Is It a Constructive Dismissal If An Employee Was Laid Off Without Prior Notice Because of Government Mandated Closures?

For Most Employees of a Small Business a Sudden Lay Off Without Notice or Pay-in-Lieu Constitutes As a Constructive Dismissal Under the Current Law. Whether the Current Law Will Change Due to the Mass Lay Offs Arising From the Covid19 Crisis Is Unknown.
A Helpful Guide On How to Prepare For the Various Legal Issues and Anticipated Employment Difficulties Arising From Covid-19

Employment Termination Notice Involving Allegation of Frustration of Employment Contract Due to Health of Employee Currently employers, large and small, are faced with unprecedent financial difficulties.  While some large companies may be positioned to weather the storm of managing the risks of varied legal complication, most businesses, especially smaller businesses, are without the financial resources as well as without the know-how to handle the extensive covid-19 challenges.  The difficult risk management questions, many of which pose a Catch-22, that may lead to legal issues include, among other things:

  • Whether a business should remain operational, if such is a business that is permitted to do so;
  • Whether continued operations are possible with employees working from home;
  • Whether continuing operations at a physical premise places employees at risk of illness;
  • Whether employees can legally be laid-off temporarily.

Of course, this is just a very small sample of the questions currently faced by business in the context of need to consider employee concerns.

Unlawful Lay-Off Conduct

Due to the sudden reduction in business activity, or even the mandated closure for non-essentially businesses, many employers are attempting to reduce operating expenses by laying off employees.  Unfortunately, for most non-unionized employers, to lay-off an employee is generally illegal whereas such actually constitutes as a wrongful dismissal or constructive dismissal.  At least, based on current judicial case decisions the lay-off of an employee is illegal.  The body of case law judicial decisions take years to develop, and it is highly doubtful that any legal professional can currently make strong assurances to either an employer or an employee as to how cases relating to lay-off, among other things, will be decided in the face of the Covid19 Crisis.  Simply put, whether the precedent cases regarding lay-off issues that judges used in the past will continue to guide decisions regarding lay-off issues or whether a fresh reasoning will develop to address Covid19 inspired lay-off cases is unknown and only time will tell.

With the above said, due to current events, it may be possible to raise the Covid19 Crisis, or the economic burden of the Covid19 Crisis on your business, as an argument distinctive to the historically applied law regarding lay-off.  Specifically, if the government ordered your type of business is to close, it may be possible to argue that circumstances differ from the historic law and that the lay-off of employees was a response to a government mandate rather than a business decision.  Of course, how far that argument will go unknown until the argument is made and judicially decided upon.

The difficulty for employers arises whereas the Employment Standards Act, 2000, S.O. 2000, Chapter 41 (the "ESA”) allows the lay-off of a non-unionized employee only in very limited circumstances.  Specifically, the ESA says

54 No employer shall terminate the employment of an employee who has been continuously employed for three months or more unless the employer,

(a) has given to the employee written notice of termination in accordance with section 57 or 58 and the notice has expired; or

(b) has complied with section 61.

55 Prescribed employees are not entitled to notice of termination or termination pay under this Part.

56 (1) An employer terminates the employment of an employee for purposes of section 54 if,

(a) the employer dismisses the employee or otherwise refuses or is unable to continue employing him or her;

(b) the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period; or

(c) the employer lays the employee off for a period longer than the period of a temporary lay-off.

(2) For the purpose of clause (1) (c), a temporary layoff is,

(a) a lay-off of not 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 lay-off is less than 35 weeks in any period of 52 consecutive weeks and,

(i) the employee continues to receive substantial payments from the employer,

(ii) 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,

(iii) the employee receives supplementary unemployment benefits,

(iv) the employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so,

(v) the employer recalls the employee within the time approved by the Director, or

(vi) 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; or

(c) in the case of an employee represented by a trade union, a lay-off longer than a lay-off described in clause (b) where the employer recalls the employee within the time set out in an agreement between the employer and the trade union.

The problem that arises when a small business uses a lay-off to avoid continuing payment of wages is two-fold.  As a small business, and thus presumably non-unionized and with less than fifty (50) employees, the business is without a statutory right of lay-off.  Additionally, it is unlikely that the employer-employee agreement contained a clause providing a contractual right of lay-off; and accordingly, to lay-off an employee constitutes as constructive dismissal per the common law within past judicial decisions.  Such was very clearly stated in the case of Ellis v. Artsmarketing Services Inc., 2017 CanLII 51563 where it was said:

[51]  Jurisprudence has established that any layoff must be based on the employment contract; otherwise it is a dismissal, as layoff does not exist at common law. This was expressed in paragraphs 19 and 20 of the case of McLean v. The Raywal Limited Partnership, 2011 ONSC 7330 (CanLII) (OSCJ), submitted by the plaintiff, as follows:

[19]  The parties agree that a layoff will be lawful and of effect where it is based on an employment contract.  In the absence of a contractual basis for layoff, the device of layoff does not exist at common law and any purported layoff will be in fact, a dismissal.

[20]  There was clearly no contractual basis for layoff in Natalie’s contract of employment which began on July 15, 1998 as there was no reference to layoff in the signed and returned letter of employment, nor were there other references or acknowledgements to indicate that the layoff provisions of the employee handbook applied to Natalie.

[52]  In reviewing the employment contract relied on by the defendant in this case, I am unable to find any express term which allows a lay off or any suspension from employment.

[53]  In the absence of an express contractual basis for a layoff any interruption in employment is therefore a dismissal.

The judicial viewpoint that a lay-off by an employer without a statutory right or contractual right to do so constitutes as a dismissal was also stated in Bevilacqua v Gracious Living Corporation, 2016 ONSC 4127 where it was said:

[8]  It is Mr. Bevilacqua’s position that under the first stage of analysis set out by the Supreme Court of Canada in Potter v New Brunswick Legal Aid Services 2015 SCC 10 (CanLII), [2015] 1 SCR 500, at para 43, Gracious Living’s actions amount to a breach of his employment contract. There was no term of that contract that permitted Gracious Living to place him on lay-off, and there was no implied term that would have allowed the layoff after 15 years of employment where the prospect of a layoff had never been raised with him.

[9]  The Ontario Court of Appeal has held that a unilateral layoff by an employer is, absent agreement to the contrary, a substantial change in employment, and that it therefore constitutes a constructive dismissal: Elesegood v Cambridge Spring Service, 2011 ONCA 831, at para 14. An employer has no right to impose a layoff either by statute or common law, unless that right is specifically agreed upon in the contract of employment. The fact that a layoff may be conducted in accordance with the Employment Standards Act, 2000SO 2000, c. 41, is irrelevant to the question of whether it is a constructive dismissal. Gracious Living was not legally authorized to “simply place [Mr. Bevilacqua’s] employment status on hold without pay and expect that this will not constitute a constructive dismissal”: Martellacci v CFC/INX Ltd (1997), 1997 CanLII 12327 (ON SC), 28 CCEL (2d) 75, at para 30 (Gen Div).

[10]  This lack of right to layoff an employee applies even where the employer does not mean to repudiate the contract, Damery v Matchless Inc (1996), 1996 CanLII 5518 (NS SC), 151 NSR (2d) 321 (NS SC), or where the layoff is temporary in nature: Stolze v Addario (1997), 1997 CanLII 764 (ON CA), 36 OR (3d) 323 (Ont CA). An employee in Mr. Bevilaqua’s position is entitled to the opportunity to assess his newfound situation for a reasonable period of time in order to come to a decision as to whether to accept it: Belton v Liberty Insurance Co of  Canada (2004), 2004 CanLII 6668 (ON CA), 72 OR (3d) 81, at para 8 (Ont CA).

[11]  The employer’s imposition of a layoff in the absence of a contractual clause permitting a layoff effectively repudiated a fundamental term of its employee’s employment agreement: Chen v Sigpro Wireless Inc, 2004 CarswellOnt 2225, at para 12 (SCJ). Gracious Living may not have intended to terminate Mr. Bevilacqua, but its actions amounted to a constructive dismissal.

Accordingly, the law shows that for a non-unionized employer with less than fifty (50) employees, thus most small businesses, the lay-off of employees by ceasing pay and putting the employment on hold constitutes as a dismissal.

Frustration of Agreement

As above, the existing law is unfavourable for most small business employers whereas the sudden lay-off of employees was likely unlawful and constituting as a constructive dismissal for which damages by way of lost wages and the value of benefits, among other things, would be due as pay-in-lieu of the notice the employee would usually be entitled to.  As indicated, whether, and how, the law may adjust for the unique concerns of the Covid19 Crisis will remain unknown; however, it is possible that the forced closure of businesses, and subsequent lay-off (unintended constructive dismissal) of employees may be viewed in the light of a frustrated employment contract and treated in accordance to provisions within the Frustrated Contracts Act, R.S.O. 1990, c. F.34 which addresses all contracts, generally, that become impossible without fault of the parties to the contract such as an employer and employee.  Simply said, perhaps the Frustrated Contracts Act will be relied upon within an argument that what was worded as a lay-off was actually a termination of an employment contract by outside forces beyond the control of the employer and employee and that the outside force, such as government closure mandates, made the contract impossible.  This argument will likely need some very persuasive legal creativity if such will be so persuasive as to convince the judiciary to make new precedent and forgo the vast history of prior decisions.

At the moment, there appears little, if any, indication that the Federal government or Provincial government will propose changes that will affect the historic precedent cases.  Accordingly, employees suddenly laid off without proper notice could be entitled to significant wrongful dismissal damages (depending on age, type of position, length of employment, availability of similar new employment, among other things).  All of these factors would be determined based on the employment agreement and individual circumstances.

Continuing Operations

Many businesses are deemed essential services and are permitted to continue operations.  For those businesses, continuing operations during the pandemic, protecting employees (as well as suppliers and customers) is of utmost importance yet often quite logistically challenging; and accordingly, employers should carefully consider whether providing a reasonably safe workplace is possible or practical.  Employers failing to provide a safe workplace may be subject to liability for health issues, fines for violations of the Occupational Health and Safety Act, R.S.O. 1990, c. O.1, among other things.  Employers unable to limit the risk of exposing employees to customers, suppliers, and other employees, by social distancing, sterilizing of shared spaces, and other techniques may be wise to suspend operations and reduce services to those services that are deliverable via telecommunications. 

Work From Home

Where at all possible, employees should be enabled to work from the safety of home.  In addition to protecting the health of the employee, and family of the employee, by enabling the employee to remain indoors, such also protects the public by minimizing the number of people out and about and thereby potentially causing community spread of the coronavirus.  Where an employee is able to adapt to duties and functions that can be performed remotely, such should be encouraged and supported.

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