Temporary COVID-19 Layoffs Held to be Constructive Dismissal

Several provincial governments have enacted temporary layoff measures to address COVID-19 employment challenges. Can an employee claim constructive dismissal and damages against their employer if they are temporarily laid off due to COVID-19? A recent decision from the Ontario Superior Court in  Coutinho v Ocular Health Centre Ltd., 2021 ONSC 3076 (“Coutinho”) says yes.

The Law on Constructive Dismissal

Constructive dismissal can arise in one of two ways:

  1. an employer breaches an employment contract through a unilateral change that a reasonable person in the circumstances of the employee would conclude substantially changes the essential terms of the employment contract; or
  2. an employer’s conduct would lead a reasonable person to conclude that the employer no longer intends to be bound by the terms of the employment contract.

If an employee is constructively dismissed, they can either accept the constructive dismissal and continue their employment under the new terms, or treat the employment contract as repudiated and sue the employer for wrongful dismissal.

The Facts in Coutinho

In Coutinho, the plaintiff employee (the “Employee”) worked for the defendant as an ophthalmic technician. The defendant employer (the “Employer”) operated several ophthalmic clinics, including the clinic where the employee worked.

Following a long-running dispute between at least two of the three ophthalmologists practising at the clinic and two principals of the Employer, the Employer changed the locks of the clinic and the ophthalmologists left to develop their own clinic.

After the Employer changed the locks, the Employer closed the clinic and refused the Employee entry. The Employer later informed the Employee  that she was temporarily laid off. Approximately two months later, the Employee commenced employment at the ophthalmologists’ new office and subsequently brought an action against the Employer for constructive dismissal, seeking $200,000 in damages.

Legislative Context and Position of the Parties

In response to the COVID-19 pandemic, the Ontario Legislature enacted the Infectious Disease Emergency Leave regulations, O Reg 228/20 (“IDEL”) under the Employment Standards Act, 2000, SO 2000, c 41 (“ESA”).

Section 7 of the IDEL provided that the following conduct by an employer does not constitute a constructive dismissal if it occurs during the “COVID-19 period”:

  1. A temporary reduction or elimination of an employee’s hours for reasons related to COVID-19; or
  2. A temporary reduction in wages for reasons related to COVID-19.

The parties disputed whether the Employer carried out the Employee’s temporary layoff for reasons related to COVID-19 or whether the dispute between the principals and ophthalmologists caused the layoff. The Employer asserted it intended to return the Employee to work but was unable to make the necessary arrangements with its clinics for reasons related to COVID-19.

The Court’s Ruling

The Ontario Superior Court ultimately concluded that it was not necessary to determine whether the temporary layoff of the Employee was for reasons related to COVID-19.

Rather, the Court held that the IDEL did not affect the Employee’s ability to pursue a claim for constructive dismissal damages at common law. The Court relied on subsection 8(1) of the ESA which stated that “no civil remedy of an employee against his or her employer is affected by this Act.” Further, interpretive guidance on the IDEL published by the Ontario Ministry of Labour stated that employees’ rights to civil remedies at common law would be unaffected by the regulation. Although not binding, this guidance further supported the Court’s decision.

Based on the above considerations, subsection 8(1) of ESA prevailed and the Employee was entitled to treat the layoff as a constructive dismissal and bring an action for damages against the Employer.

Key Takeaways for Employers

In summary, Coutinho demonstrates the following points regarding an employer’s reliance upon statutory layoff language when implementing temporary layoffs:

  1. Civil remedies, including reliance upon the common law doctrine of constructive dismissal, are not affected by statutory language exempting employees from statutory entitlements in the event of layoff during the COVID-19 pandemic;
  2. Changes in terms of employment permitted by statutory public health emergency amendments may still result in employer liability at common law;
  3. Employees have an immediate right to sue for constructive dismissal once they are unilaterally laid off;
  4. Employees are not obligated to inquire into when they will be called back but are obligated to mitigate their losses; and
  5. Accepting an alternative job during a temporary layoff is an act of mitigation and not a resignation.

These holdings may have implications for other provinces with similarly worded employment legislation that preserves civil remedies. Accordingly, employers should explore legal ramifications of unilaterally reducing hours or wages at common law, even where permitted to do so by statutory provisions responding to the COVID-19 pandemic.

The MLT Aikins labour and employment team can assist you with navigating employment challenges during COVID-19.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.