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Court Rules that “COVID Leave” or Layoff is a Constructive Dismissal at Common Law

Author: Jonathan Borrelli, Employment and Labour Lawyer at Keyser Mason Ball, LLP

When the pandemic first hit, employers had no choice but to make difficult decisions to layoff some or all employees. Changes to Ontario’s Employment Standards Act permitted employers to place employees on unpaid leaves of absence if COVID affected their business. This would give employers time to recover and recall the employees to work at the right time, without terminating their employment.

Ontario’s Superior Court has now had a chance to analyze these decisions, and the news is not good for employers.

The Court has confirmed in two separate cases that unilateral COVID-related layoffs can be terminations through constructive dismissal, under the common law.

A flood of litigation in the courts is sure to follow in the wake of these important decisions.

Overview of the Law

In response to the pandemic, the Ontario government passed changes to the Employment Standards Act including the adding of a special leave of absence. Employees who are not performing their duties because of a reduction or elimination of their hours due to reasons related to COVID-19 are considered to be on a new job-protected leave of absence. That leave of absence is currently set to end on July 3, 2021 (though the government has twice extended this deadline).

The changes to the law allow employers to place employees on this unpaid leave and not have the leave be considered a termination under the Employment Standards Act.

The Coutinho Case

In the first case released by the Superior Court (called Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076), the employer placed the employee on the special leave of absence in May 2020 in accordance with the Employment Standards Act. The Employer argued they followed the changes in the Employment Standards Act and had not terminated the employee.

The employee, in turn, argued that they were constructively dismissed from their employment and thus entitled to full common law reasonable notice of termination as a result.

The Court found that the newest changes to the Employment Standards Act apply only to those determinations under that law itself, and it does not affect an employee’s rights to pursue a common law remedy in the courts. For this employee, since they had not agreed to be laid off in an employment contract, the Court ruled that the employer did not have a right to unilaterally lay off the employee, and the employer had in fact terminated the employee.

As a result, the employee was entitled to wrongful dismissal damages.

The Ristanovic Case

In another case decided by the Superior Court (called Ristanovic v. Corma Inc., 2021 ONSC 3351) the employer’s supply chain was significantly disrupted in January 2020 and the employer was forced to lay off employees.

The long service employees argued that their employment had been terminated because they did not agree to be laid off in any contract of employment they had, despite the fact that the pandemic was a serious interruption in the employer’s operation.

The employer argued that there is an implied term in any employment agreement that where an unprecedented event (such as a global pandemic) occurs, an employer should be permitted to temporarily lay employees off without terminating their employment.

The Court stated there were no reasons to treat a COVID layoff differently than any other situation that an employer may find itself in. For the Superior Court, the law prohibiting unilateral temporary layoffs was clearly a termination of employment.

The Court disagreed with the employer and did not apply the “force majeure” idea into this specific employment contract. The Court mentioned the changes to the employer’s operation (in January 2020) happened before COVID had evolved into a global pandemic, and the layoff letters did not justify the layoffs on an emergency or global economic disruption.

As a result, the employee was entitled to wrongful dismissal damages.

Takeaways for Employers

While these two important cases may be appealed in the future, they currently reinforce the notion that employers have no automatic right to lay off employees unless it is specifically written into a valid employment contract.

Even with the newest changes to the Employment Standards Act, or on the eve of a global pandemic, an employer must proceed with caution if they are forced to stop an employee’s work and be aware of the liability associated with their actions. There are valid and fair ways for employers to manage their workforce in order to reduce this liability.

An employer in Ontario can place employees on temporary unpaid layoffs for up to 35 weeks within a 52-week period without triggering termination – but only when it is established properly.

In the meantime, we recommend that employers review their contracts and policy manuals regularly to keep up to date with changes in the law. When in doubt, obtain advice from an employment lawyer before making any significant changes to an employee’s job.



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