COVID-19 layoffs can be a constructive dismissal, judge rules

Coutinho v. Ocular Health Centre

In a decision released just yesterday, the Ontario Superior Court of Justice has finally settled a question that has been a topic of hot debate amongst employment lawyers for months.

In Coutinho v. Ocular Health Centre Ltd., the court had to decide whether an office manager earning $52,900 a year with 6 years of service could claim constructive dismissal following her layoff on May 1, 2020. Coutinho worked for Ocular, an ophthalmic clinic with offices in Kitchener and Cambridge, Ontario.

Overview of the Case

Coutinho claimed that her layoff was a result of a power struggle between the doctors working at Ocular’s clinics. One of the doctors changed the locks to the clinic on May 1, 2020 and later advised Coutinho to stay home with pay. She was told not to speak with the secessionist doctors barring which she would be terminated for cause. On May 29, 2020, Coutinho received a layoff letter laying her off indefinitely.

Three of Ocular’s doctors would later start their own clinic and hire Coutinho, who began working again on July 22, 2020.

LEARN MORE
Global News article onlayoffs during COVID-19

In its Statement of Defence, Ocular argued that it had tried to consolidate its two clinics into one, but that due to Covid 19, it could not continue to employ all staff and therefore had to lay Coutinho off. Importantly, Ocular also argued that a recent regulation passed by the Ontario government mandated that layoffs that were a result of Covid 19 did not constitute a constructive dismissal. Instead, Coutinho was deemed to be on an Infectious Disease Emergency Leave.

Coutinho countered that the regulation in question, Regulation 228/20 made pursuant to the Employment Standards Act, 2000 only applied to the definition of constructive dismissal under the Act and did not affect her right to sue her employer for constructive dismissal at common law.

Employment Lawyer Lior Samfiru explains why severance is still owed when a layoff occurs due to COVID-19, on season 5 episode 1 of the Employment Law Show in Ontario, Alberta and BC.

The Court’s Findings

The Court agreed with Coutinho.

Prior to the pandemic, the law was clear that a layoff can be a constructive dismissal. Indeed, the Court of Appeal had ruled in Elsegood v. Cambridge Spring Service that:

“At common law, an employer has no right to lay off an employee. Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment, and would be a constructive dismissal.”

Ocular argued that the law had changed with the passing of Ontario Regulation 228/20. Its section 7 states that the following does not constitute constructive dismissal if it occurred during the COVID-19 period:

1. A temporary reduction or elimination of an employee’s hours of work by the employer for reasons related to the designated infectious disease.
2. A temporary reduction in an employee’s wages by the employer for reasons related to the designated infectious disease.

The Court ruled that, while it may be true that employees cannot claim they were constructively dismissed under the ESA due to section 7, the regulation did not affect their right to sue in court under the common law and they could therefore continue to pursue their full severance entitlements just as they did before the pandemic.

In reaching this conclusion, the Court relied on section 8 of the ESA which protects employees’ civil remedies against their employer, none of which are affected by the Act or its regulations.

Lessons Learned

It is important to understand that a regulation is made when the legislature delegates its law-making powers to the government. When it does so, the legislature provides for what the government can do in its regulation. If there is a conflict between the regulation and the Act under which it is made, then the Act prevails. The purpose of the Act governs the purpose of the regulation.

The purpose of the ESA is to protect workers by providing for certain minimum standards. At the same time, pursuant to section 8 of the Act, no civil remedy of an employee against his or her employer is affected by the Act (or by its regulations). If the right to sue one’s employer for constructive dismissal following an illegal layoff is a civil remedy (which is clearly the case as per Elsegood), then it follows that Regulation 228/20 cannot affect that remedy without being in violation of the Act. Therefore, the Court interpreted Regulation 228/20 as not affecting the common law rights of employees to claim constructive dismissal when they are laid off.

The Court found support for this interpretation in the government’s own publications about the changes brought about by Regulation 228/20. In a post titled Your Guide to the Employment Standards Act: temporary changes to ESA rules, the Ministry of Labour stated that the regulation:

“establishes that there is no constructive dismissal under the ESA where a non-unionized employee’s wages or hours of work are temporarily reduced or temporarily eliminated by their employer for reasons related to COVID-19 from March 1, 2020 to July 3, 2021. These rules affect only what constitutes a constructive dismissal under the ESA. These rules do not address what constitutes a constructive dismissal at common law.”

In line with past precedents, the Court had no trouble in finding that it could consider the government’s own interpretation of its regulation to determine what had been the government’s intent when passing the regulation. In this case, the Court found that the government intended for the regulation to comply with the Act, specifically section 8 which protects employees’ civil remedies.

Furthermore, the Court ruled that employees are under no obligation to inquire with their employers on when they will be called back to work prior to commencing a claim for constructive dismissal. Coutinho could bring her claim immediately upon being laid off, which she did, filing her statement of claim two days after receiving her layoff letter.

Because Coutinho found new work so quickly, and because she earned more in her new job, she had mostly mitigated her losses from the loss of her employment. Nevertheless, the Court awarded her 6 weeks of termination pay, the minimum required by the ESA for someone with her length of service.

The case continues. As Ocular claimed that it also had cause to terminate Coutinho, a summary trial has been scheduled to determine that question. In the meantime, Ocular will have to pay Coutinho court costs for the legal fees she has incurred in wining the motion.