Court Rules That COVID-19 Layoffs Amounted to Constructive Dismissal

Written on behalf of Peter McSherry

In a recent Ontario decision, the court held that two employees who had been laid off for over a year during the COVID-19 pandemic had in fact been constructively dismissed and were entitled to 22 months’ reasonable notice. 

Employer Lays Off 17% of Its Workforce

The employer is a manufacturer of corrugated tubing employing approximately 100 people in Concord, Ontario. The employer depends upon China for certain key supplies and also relies upon overseas markets for 95% of its business. 

In late 2019 and early 2020, the outbreak of the COVID-19 epidemic in China significantly disrupted the employer’s ability to carry on business as its supply chain was disrupted by the shutdowns in that country. It ultimately suffered a decline in its revenues of about 40%.   

As a result, the employer laid off 17% of its workforce. 

Two of its employees (“the employees”) filed a claim against the employer.

Both of these employees were advised in late January/early February 2020 that they were being laid off. The employees were both in their sixties and had been working 40 hours per week. Their annual incomes in 2019 were, respectively, $67,309 and $47,081.  

In both cases, the employees were advised to apply for EI benefits and their Records of Employment were sent to Service Canada. The employer continued paying premiums for health, dental and life insurance benefits. 

The reasons given for the layoffs were the same in both cases. The layoffs were attributed to “a delay with a number of orders we had expected due to the unstable political climate” resulting in a shortfall in revenues. The estimated duration of the layoffs was also the same. The employees were told that recall would occur when it was “financially feasible to bring you back to work full time” but “[i]n any event your time on lay-off will not exceed 35 weeks”.  

The layoff was unilateral in the case of both employees, in that neither of them consented to it.  

Although the lay-off notices indicated that the layoffs would not exceed 35 weeks, neither of the employees were recalled within 35 weeks as indicated. Neither employee had managed to find employment following the layoffs. 

Both employees claimed that they had been constructively dismissed and sought compensation in court. They argued that they were entitled to treat their layoff as a unilateral change in the conditions of their employment amounting to a constructive dismissal.

In response, the employer argued that there was an implied term in the employees’ contracts of employment authorizing the employer to lay off an employee when faced with an extraordinary circumstance, such as the global COVID-19 pandemic. The employer also indicated in their submissions that it would be able to recall both employees to full-time employment as soon as practicable.

Court Finds That Employees Were Constructively Dismissed

At the outset, noting the employer’s submissions, the court stated:

“In effect, the [employer] is asking me to imply into a contract of employment a form of force majeure clause…. On the facts of this case, I don’t think that the question of an implied “global pandemic” exception to the well-settled law prohibiting non-consensual lay-offs properly arises.”

The court stated that it had come to this conclusion for two reasons.

First, the court observed that the layoffs had arisen significantly before COVID had evolved into a global pandemic that impacted Ontario or Canada. Additionally, the lay-off letters had not justified the layoffs on the basis of an emergency that was global in scope. In fact, the employees had been told that they were being laid off because of “political instability” and a fall-off in orders. Finally, the court noted that there had been no lockdown orders in effect in Ontario at the time the employees were laid off. As such, the employer had not been prohibited from operating, nor had the employees been forbidden from going to work. The court then stated:

“Without employing hindsight, there is little to distinguish the situation as regards [to the employer] in late January/early February 2020 from any other adverse situation that might commonly affect a business, even to the extent of causing 40% of its revenues to dry up. A retailer may find business impacted by a big-box store opening a block away; a manufacturer may find the market flooded with imports as a result of a change in tariffs or a free-trade agreement. Insolvency, recessions or the evolution of the competitive marketplace have never justified unilateral lay-offs under our law.  

Whether it may be reasonable to imply some kind of a force majeure clause in the case of a business prohibited from operating or placed under severe and unforeseen operational limitations by government action is something that I do not need to determine here on these facts. The circumstances existing when these [employees] were laid off do not reasonably lead to the conclusion that the parties would have mutually agreed to allow an indefinite lay-off with minimal compensation to be imposed upon employees had they but turned their mind to the prospect of their employer suffering headwinds – even material headwinds – in the operation of their business due to events abroad over which the employees have no control nor ability to provide for.”  

Secondly, the court held that, even if it were reasonable to imply a “global pandemic” term into the employment agreement, no such implied term could override the express provisions of s. 56 of the Employment Standards Act which deems a layoff longer than 35 weeks to be a termination of employment. The court stated that it was not open to the parties to contract out of the minimum standards of the Employment Standards Act, whether by an express term of their agreement or by an implied term.

As such, the court concluded that the employee’s employment had been terminated without providing reasonable notice and that the employees had been constructively dismissed. 

As a result, the court found in favour of the employees and determined that each employee was entitled to 22 months’ reasonable notice.

Get Help

Constructive dismissal is a fundamental change to your current job that results in a diminishment of your role or position. A change in status or responsibilities can be embarrassing. It may make you feel unwanted or underappreciated. Employees in Ontario must be treated with decency, civility and dignity. If your employment contract is violated or your human rights are violated, you may have the basis for a claim and negotiations with your employer. Seeking qualified, knowledgeable and experienced legal advice from an Ontario employment lawyer should be your first step. Since 1997, I have provided employment law legal services to people throughout southern Ontario. From Peter A. McSherry Law Office in Guelph, I have helped them pursue recourse in a range of situations and industries throughout the province. When you are my client, I will work diligently to protect your rights and ensure your working conditions are not only legal, but free of discrimination and harassment. Contact me to discuss the facts of your case, discover the options you have and assess potential damages. Call me in Guelph at 519-821-5465 or by e-mail to schedule a consultation.