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The Legality Of Covid-related Layoffs Is Still Unclear

Author: Ljubica Durlovska LL.B & Sarah Mills, J.D, Employment and Labour, KMB Law

COVID-19 hit Ontario businesses hard. Forced closures and capacity limitations forced employers to face a roster of employees that no longer matched reduced business needs and lowered customer demand for products and services. Employers had no choice but to temporarily cut hours and reduce wages in order to stay afloat. Although we are currently in the final stages of Ontario’s reopening scheme, some industries continue to see lasting and devastating effects and have yet to recall employees from temporary layoffs.

Background

The common law (being the judge-made law) on layoffs is simple: employers do not have an automatic right to lay off employees. To gain the right to layoff employees in accordance with the rules of Ontario’s Employment Standards Act (“ESA”), companies need their employees’ agreement, in writing. Laying off an employee without a written agreement constitutes a constructive dismissal at common law. A constructive dismissal is a type of wrongful termination wherein the employee is forced to resign from their job as a result of their employer’s actions.

The Government’s Solution – IDEL Layoffs

In May 2020, in acknowledgement of the difficulties faced by employers, the Ontario government augmented the ESA by way of Regulation 228/20 (the “Regulation”) which aimed at helping companies face their employee challenges by introducing the new Infectious Disease Emergency Leave (“IDEL”). IDEL is a job-protected leave of absence which can be taken under certain, COVID-related, circumstances.
Importantly, the Regulation allows employers to effectively lay off employees without repercussions by deeming them to be automatically on IDEL for the duration of the Regulation. The Regulation is clear: a temporary reduction or elimination of an employee’s work hours and/or wages due to COVID-19 does not constitute constructive dismissal under the ESA.
The Regulation applies retroactively from March 1, 2020 and will last until September 25, 2021, subject to any government extensions.

The Problem Caused by IDEL Layoffs

Employers with and without contracts allowing for layoffs were relying on the Regulation and IDEL layoffs to temporarily reduce or eliminate hours. But, while it was clear that employers with written layoff agreements were protected under the Regulation, it remained unclear whether the Regulation also protected employers laying off employees without prior written agreement.
In April 2021, the Ontario Superior Court of Justice in Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076 (“Coutinho”) determined that an IDEL layoff, even though allowed under the ESA, still constituted a dismissal at common law. The employer, who attempted to rely on the Regulation to temporarily lay off their employee, was found guilty of constructive dismissal and ultimately owing termination costs.
Then, in June 2021, the same court came to the exact opposite decision in Taylor v. Hanley Hospitality Inc., 2021 ONSC 3135 (“Taylor”) where it was found that Coutinho was wrongly decided. The Court in Taylor determined that the IDEL Regulation displaces the common law. As such, employees who were placed on IDEL without written agreement were not constructively dismissed at common law. The Court reasoned that to rule otherwise would make the ESA amendments irrelevant, as it would not protect employers from lawsuits. The Court held,

“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.”

On the heels of Taylor, the Superior Court released yet another contradictory decision in Fogelman v. IFG, 2021 ONSC 4042 (“Fogelman”). In contrast to Taylor, and in accordance with Coutinho, it held that IDEL layoffs do constitute constructive dismissals under the common law. Further, the court awarded $25,000 in punitive damages, serving as yet another warning to employers that IDEL layoffs may be fraught with significant liability if not handled with care.
The Coutinho decision is currently being appealed, and is scheduled to be heard by the Divisional Court in September, 2021. The Taylor and Fogelman decisions will also likely be appealed in short order.

Employer Takeaways

We now have three conflicting decisions on the very same issue, creating uncertainty as to whether employers will be liable at common law for constructive dismissal in relation to layoffs under the Regulation. Employers seeking to rely on the decision in Taylor must proceed with caution, as it will not be the last word on the matter. In the circumstances, it is likely that the Ontario Court of Appeal (and possibly the Supreme Court of Canada) will need to weigh in to clear up the current uncertainty in the law.
We will be monitoring this situation closely and will continue to advise employers about these very important changes to Ontario employment law. In the meantime, we recommend employers focus on eliminating future liability by updating their existing employment contracts and policy manuals to ensure their rights to layoff, among other things, are protected by agreement.
Employers seeking to make significant unilateral changes to their employee’s jobs, due to COVID or otherwise, should contact an employment lawyer for advice.



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