COVID-19: Ontario Limits Employer Liabilities
Practical Law Canada Legal Update w-025-8321 (Approx. 7 pages)
On May 29, 2020 Ontario issued Infectious Disease Emergency Leave, O. Reg. 228/20, which limits the liability of employers for layoffs or alleged constructive dismissals that occur during the COVID-19 pandemic. This regulation responds to the risk of potentially large termination liabilities that employers face for adopting cost-cutting measures or in responding to mandatory closure orders. The regulation applies only to non-unionized workplaces. This Legal Update summarizes the new regulation and provides links to resources that may assist in managing employment issues during the COVID-19 pandemic.
The COVID-19 pandemic has caused the slowdown or shutdown of businesses across Canada. In response, many employers have resorted to temporary cost-cutting measures, including layoffs or reduction of employee hours or wages. Unfortunately, Canadian workplace laws treat these measures as potential terminations of employment. Strict application of those laws may create large termination liabilities for businesses already struggling to survive.
On May 29, 2020, the Ontario government issued Infectious Disease Emergency Leave, O. Reg. 228/20 (the "Regulation"), which limits employer liability for placing non-unionized employees (including assignment employees) on layoff or for reducing employee hours or wages during the COVID-19 pandemic.
This legal update applies only to non-unionized employees in Ontario. Layoffs or changes to working conditions for unionized employees are governed by the terms of their collective agreements. The Regulation does not apply to unionized employees.
For updates on how other provinces have addressed layoff risks raised by the COVID-19 pandemic, see Practice Note, COVID-19: Employment FAQs: What requirements or limits does minimum standards legislation impose on layoffs permitted by contract?
Layoffs and Constructive Dismissals
Cost-cutting measures like layoffs or reduction of employee hours or wages may be treated as a termination of employment by:
- Common law. At common law, a layoff is usually a constructive dismissal unless it is permitted by an express or implied term of the employment contract. Absent that term, the employee can sue for constructive dismissal when they are laid off. See Practice Note, Constructive Dismissal (Layoffs).Likewise, a significant, unilateral reduction in employee hours of work or compensation may be treated as a constructive dismissal at common law. See Practice Notes, Constructive Dismissal (Hours of Work and Work Schedules) and Constructive Dismissal (Change in Compensation).
- Minimum standards legislation. Even where employment contracts allow for layoffs, minimum standards legislation, including Ontario's Employment Standards Act 2000, S.O. 2000, c. 41 ("ESA 2000"), places rules on how those layoffs must be conducted and how long they can last. If a layoff lasts longer than the maximum period allowed by statute, it is deemed a termination, triggering an employee's statutory termination entitlements. See Practice Note, Layoffs (Minimum Standards).As under the common law, any reduction of wages or hours of work that constitutes a constructive dismissal may be treated as a termination by minimum standards legislation.
Where a termination of employment results from a layoff or constructive dismissal, the employer typically owes the employee:
- Common law reasonable notice or contractual notice of termination. See Practice Note, Reasonable Notice of Termination: Overview.
- Individual statutory termination entitlements, including notice of termination (or pay in lieu, which is more likely in a layoff scenario) and, in Ontario or the federal jurisdiction, statutory severance pay. See Practice Notes, Notice of Termination (Minimum Standards) and Severance Pay (Minimum Standards).
- Where a threshold number of terminations occur, statutory mass or group termination entitlements, including increased notice or pay in lieu. See Practice Note, Group/Mass Termination (Minimum Standards).
The Problem of Layoffs and Constructive Dismissals During COVID-19
Strict application of layoff and constructive dismissal laws would compound the economic disruption brought on by COVID-19. Many industries have been forced to close or scale back operations either by public health orders or a drastic loss of business. An unprecedented number of workers have been temporarily laid off. As the length of these layoffs stretch into months, they approach the maximum duration allowed minimum standards legislation. If they exceed the limit, entire workforces would be deemed terminated, triggering massive termination liabilities for employers who may have every intention of retaining their workforces. For a list of maximum layoff lengths in Canada, see Reference Chart: Treatment of Layoffs and Notice of Termination (Minimum Standards).
In an attempt to maintain some level of operations, some employers have resorted to reducing hours of work or the rate at which employees are paid per hour. In normal times, employment laws do not allow employers to unilaterally dictate working conditions, unless employees have agreed to such changes in their employment contracts. During the COVID-19 pandemic, some businesses may take this drastic action despite the risk of potential constructive dismissal claims, seeing no alternative.
Ontario's Response to Layoff and Constructive Dismissal Risks
In response to the prospect of termination liabilities faced by employers during the COVID-19 pandemic Ontario has issued the Regulation. The Regulation:
- Converts COVID-19-related layoffs into an indefinite leave of absence, eliminating the possibility of deemed termination under the ESA 2000.
- Provides that reduction or elimination of hours of work, or a reduction of wages, in response to COVID-19 is not a constructive dismissal.
Conversion of Layoffs into Leaves
In March 2020, a new Infectious Disease Emergency Leave was added to the ESA 2000. Effective January 25, 2020, this leave grants employees time off work where, due to a designated infectious disease like COVID-19, they must seek medical attention, self-isolate, or care for a family member affected by the disease (including due to school closures). See Reference Chart: COVID-19 Employment Initiatives and Legislative Changes: Ontario.
On May 29, 2020 the Regulation expanded the application of Infectious Disease Emergency Leave to situations where an employee’s hours of work are temporarily reduced or eliminated by the employer for reasons related to COVID-19. Instead of being on layoff, employees are on a deemed Infectious Disease Emergency Leave (the "Deemed Leave").
Duration of the Deemed Leave
The Deemed Leave is effective during the "COVID-19 Period", defined in the Regulation as beginning on March 1, 2020.
UPDATE: On September 3, 2020, the Ontario government announced the COVID-19 Period is extended until January 2, 2021.
Application of Leave Laws to the Deemed Leave
All ESA 2000 rules that normally apply to statutory leaves, including the employee's right to reinstatement following a leave, also apply to the Deemed Leave, with the following exceptions:
- An employee on Deemed Leave is not required to provide any notice to the employer.
- An employee on Deemed Leave is not entitled to continued workplace benefits participation during the COVID-19 period if they were not participating in those benefits as of May 29, 2020. In other words, if the employer was not continuing benefits during the layoff, they are not required to reinstitute benefits now that the layoff is a leave.
- Likewise, the employer is not required to continue making contributions toward benefit plans during the COVID-19 period for any employee on the Deemed Leave if the employee was not participating in the benefit plan as of May 29, 2020.
Deemed Leave and Other Terminations of Employment
Deemed Leave does not apply to:
- An employee whose employment is terminated by their employer, including a termination due to permanent closure of the business, on or after March 1, 2020. In other words, if the employee is terminated through some action other than a layoff or an alleged constructive dismissal in response to COVID-19, that termination is unaffected by the Deemed Leave.
- An employee whose employment ended due to constructive dismissal or a layoff exceeding the statutory maximum prior to May 29, 2020. While the Deemed Leave is deemed to have begun on March 1, 2020, it does not restore employment that ended in constructive dismissal or a layoff exceeding statutory maximums before the Regulation came into force.
- An employee who is given written notice of termination in accordance with the ESA 2000's notice requirements, unless the employer and employee agree to withdraw the notice of termination.
Reducing Liability Risk for Cost-Cutting Measures
The Regulation aims to insulate employers against deemed terminations or constructive dismissal claims triggered by reductions in employee hours of work or compensation. The Regulation provides that during the COVID-19 Period:
- Temporary reduction of hours or wages does not count toward any layoff period. In Ontario, a week of layoff is normally any week where the employee earns less than half of their regular wages for that week. That rule is suspended for COVID-19 cost-cutting measures. This does not apply to layoffs that were deemed terminations prior to May 29, 2020.
- Temporary reduction or elimination of employee hours, or temporary reduction of employee wages, due to COVID-19 is not a constructive dismissal. The Regulation does not specify whether this applies to constructive dismissal under the ESA 2000 only or at common law as well.
The Regulation also provides that any constructive dismissal complaints filed with Ontario's Ministry of Labour regarding reduced hours or wages are deemed not to have been filed if the reductions occurred during the COVID-19 period and occurred for reasons related to COVID-19.
Comment
The Regulation will be a significant relief for many non-unionized employers who have been forced to lay off their workforce during COVID-19. It eliminates the looming problem of mass deemed terminations.
However, the Regulation also raises important questions for employer and employee counsel moving forward:
- Does the limitation on constructive dismissal for cost-cutting measures apply at common law? The Regulation is not clear on this point. If the Regulation does not bar common law constructive dismissal claims, employers will likely have to defend many claims in the months to come.UPDATE: The Ontario Superior Court of Justice has held that the Regulation does not affect an employee's right to pursue a civil claim for constructive dismissal at common law. An employer's attempt to rely on the Deemed Leave to defend a constructive dismissal complaint failed. See discussion in Coutinho v. Ocular Health Centre Ltd., 2021 CarswellOnt 5938 (Ont. S.C.J.) at paragraphs 35 to 62, leave to appeal refused 2021 CarswellOnt 13318 (Ont. Div. Ct.).
- What is "related" to COVID-19? The Deemed Leave and protected cost-cutting measures apply only where they are "related" to COVID-19. Obviously, business closures pursuant to public health orders fall into this category. However, where layoffs or cost-cutting measures are instituted in response to a drop in business, it may be less clear whether the cause is COVID-19 or something else. Employees may dispute that they are subject to the Regulation.
- What is a "temporary" change? The Deemed Leave and protected cost-cutting measures apply to temporary changes to hours of work or wages. Some employers may determine that changes that were at first announced as temporary will remain the status quo moving forward. Since the COVID-19 period extends until six weeks after the end of Ontario's state of emergency, and that state of emergency seems poised to last for a considerable period yet, employers may be able to characterize permanent changes as temporary for many months. At some point employees may complain that a change is no longer "temporary".
- Does the right to reinstatement change an employer's workplace reopening plans? Employees on a statutory leave have a right to be to be reinstated to the position they most recently held with the employer, if it still exists, or to a comparable position, if it does not. Failure to reinstate the employee is a breach of the ESA 2000. If an employee files a complaint with the Ministry of Labour, the employer may be ordered to reinstate the employee and pay damages.This may be a consideration for employers in determining the order in which employees are recalled to work during the COVID-19 Period. Prior to the Regulation, an employer would have been free to recall or not to recall employees as it saw fit. It would ultimately have incurred termination liabilities for failing to recall an employee, but it had freedom to select the workforce it wanted to recall. During the COVID-19 Period, if work is available, employees must be recalled to their positions or employees may have a valid claim for reinstatement and damages. For more information on recalling employees to work during the COVID-19 pandemic, see Practice Note, Reopening the Workplace After Mandatory Closure: Re-Engaging the Workforce.
Additional Information
Practical Law has assembled suites of resources for addressing coronavirus issues in Canada and Globally. For more information see:
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