Ontario: Does a COVID Leave Trigger Constructive Dismissal? Even Courts are Coming to Opposite Conclusions

By Jeremy Schwartz and Haadi Malik - Stringer LLP

June 10, 2021

In April, the Ontario Superior Court of Justice ruled in Coutinho v Ocular Health Centre Ltd. (“Coutinho”), that an employer that implemented a layoff during the pandemic, which was “deemed” by the Ontario Employment Standards Act, 2000 (the “ESA”) to be a statutorily protected infectious disease emergency leave of absence (“IDEL”), was nonetheless still a layoff for common law purposes that may trigger constructive dismissal.

In our earlier update on Coutinho, we cautioned of the potential steep financial consequences for employers that could result from the Court’s decision. It was our opinion that the narrow, technical, and impractical interpretation of the law in Coutinho risked a flood of litigation for many Ontario employers who have had to implement layoffs as a result of the states of emergency and lockdowns that were (and continue to be) imposed in response to the COVID-19 pandemic.

Barely two months after Coutinho, the Superior Court released a contrary decision in Taylor v Hanley Hospitality (as yet unreported, 2021 ONSC 3135) (“Taylor”). In Taylor, an employee of a Tim Hortons franchise location was laid off in March 2020 because of COVID-19 but was recalled in September 2020. She subsequently sued the employer, claiming that her temporary layoff was a constructive dismissal that terminated her employment, or, in the words of hearing judge, that the IDEL provisions did “not displace the common law doctrine that a layoff is a constructive dismissal.”

The Court in Taylor came to the opposite conclusion to that in Coutinho, essentially finding that the IDEL provisions did indeed displace the common law (i.e. a “deemed” leave under the IDEL provisions was not a layoff that can still trigger a constructive dismissal at common law). The Court expressly held that Coutinho was wrongly decided and should not be followed.  

Employers are thus left with two conflicting decisions, and an unclear path ahead.

Temporary Layoffs & the ESA

The ESA limits the permissible duration of “temporary layoffs”, after which point the layoffs are deemed terminations. However, the ESA does not expressly provide employers with the right to implement the layoffs in the first place. For employers, this means they need an explicit or implicit contractual right to lay off employees, absent which a layoff may trigger a constructive dismissal.

Where an employee successfully sues an employer for constructive dismissal, the financial consequences for an employer can be significant. For example, in a situation where there is no enforceable contractual provision limiting the employee’s entitlements on termination to the ESA minimums, it is open to courts to award significant damages to employees in the form of pay in lieu of common law “reasonable notice”, subject to that employee’s duty to mitigate.

IDEL

As discussed in our blog post on Coutinho, the IDEL provisions expressly deem a layoff due to COVID-19 to not be a layoff at all, but rather a job-protected leave, which is unlike the ESA provisions which define the limits applicable to layoffs before they are deemed terminations.

The Court in Countino found that the IDEL provisions did not affect the right of an employee on IDEL to sue at common law for constructive dismissal resulting from a layoff. This Court relied on section 8 of the ESA in making its decision, which says that the statute does not affect an employee’s right to civil remedies (their rights at common law). As such, as the IDEL provisions did not expressly extinguish the employee’s common law right not to be laid off, an employer without a contractual right to implement layoffs that put employees on IDEL would be performing a layoff for common law purposes that may trigger a constructive dismissal.

The Court in Taylor expressly addressed and rejected the approach taken in Coutinho, finding that the judge’s interpretation rendered the IDEL provisions meaningless and produced an absurd result, stating that “[t]he employee cannot be on a leave of absence for ESA purposes and yet terminated by constructive dismissal for common law purposes”. This Court further stated that the ESA, like other statutes, is able to extinguish a common law right (i.e. the right not to be laid off), and that all temporary layoffs relating to COVID-19 retroactive to March 1, 2020 were deemed IDELs by statute, with the common law of layoffs thus rendered inapplicable and irrelevant.

Our lawyers will be discussing this and a host of other current HR-law topics at First Reference's upcoming Ontario Virtual Employment Law Conference on June 17.  Register now to Learn the Latest®!

Moving Forward

Taylor is a positive sign for employers, though it may not be the final word on the matter. The Court in Taylor expressly recognized the context of the IDEL: it was created in response to the Legislature’s declaration of a state of emergency that forced employers to cease or curtail their business operations, which naturally meant reducing worker hours and laying off staff. The Court further rightly noted that IDEL was designed as a response to the inherent unfairness in subjecting employers to wrongful dismissal claims which arose effectively as a result of the government imposing a state of emergency.

For now, we are left with two diametrically opposing decisions, and it may take months for the law to be settled on this matter. It looks as if it will be up to the Ontario Court of Appeal to decide whether employers who do not have a contractual right of layoff can temporarily place employees on “deemed” IDEL without triggering constructive dismissal.

In any event, employers must now evaluate how they will move forward regarding employees who were on deemed IDEL, as this leave is set to end on September 25, 2021. The challenging news is that this may be complicated by how Ontario law resolves the conflict between Coutinho and Taylor, making the coming months critical.  Absent further amendments to the ESA resolving the conflict directly, we will likely have to await word from the Ontario Court of Appeal.