Does the COVID-19 Pandemic Provide Ontario Employers with an Implied Right to Layoff Staff?
When the pandemic first began, and at various subsequent points, many Ontario employers experienced a decrease in work volume and, as a result, made the difficult decision to place their staff on temporary unpaid lay-off from work. This seemingly straightforward decision, however, has resulted for some businesses in unintended litigation. They have faced employee claims for severance on the basis that their lay-off amounted to a constructive dismissal from employment.
In order to successfully bring a constructive dismissal claim, an individual must be able to show that:
their employer unilaterally and fundamentally altered the terms of the parties’ employment relationship; and
the employee neither agreed, nor acquiesced, to these changes.
The Applicable Legal Framework
In Ontario, while the Employment Standards Act 2000 (“ESA”) permits an employer to institute a temporary unpaid lay-off in certain circumstances, they are generally precluded at common law (and will be viewed as a constructive dismissal from employment). As such, in order to place staff on a temporary unpaid lay-off without triggering a constructive dismissal, employers need a contractual entitlement to implement a temporary lay-off in accordance with the ESA.[1]
Where properly incorporated into a written agreement, the ESA will permit an employer to place an employee on temporary unpaid layoff for up to 13 weeks within any 20-week period (unless special circumstances apply), without triggering a termination of employment.
Many employers, however, do not have in place written contracts of this nature yet during the pandemic nonetheless placed their staff on unpaid temporary lay-off from work.
Recent Guidance from the Ontario Courts
We are just now beginning to see the first Ontario court cases dealing with the interplay between unpaid lay-offs and constructive dismissal during the pandemic. While we expect to receive further guidance from the courts on this issue, a recent ruling, Ristanovic v. Corma Inc., 2021 ONSC 3351 offers some indication as to how the law may treat temporary lay-offs instituted in response to the pandemic absent an express contractual entitlement to do so.
In Ristanovic, the defendant employer (a manufacturer of corrugated tubing) was reliant on China for key supplies. As a result of the COVID-19 outbreak in China in early 2020, its supply chain was significantly disrupted, and the employer saw a 40% decline in revenue.
Accordingly, in February 2020, the employer placed approximately 17% of its workforce an unpaid lay-off. Two of the affected individuals became the plaintiffs in the Ristanovic case. Neither plaintiff consented to the lay-off, nor was there either an express contractual term permitting the institution of a lay-off or a history of lay-offs in the workplace. Shortly after receiving their lay-off notice, the plaintiffs obtained legal counsel and informed the defendant employer that they were electing to treat their lay-off as a contrastive dismissal from employment.
The plaintiffs argued that absent an agreement to the contrary, the employer’s unilateral act of placing them on a lay-off represented a material change in the terms of employment amounting to a constructive dismissal. In response, the defendant took no serious issue with this summation of the law, but instead argued that the pandemic warranted a different outcome.
Specifically, the defendant employer asserted that the court should find that there “is an implied term in the contract of employment of both plaintiffs authorizing the employer to lay off an employee as was done here when faced with the extraordinary circumstance of a global pandemic.”
In addition, the defendant employer argued that “had the parties turned their mind to it when the contract was first entered into, they would reasonably have agreed to permit a temporary lay-off to safeguard the ability of the employer to re-hire them when the situation improved.”
The court, however, found no grounds to depart from the “settled law prohibiting non-consensual lay-offs.” Instead, the court concluded that the plaintiffs had been constructively dismissed and were entitled to pay in lieu of common law reasonable notice.
In reaching this decision, the court made a number of helpful observations:
“the exercise of implying terms into an unwritten employment agreement should not be undertaken to impose upon the parties the Court’s view of a “reasonable and just” contract. The exercise is one of determining the objective terms of the contract the parties entered actually entered into;”
accepting the defendant employer’s argument would, in effect, imply into an employment contract a form of force majeure clause; and
the events of this case arose significantly “before the facts had evolved to the point of a global pandemic impacting our entire Province or country. The lay-off letters sent did not, in fact, purport to justify the lay-offs of either plaintiff on the basis of an emergency that was global in scope impacting all sectors of the economy.”
The court was careful to state that its ruling was necessarily limited by the circumstances before it in this case. It noted that whether it may be reasonable to imply “some kind of force majeure clause in the case of a business prohibited from operating or placed under severe and unforeseen operational limitations by government” did not arise on these facts.
Takeaways for Ontario Employees and Employers
Employees should be aware of whether they are subject to a contractual lay-off provision. If not, and are regardless placed on a temporary unpaid lay-off, they may have a basis to seek damages for constructive dismissal. That said, and as highlighted by the Ristanovic decision, each situation is fact-dependent and will require careful consideration prior to taking action. As such, employees that believe they may have been improperly laid-off should promptly seek advice from an experienced employment lawyer.
Employers, on the other hand, need to be mindful of the risk to which they may become exposed in instituting a temporary unpaid lay-off absent a contractual entitlement to do so. Ontario employers should revisit their written employment agreements to ensure they include language to permit lay-offs in accordance with the ESA.
Beyond that, while the employer was unsuccessful in Ristanovic, it demonstrates how an employer may respond to a claim of constructive dismissal in the context of the pandemic. While the common law generally precludes the possibility of an unpaid lay-off, there are already notable exceptions to this rule (i.e. within certain industries or where work is cyclical in nature and subject to stoppages).
The common law does not stand still; it is designed to be dynamic and fit for purpose. Accordingly, with the door left open in Ristanovic, it is possible that with the right facts, an employer may be able to successfully seek an exception to the legal doctrine around lay-offs reflective of pandemic impact.
Vey Willetts LLP is an Ottawa-based employment and labour law boutique that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in the National Capital Region and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.
[1] The Court of Appeal for Ontario 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. See also: Bevilacqua v Gracious Living Corporation, 2016 ONSC 4127 (CanLII).
