By Erin Chochla | March 16, 2021
This general legal information (not legal advice) is subject to change, and there may be exceptions based on your specific circumstances. You should obtain independent legal advice before taking any action which may impact your legal rights. If you are an employee or an employer and need legal advice regarding layoffs or termination of employment, an OA lawyer will be pleased to assist you with your situation.
People often use the terms layoff and termination interchangeably, but they have distinct legal meanings. The COVID-19 pandemic has caused huge numbers of layoffs and terminations, so it is now essential that employers and employees understand when a layoff is actually (or becomes) a termination.
Termination ends the employment relationship between the employer and employee. Terminated employees are entitled to receive notice of termination or termination pay, and sometimes severance pay and/or benefit continuation during the termination notice period. The amounts that they are entitled to depend on several factors, including their rate of pay and years of service. Employment contracts sometimes specify the amount of termination pay that an employee will receive. In contrast, an employee who has been laid off has their hours temporarily reduced or stopped altogether, but expects that they will eventually return to work.
Importantly, employers do not have a general right to lay off their employees. As the Ontario Court of Appeal explained in Elsegood v Cambridge Spring Service, 2011 ONCA 831, the opposite is true: unless the employment contract provides layoff rights, layoffs may be found to be terminations. Specifically, an unauthorized layoff may constitute constructive dismissal, a fundamental change to the employment contract made by the employer without the employee’s consent. Constructive dismissal is the same as termination because, although the employee was not formally dismissed, the employment relationship ends.
Workers who agree to be temporarily laid off, however, are usually not constructively dismissed, even where their employment contract does not permit layoffs. Many employees understandably prefer this option to being terminated, especially when other employment is difficult to find.
Where employment contracts do permit an employer to temporarily lay off employees, the contract must comply with relevant statutes. For example, Ontario’s Employment Standards Act (“ESA”) limits the length of any layoff to a maximum of 13 out of 20 consecutive weeks1; any layoff that lasts longer than that is a termination. Since the ESA’s purpose is to protect employees, employers are not allowed to “contract out of” the minimum protections provided by the ESA, including laying off workers for longer periods. For example, if a contract says that the employer may lay off an employee for 15 out of 20 weeks, that portion of the contract is likely invalid and any employee who was laid off in accordance with it may have been constructively dismissed.
1 Under the ESA, a temporary layoff can also be less than 35 weeks of layoff in any period of 52 consecutive weeks, in specific circumstances.
Employees who were constructively dismissed may bring an action against their employer and may be awarded damages (compensation for their lost wages, benefits, termination and severance pay). However, courts may not find temporary layoffs legitimately made because of COVID-19 to constitute constructive dismissal.
Recall that employment contracts that contradict statutes are invalid to the extent of the contradiction. Similar to a contractual provision that permits a temporary layoff for longer than the ESA provides, a contractual provision that prohibits layoffs in contradiction to the employer’s obligations to comply with Ontario’s Occupational Health and Safety Act (“OHSA”) would likely be invalid. The OHSA requires employers to take all reasonable precautions to protect their employees’ health and safety and, in the context of a global pandemic, that includes temporarily asking employees not to go to work.
Similarly, Ontario Regulation 228/20: Infectious Disease Emergency Leave, passed in May, 2020 to amend the ESA, states that temporary reductions or eliminations of employees’ hours of work or temporary reductions in their wages for reasons related to COVID-19 (or other listed infectious diseases) does not constitute statutory constructive dismissal or trigger a layoff. Instead, employees whose hours are reduced are deemed to be on Infectious Disease Emergency Leave, an unpaid leave of absence similar to parental and pregnancy leave. Employers are prohibited from terminating employees on Infectious Disease Emergency Leave.
The courts have not yet interpreted the changes to the ESA and some of the Regulation’s language is unclear. For instance, it does not explain how long a reduction in wages or hours may last while still being considered “temporary,” although, presumably, the temporarily reduction or elimination of hours or reduction of wages could persist until the expiration of the Regulation’s application, currently July 3, 2021. Notably, the Regulation has already been amended in order to extend its period of application twice and further extensions are possible.
Similarly, despite the Regulation’s clarification of the current application of the statutory constructive dismissal doctrine, it does not address the common law doctrine of constructive dismissal in the context of the pandemic; this remains uncertain. For these reasons, employers should exercise caution and consider seeking legal advice if they are temporarily reducing or eliminating an employee’s hours, or temporarily reducing their wages, for reasons related to the pandemic.
Courts will likely not uphold common law constructive dismissal claims arising from an employer’s compliance with the OHSA, the Regulation, or other laws, because that would go against public policy. And, courts will take into consideration legislative amendments made in response to the pandemic in deciding layoff/constructive dismissal cases related to COVID-19. Finally, past constructive dismissal decisions are not very useful in predicting how cases related to the pandemic will be decided. This is because layoff/constructive dismissal cases most often occur when an employer uses layoff as a guise to terminate an employee, which is a very different situation from a layoff that is genuinely due to COVID-19.
Courts may decide that some individual employment contracts were “frustrated” (made impossible to perform because of an event that was not the fault of either party) by the COVID-19 pandemic. If this were to occur, the employer would be relieved from their normal statutory obligations to pay termination pay.
Finally, even if a COVID-19-related layoff/constructive dismissal case were successful, the employee may face significant barriers in collecting from their former employer. Employees seeking to collect damages relating to constructive dismissal must show that they have mitigated (worked to minimize) their financial loss by seeking new employment, including by accepting reasonable offers of re-employment from their former employer. A refusal to accept such an offer can reduce the amount the employer owes for termination pay–perhaps to nothing. As mentioned above, making a constructive dismissal claim also means that the employment relationship has ended. Given how difficult securing a new, well-paying job may currently be, employees should carefully consider whether the amount they may receive in termination pay and damages following a constructive dismissal case outweighs the benefit of potentially being recalled to their former position. And, employees should remember that employers forced to lay off workers for reasons legitimately related to COVID-19 are doing so because the economic climate has forced them to reduce their production and profit. The possibility of insolvency may therefore be real, and employees will find that collecting judgments from insolvent former employers is difficult, if not impossible. Court delays arising from the pandemic might delay recovering in a successful claim a longer-term proposition than it is already.
To summarize, understanding the differences between layoffs, terminations, and deemed Infectious Disease Emergency Leave is important for both employers and employees, particularly because of the uncertainty created by COVID-19. Employers do have an automatic right to temporarily lay off their employees unless the employment contract or agreement provided for that right. However, employers may temporarily lay off employees who agree to be laid off and are statutorily permitted to reduce or eliminate the hours or reduce the wages of employees for reasons legitimately related to COVID-19, which does not trigger a layoff. Rather, such employees are deemed to be on unpaid, job-protected Infectious Disease Emergency Leave. Employees who were supposedly “laid off” but who were actually terminated likely can sue their employers for constructive dismissal, but these benefits may be very difficult and time consuming to obtain due to the effects of the pandemic. Employers and employees dealing with issues related to termination, constructive dismissal, and layoffs should seek legal advice before taking any action that could impact their legal rights, as the COVID-19 pandemic continues to create rapid changes in the legal landscape just as it does in other parts of life.
O’Neill Associates is proud to support students from the Bora Laskin Faculty of Law (Lakehead University, Thunder Bay) through the school’s unique Integrated Practice Curriculum (IPC) Program. The IPC, a Bora Laskin variation of the “articling” program students complete at most other law schools, matches students with law firms to work side-by-side with experienced lawyers for one full semester during the third and final year. This article was written by Erin Chochla who is presently completing her third year IPC with OA.