Understanding Ontario's new layoff rules

Regulation 228/20: The impact on claims of constructive dismissal

Understanding Ontario's new layoff rules
Stuart Rudner

by Brittany Taylor

COVID-19 has had a drastic impact on employment relationships across Canada. These extraordinary circumstances have necessitated unique considerations for how employers can reduce their labour costs, including by placing employees on a temporary layoff, reducing hours or imposing reductions in compensation, among other things.

Many employment lawyers, including members of our firm, have been vocal about the risks associated with making any kind of substantial, unilateral change to the employment relationship. Even when changes are imposed due to extraordinary and unprecedented circumstances like those of the COVID-19 pandemic, these changes may still result in constructive dismissal.

The concept of constructive dismissal exists both at common law, rooted in the decisions of judges, and in provincial employment standards legislation. In Ontario, the Employment Standards Act, 2000 provides that “termination” occurs for the purpose of an employee’s entitlement to statutory notice of termination (or termination pay) if “the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period.”

As a result, an employee presented with substantial changes to their employment due to COVID-19 (and who was not prepared to accept those changes) had the option to pursue damages for constructive dismissal either through the Ministry of Labour (in which case, the employee’s recovery would be limited to their statutory entitlements only) or through the civil process at common law. This remained the case up until May 29.

On that day, the provincial government introduced Ontario Regulation 228/20, which makes significant amendments to the Employment Standards Act, including with respect to an employee’s entitlement to claim damages for constructive dismissal. Specifically, the regulation provides that employees who have had their hours or pay reduced or eliminated due to COVID-19 will be retroactively deemed to be on Emergency Leave and that, moving forward, a temporary reduction or elimination of hours of work or wages due to COVID-19 will not be considered a layoff, termination or constructive dismissal under the act.

These changes will apply throughout the “COVID-19 period,” which has been defined as the period from March 1, 2020 until six weeks after Ontario’s emergency order is lifted.

What does this mean for employees?
Previously, as noted above, an employee whose employer unilaterally imposed significant changes to the terms of their employment could have pursued damages for constructive dismissal under the act. With these amendments, the government has removed this option from employees by making it clear that an employer’s decision to impose changes, even where those changes are substantial, will not constitute a constructive dismissal so long as the changes are made a) as a result of COVID-19, and b) during the COVID-19 period. Specifically, the regulation states:

“The following does not constitute constructive dismissal if it occurred during the COVID-19 period:

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

Since this change is retroactive to March 1, 2020, it also impacts employee complaints that have already been filed with the Ministry of Labour which allege that a temporary reduction or elimination of hours or wages constitutes a termination under the act. The amendments make it clear that these complaints “shall be deemed not to have been filed if the temporary reduction or elimination of hours or the temporary reduction in wages occurred during the COVID-19 period for reasons related to the designated infectious disease.”

What does this mean for employers?
These amendments certainly will provide relief to many employers, for the reasons set out below, but it is crucial that employers understand that the regulation does not give them the right to impose substantial changes to the terms and conditions of an employee’s employment without consequence.

While the regulation clearly removes the right to claim constructive dismissal under the act due to a temporary reduction or elimination of hours due to COVID-19, it does not, as currently drafted, impact an employee’s right to sue for damages at common law.

It is difficult to reconcile how an employee could be deemed to have been constructively dismissed at common law while simultaneously being deemed to be on a job-protected leave of absence under the act. However, absent explicit wording with respect to an employee’s common law rights, we cannot extend the changes made to the act beyond the legislation. This means that employers still do not have unfettered freedom to impose changes on employees, even where those changes are due to COVID-19.

Good news for both sides
While it certainly does not address all employment-related issues facing both employers and employees arising from COVID-19, the regulation provides relief for employers while also providing protection to employees.

As employees who were “laid off” during the COVID-19 period are now deemed to be on a leave of absence, employers no longer need to be concerned with the time limits for layoffs set out under the act, which, if allowed to lapse, would result in the automatic termination of an employee’s employment. This would have not only exposed employers to severance costs, but also left employees without a job to return to.

Similarly, as impacted employees are now deemed to have been placed on a job-protected leave of absence, they will generally be entitled to a continuation of their employment-related benefits and to be reinstated to their job when the leave comes to an end. In addition, the regulation is expressly clear that changes imposed by an employer cannot last indefinitely, as the amendments to the act are only in effect during the COVID-19 period.

Employees have lost one avenue for pursuing a claim of constructive dismissal, but also gained significant protections in the process. Employees that have had their jobs impacted by COVID-19 should not assume there is no recourse available to them, but will want to ensure they understand their legal rights before taking action.

For employers, the best approach is still to be proactive by including temporary layoff provisions in your contracts or obtaining the consent of employees before laying them off or reducing their hours or pay. Failure to do so may still attract damages at common law for constructive dismissal and, in certain circumstances, may give rise to additional damages for bad faith conduct.

Brittany Taylor is a senior associate at Rudner Law in Toronto. She can be reached at (416) 864-8502 or brittany@rudnerlaw.ca.

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