Update: COVID-19 Temporary Layoff May Not Be Constructive Dismissal at Common Law

On June 7, 2021, the Ontario Superior Court (the “Court”) issued its decision in Taylor v Hanley Hospitality Inc., 2021 ONSC 3135 (“Taylor”). The Court ruled that a temporary layoff for reasons related to COVID-19 does not constitute constructive dismissal for the purposes of the Employment Standards Act, 2000 (the “ESA”) or the common law. 

The Taylor decision directly contradicts the Court’s April 27, 2021 decision in Coutinho v Ocular Health Centre Ltd., 2021 ONSC 3076 (“Ocular Health”), which held that a layoff for reasons related to COVID-19, while not a constructive dismissal for the purposes of the ESA, could still constitute constructive dismissal under the common law.

This development is of great significance for Ontario employers who have laid off employees for reasons related to COVID-19 since March 1, 2020 and who are facing constructive dismissal claims, especially where such claims rely on Ocular Health. 

On May 29, 2020, the Ontario Government enacted Ontario Regulation 288/20, the Infectious Disease Emergency Leave Regulation (the “IDEL Regulation”) under the ESA in response to the COVID-19 pandemic. During the “COVID-19 period” (which began on March 1, 2020 and was recently extended until at least September 25, 2021), a non-unionized employee is “deemed” to be on a job-protected Infectious Disease Emergency Leave where their employer has temporarily reduced or eliminated their hours of work because of COVID-19. Subsection 7(1) of the IDEL Regulation expressly states that a reduction or elimination of hours of work in such circumstances will not constitute constructive dismissal (the ESA otherwise provides that constructively dismissed employees are entitled to notice of termination, or pay in lieu thereof, and severance pay, if applicable).

At common law, unless an employment contract expressly permits an employer to lay off an employee, a unilateral layoff by an employer is considered a substantial change in employment and would typically constitute a constructive dismissal.

On April 27, 2021, the Court issued its decision in Ocular Health, which appeared to be the first reported case to consider the IDEL Regulation. In that case, the Court held that the IDEL Regulation applied to the concept of constructive dismissal under the ESA but did not affect an employee’s right to pursue a civil claim for constructive dismissal at common law. See our previous post for a detailed summary of the Ocular Health decision.

In Taylor, the plaintiff employee was temporarily laid off from her employment with Hanley Hospitality Inc., operating as Tim Hortons, on March 27, 2020. On August 18, 2020, she was advised that she would be recalled to her employment effective September 3, 2020. She did in fact return to her employment and remained a current employee at the time of the hearing. 

It was not disputed that the plaintiff employee had been laid off for reasons related to COVID-19 (as a result of the state of emergency declared by the Ontario Government on March 17, 2020, Tim Hortons was required to close all of their storefronts and was limited to takeout and delivery).The plaintiff claimed that the temporary layoff constituted a constructive dismissal and that the IDEL Regulation did not displace the common law doctrine that a layoff is a constructive dismissal.  

The Court placed a great deal of emphasis on the exceptional circumstances created by the COVID-19 pandemic, noting that hundreds of thousands of Canadians have had their employment interrupted by the COVID-19 pandemic as a result of emergency measures which have forced some employers to temporarily close their businesses or cut back their operations.

The Court determined that, pursuant to the IDEL Regulation, the plaintiff employee was deemed to be on Infectious Disease Emergency Leave when she was laid off on March 27, 2020. As such, the plaintiff’s layoff was no longer a layoff, and the issue of whether a layoff in such circumstances would constitute a constructive dismissal at common law was therefore not relevant. The Court noted that it would lead to an absurd result if an employee could be considered on a leave of absence for ESA purposes and yet terminated by constructive dismissal for common law purposes.

Significantly, the Court expressly addressed the Ocular Health decision and stated that the Ocular Health decision was wrong in law. The Ocular Health decision relied heavily on subsection 8(1) of the ESA, which generally provides that no civil remedy against an employer is affected by the ESA. In Taylor, the Court stated that Ocular Health took subsection 8(1), which merely confirms that the ESA is not the exclusive forum to seek redress for issues involving the ESA, too far. 

The Court dismissed the plaintiff’s action, noting that it would be inherently unfair to subject employers to wrongful dismissal claims as a result of the Ontario Government imposing a state of emergency. 

While it remains to be seen whether the Ocular Health or Taylor decisions will be appealed, employers now have some basis on which to refute constructive dismissal claims arising from layoffs due to COVID-19. 

We will continue to monitor any developments and provide further updates as information becomes available. For advice specific to your situation, consider contacting your regular lawyer at Rae Christen Jeffries LLP.