Case emphasizes need for 'clear and unambiguous layoff provision in an employment agreement'
“One of the most important steps to reducing risk associated with a temporary layoff is for employers to include a layoff provision in an employment agreement.”
So says Jessica Wuergler, an associate in the Labour and Employment Law Group at McCarthy Tétrault in Toronto, after the Ontario Superior Court of Justice ruled that an employer constructively dismissed a worker when it temporarily laid her off in the early days of the pandemic.
“[A layoff provision] should clearly state that the employer has the right to temporarily lay off the employee in accordance with the minimum standards of the ESA; and, in the event of such a layoff, the employee agrees that it shall not constitute a constructive dismissal at common law,” says Wuergler.
The 41-year-old worker was a business development manager for Vivier Pharma, a family-owned and operated specialty skin care products company based in Vaudreuil-Dorion, Que. Hired in July 2017, she was responsible for marketing and selling Vivier’s products in her designated sales territory in Ontario. She did not have any managerial responsibilities.
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Salary, hours reduced
On March 25, 2020, Vivier reduced the worker’s schedule and salary to two days per week because of a significant drop in business from the COVID-19 pandemic. The company continued her coverage under the group insurance plan, but it suspended its matching contributions to her RRSP. The company laid off several other employees and terminated commission payments.
One month later, on April 21, Vivier increased the worker’s schedule and pay to three days per week.
However, on May 14, Vivier informed the worker that she was being placed on temporary layoff due to the pandemic for an unknown period of time. Although she wouldn’t be paid, her health and dental benefits would continue while she was on layoff.
The worker was told of the layoff in a conference call hosted by a co-president of Vivier. During the call, the worker received emails from customers who had already been notified that they would be working with a new representative.
A different company offered the worker a temporary contract position starting on June 22, which the worker accepted on June 17. Nine days later, she advised Vivier that she was resigning from her position with the company.
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Constructive dismissal claim
The worker sued Vivier for constructive dismissal, claiming that the layoff, along with the suspension of her pay and commission, were a unilateral change in the employment agreement to which she didn’t consent. She claimed six months’ pay in lieu of notice, including a “bump” reflecting the difficulties associated of being dismissed during the pandemic.
Vivier argued that Ontario’s Infectious Disease Emergency Leave regulation (IDEL), passed on May 29, 2020, protected it from liability for constructive dismissal during “the COVID-19 period” specified in the regulation – March 1 to July 30, 2022.
The court found that there was nothing in the employment agreement that allowed Vivier to lay off the worker and the pandemic did not “imply permission to furlough” the worker.
The court noted that Vivier was “faced with business challenges that many other small businesses faced during the early days of the pandemic” and it took steps that it deemed necessary to survive. However, the court also noted that “the law is clear” that any change to the terms of employment must have the consent of the employee or be on reasonable notice to the employee.
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Employer’s circumstances irrelevant
Courts generally view an employer’s circumstances as irrelevant to the determination of constructive dismissal, says Wuergler.
“If an employer suffers financial hardship and cuts an employee’s pay because of it, a court will generally not consider the employer’s financial hardship in determining whether the pay cut amounted to a constructive dismissal,” she says.
The court also noted that the worker didn’t accept the circumstances of a full layoff with no income indefinitely, so she found alternate employment within a month of her layoff. She then resigned from her position with Vivier, which the court described as “a much more honourable course” than trying to keep the position while working at the other job. However, the worker’s resignation letter did not seek to reserve her rights to claim constructive dismissal in the future, said the court.
The court found that the reduction of the worker’s income to nothing with only four days’ notice was a unilateral change in the terms of employment that a reasonable person would feel was a change to the essential terms of the employment contract. This constituted constructive dismissal, said the court.
The court also found that the IDEL exemption did not apply to the worker’s dismissal, as the worker was essentially constructively dismissed when placed on layoff effective May 18, 2020. The IDEL stated that it did not apply to terminations before May 29, 2020.
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Timing made IDEL inapplicable
The determination of the timing of the dismissal was key to avoiding some controversy in the jurisprudence over the application of the IDEL to common law constructive dismissal, according to Wuergler.
“If the court had found that the constructive dismissal occurred after May 29, 2020, then the IDEL regulation would have affected the decision in two key ways,” she says. “First, the court would likely have concluded that the IDEL regulation applied and that there was no constructive dismissal for the purposes of… the ESA; second, the court would have had to determine if the IDEL protected [Vivier] from the constructive dismissal claim at common law – which, given the contradictory precedents in this unsettled area of the law, such a decision could have gone either way.”
The court determined that three months’ notice was appropriate for the worker’s three years of service. It didn’t see the need for a “COVID bump” in damages, as the worker found alternate employment one month after her constructive dismissal and her age was still relatively young.
Vivier was ordered to pay the worker three months’ salary, incentive compensation, benefits, and RRSP contributions, minus amounts already received and income from her new job over the three-month notice period – totalling over $12,000.
The court’s finding reiterates that, without an employment agreement that expressly allows or implies that the employer can temporarily lay off the employee, such layoffs cannot happen – regardless of the employer’s circumstances or whether the layoff is an attempt by the employer to survive difficult economic conditions, says Wuergler.
“Include a clear and unambiguous layoff provision in an employment agreement that sets out the employer’s right to temporarily layoff an employee in accordance with the minimum standards of the ESA and at common law,” she says. “And obtain the employee’s agreement that such a layoff shall not constitute a constructive dismissal at common law.”
See Wilkinson v. Pharma, 2022 CanLII 120475.