To say that the COVID-19 pandemic has posed new challenges for employers in the management of their businesses and their employees is an understatement. The current climate is outright novel.
Outbreaks of illness and public health measures can put employers in a position where they are required to reduce their workforce or move some into work-from-home arrangements. While some companies have laid off a substantial part of their workforce, others have had no choice but to outright dismiss employees.
Employers making dismissal decisions would be best served with employment contracts that grant flexibility in these circumstances with a properly drafted layoff clause. Why? Because the current pandemic has proven that we are not always as prepared as we think we are and must always be prepared for the unexpected.
Without an appropriate layoff clause in the employment contract, a layoff is typically considered a constructive dismissal at common law. Employers may be liable to pay damages in the form of pay in lieu of reasonable notice to departing employees as though they will not be coming back.
In the early stages of public health measures due to the COVID-19 pandemic, the provincial legislature enacted protections for employers where layoffs due to the pandemic would not be considered constructive dismissals. While there is some debate in the legal community as to whether such protections apply to individuals whose contracts do not have a proper layoff clause, the legislation has been amended in early September 2020 to end this protection as of January 2, 2021.
As employers bring back old employees or are hiring new ones, more layoffs may occur due to a potential second or third wave of the pandemic. The future remains unknown, and employers and HR professionals should ensure that the uncertainty of the near future is kept in mind when making decisions. It is vital to their survival.
When employers and HR professionals consider hiring new employees or updating the contracts of their current staff, it is important to have the flexibility to implement layoffs as allowed by the Employment Standards Act, 2000 (“ESA”).
Such contractual provisions would be phrased to allow the employer to layoff employees as and when the business requires it. Employers should be mindful not to layoff employees where the decision is made subjectively, for a reason that is not tied to the business needs. Doing so can open the employer to liability for human rights violations or wrongful dismissal.
Employers are still required to abide by the limits on layoffs under the ESA, but the availability of a grace period, even a short layoff duration, can provide the flexibility needed for some businesses to survive the uncertainty.
Employees who already have contracts without layoff clauses will require an update to their employment agreements to allow layoffs to take place in the future. To ensure that such updates are legally enforceable, employers must provide “consideration, or some form of benefit to the employee in exchange for signing the new agreement. Doing so may require the redrafting of other contractual provisions and employers should retain effective legal counsel to complete these updates.
Due to the risk of liability for common law reasonable notice, employers and HR professionals should ensure that employment agreements are updated and enforceable for those employees without formal employment contracts or those with outdated termination and layoff clauses.
The common law notice period can be significantly longer than the minimum standards of notice required by the ESA, particularly for long-term employees, and therefore it is best to have an enforceable contract that limits termination entitlements to the minimums required by law. If business conditions do not allow the retention of such employees, employers may have difficulty paying out common law entitlements should they need to dismiss employees.
How the courts are addressing wrongful dismissals due to COVID-19
The courts have taken measures to implement social distancing to mitigate the spread of COVID-19 and this has required postponement of many trials, including those for wrongful dismissal claims. Thus far, no reported decisions conclusively demonstrate how the courts will view wrongful dismissal at a time when most employees will have difficulty finding new employment.
However, as the courts reopen, such claims will be moving forward and a settled judicial approach to the challenges posed by the pandemic will follow. Any employers considering a dismissal during the pandemic should consult with legal counsel, who remain updated on the status of the law, to ensure they take proper dismissal steps and avoid any future claims.It is always encouraged that employers be extremely reasonable in the circumstances. While some decisions may be necessary for the business, taking a step back and consulting with counsel as to the best ways to avoid protracted litigation is necessary for the financial health of the business.