Company couldn’t justify global pandemic as reason for layoffs when they happened before pandemic hit Canada; workers deemed terminated when not recalled
An Ontario employer was not entitled to layoff two long-term workers when its business declined because of supply chain problems in China in the early stages of the COVID-19 pandemic, leaving the workers entitled to 22 months’ reasonable notice of termination.
Corma is a manufacturer of corrugated plastic pipe equipment and other products in Concord, Ont. The company employed Milan Ristanovic, 67, as a machine assembler since 1992 and Eliyahu Asafov, 63, as a plating room operator since 1990.
Corma receives important supplies from China for its manufacturing and almost all of its business serves overseas markets. In late 2019 and early 2020, the outbreak of COVID-19 led to shutdowns in China that disrupted Corma’s supply chain. This led to a drop of 40 per cent in the company’s revenues.
As a result of the decline in business, Corma had to delay many of its orders. Early in 2020, the company decided to lay off 17 per cent of its workforce. The conditions were unprecedented, as Corma had not laid off employees before.
Ristanovic was laid off on Jan. 31 and Asafov was laid off on Feb. 18, because of what Corma referred to as “the delay with the number of orders we had expected due to the unstable political climate.” Both employees were notified that the effective date of the layoff was the next day and Corma told them that they would be recalled when it was “financially feasible to bring you back to work full-time,” although the company reassured them that it wouldn’t be more than 35 weeks and it would continue to pay premiums for their health, dental, and life insurance benefits during the layoff period. It also advised them to apply for employment insurance (EI) benefits and it sent records of employment to Service Canada for that purpose.
No recall from layoff
As it turned out, Corma did not recall them within 35 weeks and neither found other employment. Neither Ristanovic nor Asafov consented to the layoff and they both claimed that they had been constructively dismissed, arguing that their employment contracts didn’t authorize Corma to lay them off and it was a unilateral change to the terms of their employment.
Corma countered that the COVID-19 pandemic was a once-in-a-lifetime occurrence and there was an implied term in their employment contracts that allowed the company to lay off employees “when faced with the extraordinary circumstance of a global pandemic.” It also said that if either party thought about it, they would have reasonably agreed to allow a temporary layoff in such circumstances so the company would be able to re-hire them when things improved.
The court found that the layoffs occurred before the circumstances had evolved into a global pandemic that affected Ontario and Canada. The layoff letters didn’t even refer to a pandemic but instead stated that the two employees were being laid off because of political instability that had decreased orders. Although eventually the situation in China spread around the world and to Canada, there were not lockdown orders in effect at the time of the layoffs and Corma wasn’t prevented from operating or continuing to have Ristanovic and Asafov come to work, the court said.
The court also found that Corma’s drop in business in early 2020 wasn’t much different from “any other adverse situation that might commonly affect a business” — such as competition opening up nearby or a change in tariffs flooding the market with imports — although the court acknowledged that the 40-per-cent drop in revenues was significant.
“Insolvency, recessions, or the evolution of the competitive marketplace have never justified unilateral layoffs under our law,” said the court.
The court added that even if it was reasonable to find that there was an implied right to layoff due to a global pandemic in the employment contracts, it couldn’t override the provisions of the Ontario Employment Standards Act that deem a layoff longer than 35 weeks to be a termination of employment. Parties can’t contract out of the minimum legislative employment standards, whether by an express or an implied term. Since both Ristanovic and Asafov were laid off for longer than 35 weeks, Corma in fact terminated their employment, said the court. It also said that it didn’t matter whether they were constructive dismissed by the unilateral change of the terms of their employment or surpassed 35 weeks on layoff — the result was the same and both employees were entitled to reasonable notice of dismissal.
The court noted that the relatively advanced age of both employees and their lengthy terms of service with Corma moved the needle towards the upper end of the range of notice. It also considered that the difficult economic circumstances at the beginning of the pandemic could lengthen the notice entitlement, but the opposite could be true from the employer’s perspective, as it was “blameless and is being hard hit.”
The court determined that both Ristanovic and Asafov were entitled to the same period of notice as they were of a similar age with similar lengths of service. It set the notice period at 22 months, leaving Corma liable to pay them compensation equal to their pay and benefits for that period of time.
For more information, see:
- Ristanovic v. Corma Inc., 2021 ONSC 3351 (Ont. S.C.).
