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As an employer, you may have concerns about budgetary constraints, and the possible implications of having to lay off employees in a time of crisis.
As an employee, you might be wondering what kind of recourse you’d have if your employer decided to temporarily lay you off.
The short answer: no one really knows.
Layoffs Constitute Constructive Dismissal:
Firstly, both employees and employers should be aware that a temporary layoff could constitute constructive dismissal, which would accord an employee their statutory Employment Standards Act notice entitlements, or their common law notice entitlements, depending on the particular employment contract.
The Employment Standards Act technically allows for temporary layoffs up to 13 weeks in any consecutive 20-week period without it being deemed a “termination of employment” (1).
The Ontario Court of Appeal has determined however, that a temporary layoff – even within the confines of the ESA, constitutes constructive dismissal thereby requiring notice pay. In Elsegood v Cambridge (2), the Court noted that:
“at common law, an employer has no right to layoff an employee. Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment, and would be a constructive dismissal” (3).
In Bevilacqua v Gracious Living Corp (4), Justice E.M. Morgan noted that “[the] lack of right to layoff an employee applies even where the employer does not mean to repudiate the contract…or where the layoff is temporary in nature” (5). These cases stand for the proposition that an employee who is temporarily laid off would have a right to notice pay if they wish to treat the layoff has constructive dismissal.
It is worth noting however, that if the employment contract contains an agreement that allows the employer to initiate a temporary layoff within the confines of the ESA, then an employee would not be constructively dismissed (6).
Ok…but this is kind of a unique situation, isn’t it?
This is a unique and unprecedented situation, and it is unclear how the courts will deal with the issue of layoffs and dismissals in the circumstances of a global pandemic.
One possibility as to how the courts could deal with temporary layoffs in the context of a global pandemic is by applying the doctrine of frustration of contract in the employment relationship. Frustration of contract is contemplated in the Employment Standards Act under O. Reg. 288/01: Termination of Severance of Employment:
Employees not entitled to notice of termination or termination pay
2. (1) The following employees are prescribed for the purposes of section 55 of the Act as employees who are not entitled to notice of termination or termination pay under Part XV of the Act…
4. An employee whose contract of employment has become impossible to perform or has been frustrated by a fortuitous or unforeseeable event or circumstance. (7)
Typically, this provision has been used, to varying levels of success, in cases where intervening events has resulted in an employee being unable to perform their job duties. For example, in Drimba Estate v. Dick Engineering Inc. (8) the employer argued that an employee’s unforeseeable disability that rendered him unable to work frustrated the employment contract and disentitled him to notice. In Lemaire v. Parker Professional Painting (Canada) Ltd. (9), a major fire at the employer’s central manufacturing plant occurred, which prevented many employees from being able to work. Lay-offs ensued, which included the applicant Ms. Lemaire. An investigating officer subsequently denied Ms. Lemaire’s claim for termination and severance pay, citing that the fire was an unforeseeable event that frustrated the employment contract. While the Ontario Labour Relations Board did not make a finding on the investigating officer’s argument in this case, as the employee’s claim was statute-barred regardless, it’s easy to see how a similar argument could apply to employment relationships during the COVID-19 pandemic.
It is probably unsurprising that there is a lack of case law on frustration of contract in the context of a global pandemic. However, it is not farfetched to postulate that the forced shutdown of some businesses, social distancing protocols, and other government measures that have affected businesses, may meet the definition of a “frustrated contract” as it pertains to O. Reg. 288/01 s 2(1)(4).
1. S.56(2) states that a “temporary layoff” is:
a) A lay-off of note more than 13 weeks in any period of 20 consecutive weeks;
b) A lay-off of more than 13 weeks in any period of 20 consecutive weeks, if the layoff is less than 34 weeks in any period of 52 consecutive weeks and the following conditions are met:
1) The employee continues to receive substantial payments from the employer
2) The employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,
3) The employee receives supplementary unemployment benefits,
4) The employee is employed elsewhere during the layoff and would be entitled to receive supplementary unemployment benefits if that were not so
5) The employer recalls the employee within the time approved by the Director, or
6) In the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee.
2. 2011 ONCA 831.
3. Ibid at para 14.
4. 2016 ONSC 4127.
5. Ibid at para 10.
6. Chen v Sigpro Wireless, 2004 Carswell Ont 2225.
7. O. Reg. 288/01: Termination of Severance of Employment, under Employment Standards Act, 2000, S.O. 2000, c.41.
8. 2015 ONSC 2843.
9. 2004 CarswellOnt 10996