Williams HR Law LLP

Ontario Court Rules that COVID-19 Related Temporary Layoffs Do Not Constitute Constructive Dismissal

June 9, 2021

In the very recent decision of Taylor v Hanley Hospitality Inc. [Taylor], the Ontario Superior Court of Justice (the “Court”) provided a very helpful ruling for Ontario employers who implemented temporary layoffs during the pandemic and may be facing claims of constructive dismissal.

In Taylor, the Court provided guidance on the relationship between Ontario’s O. Reg. 228/20 Infectious Disease Emergency Leave (the “IDEL Regulation”) and common law constructive dismissal. Specifically, Taylor held that for Ontario employers, a layoff for specific reasons related to COVID-19 does not constitute a constructive dismissal for purposes of the common law due to the operation of the IDEL Regulation.

The IDEL Regulation and its Interpretation Prior to Taylor

Many employers will recall that on May 29, 2020, Ontario published the IDEL Regulation under the Employment Standards Act, 2000 [ESA], creating the Infectious Disease Emergency Leave (“IDEL”). The IDEL Regulation provided that, retroactive to March 1, 2020, non-unionized employees who were temporarily laid off, had their hours reduced, or had their wages reduced by their employer for reasons related to COVID-19, were deemed to be on IDEL. Employees on IDEL were deemed not to have been laid off or constructively dismissed by their employers for the purposes of the ESA. As of now, these adjustments under the IDEL Regulation have been extended until September 25, 2021.

The IDEL Regulation is significant as the common law generally holds that a temporary layoff imposed by an employer, absent the contractual right to do so in an employee’s employment agreement, constitutes a constructive dismissal. A constructive dismissal triggers an employee’s termination entitlements.

The impact that the IDEL Regulation had on constructive dismissal at common law was left unclear. On April 27, 2021, the Court provided an answer to that ambiguity in Coutinho v Ocular Health Centre Ltd. [Coutinho]. In Coutinho, an employee placed on temporary layoff following the onset of COVID-19 brought an action for common law constructive dismissal against her employer. The Court decided in the employee’s favour, ruling that while the IDEL Regulation had extinguished the employee’s right to claim constructive dismissal under the ESA, her right to claim constructive dismissal at common law had not been impacted.

The more recent decision in Taylor similarly dealt with a common law constructive dismissal claim from an employee who had been laid off for COVID-19 related reasons. However, the Court in Taylor reached the opposite conclusion and declined to follow the ruling in Coutinho.

The Taylor Decision

Ms. Taylor was an employee of Hanley Hospitality Inc. (“Hanley”), which operated as a Tim Hortons franchise. As a result of the COVID-19 lockdown restrictions that came into effect in Ontario, Hanley was forced to significantly curtail their operations, and had to temporarily lay off several employees, including Ms. Taylor, who subsequently brought a claim for constructive dismissal. Importantly, Ms. Taylor’s employment agreement did not provide Tim Hortons with the right to lay her off.

The Court in Taylor declined to follow Coutinho, ruling that Ms. Taylor had not been constructively dismissed. The Court held that the IDEL Regulation had the impact of placing Ms. Taylor on an IDEL, a statutory leave under the ESA, which the IDEL Regulation explicitly provided was not a constructive dismissal.

In Coutinho, the Court had relied on s. 8(1) of the ESA in its decision, which states that no common law remedy that an employee would normally have against their employer is affected by the ESA. The Court in Taylor declined to follow this reasoning, relying on past decisions in which the Ontario Court of Appeal has ruled that the ESA could indeed alter and displace the common law despite s. 8(1).

Applying this logic, the Court in Taylor reasoned that the effect of Coutinho, that being an employee being on an IDEL statutory leave of absence for purposes of the ESA yet dismissed by constructive dismissal for purposes of the common law, was “an absurd result.”

The Court pointed out that by declaring a state of emergency and requiring employers to curtail or even shut down their operations, the Ontario legislature had effectively forced said employers into laying off several of their employees, exposing them to claims of constructive dismissal. To avoid that consequence, the legislature implemented the IDEL Regulation and created the IDEL. The Court stated that to rule Ms. Taylor had been constructively dismissed would be to defeat the very purpose of the IDEL Regulation, and render it meaningless. Employers that were already suffering financially because of the pandemic would only incur further costs if they were liable to common law constructive dismissal claims from employees that they had placed on IDEL.

As a result, the Court declined to follow the Coutinho decision, and the Court dismissed Ms. Taylor’s constructive dismissal claim.

Takeaways for Employers

For now, Taylor serves as a very helpful defence for employers from the common law constructive dismissal claims that were strengthened by the decision in Coutinho. While this decision is a positive sign for employers, the law in Ontario unfortunately remains unclear. Given that Taylor and Coutinho are in direct conflict on the issue of the IDEL Regulation and common law constructive dismissal, it is likely that the issue will be heard by the Ontario Court of Appeal, who will provide more authoritative guidance on the issue. Accordingly, at this time given the uncertainty in the law Taylor should be used as a defence to claims of constructive dismissal, but not as a means to justify new layoffs or hours reductions going forward.

Another important point for employers is that Taylor may be distinguished from other layoffs and may not apply to every layoff implemented following the onset of the pandemic. Crucially, the IDEL Regulation only offers protection to temporary layoffs and hours reductions that are implemented for reasons related to COVID-19. Consequently, cases where an employer has implemented layoffs for reasons that have tenuous connections to the pandemic or associated government restrictions will be far less likely to fall under the protections of the IDEL Regulation.

The protections under the IDEL Regulation were previously scheduled to expire July 3, 2021, but have recently been extended until September 25, 2021, after which the regular ESA and common law rules related to temporary layoffs and constructive dismissal will come back into force. As such, employers who have implemented layoffs or hours reductions absent the contractual right to do so should strongly consider returning employees to work prior to September 25, 2021. Employers who are unable to return employees by that date will be at risk of facing constructive dismissal claims from employees who remain on layoff as a result of the normal common law rules.

For a more detailed breakdown of the IDEL Regulation and the exceptions that apply, please see our previous blog.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.