Pandemic-inspired layoffs are terminations, judges affirm

Employment/Labour /
Stephen J. Moreau
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Two recent Superior Court of Justice decisions provide welcome clarity on the responsibilities employers have for those they lay off during the COVID-19 pandemic. Bottom-line, when an employer lays off an employee – even for what might be regarded as the understandable reason that COVID-19 makes continued employment difficult – the layoff is a termination and there are consequences that follow.

In Ristanovic v Corma Inc., two long-serving employees were given temporary lay-off notices in January and February, 2020. Court documents show that the firm they worked for was dependent on China for key supplies. When COVID was discovered in China, Corma suffered a “catastrophic decline” of about 40 per cent in revenues, and responded by laying off about 17 per cent of its workforce.

The layoff notices did not mention COVID but instead attributed the firm actions to “a delay with a number of orders we had expected due to the unstable political climate.”

Damages sought in lieu of reasonable notice

The two plaintiffs argued they were constructively dismissed, noting there was a material and unilateral change in the terms of their employment, and so they were entitled to damages in lieu of reasonable notice. Corma countered that an implied term in any employment contract allows firms to reduce their workforces when faced with the “extraordinary circumstance of a global pandemic.”

Superior Court Justice Sean F. Dunphy sided with the two men, noting the layoffs occurred before there was a global pandemic or even any significant impact here in Canada.

“There is little to distinguish the situation … in late January/early February 2020 from any other adverse situation that might commonly affect a business … a retailer may find business impacted by a big-box store opening a block away; a manufacturer may find the market flooded with imports as a result of a change in tariffs or a free-trade agreement. Insolvency, recessions or the evolution of the competitive marketplace have never justified unilateral lay-offs under our law.”

Justice Dunphy continued that, even if it were reasonable to imply a “global pandemic” term into the employment agreement, “no such implied term can override the express provisions of s. 56 of the Employment Standards Act [the ESA] which deems a lay-off longer than 35 weeks to be a termination of employment. It is not open to the parties to contract out of the minimum standards of the ESA whether by an express term of their agreement or by an implied term.”

Plaintiffs awarded 22 months of pay

The two plaintiffs were awarded damages based on the conclusion that Corma should have given them notice of termination of 22 months in length.

While the Ristanovic layoffs occurred just prior to the pandemic taking real hold in Canada, another recent case reaffirms that people temporarily laid off directly because of the COVID pandemic in Canada can bring a claim for constructive dismissal.

In Coutinho v. Ocular Health Centre Ltd., Jessica Coutinho was an office manager at an ophthalmic clinic. The doctors there “were embroiled in a dispute over various corporate and business issues,” with one changing the locks on the doors on April 30.

The next day Coutinho was told not to attend work though she would continue to be paid. Almost a month later, she was advised she was being placed on temporary lay-off due to closure of the clinic and would no longer receive a salary.

She started a claim against Ocular, alleging her employment was terminated (or, to use the proper term, that she was constructively dismissed). The firm argued that, pursuant to the Infectious Disease Emergency Leave, O Reg 228/20 (IDEL) regulations promulgated by the Government of Ontario in May 2020 – Coutinho should be considered to be on “emergency leave and the temporary elimination of her employment duties and work hours did not constitute a constructive dismissal.

Emergency leave regulations cited by firm

Indeed, s. 7 of the IDEL regulation provides that, if an employer temporarily reduces or eliminates an employee’s hours of work or wages by the employer for reasons related COVID-19, “this will not constitute a constructive dismissal”.

Ocular moved for summary judgment on this basis, which was denied.

In his judgment, Ontario Superior Court Justice David Broad made it clear that while IDEL rules precluded a claim for constructive dismissal for remedies available under the provincial ESA, it had no impact on an employee’s common law rights to treat a layoff as a dismissal. Those constructive dismissal rights are contractually based and are different from statutory minimum rights.

After noting that this is the first case to address the IDEL regulation, the judgment quotes s. 8(1) of the ESA that states “no civil remedy of an employee against his or her employer is affected by this Act.”

“In my view, the scope of s. 7 … is constrained by s. 8(1) of the ESA,” Justice Broad wrote. “It is not possible to reconcile the interpretation of the IDEL Regulation urged by Ocular with the section of the statute which unequivocally provides that an employee’s civil remedy against her/his employee shall not be affected by any provision of the Act.”

Ministry guide cited by the judge

He further backs that up by referencing an online publication of the Ontario Ministry of Labour, Training and Skills Development titled “Your Guide to the Employment Standards Act: temporary changes to ESA rules.” On page 4 of that guide, it states that “O. Reg. 228/20 establishes that there is no constructive dismissal under the ESA where a non-unionized employee’s wages or hours of work are temporarily reduced or temporarily eliminated by their employer for reasons related to COVID-19 from March 1, 2020 to July 3, 2021.”

Justice Broad said the ministry guide was important.

“In my view, in reviewing the purpose of the IDEL Regulation the court can consider not only the wording of the regulation itself but also extrinsic evidence such as the Ministry Guide,” he wrote.

Both decisions are major victories for workers who lose their jobs during the pandemic, as they remind employers of their responsibilities if they start cutting positions.

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