEAVE” MAY BE CONSIDERED CONSTRUCTIVE DISMISSAL

UPDATED – AUGUST 29, 2022

PAST UPDATES – MAY 12, 2022; DECEMBER 8, 2021; SEPTEMBER 17, 2021; JUNE 28, 2021; JUNE 7, 2021; FEBRUARY, 2021; DECEMBER, 2020; NOVEMBER, 2020; SEPTEMBER, 2020; AUGUST, 2020

What It Means for Employers, Employees… and their Legal Advisors

The Problem: Why Were Changes Needed?

Beginning in March 2020 there were widespread temporary layoffs (or a reduction in wages or hours) due to COVID-19 related business slow down or shutdowns.

As June 2020 approached, employers of non-unionized employees in Ontario-regulated workplaces were facing the 13-week deadline where temporary layoffs automatically become terminations under the Employment Standards Act, 2000 (“ESA”) giving rise to termination and severance pay obligations, even if the employer hoped to eventually recall a laid-off employee to work.

There were two notable exceptions to the 13-week deadline so that the layoff deadline becomes a date less than 35 weeks: Benefits continuation or an agreement in writing. However, not all employees had benefits to begin with, nor would they necessarily agree to a recall date that exceeded 13 weeks (and they would probably be entitled to a signing bonus for the agreement to be enforceable).

At the same time, employers faced a related problem: Despite the ESA having an intricate protocol for temporary layoffs, under the common law there is no such thing as a temporary layoff unless it is provided for in an enforceable employment contract. Therefore, many employees without such a contract could claim that they had been constructively dismissed under the common law because of a temporary layoff allowed by the ESA. If those employees were ultimately successful, they would be entitled to damages for wrongful dismissal. Employers were, therefore, hoping for the Ontario government to change the ESA to address these issues.

What Changed?

The government originally made its move on Friday, May 29, 2020 when it released a new regulation under the ESA (O. Reg. 228/20 which pertains to “Infectious Disease Emergency Leave”), and which has been amended since then. However, instead of benefiting employers by extending the 13-week layoff deadline and clearly changing the common law (even temporarily), there has been debate within the legal community as to whether or not the common law has changed, and whom IDEL helped more: employers or employees.

Three key takeaways from O. Reg. 228/20:

A COVID-19-related layoff was deemed an infectious disease emergency leave. Here are three key takeaways:

1. Until July 30, 2022, the ESA temporary layoff deadlines were made irrelevant for COVID-19 related layoffs since March 1, 2020. This took some pressure off employers with employment contracts containing a clear right to temporarily lay off employees and saved them from having to make severance payments. Some employers were also relieved from maintaining group benefits. However, the government achieved this by deeming these layoffs to be unpaid, statutory leaves of absence dubbed Infectious Disease Emergency Leave (or “IDEL” and also known as “deemed IDEL” or “unpaid IDEL”). Like all leaves under the ESA, IDEL creates special rights for employees and certain obligations for employers that do not exist in a temporary layoff scenario.

2. Despite some remaining uncertainty, O.Reg. 228/20 did not temporarily suspend the common law rule that temporary layoffs amount to constructive dismissal without a contractual right to layoff. While in February 2021, the government clarified its intention regarding O.Reg. 228/20 on the Ministry of Labour website by indicating that the common law was not affected, later that year, the Ontario Superior Court of Justice released its decisions in Coutinho v Ocular Health Centre Ltd 2021 ONSC 3076, Taylor v. Hanley Hospitality Inc. o/a Tim Hortons, 2021 ONSC 3135 and Fogelman v. IFG, 2021 ONSC 4042 (unreported). While Coutinho and Fogelman concluded that O. Reg 228/20 did not alter the common law, and so employers who temporarily laid off employees due to COVID-19 would now face severance obligations, a different judge in Taylor came to an opposite conclusion.  The employee appealed that decision.

These conflicting decisions led to uncertainty in the law. As a result, many court proceedings (and possible settlements) in which employees claimed constructive dismissal have put hold.

There was hope that with the May 12, 2022 release of the decision of the Court of Appeal in Taylor there would be a definitive decision of the province’s top court on this issue. That was not to be. The Court allowed the employee’s appeal on a technicality, set aside the Superior Court decision below, and has remitted the case back to the Superior Court to be heard by a different judge than the one who decided the original decision in Taylor.  I discuss this in detail in The Fine Print below. However, by allowing the appeal, and given the two Superior Court decisions that still stand (Coutinho and Fogelman), there is no longer any serious uncertainty about the law at this time, but who knows what the future has in store.

3. As the deemed IDEL ended on July 30, 2022, employers had to make certain choices with regard to employees that were no longer be on deemed IDEL. Failure to make the right or any choice in time could prove costly. This issue is discussed in my blog about the end of deemed IDEL.

As a result of points 1, 2 and 3 above, we are seeing an increase in constructive dismissal claims under the common law both before and since the end of deemed IDEL on July 30, 2022.

However, employers may still be able to defend such claims on various grounds, depending on the facts of the case. Such grounds may include acquiescence, agreeing to an enforceable contract that contained a right to layoff provision, frustration of contract, the quantum of reasonable notice, and a failure to mitigate.

The Fine Print

Here is my take on the issue of whether a temporary layoff deemed to be an IDEL can amount to constructive dismissal under the common law. If you are not an employment law nerd, an employee or employer, or ridiculously curious (like me), then you may wish to skip the following points, and rejoin me at the section below this, What You Must Know.

The most controversial (and potentially confusing) part of O. Reg 228/20 dealt with “constructive dismissal.” It states that with some exceptions, the following does not constitute constructive dismissal if it occurred during the COVID-19 period:

a) A temporary reduction or elimination of an employee’s hours of work by the employer for reasons related to COVID-19.
b) A temporary reduction in an employee’s wages by the employer for reasons related to the designated infectious disease.

This includes what we formerly recognized as a temporary layoff, a reduction of an employee’s pay due to a COVID-19 related reduction in business, or a temporary closure of a business.

But are employers now spared from the potential claims from constructive dismissal claims for damages under the common law for COVID-19-related work or wage reductions during the COVID-19 period?

One view is that the common law has not been changed. Instead, employees in the situation described above have not been constructively dismissed for the purposes of claiming ESA termination pay and (if applicable) severance pay, which is often far less than common law pay in lieu of notice.  Had the government intended to change the common law then it could have explicitly said so, and it should not have been changed in a regulation- especially since the ESA provides that it doesn’t affect an employee’s civil (common law) remedies. In any event, the employer could have avoided a constructive dismissal claim by having an enforceable contract with a right to temporarily lay off an employee without it constituting a termination. In fact, in February 2021, the Ontario government posted the following on its website about IDEL “These rules affect only what constitutes a constructive dismissal under the ESA. These rules do not address what constitutes a constructive dismissal at common law.”

The other view was that the common law has in fact been temporarily changed. Why else would the government go to the effort of using the phrase “constructive dismissal” in relation to a reduction or elimination of hours and wages – especially when it had already increased employee rights through the creation of IDEL?  Further, why should someone be able to sue an employer for wrongful dismissal for a situation which the Ontario government deemed to be a leave of absence in response to a global pandemic? Under this interpretation, the government is balancing employee and employer rights.

As noted above, there were conflicting Superior Court decisions released in 2021. With the release of the May 12, 2022 decision of the Court of Appeal for Ontario in Taylor, the employment law world was hoping for a definitive answer “from above”. Unfortunately, we don’t yet have the answer as the Court of Appeal opted to allow the employee’s appeal on a technicality. A different judge of the Superior Court will now determine the bigger issue of whether O.Reg 228/20 altered the common law – unless the matter settles first, or a different proceeding gets to court first.  Of course, that may lead to another round of appeals – so we will likely be living with some uncertainty for years. However, as noted above, in the meantime, we have two Superior Court decisions that are unchallenged and clear that a temporary layoff that is considered an IDEL, where there is no contractual right to place the employee on layoff, can amount to constructive dismissal.

I summarize the Court of Appeal’s decision in Taylor below, and then refer to the two other lower court decisions.

From Taylor  v. Hanley Hospitality Inc. o/a Tim Hortons, 2022 ONCA 376:

Note: In the reasons that follow, the employee, Taylor, is the appellant, and the employer, Tim Hortons, is the respondent.

“L.B. Roberts J.A.:

Overview

[1]          This appeal from the dismissal of the appellant’s action for constructive dismissal involves two issues.

[2]          The first issue is whether the [Superior Court] motion judge erred in her approach to the respondent’s rule 21 motion and in dismissing the action where no evidence was admitted and there were material factual issues to be determined. The appellant submits that the motion judge erred in taking judicial notice of facts not in evidence as well as by misconstruing the pleadings and the pleadings rules.

[3]          The second issue concerns the interpretation of one of the many emergency laws and regulations that the Ontario government put into place in response to the global COVID-19 pandemic. The appellant submits that the motion judge erred in concluding that the COVID-19 amendments to s. 50.1 of the Employment Standards Act 2000, S.O. 2000, c. 41 (“ESA”) and the associated O. Reg. 228/20, that establish temporary infectious disease emergency leave, displace the appellant’s common law right of action for constructive dismissal.

[4]          The following reasons explain why I am of the view that the motion judge erred in deciding the case under rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and why I would allow the appeal on that basis. Because of the view I take on that matter, it is inappropriate to rule on the issue of whether the amendments to the ESA and associated regulation affect common law rights.

[…]

[16]       The respondent….brought a motion under rule 21.01(1)(a) of the Rules of Civil Procedure for the determination of an issue before trial, namely, whether the appellant’s action was precluded by virtue of the provisions of s. 50.01 of the ESA and of O. Reg. 228/20 passed under the ESA and asked for the dismissal of the appellant’s action. Neither party filed nor sought to file any evidence on the motion.

[…]

(a)         The motion judge erred in dismissing the action under rule 21

[…]

[25]       The motion judge erred in failing to apply the correct principles on a motion under rule 21.01(1)(a). Importantly, she failed to assume that the allegations in the statement of claim were true. This led her to misapply the provisions of rule 25.08 that stipulate where a reply is necessary and the deemed effect of the absence of a reply.

[…]

[34]       It was…not plain and obvious that the appellant’s action could not succeed. Regardless of the motion judge’s interpretation of s. 50.1 of the ESA and O. Reg. 228/20, to which I turn below, she erred in dismissing the appellant’s action which required the adjudication of the material facts that were in dispute and the determination of whether the ESA provisions even applied to the appellant’s circumstances. This adjudication was not possible on a rule 21 motion where the appellant’s pleaded version of the facts is to be taken as true and there was no other evidentiary record.

(b)         The motion judge erred in undertaking an interpretation of s. 50.1 of the ESA and O. Reg. 228/20

[42]       In my view, the respondent’s rule 21 motion was ill advised. Given how intertwined the statutory interpretation issues were with the factual issues, the respondent’s rule 21 motion could not serve its stated purposes of disposing of all or part of the action, substantially shortening the trial or resulting in a substantial saving of costs. The motion judge erred in not dismissing the respondent’s rule 21 motion and further erred in dismissing the appellant’s action on the basis of an interpretation of the statutory and regulatory scheme that she should not have undertaken.

(c)         Should this court interpret s. 50.1 of the ESA and O. Reg. 228/20?

[43]       The parties urged this court to interpret s. 50.1 of the ESA and O. Reg. 228/20. They submit that even if these provisions are ultimately found not to apply to the appellant’s circumstances in this case, this court’s interpretation of them will nevertheless be useful to the parties and provide guidance on these issues for employees and employers in general.[1]

[44]       I am not persuaded by these submissions.

[45]       The parties are now essentially seeking a standalone declaration of the meaning of s. 50.1 of the ESA and O. Reg. 228/20. Divorced from any factual foundation, the issue is academic at this stage of these proceedings because it would not resolve the fact-driven dispute between the parties…

[…]

Disposition

[49]       Accordingly, I would allow the appeal and set aside the motion judge’s order, including any costs order in favour of the respondent that may have been made. I would dismiss the respondent’s rule 21 motion and remit the action for determination before another judge in the Superior Court of Justice.

[50]       In accordance with my proposed disposition, the appellant would be entitled to her costs of the appeal in the amount of $20,000, inclusive of disbursements and applicable taxes…..”

——-

While some will argue that the law as to whether IDEl altered the common law is currently unsettled, that is not the case. The Court of Appeal allowed the appeal in Taylor. We just don’t yet have definitive Court of Appeal authority on the issue yet.  But we have two Superior Court decisions on point that are still good law: Coutinho, in which the Divisional Court denied leave to appeal, and an unreported Superior Court decision called Fogelman to which I referred above. Unlike Taylor, Fogelman was a motion for summary judgment on which evidence was filed.

According to Justice Susan Vella in Fogelman:

“[43] Assuming the employment contract is enforceable, it contained no provision permitting lay-off and therefore Mr. Fogelman was entitled to treat the lay-off as a constructive dismissal. In the event the employment contract is not enforceable, and void, IFG is in no better position since there is no suggestion in the evidence that a right to lay-off Mr. Fogelman was ever raised in their pre-existing employment relationship.

[44] I was asked to consider the potential applicability of O. Reg. 228/20: Infectious Disease Emergency Leave. However, IFG did not seriously pursue this line of argument. Nonetheless, I will address it given the fact we are still in the pandemic and O. Reg. 228/20 is still in effect.

[45] O. Reg. 228/20 was enacted by the Ontario government as a measure to provide temporary relief to employers from paying statutory notice and severance under the ESA during the course of the COVID-19 pandemic by providing that, for purposes of the ESA, temporary lay-offs would not constitute constructive dismissal (subject to stated exceptions) within the meaning of that statute…..

[…]

[47] Furthermore, 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.”

[48] 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.

[49] In other words, s. 8(1) provides that the ESA does not supersede the civil remedies otherwise available to an employee at common law or in equity.

[50] As Mr. Fogelman was not pursuing his rights under the ESA but rather was pursing 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.

[51] In the alternative, if I am in error regarding my conclusion, then, Mr. Fogelman was not captured by s. 7(1) of O. Reg. 228/20 because he was constructively dismissed within the meaning of s. 56(1)(b) of the ESA. Mr. Fogelman effectively resigned within a reasonable time thereafter (within days), and the constructive dismissal and Mr. Fogelman’s response occurred before May 29, 2020. Therefore, pursuant to s. 7(2) of O. Reg. 228/20, s. 7(1) did not apply to Mr. Fogelman’s termination by IFG.”

What You Must Know

If you skipped The Fine Print and you are now rejoining us, welcome back!  In addition to my above-mentioned three key takeaways, here is what you must know about O. Reg 228/20:

1. Employees and employers needed to determine if, in fact, a post-March 1, 2020 layoff or other reduction in hours or wages was due to reasons related to COVID-19 so they could understand their rights and obligations.
2. Employers did not need to worry about the ESA Temporary Layoff deadlines for employees properly on IDEL, at least until close to July 30, 2022 – unless they were exposed to common law constructive dismissal claims because they had no contractual right to lay off employees. Presently, they are exposed to such claims given the state of the law. However, they may still be able to take advantage of certain defences to constructive dismissal claims.
3. Employers should not temporarily lay off employees, reduce their hours or wages, or assume that an employee has abandoned their job without seeking the advice of an experienced employment lawyer.
4. Employers with employees who were on IDEL without a contractual right to place them on this form of leave should immediately seek legal advice from an experienced employment lawyer as they are now at risk of being sued for wrongful dismissal (whether the lawsuit proves successful is another matter.)
5. Similarly, employees who have been temporarily laid off at any point following March 2020 should immediately seek legal advice from an experienced employment lawyer to determine whether or not they have been constructively dismissed under the common law.
6. IDEL and the ESA apply to provincially-regulated workplaces in Ontario, and not to those regulated by the federal government. The Canada Labour Code(“CLC”) applies to the latter category, and the CLC has its own rules about how long a temporary layoff can last before it is considered a termination for CLC purposes (along with an extension of layoff deadlines in 2020 as a result of COVID-19). The CLC does not purport to change the common law discussed above. It is worth noting that the common law also applies to federally-regulated workplaces and industries (including air transportation, banks, port services, radio and television, railways and road transportation services that cross provincial or international boundaries and telecommunications).
7. As a mediator, I recommend that lawyers and paralegals refrain from giving advice to employers or employees based only on a quick reading or a preferred interpretation of the law. A client’s expectations and tolerance for risk need to be carefully managed. There are no slam dunks despite the current state of the law in Ontario. Employers may also have other defences to constructive dismissal claims even if they can no longer argue that IDEL altered the common law.

If you are an employee or employer, I can help you with any COVID-19 related or other workplace issues. I have more than 25 years’ experience as an employment lawyer with satisfied, repeat clients.

If you are a lawyer or paralegal looking to hire a mediator or arbitrator for your employment law dispute, including those COVID-related, I have been a mediator for over a decade. I regularly conduct in-person, virtual and hybrid employment disputes.

WRITER’S NOTE 2: Please see my May, 2022 interview in Law Times on this blog topic.

This blog is for educational purposes only and is not intended as legal or other professional advice.