When the COVID-19 pandemic hit Ontario, many employers temporarily laid off employees or reduced their compensation because business revenues plummeted.
This blog considers the legal implications of these layoffs and reductions in compensation under the Employment Standards Act and at common law.
The Employment Standards Act (the “ESA”)
To address the fallout of COVID-10 on employers, the Ontario government introduced O. Reg. 228/20: Infectious Disease Emergency Leave (the ¨IDEL Regulation¨) under the ESA. It provides, among other things, that temporary layoffs and pay cuts that take place between March 1, 2020, to September 25, 2021 (the “COVID-19 Period”), are deemed not to be a termination or a constructive dismissal under the ESA. Accordingly, termination pay and severance pay is not owed under the ESA.
One judge has summarized the IDEL Regulation as follows:
The IDEL Regulation provides that five conditions be satisfied for the rules under the Regulation to apply, as follows:
- The employee is not represented by a trade union;
- The employee is subject to a temporary reduction or elimination in hours of work and/or wages;
- It must be the employer that temporarily reduces or eliminates the employees’ hours of work and/or wages;
- The temporary reduction of elimination of the employees’ hours of work and/or wages must have occurred for reasons related to COVID-19;
- The above four conditions must occur during the defined COVID-19 period.
The common law
At common law, a temporary layoff or a significant unilateral reduction in compensation generally constitutes a termination unless the employee agrees that it is not. Accordingly, termination pay is generally owing.
Reconciling an employer’s rights under the ESA and at common law
How can one reconcile the IDEL Regulation and the common law? Has the IDEL Regulation changed the common law as it relates to temporary layoffs and reductions in compensation during the COVID-19 Period?
In the last two and a half months, one judge has said no and one judge has said yes.
Case # 1
First up was an April 17, 2021 decision, which was decided by way of summary judgment. In that case, the employee was placed on a temporary layoff effective May 29, 2020. The laid off employee found another job starting on July 22, 2020. The employee claimed that nothing in the ESA took away her rights at common law.
The judge agreed and in coming to this conclusion noted that “…section 8(1) of the Employment Standards Act, 2000 (the “ESA”) which provides as follows: 8 (1) Subject to section 97, “no civil remedy of an employee against his or her employer is affected by this Act.” and noted that section 97 did not apply.
Case # 2
Most recently, on June 7, 2021 a judge considered a case where the employee was temporarily laid off on March 27, 2020 and was recalled to work on September 3, 2020. The employee claimed he was “terminated” at common law on March 27, 2020, and was entitled to lost wages between March 27, 2020, and his recall date. The employer claimed he was “temporarily laid off” as permitted by the ESA and therefore no termination pay was owing.
The judge agreed with the employer and explicitly disagreed with the April 17, 2021 decision. In coming to this conclusion the judge noted the courts have never said the ESA “does not or cannot displace the common law.” The judge also stated: “The employee cannot be on a leave of absence for ESA purposes and yet terminated by constructive dismissal for common law purposes. This is an absurd result.”
These two judges are like two ships passing in the night.
Bottom line
Until this issue is considered by the Ontario Court of Appeal (and perhaps the Supreme Court of Canada) lawyers really do not know how to advise their clients on this issue. Unless, of course, the Ontario government enacts legislation which overrides the common law. To preserve their clients rights, employee-side lawyers must generally commence litigation within two years of the date of the initial layoff or pay cut. So unless the courts or the provincial government resolve this issue by March 1, 2022, I anticipate many actions will be commenced starting then.
All I can say is if an employment contract does not have a clause allowing layoffs, it is a fundamental breach of contract. A book I have had for many years written by Gerald Fridman- The Law of Contract In Canada- Fourth Edition states- The general principle is that a material alteration by one party,not assented to by the other and evidenced appropriately, will nullify the original contract.