The Covid-19 pandemic has created unique challenges to the workplace environment where changing regulations and business realities have caused some employers to consider and implement layoffs. Some of these layoffs may not have been considered or part of a formal contract when a particular employee was hired. This can create liability for the employer if a business makes the decision to lay off staff.
Some employees who are laid off by their employer without a contractual layoff clause may commence a claim for constructive dismissal on the grounds that the layoff violates the terms of their employment.
Under normal circumstances, a constructive dismissal is deemed to occur when an employer unilaterally changes the terms of employment to such an extend that it is considered a breach of the employment agreement. If an employee has no contract or their contract hasn’t been sufficiently updated to limit their entitlements to the minimum of the Employment Standards Act, an employee would be entitled to common law notice. Common law notice can also apply when an employment contract doesn’t consider layoffs and a layoff occurs.
If a court finds that a constructive dismissal took place, the employer is liable to compensate the employee for the reasonable period of time in which an employee would be looking for a comparable job. The amount of damages would be dependent on similar past cases.
Normally, a calculation of common law damages includes analysis of multiple factors of a given employee’s service such as their age, years of employment, their position with the employer and the availability of similar positions. A common misconception is that employees are entitled to one month per year of employment. The courts have confirmed that the analysis of reasonable notice needs to consider all of the relevant factors of employment to determine a reasonable time frame for an employee to find another position.
When considering the amount of compensation to pay to employees who are constructively dismissed, employers should note that such employees are entitled to their complete compensation for the common law notice period. This compensation would include items such as their base pay, benefits, eligible bonuses, pensions and commission.
Effect of the COVID-19 pandemic
As part of its emergency relief measures related to the COVID-19 pandemic, the Ontario government has made amendments to the Employment Standards Act by enacting the Infectious Disease Emergency Leave Regulations. Under this regulation, employees whose hours are temporarily reduced or are laid off will be deemed not to be constructively dismissed for the purposes of the Employment Standards Act. Employees who are affected by the pandemic will instead be deemed to be on leave and will be entitled to return to their employment after the emergency measures are no longer in effect. As of January 20, 2021, the infectious disease emergency measures have been set to expire on July 3, 2021, however the provincial legislature has extended previous emergency measures based on public health outcomes. Employers should retain competent legal counsel to monitor these changes and advise accordingly.
Employers should note that the Infectious Disease Emergency Leave Regulations do not necessarily protect employers of staff who are entitled to common law. This is because the wording of the legislation seems to suggest that the prevention of constructive dismissal claims applies to such claims under the Employment Standards Act.
Employees seeking damages for a layoff-dismissal at common law will likely claim a broad interpretation of the regulations are correct, and they would therefore be able to enforce their rights at common law. Employers may be able to successfully argue that the legislation also applies to constructive dismissal claims at common law. As of January 20, 2021, no cases have been published which address the issue and litigation on layoffs due to the pandemic present risks for both parties
To manage litigation risk, employers should implement policies in the workplace concerning layoffs or more substantively, implement enforceable employment contracts for all of their staff, complete with layoff clauses.
This can limit an employer’s liability to the Employment Standards Act minimum requirements and also provide employers protection under Infectious Disease Emergency Leave legislation. Because the drafting process of employment contracts and policies can be subject to intense scrutiny by the courts, employers should have legal counsel to draft, review and advise concerning these measures.
Even in situations when employees push for damages or another payout because of a layoff, the uncertainty surrounding the effects of the pandemic and associated regulations creates room for negotiated outcomes. For these negotiations it’s best to have a legal representative for your business who can advise on employee entitlements and likely litigation outcomes.