Employers back to 'wait-and-see' mode with constructive dismissal and pandemic leaves

With May 12 ruling providing no answers, how should employers proceed?

Employers back to 'wait-and-see' mode with constructive dismissal and pandemic leaves

After a May 12 ruling in a widely watched case regarding constructive dismissals and job-protected pandemic leaves was not heard, employers in Ontario are back to wondering just how certain future cases may be decided.

The case, Taylor v Hanley Hospitality, was sent back to the Superior Court of Justice by the appeals court after it found that there was not enough evidence to hear the case.

“Unfortunately, we were on a wait-and-see and we have now an extended wait-and-see, which will explain some employer counsel and employee counsel airing some frustrations about this decision, even though that it is probably a sensible one, given that what is clear from the court’s decision is they really did not have the facts or the level of record that they needed to make the decision on this,” says Laura Freitag, associate at Filion Wakely Thorup Angeletti in Toronto.

The case, and others that are similar, are looking at whether or not placing a worker on an Infectious Disease Emergency Leave (IDEL) amounted to a constructive dismissal at common law.

Job-protected leave

The IDEL provision, set to expire at the end of July, was passed into law by the Ontario government and it called for job-protected leave if employers had to lay off employees due to the COVID pandemic and its resultant shutdowns of business.

“The issue has been whether IDEL regulations ousted the common law presumption that in a temporary layoff situation, an employee can claim a constructive dismissal,” says Lai-King Hum, founder of Hum Law in Toronto.

“The case law to that point had been that unless you have a contractual provision that allowed an employer to lay you off — absent certain sectors if you’re in seasonal work or something like that — then it’s different,”

Before the pandemic, “unless we had a contractual provision that said, ‘We can lay you off temporarily,’ the ESA temporary layoff provisions don’t apply and the presumption is that an employee cannot be laid off and if they are, they can claim a constructive dismissal,” she says.

Another case, Coutinho and Ocular Health, that was decided in 2021 found the reverse of the Hanley case, namely that an employee may claim constructive dismissal when laid off, even if it was under the IDEL.

Rule 21 motion

Under the recent Hanley decision, the employer attempted to argue a rule 21 motion, which is an argument on a point of law.

However, the appeals court ruled that the earlier justice made errors in the decision on the motion and sent it back to be heard. The timeline for this case is currently not known.

“It will not be a surprise that there has been some counsel that have been a bit disappointed as a result of this because what the court essentially did — and I think fairly — it said, ‘We do not have the proper record for us to determine whether a constructive dismissal has occurred,’ because quite frankly, they didn’t even have a factual record on which to determine it, let alone the kind of record, they would want to interpret those statutory provisions,” says Freitag.

The surprising ruling is reverberating among the employment-law community, says Hum.

“Everyone was waiting for the Court of Appeal decision; everyone in the employment law bar because it was supposed to be heard in April, and it was the end of April. It got released and the Court of Appeal really didn’t deal with the substantive question of whether IDEL regulation prohibits common law constructive dismissal claims. What it did do was say that the rule 21 motion was not the appropriate route to deal with this.”

Advice to employers

For employers, the advice is clear: “If they can recall people at this point back, they should be doing that because they’re just accruing liabilities and so to minimize the risk on that, they should be issuing recall notices, assuming that they can, and that the pandemic is not continuing to impact their workloads,” says Freitag.

Also, taking a critical look at employment contracts, old and new, is a prudent decision, she says.

“The other way to minimize the risks around this are with respect to contracts and building good contracts at the front end. For employers who are not in this situation, and that they don’t currently have it built into their contracts, they could put in a new contract, and it would have to be supported by some sort of consideration but it could help minimize the risk. If you’re hiring new folks and you’re at a risk of temporary layoff, it’s really important that you build in that contractual language that allows the implementation of layoffs expressly into the employment agreement.”

The ball is also back in the court for employees due to the unsettled nature of the two conflicting case, says Hum.

“Most employers will negotiate something rather than take a risk even before the Court of Appeal decision; it was up in the air and does the employer really want to incur the cost of litigation to an indeterminate outcome?” she says. 

“But the same thing applies to employees as well: how much of a risk do they wish to take? Do they want to take it all the way to trial? At this point, given the status of the decision, it probably favours the current cases that are standing, which is that the IDEL regulation does not prohibit common law constructive dismissal claim and most employers have negotiated on that basis... but we’ll wait to see the outcome of the next decision.”

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