In March 2020, the COVID-19 pandemic and consequent public health orders forced many businesses to close or curtail their operations. Large numbers of employees across the country were laid off or had their hours reduced on what was anticipated to be a temporary basis.
Under normal circumstances, employment standards legislation only allows temporary layoffs for a defined period of time after which the layoff is deemed to be a termination, entitling the laid off employee to termination pay from their employer.
This statutory regime differs from the common law under which a unilateral layoff or reduction in hours will generally constitute a constructive dismissal unless the employment contract permits a layoff or hours reduction, either expressly or through previous practice.
Many are now asking whether the unique circumstance of the pandemic may impact the general approach to layoffs and constructive dismissal in the law.
Several jurisdictions responded to the unusual circumstances of the COVID-19 pandemic by amending their employment standards legislation to offer relief from the layoff/termination provisions in the event of layoffs made necessary as a direct result of the pandemic.
In Ontario legislative amendments have relieved employers from liability for termination pay in the event of layoffs caused by to the pandemic (the “Regulation”) for an extended period of time.[1] Some felt the Regulation, in addition to allowing indefinite layoff under employment standards legislation, also gave employers relief against constructive dismissal claims at common law where the layoffs were caused by the pandemic.
This question was recently addressed by the Ontario Superior Court of Justice in a case called Coutinho v. Ocular Heath Centre.[2] In this case Ms. Coutinho was placed on temporary layoff in May 2020 as a result of the impact of COVID-19 on her workplace. She claimed this was a constructive dismissal under common law and sued her employer for damages in court. In response to the constructive dismissal claim, the employer argued that the layoff fell under the Regulation and that the Regulation applied not only to the layoff/termination provisions in the employment standards legislation, but also to constructive dismissals under the common law. The court disagreed, holding that the Regulation applied only to the employment standards legislation and not to the common law of constructive dismissal. In so doing, the court relied upon a provision in the legislation which preserved any civil remedy an employee may have.
The Coutinho decision has proven controversial, eliciting a range of reactions from commentators. Some argue the decision is correct and the result foreseeable.[3] One employee advocate has commented enthusiastically about the decision saying: “Take heart; as the pandemic rolls on, Lady Justice continues to tip the scales in favour of employees.”[4] At the other end of the spectrum, some argue the decision is wrong and the issue should be litigated to the Supreme Court of Canada if necessary.[5] Between these two extremes, more cautious commentators note that the decision rests on the facts in the case and it remains to be seen if it will be followed or appealed [6] or will simply stand for a narrow proposition.[7]
Perhaps the most significant commentaries for us in BC are those which note that the court’s reasons in Coutinho fail to address the public policy issue of whether the common law should provide some relief from its usual approach to temporary layoffs and constructive dismissal in the unique context of the pandemic.[8]
In the midst of this controversy, just two months after the Coutinho decision, a different judge of the same Ontario court concluded that Coutinho was wrong in law and reached the opposite result in a case called Taylor v. Hanley Hospitality Inc.,[9] (“Taylor”). In the Taylor case, the plaintiff, Ms. Taylor, was temporarily laid off when her employer, Tim Hortons, shut down its in-person dining service as required by the Ontario government’s state of emergency declaration. Ms. Taylor relied on the Coutinho decision to bring an action against Tim Hortons for constructive dismissal under common law. The court in Taylor found that Coutinho was wrongly decided since the Ontario Employment Standards Act expressly displaces the common law of constructive dismissal[10]. The court dismissed Ms. Taylor’s claim for constructive dismissal finding that the Regulation applied to her layoff and thus it did not constitute a constructive dismissal either under the Act or at common law. In making this finding, the judge reasoned that “one should not forget that the common law evolves as the changing times make it necessary to do so”[11] and concluded:
I agree with Tim Hortons that exceptional situations call for exceptional measures. The Ontario Government recognized the inherent unfairness in subjecting employers to wrongful dismissal claims as a result of the government imposing a state of emergency. If they did not take action, these claims would only serve to make the economic crisis from the pandemic even worse. It is just common sense. The plaintiff’s action is dismissed.[12]
We are thus left with directly conflicting decisions in Ontario rendered within a very short time of each other.
Significance for BC
On the one hand, these Ontario decisions may not be directly applicable to BC because of the differing employment standards regimes in the two provinces and because the legislative response to COVID has been different here. On the other hand, despite these differences, the reasoning in Taylor may inform the development of policy by other courts and tribunals in respect to temporary layoffs caused directly by the pandemic. In particular, there may be resonance in the Ontario court’s comments in Taylor regarding the evolving nature of the common law and the need for fairness and common sense during the economic crisis caused by the pandemic.
The common law of dismissal is itself a policy-based creation, the most notable example of which is the requirement of reasonable notice for termination, a contractual term which courts have implied into employment relationships based on policy considerations. Consistent with this, it could be argued that the courts, as in Taylor, should take a policy-based approach to the unique circumstances presented by the pandemic and fashion something more equitable to both employers and employees regarding temporary layoffs and constructive dismissal arising directly as a result of the pandemic.
Turning to the situation in BC, the Employment Standards Branch, operating within the provisions of the BC Employment Standards Act (the “ESA”), has articulated a policy-based approach to layoffs and terminations resulting from the pandemic. Section 63(1)(d) of the ESA establishes an exception to the requirement to provide termination pay in the event that the employment contract “is impossible to perform due to an unforeseeable event or circumstance.” In its interpretation guidelines, the Branch has indicated it is prepared to apply this exception to layoffs resulting directly from the COVID-19 pandemic in very limited factual contexts which the Branch outlines as follow[13]:
If a business closure or staffing reduction is directly related to COVID-19 and there is no way for employees to perform their work in a different way (for example, working from home) the exception may apply in terminations resulting from the COVID-19 emergency.
This exception is not automatic for all layoffs that have occurred during the time of the COVID-19 emergency. If an employer terminates an employee for reasons that are not directly related to COVID-19 or if the employee's work could still be done (perhaps in a different way, such as working from home or resuming operations with additional personal protective equipment (PPE)) the exception would not apply.
Was COVID-19 and its economic consequences an unforeseeable event?
While each case must be decided on its own merits, the COVID-19 emergency has had an unprecedented impact on B.C.’s economy and layoffs that directly resulted from this emergency, especially in its first few months, will likely meet the unforeseeable event requirement for this exception.
This means that if an employer had employees prior to the emergency and these employees have been terminated or permanently laid off in the early months of the emergency, the decision on whether the exception applies will turn on whether or not it was impossible for the employees’ contract of employment to be performed.
What constitutes “impossible to perform” in the COVID-19 context?
For the exemption to apply in the COVID-19 context, there must be clear evidence that it was not possible for the employee(s) to continue working during the pandemic. Evidence of significant business losses, or reduced profits resulting from the economic impacts of the pandemic will not be enough to demonstrate impossibility (see Labyrinth Lumber Ltd. (Re), B.C. EST D407/00).
The BC Employment Standards Tribunal has considered this exception in the context of COVID in a recent case[14]. In that case, the employer argued that it was “unfair” it should be held liable for termination pay when its pub business was forced closed down by virtue of the Provincial Public Health Orders issued in response to COVID-19.[15] However, although the pub was initially forced to close by the Public Health Order (a circumstance which was determined to be “unforeseen” within the meaning of section 65(1)(d)), the evidence established that the failure to re-open the pub was the result of the employer’s dispute with its landlord and its failure to pay rent for the two months prior to the onset of the COVID pandemic. In these circumstances, the Tribunal found that the 65(1)(d) exception did not apply because the dispute with the landlord was not an “unforeseeable event.” This decision demonstrates that the exception in 65(1)(d) will be strictly interpreted and applied by the Branch, an approach which is often taken when the issue is one which may potentially deny employees of entitlements under the ESA.
While the exception in section 65(1)(d) applies only to claims arising under the Employment Standards Act, the basis for the exception is rooted in the common law doctrine of frustration of contract. This is a doctrine which, in the right factual context, could be argued to apply to a common law claim for constructive dismissal arising from a layoff due to the pandemic. To date, this argument has not yet been tested in British Columbia.
Conclusion
As this argument remains untested in British Columbia courts, we want to conclude by noting some other issues that may arise in a pandemic-based constructive dismissal claim.
At the top of that list of potential arguments is condonation. If an employee does not commence an action within a reasonable period after being laid off, the employee may be deemed to have accepted the layoff and thus be unable to later pursue an action for constructive dismissal. Arguably, the laid off employee has an election to make at or near the time of the layoff; either accept the temporary layoff or take the position the layoff constitutes a constructive dismissal and commence an action.
Another potential argument is mitigation. If an employee takes the position that a temporary layoff has resulted in a constructive dismissal, the employee is obligated to take reasonable steps to find other reasonably comparable employment. That requirement remains despite the pandemic. This duty to mitigate also includes the obligation to accept further employment from the employer, as long as the position, pay and benefits are the same or reasonably comparable and there hasn’t been bad faith or other egregious circumstances in respect to the layoff and further offer of employment.
In addition to these arguments regarding condonation, mitigation and the doctrine of frustration of contract, an employer faced with a claim for constructive dismissal as a result of a COVID-related layoff may also consider the following, depending on the facts of the case:
- the past practice of the employee accepting unilateral alterations of the employment relationship in previous instances;
- an established practice and accepted routine of layoffs in the industry;
- the existence of an employer policy of temporary layoffs or reduction of hours which was communicated and fully explained to the employee so that it was embedded in the employment relationship;
- an express term in the employment contract permitting temporary layoff;
- resignation by the employee; and
- abandonment of the employment relationship by the employee.
As employment disputes arising from pandemic layoffs work their way through the court system, we are likely to see more guidance from the courts on some of these issues.
[1] Ontario Regulation is 228/20 under the Employment Standards Act, 2000, S.O. 2000, c. 41 suspends the layoff/termination provisions in the Ontario employment standards legislation if an employee is laid off as a result of COVID-19 from March 1, 2020 to September 25, 2021. The employee is deemed to be on a job-protected, infectious disease emergency leave (referred to as “IDEL”).
[2] Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076.
[3] Levitt, Howard, “Pandemic didn’t change the rules for layoffs, contrary to what many believe”, April 30, 2021.
[4] Chaudri, Sunira, “Court Confirms IDEL Layoffs are Employee Terminations”, Toronto Sun, May 1, 2021.
[5] Howlett, John, “Does the Ontario IDEL really result in a constructive dismissal? Not so fast...”, May 5, 2021.
[6] Levy, Rhonda B. and Verlint, Monty, “Ontario, Canada Court Decides Employee Laid Off During COVID-19” May 6, 2021.
[7] Weir, Robert et al., “Infectious disease emergency leave and common law constructive dismissal claims”, May 10, 2021.
[8] Cassin, David and Cunningham, Carl, “Infectious Disease Emergency Leave Does Not Shield an Employer From Constructive Dismissal at Common Law”, May 6, 2021; Rudner, Stuart, “Breaking Employment Law News: Layoffs are Constructive Dismissals, Even During a Pandemic”, April 29, 2021.
[10] On this issue the court in Taylor relied upon a decision of the Ontario Court of Appeal in Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831.
[13] Employment Standards Branch, “Exceptions - Act Part 8, Section 65” in the Guide to the Employment Standards Act and Regulation https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standards/forms-resources/igm/esa-part-8-section-65.
[14] Re: Pacific Coastal Public Tap House Ltd., Michelle Cote, and Brent Wallin, 2021 BCEST 33.
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