A recent case confirms that employers who have restructured their workforce due to COVID-19 may need to quickly re-evaluate their HR strategies.
COVID-19 has changed the landscape of employment law in Canada. In the early days of the pandemic, organizations adopted measures previously unthinkable in response to the unprecedented restrictions on business. They did what they had to do to survive. This included temporary layoffs for non-unionized workers, wage cuts, and significant alterations to the employment relationship. The government responded with emergency legislation which, at first glance, appeared to permit these practices. In Ontario, the introduction of the Infectious Disease Emergency Leave (“IDEL”) meant that a temporary layoff or reduction in wages did not automatically amount to a dismissal under the Employment Standards Act (“ESA”). However, questions remained about whether employers were still vulnerable to lawsuits, and if so, what was their liability? A recent decision from an Ontario court helps answer some of these questions.
What does the new case law mean for Ontario businesses?
While IDEL still prevents employees from complaining to the Ministry of Labour about temporary layoffs or wage cuts due to COVID-19, the emergency legislation does not affect employee rights to sue in court for wrongful dismissal. IDEL, on its own, will not be a successful defence to a court action, where employees are likely to have significantly larger and more complex claims.
Can employers temporarily lay off employees due to COVID-19 and avoid lawsuits?
Yes and no.
Yes, if a temporary layoff is a contractual term of the employment relationship. This is common in unionized workplaces, where temporary layoffs are a written term of the collective agreement. In a non-unionized workplace, a temporary layoff clause can be an express term of the employment contract. Where it is not an express term, it can be an implied term if the employer has a known practice of laying off employees. If a specific employee has been laid off prior to COVID-19, without any objection, the temporary layoff has arguably become a term of their employment through a course of conduct. Employers should keep in mind, however, that where terms are not express, they are more difficult to establish, particularly if employees dispute them.
No, if it is neither an express nor implied term of the employment relationship.
Can employers cut salaries due to COVID-19 and avoid lawsuits?
Most likely not. Prior to COVID-19, unilaterally reducing an employee’s remuneration by more than 15% typically entitled them to file a claim for “constructive dismissal”, both at the Ministry of Labour and in court. While IDEL continues to preclude employees from making that complaint to the Ministry of Labour, they are not precluded from doing so in court.
What kind of liability are employers exposed to, as a result of temporary layoffs?
Under the ESA, all temporary layoffs eventually become permanent terminations if employees are not recalled to work within a certain period of time. Laid off employees will then be considered terminated as of the date of the initial layoff and owed their notice pay and any other termination entitlements under the ESA. IDEL has effectively delayed the time period during which a temporary layoff automatically becomes permanent under the ESA, with a series of extensions, which are currently in force until July 3, 2021. Employees who want to complain to the Ministry of Labour will continue to be precluded from doing so until at least July 4, 2021. Note that, at the Ministry of Labour, employees can only claim their statutory minimums under the ESA, and not the much higher amounts potentially owing to them under contract and/or common law.
For employees who commence a court action for the amounts potentially owing to them under contract or common law, their “termination date” will be a fact-specific determination for the court. It will depend upon a number of factors, including the date of the layoff, and the employee’s response to it (if any). If successful, employees will be deemed to have been “constructively” dismissed, and owed their entitlements as if they had been formally terminated as of the date of their layoff. Typically, employees have to prove that they rejected the layoff in order to be successful. As such, we expect the most recent Ontario court decision will encourage temporarily laid off employees to threaten and/or initiate a court action for constructive dismissal.
For any employee who sues for constructive dismissal but obtains a job following their layoff, the court will deduct their post-dismissal earnings from their monetary award (save for their ESA entitlements). This can be a powerful bargaining tool in negotiations with employees claiming constructive dismissal.
What should employers do about temporarily laid off employees?
The answer to this question depends upon the circumstances of each case. If the temporary layoff is an express term of the employee’s contract, the employer is not obligated to do anything until July 4, 2021. Furthermore, if the employee has been temporarily laid off for a significant period of time and has yet to contest the layoff, the best approach may be to maintain the status quo. The employee may have no intention of returning to work or may secure employment elsewhere in the meantime.
If there is gainful work for the employee to perform, the employer may consider quickly recalling the employee to work, before they claim to have been dismissed.
However, for employees who have vociferously contested the layoff, are demanding answers which the employer is not in a position to provide, and/or are threatening litigation, it may be prudent to terminate them and move on.
The experienced employment lawyers at Hyde HR Law regularly advise companies of all sizes and across multiple sectors, on a variety of issues relating to temporary layoffs and terminations. Please contact us if you have any questions.