Some relief from temporary layoff obligations and potential constructive dismissals for Ontario employers under ESA

It is estimated the pandemic has directly affected approximately 2.2 million employees in Ontario, with about 1.1 million losing their jobs, and another 1.1 million on temporary layoff or with sharply reduced hours of work. With a fluctuating increase of newly confirmed COVID-19 cases in Ontario, and emergency measures requiring the temporary closure of non-essential businesses still in force, employers having been considering how to approach the coming months.

On May 29, 2020, Ontario issued Ontario Regulation 228/20 Infectious Disease Emergency Leave (Regulation), bringing major changes that affect unpaid, job-protected emergency leave (infectious disease emergencies), temporary layoffs, and constructive dismissal claims under the Employment Standards Act, 2000 (ESA). It should, at the onset, be noted the Regulation does not apply to employees who are represented by a trade union. The Regulation clarifies that it applies to assignment employees.

This update gives a sense to employers of what they need to know about the Regulation, and specifically how it affects the emergency leave entitlements under the ESA, layoffs, and constructive dismissals claims under the ESA.

How does the Regulation affect the ESA’s Emergency Leave (COVID-19 infectious disease emergency)?

The Regulation prescribes a new reason for which employees will be deemed on unpaid, job-protected infectious diseases emergency leave under sub-clause 50.1(1.1)(b)(vii) of the ESA. Specifically, the Regulation provides, among other things, that non-unionized employees are now deemed to be on infectious diseases emergency leave if they will not be performing the duties of their position because their hours of work are temporarily reduced or eliminated for reasons related to COVID-19 during the COVID-19 period. 

Qualifying conditions

The following summarizes qualifying conditions an employee must meet to be considered on deemed emergency leave (COVID-19 infectious disease emergency). In order for this leave to apply:

• The employee must be non-unionized. Where a unionized employee faces the reduction or elimination of work hours due to COVID-19-related reasons, the collective agreement remains the governing instrument that dictates the rights and obligations between the employer and union members. 
• There must be a temporary reduction or elimination of hours: The Regulations provide that for an employee for be deemed on leave, there must be a reduction or elimination of hours of work, and it must be temporary. The Regulations provide for specific circumstances in which hours can be deemed “reduced” under the Regulations. To determine whether those circumstances apply to a given situation, the prudent employer would seek legal counsel. 
• Reasons must be related to COVID-19: The reason for which the employer temporarily reduces or eliminates the employee’s hours of work must be due to COVID-19. 
• Employee must not be performing the duties of his or her position: For this leave to apply, the employer’s temporary reduction or elimination of the employee’s hours of work must result in the employee not performing the duties of his or her position at any time during the COVID-19 period.
• Only during the COVID-19 period: Qualifying employees can only be deemed on this leave during the COVID-19 period. Under the Regulation, the “COVID-19 period” means the period beginning on March 1, 2020, and ending on the date that is six weeks after the day that the emergency declared on March 17, 2020, pursuant to section 7.0.1 of the Emergency Management and Civil Protection Act is terminated or disallowed.

Other requirements

All requirements and prohibitions under the ESA that apply to ESA-protected leaves also apply here, subject to the following exceptions:

• No notice is required. As a result, employers cannot impose any disciplinary measures should the employee provide no notice prior or after the beginning of the leave. 
• Employee contributions to benefit plans: Employees who were not making contributions to benefit plans as of May 29, 2020, do not need to continue participating in those plans during the COVID-19 period.
• Employer contributions to benefit plans: Employers who, as of May 29, 2020, were not making contributions to a benefit plan do not need to do so during the COVID-19 period.
• Payments or benefits received by the employee from the employer between March 1, 2020, and May 29, 2020 are not affected.

Exceptions

The Regulation provides that should one of the following exceptions apply, employees will not be considered to be on infectious disease emergency leave (COVID-19 infectious disease emergency) because the employer has temporarily reduced or eliminated their hours of work:

• On or after March 1, 2020, the employer (i) terminates or severs the employee’s employment or otherwise refuses or is unable to continue employing him or her; (ii) severs the employment relationship by laying the employee off because of a permanent discontinuance of all of the employer’s business at an establishment; (iii) or severs the employee’s employment by giving the employee the required notice of termination in accordance with the ESA, and the employee gives the employer two weeks’ notice of resignation, which is to take effect during the statutory notice period; or
• Before May 29, 2020, the employer (i) terminated or severed the employee’s employment by constructively dismissing him or her; (ii) terminated the employee’s employment by laying him or her off for a longer period than what is permitted under the ESA; or (iii) severed the employee’s employment by laying the employee off for 35 weeks or more in any period of 52 consecutive weeks.

Further, the Regulation states that, during the COVID-19 period, a qualifying employee who has been given written individual (and, if applicable, mass) notice of termination in accordance with the ESA will not or will no longer be on infectious disease emergency leave unless the employer and employee agree to withdraw the notice of termination. 

How does the Regulation affect temporary layoffs in Ontario?

Normally in Ontario, temporary layoffs are permissible for up to 13 weeks in any consecutive 20-week period, or up to 35 weeks in any consecutive 52-week period, if certain conditions are met. In the normal course of things, where a layoff exceeds the legally permissible duration, the employer’s employees are deemed to be terminated, without cause. 

Should this occur, the ESA requires that employers provide their employees with their termination entitlements. Under the ESA, this may include notice of termination (or pay in lieu thereof), statutory severance, and benefit continuation during the notice period. Depending on the language of the employment contract, if an employee’s termination is governed by the common law, he or she may be entitled to a more generous notice period, which may far exceed the minimum notice requirements under the ESA. Moreover, an employer may be subject to mass termination requirements, including specific notice obligations (distinct from those surrounding individual notices of termination), if the employment of 50 or more employees is terminated at its establishment¹ within a four-week period. 

Under the Regulation, employees whose hours of work are reduced or eliminated, or whose wages are reduced, are no longer considered to be on a temporary layoff under sections 56 (what constitutes termination) and 63 (what constitutes severance) of the ESA. This means that some affected employees may no longer have the option to be on a temporary layoff during the COVID-19 period. Practically speaking, for employees with a reduced or eliminated number of hours, the Regulation will instead provide for the protection of these employees’ employment by deeming them to be on emergency leave (COVID-19 infectious disease emergency) for any period of time during the COVID-19 period where they met the leave’s qualifying criteria. Employees with a reduction in wages, but with no reduction or elimination of hours, are not, under the Regulation, deemed to be on COVID-19 infectious disease emergency. On the ground, employees with reduced wages may therefore continue working, or, where possible, consider other options that may be available to them.

How does the Regulation affect constructive dismissal issues that arise under the ESA?

Under the ESA, where an employee is constructively dismissed and, in response, resigns from his or her employment within a reasonable period, the employee’s employment may be deemed terminated and severed, without cause. As a result, employers in such a situation may be held liable to provide the employee with his or her termination entitlements. 

Moreover, unresolved constructive dismissal cases could lead to a complaint filed with the Ministry of Labour or to judicial proceedings commenced in Superior Court. As many employers know too well, both termination payouts and litigation can be costly exercises. For this reason, employers forced to consider eliminating or reducing employees’ hours of work, or reducing their wages, have done so with extreme caution, despite the pandemic’s largely negative impact on business and industry. 

Normally, significantly reducing or eliminating hours of work, or reducing wages could be considered a constructive dismissal for ESA purposes, even if the employer’s measures in this regard are temporary. Generally speaking, the guiding principle in Ontario therefore limits employers’ ability to reduce an employee’s wages by more than 10%, or to significantly reduce or altogether eliminate an employee’s hours of work. 

In light of COVID-19, employers weathering the pandemic have been forced to consider how these principles apply today. The Regulations now provide employers with some clarity in this regard. Specifically, under the Regulations, an employer’s decision (i) to temporarily reduce or eliminate an employee’s hours of work for reasons related to COVID-19, or (ii) to temporarily reduce an employee’s wages for reasons related to COVID-19, will not be considered a constructive dismissal under the ESA if the employee’s employment is terminated and severed on or after May 29, 2020. It should be noted that, although not specified in the Regulation, the Ministry of Labour has indicated that the Regulation is not intended to affect or apply to common law claims of constructive (or wrongful) dismissal filed in Superior Court. 

As noted above, the Regulations define the circumstances in which both hours and wages are “reduced.” 

In addition, all complaints filed with the Ministry of Labour alleging an employer’s decision to temporarily reduce or eliminate an employee’s hours of work, or to temporarily reduce an employee’s wages, constitutes a termination and severance of employment on the basis that he or she has been constructively dismissed will be deemed not to have been filed if certain conditions are met. Regarding eliminating or reducing of hours of work, these conditions are:

• The temporary reduction or elimination of hours of work, or the temporary reduction of wages must have occurred during the COVID-19 period;
• The temporary reduction or elimination of hours of work, or the temporary reduction of wages must be for reasons related to COVID-19; and
• The complaint must allege the employee’s employment was terminated and, if applicable, severed, because of a constructive dismissal under the ESA on or after May 29, 2020.

Terminations and severances of employment resulting from a constructive dismissal as understood under the ESA that occur prior to May 29, 2020, remain subject to the ESA’s otherwise normal rules surrounding termination and severance entitlements in cases of constructive dismissals. In other words, employees who claim they have been constructively dismissed before May 29, 2020, on the basis of reduced or eliminated hours of work, or reduced wages, and, in response, resign from their employment within a reasonable period, may be owed termination and severance entitlements as they normally would under the ESA. Likewise, employees who claim they have been constructively dismissed for a reason other than a COVID-19-related temporary reduction or elimination in work hours, or a temporary reduction in wages, may be owed termination and severance entitlements regardless of the termination date.

Take-aways

For many employers, the Regulation’s coming into force is welcome news. In particular, employers forced to temporarily eliminate or reduce their employees’ hours of work may now be able to retain much of their workforces on payroll using job-protected leave during the COVID-19 period. Likewise, employees who are facing job losses because of a temporary elimination or reduction of hours of work due to COVID-19, may now be able to retain their employment under the ESA’s emergency leave (COVID-19 infectious disease emergency leave).

Although the Regulation is a sign of relief for a great number of employers across the province, moving forward, there are some key issues employers may want or need to keep on their radar. In particular, consideration should be given to the following:

• While the Regulation provides relief to employers, it should be stressed that its measures are temporary and only applicable until the end of the COVID-19 period. 
• Given that the Regulation excludes unionized employees, employers would be wise to consider approaching bargaining agents to secure some meaningful arrangement during COVID-19.
• The Regulation is not intended to minimize exposure to constructive dismissal claims at common law, including cases where hours of work are reduced or eliminated, or where wages are reduced. This includes any constructive dismissal claims on the basis of a reduction or elimination in hours of work, or a reduction in wages. Litigation in that regard can therefore be expected to continue. 
• As with all COVID-19 temporary measures introduced by the government, these measures are subject to future change. We will keep you apprised of any new developments in this area as they are made public.