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Constructive dismissal in the time of COVID-19

constructive dismissal

What are the legal and practical implications of a private sector employer’s decision to impose temporary layoffs or require mandatory work from home programs as part of its response to COVID-19? At the time of writing, approximately 175,000 COVID-19 cases have been reported worldwide. As of March 19, 2020, there were 736 cases identified in Canada. There is a mortality rate of approximately 0.8% – 4.2% although this appears to vary by country and by demographics.

In an effort to reduce the spread of COVID-19 the public sector in Canada has begun shutting down programs including libraries, daycare, schools, and similar services. Travel advisories have been issued by all levels of government. The private sector has begun to follow suit but there has been no uniform approach. Conferences and festivals are being cancelled. COVID-19 has without question had significant labour market effects.  Some employers have offered paid time off for self-isolation. Some employers have introduced work from home programs when possible or initiated temporary layoffs as a response to business downturns or the need for social distancing.

Constructive dismissal, temporary layoffs and mandatory work from home programs

The question many employment lawyers are getting is, “what can I do to prevent the spread in my organization?” While mandatory remote work and temporary layoffs are likely a component of the overall pandemic response, employers may ultimately run into the legal complication of a constructive dismissal claim.

The leading Canadian case on constructive dismissal is Potter v. New Brunswick Legal Aid Services Commission. Constructive dismissal comes in one of two forms. The first is that the employer has unilaterally altered or breached a substantial term of the contract of employment such that a reasonable person in the situation would consider themselves dismissed. The second form is that through a series of unilateral actions, the employer has demonstrated they no longer intend to be bound by the contract of employment.

For the purposes of an immediate pandemic response, temporary layoffs and remote work likely fall under the first form. The first place to look for an employer’s authority to conduct a temporary layoff is the contract of employment. Does the contract provide the employer with the explicit or implicit right to layoff an employee? The preferred approach would be explicit wording allowing a removal from the workplace in appropriate circumstances. Arguably, it is possible that a court could find that there is an implied contractual to perform a temporary layoff in the context of a pandemic. Without this explicit or implied term, it is likely that a temporary layoff would constitute a breach of contract and provide potential grounds for a constructive dismissal.

If the contract allows for temporary layoffs, the duration is likely limited by section 56(2) of Ontario’s Employment Standards Act. Section 56(2) permits a temporary layoff without triggering a “termination” under the Act if the layoff is for a period of:

  • Less than 13 weeks in any period of 20 consecutive weeks, or
  • More than 13 weeks, but less than 35 weeks in a period of 52 consecutive weeks, assuming the employer complies with additional requirements.

These “allowable” temporary layoffs are only accessible if the underlying contract of employment provides the authority to temporarily lay off an employee. 

A recent decision, Gent v. Strone Inc., is instructive. Although this dealt with a downturn in business, rather than a pandemic, the basic legal considerations are relevant. In Gent, the employer temporarily laid off the plaintiff employee along with two other employees on October 15, 2015. As part of the layoff, the employer agreed to maintain the plaintiff’s benefits. On October 27, 2015, the employee retained a lawyer who advised the employer that the layoff constituted a constructive dismissal. On November 10, 2015, the employer sent a letter recalling the employee to “active employment.” He never returned and commenced a claim for constructive dismissal.

Ultimately, the employee was successful in his claim for constructive dismissal. Pollack J. found that the failure to provide the employee with work and compensation was contrary to the fundamental terms of his employment. There was no provision that allowed for a temporary layoff. However, because the employee failed to return to work when his employer recalled him, Pollack J. found that he had failed to appropriately mitigate his losses. Instead of an award of 18 months of reasonable notice, the employee was only awarded 3.5 weeks. This was the difference between the date of layoff and the date of recall.

From a legal perspective, the unilateral decision to layoff an employee during the pandemic may trigger a claim for constructive dismissal. Whether the breach will be sufficient to support a claim for constructive dismissal will be case specific. Considerations such as whether the layoff was paid, or unpaid, would likely be a relevant in determining whether this was a simple breach of the employment contract, or an outright constructive dismissal.

Given the ability for employers to re-employ individuals after the layoff, the practical consequences of these constructive dismissals may be perceived as minor. It is important to note that because the quantum of damages for a temporary layoff may be minimal, this should not be seen as encouraging employers to lay off employees in an arbitrary manner. Employers continue to have an obligation of good faith in the manner of dismissal. In periods of heightened anxiety brought on by a pandemic, employees may be particularly vulnerable to disruptions in employment. Employers who do not roll out effective practices may see additional claims for bad faith damages.

In the case of mandatory work from home requirements, the line is less clear. There have certainly been cases in Ontario where the removal of the ability to work from home has triggered a constructive dismissal. Generally speaking, working from home is considered a “benefit”. In Hagholm v. Coreio Inc., an employer was found to have constructively dismissed an employee when they unilaterally removed her ability to work from home several days per week. In the facts of that case, it was acknowledged that the ability to work from home was a condition precedent of her agreeing to continue to work with the company.

In the case of a forced remote work policy, the issue would need to be addressed on the facts of each case. An employee would likely have to demonstrate that forced work from home was detrimental in some way. Working remotely is generally seen as a perk to employment. It allows greater flexibility for employees to manage their daily routines and cut down on time spent commuting. Conceivably, there could be situations where remote work could be considered a detriment. In the case of employers who provide significant “on site” benefits like free cafeterias, dry-cleaning services, or other benefits, a forced work from home policy could be considered detrimental. Whether this would be a “substantial” term of the contract would be up for debate. Working from home could involve costs that if not reimbursed by the employer would result in an effective pay cut for the employee. Ultimately, it would be the novel case that resulted in a finding of a constructive dismissal for a work from home policy.

Practically speaking, the best way to avoid the risk of subsequent litigation is to ensure that employers maintain an open dialogue with their employees. Consistent messaging and regular updates on the impact of the disease on the business may go a long way to maintaining a working employment relationship. Where possible, work from home arrangements should be utilized. In most circumstances, it is unlikely that this would be seen as a constructive dismissal. In the case of temporary layoffs. employers should ensure that they are supportive of their employees as they look to obtain alternate sources of funding to assist during the temporary down time. Ultimately the situation is evolving on a daily basis, and all parties are best suited by clear, open, and consistent messaging on the situation.

This blog was first posted on the Canadian Law of Work Forum on March 17, 2020, found here: http://lawofwork.ca/constructive-dismissal-in-the-time-of-covid-19/

Devan Marr

Devan Marr is a lawyer at Strigberger Brown Armstrong LLP. With two offices located in Toronto and Kitchener/Waterloo, the firm offers a full range of legal services to our industry partners in insurance and risk management. The firm aims to provide its clients with focused, practical, and cost efficient legal advice. Devan primarily defends insurance claims with a particular interest in the intersection of the contractual, statutory and common law obligations of parties in long-term disability and employment practice liability claims. His practice also includes providing employment related legal advice to both employers and employees in the context of contract negotiations, evaluation of termination clauses, workplace investigations, and assessment of exposure to wrongful dismissal claims.

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