The fact that an employer experiences significant business disruptions due to COVID-19 does not necessarily give the employer the right to temporarily lay off its staff, and doing so may result in the constructive dismissal of those employees. In Ristanovic v. Corma Inc., 2021 ONSC 3351, the Ontario Superior Court of Justice determined that two employees were constructively dismissed when their employer temporarily laid them off at the outset of the COVID-19 pandemic.
Facts: The plaintiffs, Mr. Ristanovic and Mr. Asafov, were long-term employees of the defendant. Mr. Ristanovic was employed as a machine assembler, and Mr. Asafov worked as a plating room operator. Neither plaintiff had a written employment contract.
The defendant Corma Inc., a manufacturer, was heavily dependent upon China for key supplies and reliant upon international trade for the vast majority of its business.
In early 2020, the COVID-19 outbreak caused a significant disruption in the defendant’s business. Supply chains were disrupted, and the defendant’s revenues declined by approximately 40%.
As a result of the business disruptions caused by COVID-19, Mr. Ristanovic and Mr. Asafov were laid off effective February 3, 2020 and February 19, 2020 respectively, without their consent. Records of Employment were issued, and both employees were advised to apply for EI benefits. The plaintiffs were informed that they would be called back when it was financially feasible to do so, but told that in any event the lay-off would not exceed 35 weeks. Following the layoff, the defendant continued to pay premiums for both employees’ extended benefits.
In total, the defendant laid off approximately 17% of its workforce. The defendant did not have a history of laying off its workforce generally, and neither plaintiff had ever been laid off previously.
The plaintiffs retained counsel shortly after being laid off, and advised the defendant that they considered themselves to have been constructively dismissed. Rather than calling the plaintiffs back to work within 35 weeks, as initially promised, the defendant did not offer to recall them to work until shortly before the wrongful dismissal hearing (over a year after the initial layoffs).
At issue: Can an employee’s temporary layoff due to COVID-19 business disruptions be considered a constructive dismissal?
Arguments: The plaintiff’s argument of constructive dismissal rested on two key legal principles:
- Absent an agreement to the contrary, an employer’s unilateral decision to lay off an employee will generally result in a constructive dismissal; and
- Ontario’s Employment Standards Act does not permit layoffs that extend beyond 35 weeks, and longer layoffs are deemed a termination under the Act.
In response, the defendant argued that COVID-19 presented extraordinary circumstances which would justify the temporary layoffs. Specifically, the defendant submitted that it would be reasonable to imply a term in the plaintiffs’ employment contracts permitting a temporary layoff when the defendant is faced with a global pandemic such as COVID-19.
Decision: The significant disruption to the defendant’s business, resulting from COVID-19, did not justify the plaintiffs’ layoffs. Rather, the plaintiffs were constructively dismissed.
With respect to the plaintiff’s first argument – that a layoff is generally considered a constructive dismissal unless there is an agreement to the contrary – the defendant did not seriously challenge this statement of the law. As a result, the Court’s focus was on whether there is an implied term in an employment contract that permits temporary layoffs in such extraordinary circumstances.
The Court rejected the defendant’s argument that COVID-19 was an exceptional circumstance that justified the plaintiffs’ layoffs in February, 2020. The Court was careful to note that the timing of the plaintiffs’ layoffs preceded the onset of some of the most significant COVID-19 effects. At the time that the plaintiffs were laid off, Canada had been minimally impacted by COVID-19. For example, there were no lockdowns, the defendant was not prohibited from operating, and the plaintiffs were not forbidden from coming into work.
Although the defendant was already experiencing significant business disruptions in February of 2020, it was only in later months that COVID-19 would begin to have a broader societal impact in Canada. The Court found that the defendant’s business disruption, as substantial as it was, was not sufficient to justify a unilaterally imposed layoff, concluding as follows:
[21] 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 plaintiffs 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.
With respect to the plaintiff’s second argument: the fact that the plaintiffs were not recalled to work within 35 weeks meant that the layoffs had exceeded the maximum duration of a temporary layoff permitted under Ontario’s Employment Standards Act. Even if the contract had implicitly or explicitly allowed for the plaintiff’s layoff, the contract could not permit a layoff that exceeded the maximum term allowed under the Act. The Court held that “[t]he conclusion that their employment was terminated by the defendant in fact is mandatory” because of the provisions of the Act.
Importantly, the Court held that both of the plaintiff’s arguments were successful, meaning that the plaintiff would have succeeded on either argument independently. The plaintiffs were both found to have been constructively dismissed, and entitled to 22 months of pay in lieu of notice.
*Note: the Court did not assess damages. Rather, a second hearing date was set to determine whether the defendant’s offers of reemployment, made shortly before the summary judgment hearing, would impact the plaintiffs’ wrongful dismissal awards. If the plaintiffs do not accept the return to employment, presumably an important consideration at the second hearing will be whether a reasonable employee would have accepted reemployment with the defendant following their constructive dismissal (and after having successfully sued that employer). If the offers are found to have been reasonable, plaintiffs’ damages could be reduced because of a failure to mitigate.
Key Takeaways: While constructive dismissals are highly fact specific (and an outcome in one case cannot guarantee similar outcomes in seemingly similar cases), a few important takeaways from this case include:
- The fact that an employer experiences “material headwinds” or “a catastrophic decline in its revenues” does not necessarily result in an implied contractual term that allows an employee to be temporarily laid off.
- The Court was not required to decide whether COVID-19 or any other global pandemic might justify a layoff in other circumstances, such as if the employer’s business had been temporarily shut down by government order. Different circumstances may yield a different result.
- The fact that the employees’ layoffs exceeded the maximum temporary layoff allowed by Ontario’s Employment Standards Act was found to have automatically terminated the plaintiffs’ employment at common law. This may support the argument that even a consensual layoff could result in a termination at common law once the layoff exceeds the maximum duration permitted under the Act (at least for Ontario employees).
Author: Brendan Harvey is an employment lawyer in Vancouver, BC practicing on the North Shore with Yeager Employment Law.