IMPORTANT ONTARIO EMPLOYMENT STANDARDS UPDATE: THE COVID-19 PANDEMIC TEMPORARY LAYOFF DEEMED “INFECTIOUS DISEASE EMERGENCY LEAVE” COULD BE CONSIDERED CONSTRUCTIVE DISMISSAL

covid-19 employment

UPDATED – JUNE 28, 2021

PAST UPDATES – 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?

Since March 2020 there have been widespread temporary layoffs (or a reduction in wages or hours) due to COVID-19 related business slow down or (hopefully) non-permanent 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.

covid-19 layoffs mitchell rose

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The government originally made its move on Friday, May 29, 2020 when it released a new regulation under the ESA (O. Reg. 228/20 which pertains to “Infectious Disease Emergency Leave”), and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), it remains unclear for now 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 is deemed an infectious disease emergency leave

1. Until September 25, 2021, the ESA temporary layoff deadlines are now irrelevant for COVID-19 related layoffs since March 1, 2020. This takes some pressure off employers with employment contracts containing a clear right to temporarily lay off employees and can save them from having to make severance payments. Some employers will also be 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”). 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. As at the time of writing, it remains unclear whether O.Reg. 228/20 temporarily suspended the common law rule that temporary layoffs amount to constructive dismissal without a contractual right to layoff. It may take many months for the law to be settled. In February 2021, the government clarified its intention regarding O.Reg. 228/20 on the Ministry of Labour website that the common law was not affected. Then, on April 27, 2021, the Ontario Superior Court of Justice released its decision in Coutinho v Ocular Health Centre Ltd 2021 ONSC 3076 (discussed below) and any lingering hopes (or doubts) about the government’s intentions respecting the common law were put to rest. Employers who temporarily laid off employees due to COVID-19 may now face significant severance obligations even though they did not intend to terminate an affected employee’s employment.  Then, on June 7, 2021, a different judge of the same court released Taylor v. Hanley Hospitality Inc. o/a Tim Hortons, 2021 ONSC 3135. That judge reached the opposite conclusion as the judge in Coutinho (and went so far as to state that the analysis in Coutinho was “wrong in law”).  The decision is being appealed. Meanwhile, in late June, news spread about another Superior Court decision, Fogelman v. IFG, 2021 ONSC 4042. Fogelman was released on June 2, days before Taylor), and it does not refer to Coutinho or Taylor, but it reached the same conclusion as in Coutinho.  So, it will now be up the Court of Appeal for Ontario to one day decide whether employers who temporarily laid off employees due to COVID-19 (and without contractual rights to layoff employees) may now face significant severance obligations even though they did not intend to terminate an affected employee’s employment.

3. As the deemed IDEL ends on September 25, 2021, employers must soon make certain choices with regard to employees that will no longer be on deemed IDEL. Failure to make the right or any choice in time could prove costly (more on this below).

As a result, we may see an increase in constructive dismissal claims under the common law both before and after September 25, 2021 as well as uncertainty about the law.

The Fine Print

Here is my full take on IDEL. 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.

covid-19 employment changes mitchell rose

Covid-19 Period

O. Reg. 228/20 begins by establishing a “COVID-19 period” (“the period beginning on March 1, 2020 and ending on the date that is six weeks after the day that the emergency declared by Order in Council 518/2020 (Ontario Regulation 50/20) on March 17, 2020 pursuant to section 7.0.1 of the Emergency Management and Civil Protection Act is terminated or disallowed”). In plain English: We have been in the COVID-19 period since March 1, 2020 and will be until September 25, 2021.

Infectious Disease Emergency Leave (“IDEL”)

It then goes on to state that employees are entitled to an unpaid emergency leave absence during the COVID-19 period if the employee’s hours of work are temporarily reduced or eliminated by the employer for reasons related to coronavirus (COVID-19). This is the IDEL. It is deemed to have started on March 1, 2020. It applies during the COVID-19 period and includes anyone who was already temporarily laid off for reasons related to COVID-19. Note though that if the employee is recalled to work during the COVID-19 period (until September 25, 2021), then they may no longer be on IDEL if their hours of work are no longer reduced.

With some exceptions, all requirements and prohibitions under the ESA that apply to any leave will apply to IDEL. This includes an employee’s right to reinstatement on or before September 25, 2021 (after the conclusion of the COVID-19 period) to the position that the employee most recently held with the employer, if it still exists, or to a comparable position if it does not.  Not surprisingly, an employee deemed to be on IDEL does not need to advise an employer of the leave. In fact, it is my view that it is the employer who now needs to tell a laid-off employee that they are on a COVID-19 Leave as soon as possible.

As well, an employee may voluntarily go on an IDEL even if they are not deemed to be on one.

Further, an employer is not required to make its contributions for any of the following plans if the employee on IDEL stopped participating in any of them as of May 29, 2020: group pension, life insurance, accidental death, extended health, dental or any prescribed type of benefit plan (“benefit plan”). As well, if an employer of an employee in a COVID-19 Leave was not making contributions for any benefit plan as of May 29, 2020, the employer is not required do so.

When an Employee is not on IDEL

Most terminations and severance after March 1, 2020 or before May 29, 2020 result in the affected employee deemed not to have been on IDEL.

A Reduction in Hours, Wages is not a Layoff

With some exceptions, an employee whose hours of work are temporarily reduced or eliminated by an employer, or whose wages are temporarily reduced by the employer, for reasons related to COVID-19 during the COVID-19 period is exempt from the application of sections 56 (termination) and 63 (severance) of the ESA for the purposes of determining whether the employee has been laid off. The employee is not considered to be laid-off under those sections of the ESA.

Reduction in Hours, Wages not a “Constructive Dismissal”

The most controversial (and potentially confusing) part of O. Reg 228/20 deals 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.

The other view is 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 has 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 has now deemed to be a leave of absence in response to a global pandemic? Under this interpretation, the government is balancing employee and employer rights.

However, in February 2021, the Ontario government stated the following on its webpage regarding “COVID-19: temporary changes to ESA rules” (O. Reg 228/20):

“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.”

In the Coutinho decision, released April, 2021, the Superior Court addressed the common law.

According to Justice D.A. Broad in Coutinho:

[55] In my view Coutinho was entitled to treat Ocular’s unilateral imposition of the layoff as bringing the contract of employment to an end and had the immediate right to sue for constructive dismissal.

[56] In my view the written notice by Ocular on May 29, 2020 to Coutinho that she was being laid off without pay constituted a constructive dismissal and Coutinho was not barred by the IDEL Regulation from bringing an action against Ocular at common law as a result.

This was a significant but short-lived victory for Ontario employees, but it is possible that the decision could be overturned on appeal, or that the government will reverse itself by further amending the ESA.

Soon after, the Taylor decision was released.

According to Justice J.E. Ferguson in Taylor:

[12] Ms. Taylor claims that her temporary layoff is a constructive dismissal and that her employment has been terminated. Essentially her argument is that the Employment Standards Act, 2000, SO 2000, c.41 (the “ESA”) and Ontario Regulation 228/20, does not displace the common law doctrine that a layoff is a constructive dismissal. I do not agree in these times of COVID-19…

[21]…The employee cannot be on a leave of absence for ESA purposes and yet terminated by constructive dismissal for common law purposes. That is an absurd result… It is submitted, with respect, that the analysis in Coutinho is wrong in law. This court is not bound by it…

[22] I agree with Tim Hortons that exceptional situations call for exceptional measures. The Ontario Government recognized the inherent unfairness in subjecting employers to wrongful dismissal claims as a result of the government imposing a state of emergency. If they did not take action, these claims would only serve to make the economic crisis from the pandemic even worse. It is just common sense. The plaintiff’s action is dismissed.

While I take issue with parts of both court decisions (although the conclusion reached in Coutinho that O. Reg 228/20 did not alter the common law is in accord with the actual language of the legislation and the government’s website), for now, it will be up the Court of Appeal (and possibly the Supreme Court of Canada after that) to clear up the current uncertainty in the law. Just to add more fuel to this fire, and as noted above, in late June we discovered a pre-Taylor, post-Coutinho, decision called Fogelman.

According to Justice Susan Vella in Fogelman:

[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. Section 7 of O. Reg. 228/20 states:

7. (1) The following does not constitute constructive dismissal if it occurred during the COVID-19 period:

  1. A temporary reduction or elimination of an employee’s hours of work by the employer for reasons related to the designated infectious disease.
  2. A temporary reduction in an employee’s wages by the employer for reasons related to the designated infectious disease.

7. (2) Subsection (1) does not apply to an employee whose employment was terminated under clause 56(1)(b) of the Act or severed under clause 63(1) (b) of the Act before May 29, 2020.

[46] Subsection 56(1)(b) of the ESA states:

56 (1) An employer terminates the employment of an employee for purposes of section 54 if,

(b) the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period;

[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 supercede 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.

While we wait for the Ontario Court of Appeal to tell us which interpretation of O. Reg 228/20 is correct, it is also possible that the Ontario government will clarify its intentions by further amending the ESA.  Only time will tell. For now, the only thing certain is uncertainty.

What You Must Know

If you skipped The Fine Print and you are now rejoining us, welcome back!  In addition to the Three Key Takeaways above, here is what you must know about O. Reg 228/20:

1. Employees and employers must quickly determine if, in fact, a post-March 1, 2020 layoff or other reduction in hours or wages is due to reasons related to COVID-19 so they will understand their rights and obligations.

2. Employers need no longer worry about the 13-week Temporary Layoff deadline for employees properly on IDEL, at least until September 25, 2021.

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. They should also exercise caution before recalling employees, or attempting to, once again, temporarily lay them off, at the end of the deemed IDEL on September 25, 2021 if they believe they cannot reinstate the employee to the position most recently held by the employee.

4. Some employers might not be obligated to continue employee benefits during the COVID-19 period.

5. It would be wise for employers to communicate with employees properly on IDEL leave that they are on it, what the implications are for them, along with other vital information. However, employers with employees 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.)

6. Similarly, employees who have been temporarily laid off at any point following March 2020, or who now find themselves terminated or not reinstated to the same position, should immediately seek legal advice from an experienced employment lawyer to determine whether or not they have been constructively dismissed under the common law.

7. 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).

8. 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, especially during these trying times when predictability in general is at an all-time low. There are no slam dunks, and this area of the law will continue to evolve for the foreseeable future.

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 mediator-arbitrator for your employment law dispute, including those COVID-related, I have been a mediator for over a decade. I have also been regularly conducting virtual employment mediations via (Zoom) videoconference during the COVID-19 period.

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

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