Temporary Layoff and Constructive Dismissal (COVID-19)

Our e newsletter sent last week offered a head’s up regarding upcoming changes to the Employment Standards Act (“ESA”) addressing issues stemming from legislated “deemed” terminations following temporary layoff (after 13 weeks or 35 weeks) (collectively “Deemed Termination(s)”) and constructive dismissal. 

On Friday evening the Ontario Government published the most recent version of the Infectious Disease Emergency Leave Regulation under the ESA (the “IDEL Regulation”). The IDEL Regulation revokes and replaces the previous version and provides some clarity and stability in creating new “norms” and expectations concerning employment relationships in Ontario during the current Declared State of Emergency due to COVID-19.     
The changes, while welcomed relief to circumvent Deemed Terminations, are temporary measures applicable solely to the “COVID-19 period”, which is defined by the IDEL Regulation as running retroactively from March 1, 2020 to “the date that is six weeks after the day” the Declared State of Emergency is “terminated or disallowed.”  

The changes enacted by the IDEL Regulation are complex in nature and do not apply to unionized employees.  However, there are three key parts to the IDEL Regulation. We will summarize each below and will discuss each further in upcoming e newsletters.

“Deemed” Infectious Emergency Leave 

The IDEL Regulation creates a new or additional ground for an “infectious disease emergency leave” that is triggered when “the employee’s hours of work are temporarily reduced or eliminated by the employer for reasons related to the designated infectious disease” (COVID-19).  Meaning, an employee who does not perform their duties for that described reason is deemed to be on infectious disease emergency leave during any part of the COVID-19 period.  

For example, if an employer imposed a temporary layoff having closed its business (either by government order or the result of a disruption in business), the employee is “deemed” to be on an infectious disease emergency leave under the ESA (not on temporary layoff and exposed to a Deemed Termination). 

As a statutory leave of absence under the ESA, an employee on an infectious disease emergency leave is entitled to the usual protections (including the right to reinstatement). However, there are important modifications regarding employee benefits. Normally, the employee is entitled to benefits during the period of leave under the ESA. The modifications are as follows:

  •  If an employee ceased to participate under an employee benefit plan as of May 29th, 2020, the employee does not have a right to continued participation under that plan during the COVID-19 period; and
  • If an employer ceased to contribute under an employee benefit plan as of May 29th, 2020, the employer is not required to make contributions to that plan during the COVID-19 period.

This amendment is significant for employers who imposed a temporary layoff without maintaining employee benefits for obvious reasons. On the other hand, for employers who did maintain employee benefits, the obligation to maintain those benefits continues uninterrupted. 

Importantly, there are key exceptions to the “deemed” infectious disease emergency leave rules. Specifically, an employee will not be deemed to be on an infectious disease emergency leave in either of the following scenarios:

  • Where, anytime on or after March 1st, 2020, the employer “terminates” or “severs” the employment relationship. That would include a traditional termination/severance under the ESA or a termination/severance resulting from a permanent closure of a business.  This can’t be undone for employees who have been paid out all of their statutory entitlement to notice of termination under the ESA but where these obligations have not been fully performed, the employer and employee can agree to withdraw the notice of termination and move forward with the employee being deemed to be on this leave; or
  • Where, anytime before May 29th, 2020, the employee is subject to a Deemed Termination or has accepted their constructive dismissal with a resignation within a reasonable time that demonstrates their acceptance of the constructive dismissal.

Temporary Lay Off 

The IDEL Regulation defines what is not a temporary layoff during the COVID-19 period by providing an exemption from the termination and severance provisions of the ESA. That exemption applies where a non-unionized employee’s wages and/or hours of work are reduced or eliminated by the employer temporarily for reasons related to COVID-19.  In other words, an employee whose hours of work or wages have been reduced or eliminated (as defined in the IDEL Regulation) is not entitled to statutory termination pay or severance pay under the ESA during the COVID-19 period. 

Again, these provisions are subject to the following key exceptions from the normal ESA layoff rules:

  •  Where the employee was laid off due to a permanent discontinuance or closure of all of the employer’s business at an establishment; or 
  • Where the employee had already been subject to a Deemed Termination under the ESA before May 29, 2020.

No Constructive Dismissal 

The IDEL Regulation provides the new norm that a temporary reduction or elimination of hours and/or wages for reasons related to COVID-19 during the COVID-19 period does not constitute a constructive dismissal for purposes of the ESA. In other words, such reductions are deemed not to constitute a constructive dismissal for the ESA’s purposes. However, this norm will not apply if the employee’s employment was terminated and/or severed due to a constructive dismissal before May 29, 2020.  

Other Matters 

  1. ESA Complaints for Temporary Reductions During the COVID-19 Period 
    Any complaint filed with the Ministry of Labour in which an employee asserts constructive dismissal or temporary layoff (due to a reduction in hours and/or wages) is deemed not to have been filed if the reduction was COVID-19 related and during the COVID period.
  2. Reduction in Hours Worked/Wages Earned
    The IDEL Regulation provides guidance to determine what constitutes a reduction in hours or wages. Those rules use a comparator dependent upon whether the employee has a regular or irregular work week (or had special circumstances proceeding March 1, 2020). For an employee with a regular work week, the comparator is the employee’s last regular work week before March 1st, 2020. For an employee without a regular work week, the comparator is the employee’s average hours worked or wages earned over the 12 week period preceding March 1st, 2020. 
  3. Impact on Common Law Rules Regarding Constructive Dismissal
    As a caution, it is important to recognize that the IDEL Regulation and the ESA do not automatically nullify common law rules relating to constructive dismissal. While it is possible that our courts will consider the effect of the IDEL Regulation in applying the common law, it remains open for an employee to pursue a constructive dismissal claim through wrongful dismissal litigation where there employment contract does not provide for periods of unpaid lay off, unilateral employer reductions to hours, compensation and other terms and conditions of employment and/or an ESA termination clause. 

The Best Part

The IDEL Regulation does offer some much needed relief to non-unionized employers who have been forced to close or reduce business in the face of COVID-19 and Orders arising from the Declared State of Emergency. 

Employers and employees alike who were on the brink of a Deemed can breathe a sigh of relief that the employment relationship will not automatically and artificially come to an end during the pandemic. Typically, employees will now be deemed to be on an infectious disease emergency leave rather than a temporary layoff so the Deemed Termination clock stops ticking. That means employers will have a realistic opportunity during the 6 weeks after the Declared State of Emergency ends to assess their labour needs while maintaining a stable, trained labour pool to draw from to hit the ground running when they are able to re-open – with the added benefit of avoiding potential termination pay, severance pay and/or common law severance liability. 

With all of that said, the IDEL Regulation is complex and to avoid potential liability,  appropriate employment law advice should be sought before any steps are taken.

Disclaimer: Information made available in this article is provided for general information purposes only and is provided without representation for its accuracy or completeness. It is not legal advice and should not be relied upon. You should not take any action or fail to take any action based on the information set out in this article or on this website.  Consult a lawyer at Sullivan Mahoney LLP and seek professional legal advice tailored to your unique situation.