Are Covid Layoffs Constructive Dismissals? Maybe, The Lawyer’s Daily (May 4, 2021)

(this article originally appeared in the Lawyer’s Daily on May 4, 2021)

By Nikolay Y. Chsherbinin

Layoffs are spells of employees’ temporary unemployment at the employer’s instigation. Neither the Employment Standards Act, 2000 (ESA) nor common law confers upon the employer the right to a layoff. Consequently, a layoff is a contractual right. Absent an express or implied term in a contract of employment to the contrary, a unilateral layoff is a constructive dismissal that entitles employees to damages. A finding of constructive dismissal requires that the employer’s conduct evince an intention no longer to be bound by the contract. For instance, significantly reducing wages or unilaterally laying off an employee can qualify as a constructive dismissal.

On May 29, 2020, the Ontario government released a Regulation 228/20 Infectious Disease Emergency Leave (IDEL Regulation), which allows employers to temporarily lay off employees and/or reduce their wages, for reasons related to COVID-19, without triggering a constructive dismissal. However, in Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076, the Ontario Superior Court of Justice concluded that the IDEL Regulation does not protect employers from constructive dismissals at common law, but only under the ESA. For reasons that follow, it appears that Coutinho was wrongfully decided and should be appealed.

In Coutinho, Jessica Coutinho worked for Ocular Health Centre Ltd. (Ocular) for six years, earning $52,900. On May 29, 2020, Ocular sent a letter to her advising that effective immediately she was deemed to be on emergency leave pursuant to the IDEL Regulation. Two days later, on June 1, 2020, Coutinho sued Ocular for constructive dismissal. Ocular defended, arguing that Coutinho’s civil action was barred by the operation of the IDEL Regulation. On Jan. 29, 2020, Ocular moved for summary judgment where it unsuccessfully argued that the IDEL Regulation relieved it of liability to Coutinho for constructive dismissal. In response, Coutinho asserted that the IDEL Regulation did not affect her common law right to pursue a civil claim against Ocular for constructive dismissal. The motion judge agreed with Coutinho and dismissed Ocular’s motion.

The motion judge’s conclusion is premised on the interpretation of the ESA, which in s. 8(1) states: “… no civil remedy of an employee against his or her employer is affected by this Act.” By dismissing Ocular’s argument that the IDEL Regulation ought to be interpreted to apply to not only constructive dismissal for the purposes of the ESA but also at common law, the motion judge explained that the scope of the IDEL Regulation is constrained by s. 8(1) of the ESA. In support of his conclusion, he referred to Bristol-Myers Squibb Co. v. Canada (AG), 2005 SCC 26, where a majority of the Supreme Court of Canada held: “The scope of the regulation is constrained by its enabling legislation. Thus, one cannot simply interpret a regulation the same way one would a statutory provision.” On this basis, the motion judge explained: “It is not possible to reconcile the interpretation of the IDEL Regulation urged by Ocular with the section of the statute which unequivocally provides that an employee’s civil remedy against his/her employer shall not be affected by any provision of the Act.”

As Coutinho shows, the IDEL Regulation created a conflict: on one hand, it allows employers to temporarily lay off employees, for reasons related to COVID-19, without triggering a constructive dismissal claim; while on the other, employees remain entitled to sue employers for constructive dismissal for being temporarily laid off. Indeed, in s. 7 the IDEL Regulation prescribed that a temporary layoff does not constitute constructive dismissal; while in s. 8, the ESA allows an employee to sue for constructive dismissal as a direct result of a temporary layoff.

The IDEL Regulation is a regulation, which is a form of delegated legislation in which the delegated authority makes substantive law. Regulations are normally made to complete and implement the statutory scheme and that scheme therefore constitutes a necessary context in which regulations must be read. In Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, the Supreme Court of Canada observed: “While it is true that a statute sits higher in the hierarchy of statutory instruments, it is well recognized that regulations can assist in ascertaining the legislature’s intention with regard to a particular matter, especially where the statute and regulations are ‘closely meshed.’”

In s. 7, the IDEL Regulation intentionally uses the phrase “constructive dismissal” by saying that a temporary elimination of an employee’s hours of work and/or reduction of wages “does not constitute constructive dismissal” if it occurred during the COVID-19 period.” Constructive dismissal is not a statutory, but common law construct. On this point, in Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, the Supreme Court of Canada observed that the word “constructive” in the phrase “constructive dismissal” indicates that the dismissal is a legal construct: the employer’s act is treated as a dismissal because of the way it is characterized by the law.

By inserting the common law concept into the IDEL Regulation and then prescribing in s. 7 what does not constitute constructive dismissal, the Ontario government changed, however temporary, the common law. Why else would it use the phrase “constructive dismissal” in the IDEL Regulation? If it did not intend to temporarily override common law, it could have used the words “does not constitute a breach of contract” instead of “does not constitute constructive dismissal” since a unilateral layoff or elimination of wages is a breach of contract, a claim that is separate and distinct from the constructive dismissal claim.

I am mindful that in Chrysler Canada Ltd. v. Canada (Competition Tribunal), [1992] 2 S.C.R. 394, the Supreme Court of Canada reminded that “the common law may be modified through express statutory language, such as the grant of a power in terms different from the common law”, but “… statutory language must be clear and unambiguous to override the common law … .”

The ESA contains the requisite language.

Part XXVII of the ESA, titled “Regulations,” contains s. 141, which sets out the type of regulations that the legislature has authorized the lieutenant governor-in-council to make. In paragraph 141 (2.0.3.3.), titled “Transitional regulations,” the ESA states that the lieutenant governor-in-council may make regulations providing for any transitional matter that: “… the Lieutenant Governor in Council considers necessary or advisable in connection with the implementation of the amendments made by the Employment Standards Amendment Act (Infectious Disease Emergencies), 2020.” The quoted act amended the ESA by creating a job-protected, unpaid leave of absence, known as “Infectious Disease Emergency Leave.” Given that the IDEL Regulation specifically deals with the said leave and prescribes conditions to be satisfied for the rules under the regulation to apply, it is, thus, a regulation that the lieutenant governor-in-council was authorized to make under paragraph 141 (2.0.3.3.) of the ESA.

Here comes the fine print.

In paragraph 141 (2.0.4), titled “Conflict with transitional regulations,” the ESA makes it unequivocally clear that: “In the event of a conflict between this Act or the regulations and a regulation made under subsection … (2.0.3.3), the regulation made under subsection … (2.0.3.3) prevails.”

Viewed in its proper context, the motion judge’s reliance on s. 8 of the ESA appears to be misplaced, because in the circumstances where, as here, there is a conflict between the ESA and the IDEL Regulation, paragraph 141 (2.0.4) of the ESA specifically yields to and grants the override power to the IDEL Regulation.

This statutory clarification is of crucial importance and should be heeded. It also makes practical sense, because why should the Ontario government permit employers to be sued for constructive dismissal for the very reasons that it has now deemed to be a job-protected leave of absence.

The motion judge’s assessment that “the IDEL Regulation may not be interpreted so as to take away an employee’s right of action at common law against her/his employer for constructive dismissal” is difficult to square with the IDEL Regulation. The IDEL Regulation does not take away the employee’s right of action, rather it merely suspends that right for the duration of the “COVID-19 period”, which it deems to have started on March 1, 2020, and will end on July 3, 2021.

Coutinho represents a troubling development in the Ontario employment law. It is of significance, because it has a potential of exposing a large number of corporate employers to damages arising out of constrictive dismissals. It should be appealed in order that this important law be clarified.