May 12, 2021

Employees can claim constructive dismissal due to IDEL layoff

When the government of Ontario amended some elements of the Ontario Employment Standards Act, 2000 (ESA) at the outset of the COVID-19 pandemic, many of us engaged in employment and labour law were interested to see how certain aspects would be interpreted by our courts.

The first amendment, on March 19, 2020, included an infectious disease emergency leave (IDEL) that granted a statutory leave to employees who were exposed to COVID-19 and needed to quarantine. The IDEL was retroactive to January 25, 2020 and on May 29, 2020, the government extended the application of the IDEL and had it apply to all employees who had been laid off due to COVID-19.

Many questioned what effect, if any, this and pandemic related temporary layoffs would have on common law constructive dismissal claims and on April 21, 2021, the Ontario Superior Court of Justice addressed the issue in its decision on Coutinho v. Ocular Health Centre Ltd. (Coutinho v. Ocular).

I would stress at this point that the decision addresses only the  aspects of constructive dismissal brought up in this particular claim and while it establishes preliminary legal guidelines, other cases coming before the courts will more fully establish a common law framework going forward. I will keep you informed as these decisions unfold.

Summary
The Ontario Superior Court of Justice found that where an employer places an employee on a temporary leave under the IDEL regulation, the leave could nonetheless constitute at common law the termination of employment referred to as a “constructive dismissal”, and does not restrict the employee’s right to pursue a common law action for constructive dismissal against his or her employer.

Background
On March 19, 2020, the Ontario Employment Standards Act, 2000 (ESA) was amended to include the IDEL, retroactive to January 25, 2020.  Amongst other things, the IDEL granted a statutory leave to employees who were exposed to COVID-19 and needed to quarantine.

On May 29, 2020, the Ontario government extended the application of the IDEL and had it apply to all employees who had been laid off due to COVID-19. (For the purpose of the ESA, the May 2020 amendment remains in place and deemed leaves are set to expire on July 3, 2021.)

Employees laid off due to COVID-19 were deemed to be on IDEL and, therefore, the automatic termination of employment provisions under the ESA that would have applied at the end of the layoff were suspended. 

It is clear that the May 29, 2020 amendments relieve an employer against the layoff provisions under the ESA, however the question as to common law rights was not specifically addressed. 

A layoff at common law generally constitutes the termination of employment/constructive dismissal and the question before the Court in Coutinho v. Ocular was whether the amendments creating the IDEL limit an employee’s common law right to treat a layoff as a constructive dismissal.

Outline of the case
On May 29, 2020, Ms. Coutinho was temporarily laid off from her position as an office manager at Ocular Health Centre Ltd (Ocular). On June 1, 2020, she commenced an action against her employer for constructive dismissal, seeking her common law and statutory entitlements. 

Ocular submitted a motion for summary judgment, taking the position that the reduction or elimination of Ms. Coutinho’s hours did not constitute a constructive dismissal pursuant to the IDEL and that she did not have a cause of action.

Decision
The Court dismissed the employer’s motion for summary judgment and found that where an employer places an employee on a temporary leave under the IDEL regulation, the leave could nonetheless constitute a constructive dismissal at common law, and does not restrict the employee’s right to pursue a common law action for constructive dismissal against his or her employer.

The court held, in essence, that the amendments to the ESA deal with rights under the ESA and that if the Ontario government also wanted to impact common law rights, it would have done so expressly. Since it did not, Ms. Coutinho’s common law rights were preserved.

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In closing on the issue of constructive dismissal and the inapplicability of the IDEL regulation at common law, the Court reiterated that, absent an agreement to the contrary, an employer has no right to lay off an employee at common law.

Immediate and future implications
While this case does establish that an employee can make a claim of constructive dismissal, the interpretation appears to focus narrowly on the issue of whether the IDEL regulation itself prevented a claim at common law. Based on the written reasons it does not appear that arguments were considered for adapting the common law test for constructive dismissal in light of the novel circumstances of the pandemic.

As other cases come before the courts, perhaps in part because of this judgment, I expect many defences to be raised that will establish the precedents for succeeding cases.

In my view, one of the most notable aspects of this case is that no defence was submitted by the employer under the doctrine of ‘frustration’.

Under the doctrine of frustration a court may fully excuse both parties from their obligations under an employment contract where performance of that contract becomes legally or physically impossible. The contract is said to be “frustrated” without fault of either party. 

Many employers were required by the government itself to shut down because of emergency and public health orders. Their employment contracts therefore became impossible to perform because of those orders and because of the COVID-19 pandemic. 

It remains to be seen whether the courts will deem this to be frustration, and I anticipate that this defence will be put forward by one or more employers.

Another defence could be an establishment of condonation. 

In Coutinho v. Ocular, the employee commenced the legal action mere days after receiving the notice of layoff. However, in cases where an employee is notified of a reduction or elimination of hours by the employer and allows an unreasonable amount of time to pass before objecting, or asserting their common law rights, the employee is considered to have condoned the action – to have waived the alleged wrongdoing that is in question.

It is unclear at this moment whether an employer, in the context of the pandemic, could use the defence that an unreasonable amount of time has passed when an employee was laid off many months ago, perhaps even longer than a year in some cases.

A similar defence holds that a condonation is implied where an employer has established a practice of laying off and recalling employees who do not object or assert their common law rights. 

Employers in various industries, including restaurants and retail, have been forced – either by government order or business circumstances –  to layoff and recall employees as the situation has evolved over the past 14 months. These employers may have established a practice even over the course of the pandemic.

There may be other defences put forward by employers as more cases are brought before the courts. 

Many have described the times of the pandemic as being ‘unprecedented’ and that is certainly true in the case of employment and labour law. I will keep you informed as new decisions and interpretations are issued.

Please contact me with any questions you may have on this decision or for assistance working through any staffing matters.