Workers still have rights when facing layoffs or pay cuts due to COVID-19

By Paul Russell, LegalMatters Staff • Non-unionized employees who have been laid off or told their pay will be reduced should speak to a lawyer to ensure they receive fair treatment, says Toronto employment lawyer Stephen Moreau.

“There is a lot of fearmongering out there about companies suffering and their need to reduce their workforce,” says Moreau, a partner with Cavalluzzo LLP, which has released a guide to workplace rights and COVID-19.

“However, if businesses are letting people go and not offering compensation, that is usually not allowed, as workers still have rights.”

While firms are allowed to terminate someone’s employment due to a shortage of work or an economic downturn, he says that action amounts to a without cause termination, entitling the employee to advance notice of termination or pay in lieu of notice, commonly known as severance pay. The exact amount of notice or severance depends on factors such as age, position, length of employment and if similar alternative work is available.

Pay reduction usually not allowed 

Moreau says another response by companies he is seeing is to cut wages, sometimes quite significantly.

“They can’t do that either, without causing a breach of contract,” he tells LegalMattersCanada.ca.

Moreau explains significant alterations to pay or hours of work are considered a constructive dismissal unless what occurs is a pure layoff and the employee has agreed, in advance, that they can be laid off without pay.

“That all said, responding to a cut in hours or pay can be very complicated, so people in that situation need to speak to an employment lawyer to find a practical, creative response to it,” he says.

Some, but very few, employment contracts contain a force majeure or frustration clause to account for circumstances where neither side cannot complete the terms of their contract.  In that case, he says the contract would come to an end, and no one would owe anything to the other party.

Frustration can also occur without such a clause, he adds, though generally frustration of contract is a difficult argument to make.

“If this argument is valid, that will be a serious problem for employees, because all obligations to the employee cease,” Moreau says. “While some online commentators have suggested force majeure may arise in this pandemic, there is a fair bit of precedent suggesting it will be a very difficult argument for employers to succeed on if they want to use it to let go employees without compensation.”

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In order to succeed on this basis, he says a business must show it was totally destroyed by the pandemic and could not take advantage of resources being offered by the government to battle the effect of the virus, including interest-free loans and a 75 per cent wage supplement.

“If employers choose not to take advantage of those benefits, I suspect they will not be able to use COVID-19 as a reason to lay off workers using the force majeure argument,” Moreau says.

“In this economic environment, companies have limited and difficult choices to make, but they are still options are available to them,” he adds. “If they choose to automatically go with layoffs and termination, the consequences that result from those actions must continue to flow.”

Moreau acknowledged it is commonplace for employers “for very good economic reasons” to shut down company divisions or even whole plants.

“Their obligations are no less in those cases,” he says, explaining the mass termination provisions in the employment law don’t change because of what led to the end of the workplace.

“With a mass termination, there are obligations, even in the case of a bankruptcy,” Moreau says.

COVID-19 may strengthen compensation claims

He offered a warning to employers who are thinking of using the COVID-19 crisis as a way to escape their legal obligations to employees.

“COVID-19 may actually strengthen an employee’s claims to compensation, in many respects,” Moreau says, giving two examples.

First, while employers usually owe no more than two years’ notice when they terminate someone’s employment, that changes in “exceptional circumstances,” as determined by a 2016 Ontario Court of Appeal case.

“I think COVID-19 can arguably be an extraordinary circumstance, considering it is a global pandemic, so employees could end up with longer than a 24-month notice period,” Moreau says.

Second, when employees are terminated, he says they have a legal obligation to make reasonable efforts to find other work, reducing the employer’s liability if that happens.

“But how can someone find other work in this lockdown?” he asks.

While the public might sympathize with employers looking to cut labour costs during the crisis, Moreau says they still must follow the rules.

“Lower courts have been told by the Ontario Court of Appeal that an employer’s financial status is irrelevant when it comes to the issue of what is owed,” he says, citing a leading case of his own.

“If employers who are in bad shape can reduce compensation, should employers who are doing well be forced to increase it more than the usual limit?” he questions.