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Employers take note: A temporary layoff for COVID-19-related reasons may constitute constructive dismissal at common law

Canada Publication May 25, 2021

As the year progresses, courts are starting to address the pandemic’s impact on employment-related issues, such as those surrounding temporary layoffs. One recent Ontario Superior Court of Justice decision, Coutinho v Ocular Health Centre Ltd., raises a number of questions for employers forced to reduce or eliminate employee working hours due to the pandemic. While many believed that COVID-19-related legislation protected employers from constructive dismissal claims due to pandemic-related layoffs, this decision now casts some doubt on that view.


 

Context

A dispute arose between the principals of Ocular Health Centre Ltd., who operated ophthalmic clinics, and certain practicing ophthalmologists. The principals alleged failures to respect financial obligations and comply with social distancing guidelines. In the midst of the dispute, the clinic where the plaintiff worked was closed without notice. The locks on the clinic were changed overnight and the plaintiff was sent home with pay. One month later, the plaintiff received a letter notifying her that, as a result of being forced to close the clinic, the employer was required to temporarily reduce its workforce. As such, the employer was placing the plaintiff on temporary layoff, but would do its best to recall her as soon as possible. 

The plaintiff secured a position with a new employer approximately two months later. 

She filed a claim against Ocular, seeking damages for constructive dismissal and punitive damages. Among other arguments, Ocular maintained that the plaintiff was deemed to be on emergency leave under O. Reg. 228/20: Infectious Disease Emergency Leave (Regulation), enacted pursuant to the Employment Standards Act, 2000 (ESA). The Regulation states an employee, whose hours are temporarily reduced or eliminated by the employer for reasons relating to COVID-19, is deemed to be on infection disease emergency leave and not considered laid off for the purposes of the sections on termination (s. 56 ESA) or severance (s. 63 ESA). The Regulation further states:

7. (1) The following does not constitute constructive dismissal if it occurred during the COVID-19 period: 

1. A temporary reduction or elimination of an employee’s hours of work by the employer for reasons related to the designated infectious disease.

In light of the above, Ocular moved for summary judgment on the basis that the plaintiff had no cause of action against Ocular. 

Notwithstanding the Regulation, can a claim for constructive dismissal still survive under the common law?

Despite Ocular’s argument that the plaintiff was on infectious disease emergency leave under the Regulation and, therefore, her claim for constructive dismissal must fail, the Ontario Superior Court of Justice concluded that the Regulation does not affect a claim for constructive dismissal at common law. 

The court held that, under s. 8 of the ESA, “No civil remedy of an employee against his or her employer is affected by this Act,” unless a complaint under the ESA has already been filed. This was not the case for the plaintiff. As such, the application of s. 7 of the Regulation, cited above, was limited to statutory constructive dismissal claims and not those at common law arising out of the same facts. The court considered the Ministry of Labour, Training and Skills Development’s guidance that the rules under the Regulation do not address what may constitute a constructive dismissal at common law. 

The court followed the established principle set out by Ontario Court of Appeal to the effect that:

[…] at common law, an employer has no right to lay off an employee and that absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment, and would be a constructive dismissal.1 

In Ocular, the court concluded that Ocular’s unilateral decision to lay off the employee constituted a constructive dismissal and the Regulation did not bar the employee from bringing a civil action pursuant to the common law.  

Without deciding on the merits, the court dismissed the motion for summary judgment, which was based on the constructive dismissal argument. In light of a number of outstanding defenses advanced by Ocular, notably, that the plaintiff was dismissed for cause or, alternatively, had resigned, the court directed the matter to trial. Note that since the plaintiff had largely mitigated her damages, she reduced her claim to her statutory entitlement to termination pay under the ESA based on her years of service.

What does this mean for employers?

Whether the parties in the Ocular matter pursue the case to trial or appeal the court’s decision remains to be seen. However, given the impact of COVID-19 on employers and their businesses, with many having had to temporarily reduce or eliminate hours of work, this decision is unlikely to be the final word on how temporary layoffs and constructive dismissal claims in the specific context of the pandemic are to be treated. Certainly, the interplay between the common law and statutory/regulatory regimes will need to be further clarified.

In the meantime, there are a number of factual considerations that employers may rely on to distinguish this case. Notably:

  • whether the employee agreed to the temporary layoff; or
  • express or implied terms of employment allowing for temporary layoffs. 

We will continue to monitor this issue and report on developments.


Footnotes

1   Para. 50 of Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076 (CanLII), with the court referring to lsegood v. Cambridge Spring Service 2002 Ltd., 2011 ONCA O.J. No. 6095 (C.A.) at para. 14.



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