Williams HR Law LLP

ONTARIO COURT OF APPEAL OVERTURNS KEY PRECEDENT, MAKING IT MORE LIKELY THAT COVID-RELATED LAYOFFS CAN CONSTITUTE CONSTRUCTIVE DISMISSAL

May 13, 2022

Due to a new decision by the Ontario Court of Appeal (“ONCA”), it is now more likely that Ontario employees can successfully claim constructive dismissal because they were temporarily laid off for reasons related to COVID-19, despite temporary rules that appear to provide otherwise.

In particular, the ONCA overturned the Ontario Superior Court of Justice’s (“ONSC”) decision in Taylor v Hanley Hospitality Inc. [Taylor], which was the only precedent where an Ontario court held that O. Reg. 228/20 Infectious Disease Emergency Leave (the “IDEL Regulation”) prevents COVID-related layoffs from constituting constructive dismissal at common law (for more information on the original Taylor decision, please read our previous blog, and for background information on the IDEL Regulation, click here). Notably, before the Ontario government implemented the IDEL Regulation in response to COVID-19, it was settled law that placing an employee on temporary layoff generally constitutes constructive dismissal if the employer did not reserve the right to do so in an employment agreement.

Now that Taylor has been overturned, there are only two other decisions by Ontario courts interpreting the IDEL Regulation which are still good law—Coutinho v Ocular Health Centre Ltd. [Coutinho] and Fogelman v IFG [Fogelman]—both of which held that the IDEL Regulation does not prevent COVID-related layoffs from constituting constructive dismissal at common law (for more information on Fogelman, please read our previous blog, and for more information on Coutinho, please read our original blog on Taylor linked above). This is obviously bad news for Ontario employers who were forced to place employees on temporary layoff for COVID-related reasons who did not reserve the right to do so in an employment agreement, and who are facing or may face constructive dismissal claims as a result. This is because such employers may be liable to provide these employees with pay in lieu of common law reasonable notice if they are found to have constructively dismissed them.

That said, there is still substantial legal uncertainty as to whether the IDEL Regulation prevents employees from successfully claiming that they were constructively dismissed by being laid off for COVID-related reasons. This is because the ONCA allowed the appeal in Taylor for technical/procedural reasons, and it declined interpret the meaning of the IDEL Regulation. Moreover, both Coutinho and Fogelman were decided by the ONSC, meaning that these decisions are persuasive but not binding for future cases.

Takeaways for Employers

Unfortunately, now that the ONCA has overturned Taylor, employers can no longer rely on this decision as a defence to common law constructive dismissal claims by employees who were laid off for reasons related to COVID-19. This is particularly unfortunate because the only judicial decisions on this issue that are still valid both held that the employees can successfully claim common law constructive dismissal due to COVID-related layoffs, despite the IDEL Regulation.

However, as noted above, there is still legal uncertainty about whether the IDEL Regulation does prevent common law constructive dismissal claims based on COVID-related layoffs from being successful. This will likely be the case until the ONCA finally rules on this issue. As such, there is still hope that the courts will ultimately interpret the IDEL Regulation in the same employer-friendly manner that the ONSC did in the original Taylor decision, but only time will tell.

It is also important for Ontario employers to note that the IDEL Regulation is currently set to expire on July 31st, 2022. If the IDEL regulation is not extended again, employers who have laid employees off for COVID-related reasons without the contractual right to do so should strongly consider recalling them before August 2022, if operationally feasible. This is because it would very likely be constructive dismissal for such employers to keep these employees on temporary layoff after July 31, 2022, and they would no longer be able to argue that the IDEL Regulation prevents these layoffs from being constructive dismissal once it is no longer in effect.

Similarly, employers who laid employees off for COVID-related reasons and who did reserve the right to do so should bear in mind that the regular rules under the Employment Standards Act, 2000 regarding how long temporary layoffs are allowed to last will apply to COVID-related layoffs again once the IDEL Regulation expires. As a result, if the IDEL Regulation is not extended, the clock will begin ticking on August 1, 2022 and employers will only be able to keep employees on COVID-related layoffs for a maximum of either 13 or 35 weeks, depending on the circumstances, before their employment is deemed to be terminated.

As always, we will continue monitoring for new COVID-related developments that are relevant to employers and promptly updates on this Resource Centre as they become available.