Are COVID-related layoffs constructive dismissals?

Third decision delivers worse news for employers: risk of punitive damages

Are COVID-related layoffs constructive dismissals?
Stuart Rudner

We predicted that there would be a plethora of decisions on the issue of whether a temporary layoff arising out of the pandemic is a constructive dismissal, with conflicting results, and so far, we have been absolutely right. Three decisions are now known, and there is no clear direction; I don’t expect there will be until the Court of Appeal weighs in.

In Fogelman v. IFG, the employee was placed on a temporary layoff on March 16, 2020 as a consequence of the downturn in its business resulting from the COVID-19 pandemic. The court took notice of the fact that there was no contractual term permitting a temporary layoff, and Gary Fogelman did not acquiesce or accept IFG’s decision to lay him off or rely upon his layoff rights under the Employment Standards Act (ESA).

 In referring to the jurisprudence, the court referenced Elsegood v. Cambridge Spring Service (2001) Ltd. as support for the proposition that “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.”

The court rejected the employer’s arguments that the Regulations introduced by the Ontario government related to Infectious Disease Emergency Leave (IDEL) changed the common law, which is what the court in Taylor v Hanley Hospitality Inc. relied upon to find in favour of the employer. Among other things, it noted that the Ontario Ministry of Labour bulletin entitled “COVID-19: temporary changes to ESA rules” states that “These rules do not address what constitutes a constructive dismissal at common law.”

The court also confirmed previous case law which held that Canada Emergency Response Benefit (CERB) payments are not to be deducted from severance payments as employment insurance benefits are.

Punitive damages

This is perhaps the most interesting aspect of the decision, and the element of greatest concern for employers. While the court declined to award moral damages for bad faith, it found that punitive damages were appropriate in light of, among other things, the fact that IFG refused to pay Fogelman his statutory or contractual entitlements. Such an analysis could easily apply to thousands of employers.
As the court held:

“IFG refused to provide Mr. Fogelman with any statutory entitlements under the ESA once it received notice that Mr. Fogelman considered the layoff to be constructive dismissal... It is also my view that the failure to comply with the ESA is an independent wrong that is outrageous and reprehensible behaviour deserving of punitive sanction.”

Among other things, the court also noted the following:

  • IFG initially took the position that Fogelman was an employee since 2009 and produced sworn evidence to this effect, then changed its position and stated that Fogelman was actually an independent contractor for the first five-plus years of his employment.
  • Initially, IFG took the position that Fogelman had no employment contract. Even after IFG acknowledged that an employment contract existed, IFG did not pay the notice and severance requirements stipulated by the employment contract.
  • Efforts by Fogelman’s lawyer to initiate settlement discussions and his demands that Fogelman be paid at least his minimum entitlements under the ESA were met with radio silence after an initial letter from IFG’s lawyer saying that IFG would consider the proposal and would respond.
  • IFG made it unnecessarily difficult for Fogelman to effect service of the statement of claim, effectively playing games during the pandemic.

As a result, the court awarded an additional $25,000 in punitive damages.

Closing thoughts

This is far from the final word on the issue of whether temporary layoffs during the pandemic will be treated as constructive dismissals or not.

We will have to wait for our appellate courts to address that; in the meantime, parties considering or engaged in these disputes have to settle for the very unsatisfactory reality that their odds of success are 50-50.

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