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Early in the COVID-19 pandemic many employers were forced to reduce their workforces (often by placing employees on layoff) due to closures or declines in business because of the public health emergency. Employers looked for ways to respond to this situation that would balance their obligations to employees, obligations that generally flow from two sources: the Employment Standards Act, 2000 (“ESA”), and the common law.

As my colleague Beth Traynor discussed back in April 2020, normally there must be an express or implied term in an employee’s contract that allows them to be placed on a layoff—only then do the layoff rules contained in the ESA apply. Without such a contractual provision, placing an employee on layoff may amount to a constructive dismissal at common law; this is exactly the position some employees have taken, starting legal actions seeking damages for wrongful dismissal.

Many employers (and their lawyers) wondered if, because of the unique scale and scope of the COVID-19 pandemic, the “normal” rules surrounding constructive dismissals and layoffs might adapt to accommodate the precarious situation many employers found themselves in. Some measure of relief came when the Ontario Government amended the ESA in May 2020 to provide that a reduction in hours due to COVID-19 was not a “layoff” or a “constructive dismissal”; instead, the employee would be deemed to be on “Infectious Disease Leave” (for more information, Jennifer Costin’s blog last fall on COVID-19-related leaves).

Even with the amendments to the ESA the question remained—if an employee was considered to be on Infectious Disease Leave under the ESA, did that also prevent them from being constructively dismissed under the common law. In the recent Coutinho v Ocular Health Centre Ltd, 2021 ONSC 3076 decision the Court said that no, the “normal” rules continue to apply.

In the case, the employee was laid off effective May 20, 2020, however she had no term in her employment agreement that would have allowed her employer to place her on layoff. The employer argued that the changes to the ESA outlined above should be interpreted to apply to not only constructive dismissals for the purposes of the ESA, but also at common law. The Court rejected this argument, finding that the ESA’s language clearly limits in application to the legislation and that it has no application to the common law meaning that “Coutinho [the employee] was entitled to treat Ocular’s [the employer’s] unilateral imposition of the layoff as bringing the contract of employment to an end and had the immediate right to sue for constructive dismissal”.

Clearly, this case is not helpful for employers facing similar types of litigation. That said, there are likely to be further decisions released soon that may expand on other issues not covered in the Coutinho case. For example, the decision does not address whether the unique, widespread, and unpredictable nature of the COVID-19 pandemic may call for a change in the common law itself that would allow for layoffs even in the absence of contractual terms allowing them. Because the court did not address this issue (it’s not clear whether it was even argued), we must wait to see whether it will be taken up and considered in a future case.

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