Ontario, Canada Court Decides Employee Laid Off During COVID-19 May Claim Constructive Dismissal at Common Law

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Last May, the government of Ontario filed Ontario Regulation 228/20 (IDEL Regulation) under the Employment Standards Act, 2000 (ESA).  The Regulation provides that an employee in a non-unionized workplace who, any time during the “COVID-19 period” does not perform the duties of their position because their work hours are temporarily reduced or eliminated by their employer for reasons related to COVID-19, is deemed to be on Infectious Disease Emergency Leave (Leave).  The COVID-19 period is defined in the IDEL Regulation as being from March 1, 2020 until July 3, 2021. 

The IDEL Regulation amends layoff and constructive dismissal rules exclusively under the ESA, and in most cases, eliminates temporary layoffs and the risk of a constructive dismissal claim under the statute for the COVID-19 period, during which many employers in Ontario have had to close or reduce operations. 

The IDEL Regulation brought considerable relief to employers of non-unionized employees.  But employers remained concerned about how layoffs and constructive dismissals that occur during the COVID-19 pandemic would be viewed by the courts under the common law.  Based on the facts described in Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076 (Coutinho v. Ocular Health), the Superior Court of Justice decided that an employee laid off by her employer was entitled to sue for constructive dismissal at common law.

Background

The employer operated ophthalmologic clinics, including one in Cambridge, Ontario (Cambridge Clinic).  The employee was employed in the Cambridge Clinic between 2014 to 2020.  When her employment was terminated, the employee was the office manager earning $52,900 annually.

In 2020, when a dispute arose between the employer and two ophthalmologists practicing in the Cambridge Clinic, the employer changed the clinic’s locks.  When the employee went to work the next morning, she and others were advised that they could not enter.  When she returned to her home, the employee received a telephone call from the employer advising her that:

  • She would be paid until further notice;
  • He would follow up with her the next week to “discuss things”; and
  • If she discussed their conversation with the doctors she worked for it would be cause for termination.

The employee was not contacted the following week. Three weeks later she received a letter from the employer advising her, among other things, that:

  • The employer was recently forced to close the Cambridge Clinic and as part of that process found it necessary to temporarily reduce its workforce;
  • Effective that day, she was being placed on temporary layoff; and
  • The employer would do its best to recall her to her position as soon as possible.

A couple of days later, the employee brought an action against the employer seeking her common law and statutory entitlements, including $200,000 in damages for constructive dismissal and for punitive and aggravated damages. The employee’s claims for punitive and aggravated damages were withdrawn during submissions. 

A couple of months after bringing her action, the employee was re-employed at a new clinic with the doctors who previously practiced at the Cambridge Clinic at an annual salary higher than the salary she received from the defendant employer. 

In its Statement of Defence, the employer pleaded:

  • The employee was deemed to be on Leave and the temporary elimination of her employment duties and work hours did not constitute a constructive dismissal;
  • The employee unilaterally terminated her employment and was deemed to have resigned; and
  • If the employee was constructively dismissed, the employer had just cause to terminate her employment for falsifying records and disclosing confidential and proprietary information. 

The employer moved for summary judgment on the following grounds:

  • The employee’s hours of work were temporarily reduced for reasons related to COVID-19 and therefore, pursuant to the IDEL Regulation, she was deemed to be on Leave.
  • Pursuant to s. 7(1) of the IDEL Regulation, the temporary elimination of the employee’s work hours did not constitute constructive dismissal, and therefore she had no cause of action against the employer for constructive dismissal; and
  • Furthermore, or in the alternative, the employee fully mitigated any damages she may have incurred through her prompt re-employment.

Pursuant to Ontario’s Rules of Civil Procedure, the court would be required to grant summary judgment to the employer if it was satisfied that there was no genuine issue requiring a trial.

The primary question before the court was whether the employee had been constructively dismissed by the employer, and if so, whether s. 7 of the IDEL Regulation removed her common law right to claim she had been constructively dismissed by the employer. 

Decision

Did the IDEL Regulation bar the employee from bringing a common law action against the employer for constructive dismissal?

The court refused to accept the employer’s argument that s. 7 of the IDEL Regulation removes an employee’s common law right to claim constructive dismissal by their employer.  In support of this decision, the court:

  • Cautioned that regulations must be interpreted in the context of the authorizing statute because the intent of the statute governs the intent of the regulation.  The court then referred to s. 8(1) of the ESA, which provides that, subject to s. 97 of the ESA, no civil remedy of an employee against their employer is affected by the ESA, and noted that s. 97 had no application to the case;
  • Referred to the Ontario Ministry of Labour, Training and Skills Development publication titled “Your guide to the Employment Standards Act: temporary changes to ESA rules”, which states that the rules in the IDEL Regulation respecting constructive dismissal, “affect only what constitutes a constructive dismissal under the ESA.  These rules do not address what is a constructive dismissal at common law.”

Furthermore, the court cited Elsegood v. Cambridge Spring Service 2002 Ltd., 2011 ONCA 831, in which the Ontario Court of Appeal (OCA) stated that it was well-established at common law that in the absence of an agreement to the contrary, a unilateral layoff of an employee by an employer is a substantial change in the employee’s employment that would constitute a constructive dismissal.  Accordingly, the court concluded that the employer constructively dismissed the employee on the day it sent her a letter unilaterally imposing a layoff from her employment without pay.  The employee had an immediate right to sue for constructive dismissal at common law, and the IDEL Regulation did not bar her from doing so.

The court rejected the employer’s argument that the employee was under an obligation to make inquiries of the employer as to when she might be called back to work before commencing her action for constructive dismissal.  The court cited McGuinty v. 1845035 Ontario Inc., 2020 ONCA 816, which we discussed here, in which the OCA stated that when an employee is constructively dismissed, the employee must: (a) elect to continue to work; or (b) treat the employer’s breach or conduct as bringing the contract to an end and sue for constructive dismissal.  The employer can defend itself by arguing that the employee condoned the employer’s breach or conduct, however the burden is on the employer to establish it.   

Did the employee fully mitigate any damages she may have incurred through her prompt re-employment?

The employee acknowledged that she fully mitigated her common law damages by becoming employed by another employer; however, the court agreed with her that she was statutorily entitled under the ESA to $6,103.85 for six weeks’ salary as termination pay for six years of service, based on her salary of $52,900.  

Were there genuine issues requiring a trial?

The court concluded that there were no genuine issues requiring a trial in connection with the employer’s defences that the employee was barred by the IDEL Regulation and that she fully mitigated her losses.  Furthermore, based on its finding that the employee was constructively dismissed, the court concluded that there was no genuine issue requiring a trial in connection with the employer’s defence that the employee unilaterally terminated her employment.  The court found, however, that the summary judgment process did not provide it with the evidence needed to fairly and justly adjudicate the dispute on the issue of cause. Accordingly, the court dismissed the employer’s motion for summary judgment and concluded that the sole issues for trial were:  (a) whether the employer had cause to dismiss the employee for falsifying records and disclosing confidential information; and (b) if so, whether the employer was thereby relieved of the obligation to pay the employee termination pay pursuant to the ESA.  The court then set the action down for a summary trial to determine the answers to these questions.      

Bottom Line for Employers

This decision was decided based on the facts of this case.  It remains to be seen whether Justice Broad’s decision in Coutinho v. Ocular Health will be followed in subsequent decisions or appealed.  Employers should seek independent legal advice regarding the effect of layoffs, if any, on employee claims for constructive dismissal.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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