October 14, 2021

Background

While it is hoped that COVID-19 subsides as vaccination rates increase across Canada, the pandemic has left behind a host of legal issues and uncertainties in Ontario workplaces, chief among them being whether an employee placed on an “infectious disease emergency leave” (“IDEL”) may sue his or her employer for constructive dismissal.

On May 29, 2020, the Legislative Assembly of Ontario passed O. Reg. 228/20: Infectious Disease Emergency Leave (the “Regulation”) under the Employment Standards Act, 2000 (the “ESA”). The Regulation provides that an employee whose hours of work or wages are temporarily reduced or eliminated for reasons related to COVID-19—during the defined “COVID-19 period” (beginning on March 1, 2020 and currently set to end on September 25, 2021)—is deemed to be on a job-protected IDEL, and is therefore considered neither to be laid off nor constructively dismissed.

A constructive dismissal occurs when an employer makes a substantial change to a fundamental term or condition of an employee’s employment without the employee’s express or implied consent. In these situations, the employee’s employment will be considered to have been terminated, giving rise to the employer’s obligation to give pay in lieu of notice, severance pay (if applicable), and benefits continuation throughout the appropriate notice period. If the employer does not make payment voluntarily, the employee may pursue his or her termination entitlements by filing a complaint with the Ministry of Labour (in which case the employee will be limited to claiming the minimum notice periods prescribed under the ESA) or by commencing a court proceeding against the employer (in which case the employee may claim reasonable notice of termination under the common law and, if applicable, moral and punitive damages).

Contrary to popular belief, an employer does not have an automatic right to temporarily lay off an employee, and may only do so if that right is conferred upon it in the employee’s employment contract. Absent an agreement to this effect, a layoff may amount to a constructive dismissal. This begs the question of why unlawful layoffs are treated differently than IDELs, as they both involve a substantial and unilaterally imposed change in an employee’s employment.

Presumably, the Regulation was enacted to protect both workers and businesses in the face of mandatory lockdowns, stay-at-home orders and steep financial declines. Many employees had no choice but to take time away from work to self-isolate or take care of their dependents. At the same time, many employers had no choice but to temporarily shut down their businesses or implement other cost-saving measures. It would appear that the Regulation aimed to preserve employment relationships by excusing the parties’ temporary inability, through no fault of their own, to perform their contractual duties.

However, the Ontario Superior Court of Justice has issued conflicting decisions on whether the Regulation has the effect of precluding employees placed on an IDEL from suing their employers for constructive dismissal at common law, notwithstanding that the Regulation prevents them from bring such a claim under the ESA.

Coutinho – Employees on IDEL Can Sue for Constructive Dismissal

Released on April 27, 2021, Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076 (“Coutinho”) was the Court’s first decision on the interpretation of the Regulation. In this case, the office manager of an ophthalmic clinic brought a constructive dismissal action against her employer who unilaterally laid her off, effective May 29, 2020. The employer brought a motion for summary judgment to dismiss the action, stating that pursuant to the Regulation, the employee was deemed to be on an IDEL and was not constructively dismissed.

The Court found that the Regulation may not be interpreted to remove an employee’s common law right to advance a civil claim for constructive dismissal, as such an interpretation would contradict section 8(1) of the ESA: “Subject to section 97, no civil remedy of an employee against his or her employer is affected by this Act.” Citing Elsegood v. Cambridge Spring Service 2001 Ltd., 2011 ONCA 831 (“Elsegood”), the Court also stated that at common law, absent an agreement to the contrary, an employer’s unilateral imposition of a layoff amounts to a constructive dismissal. The Court concluded that the employer unilaterally imposed a layoff, amounting to a constructive dismissal, and that the employee was not barred by the Regulation from bringing an action against her employer at common law.

Taylor – Employees on IDEL Cannot Sue for Constructive Dismissal

The Court came to the opposite conclusion in Taylor v. Hanley Hospitality Inc., 2021 ONSC 3135 (“Taylor”), which was released on June 7, 2021. In this case, the employer was required to close all of its Tim Hortons storefronts due to the pandemic, resulting in the employee being temporarily laid off between March 27, 2020 and September 3, 2020. The employee commenced an action for constructive dismissal and argued that the ESA and Regulation did not displace the common law doctrine that a layoff is a constructive dismissal. The Court disagreed, stating that the analysis in Coutinho is “wrong in law.”

The Court held that it offends the rules of statutory interpretation to give the Regulation an interpretation that renders it meaningless (if an employee placed on an IDEL can sue for constructive dismissal, what is the point of the Regulation?). The Court reasoned that by operation of the Regulation, all temporary layoffs relating to COVID-19 during the relevant period are deemed to be IDELs and, as such, the employee’s layoff was no longer a layoff; rather, it was a statutory leave of absence.

According to the Court, section 8(1) of the ESA has never been interpreted to go as far as the Court went in Coutinho, and the provision merely confirms that the ESA is not the exclusive forum for addressing employment matters. Interestingly, the Court relied on Elsegood (the same case referenced in Coutinho) for the proposition that the ESA can displace the common law and that a termination under the ESA “is a termination for all purposes”.

Finally, the Court observed that by requiring employers to cease or curtail their operations, the legislature forced employers to impose layoffs or reduce work hours, thereby exposing them to claims of constructive dismissal at common law through no fault of their own—a situation which the legislature sought to remedy by way of the Regulation. The Court stated, “it should be obvious to the world what the legislature’s intention was by doing so.”

Fogelman – Employees on IDEL Actually Can Sue for Constructive Dismissal

It turned out that the legislature’s intention was not so obvious, as the Court reached the same conclusion as Coutinho, and a different conclusion than Taylor, in Fogelman v. IFG, 2021 ONSC 4042 (“Fogelman”), released June 2, 2021. In this case, the Managing Director of Recruiting for a recruitment company was temporarily laid off on March 16, 2020 as a consequence of the pandemic. The employee immediately advised that he was treating the layoff as a constructive dismissal, but did not receive any severance pay from the employer.

The Court held that the Regulation 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.” The Court also referred to a bulletin by the Ministry of Labour entitled “COVID-19: temporary changes to ESA rules”, which states: “These rules do not address what constitutes a constructive dismissal at common law.” As in Coutinho, the Court found that the employer did not have a contractual right to lay off the employee, and relied on section 8(1) of the ESA in concluding that the ESA does not supersede the civil remedies otherwise available to an employee at common law.

Discussion

The conflicting decisions of Coutinho, Taylor and Fogelman demonstrate the complexity and unpredictability of employment law in Ontario. We will likely have to wait for an appellate court to weigh in if there is to be any certainty as to the legal ramifications of placing an employee on an IDEL.

Much of the uncertainty centres on the purpose and proper interpretive approach to the relevant legislation. The Supreme Court of Canada has described the ESA as “remedial” legislation intended to protect the interests of employees, necessitating an interpretive approach which encourages employers to comply with the minimum requirements of the ESA. Viewed in isolation from the impact that the pandemic has had on businesses across Ontario, it seems patently unfair and at odds with the purpose of the ESA to allow employers to simply reduce an employee’s hours of work or wages with impunity.

However, the Regulation was passed in direct response to the social and economic circumstances brought about by COVID-19, to alleviate the pressure on both employers and employees. Why should employers be liable for constructive dismissals, or employees be treated as having abandoned their employment, for decisions they were forced to make during the pandemic? It appears that the Regulation was intended to address these concerns.

Appellate courts will have to scrutinize the Regulation in light of the context in which it was made. The Regulation was passed to respond to the pandemic. A principled approach to the issue of an IDEL giving rise to a constructive dismissal claim would therefore require, as a starting point, an inquiry into whether the IDEL was, in fact, imposed for reasons related to COVID-19, as required by the Regulation.