Canada: Ontario Government Changes The Rules On Temporary Layoff And Constructive Dismissal Due To The COVID-19 Pandemic

On May 29, 2020, the Ontario government issued a new Regulation 228/20 (the Regulation) intended to adjust termination liability under the Employment Standards Act, 2000 (the ESA) in response to the realities of the COVID-19 pandemic. The substantive provisions of the Regulation discussed below do not apply to unionized employees.

The Regulation deems certain changes to employees' hours of work and wages not to be a "constructive dismissal" and effectively extends the expiration of temporary layoffs that were undertaken due to the pandemic* by deeming certain employees to be on infectious disease emergency leave (Deemed Emergency Leave). In doing so, the government modified certain conditions that would otherwise trigger statutory termination and severance payments to employees who would otherwise be coming to the end of their period of temporary layoff in the next few weeks. The link to the Regulation is available here, and the link to the Ontario government's press release is available here. Below is a brief summary of the key points in the Regulation. 

While the intention of the government is reasonably clear, some of the wording in the Regulation may present challenges, which we do not discuss in this short update. Further, the Regulation has not yet been judicially considered. Employers therefore should  exercise caution and continue using risk mitigation strategies in respect of the treatment of employees on Deemed Emergency Leave and reductions to wages and/or hours of work. Members of the Osler Employment and Labour Group can assist your business in navigating the effects of the Regulation in the context of your business emergency response planning, including any workforce restructurings that have already been implemented.

A temporary reduction in wages/hours is not statutory constructive dismissal

The Regulation provides that the following do not constitute constructive dismissal if they occur from March 1, 2020 until six weeks after the declared emergency in Ontario ends (the COVID-19 Period):

1. a temporary reduction or elimination of an employee's hours of work by the employer for reasons related to COVID-19
2. a temporary reduction in an employee's wages by the employer for reasons related to COVID-19

The foregoing does not apply to an employee who resigned within a reasonable period in response to a constructive dismissal before the Regulation came into force on May 29, 2020.

Note that for the constructive dismissal provision to apply, and for the applicable provisions of the Regulation, the reduction of hours of work or wages must be "temporary." It is not clear what period of time constitutes "temporary." The comparator period for the purposes of whether there has been a reduction of wages and/or hours of work for most employees is the regular work week prior to March 1, 2020.

The Regulation does not state how courts will apply the doctrine of constructive dismissal at common law as distinct from that under the ESA.

Employees are deemed to be on emergency leave if hours are reduced

Effective during the COVID-19 Period, employees who do not perform their duties because their hours of work are temporarily reduced or eliminated for reasons related to COVID-19 are deemed to be on Deemed Emergency Leave in respect of any time during the COVID-19 Period that the employees do not perform such duties because of that reason.

Employees on the Deemed Emergency Leave are exempt from the requirement to advise their employer of the leave. Additionally, if they have stopped participating in (or contributing to) a benefit plan as of May 29, 2020, they are exempt from benefit continuation requirements during the COVID-19 Period. However, employees who were participating in (or contributing to) their employer's benefit plan past May 29, 2020 are entitled to continue to do so while on Deemed Emergency Leave.

In its press release, the Ontario government advised that workers on the Deemed Emergency Leave will remain employed with legal protections associated with the leave and be eligible for federal emergency income support programs while they are on the Deemed Emergency Leave.

Reduction in wages/hours does not trigger a layoff

Pursuant to the ESA, the maximum length of a statutory temporary layoff is limited to the number of weeks specified in the ESA. Typically, if those limits are exceeded, the employee's employment will be deemed to be terminated and the employer's termination and severance pay obligations (if applicable) will be triggered. The Regulation changes this by providing that an employee will not be considered to have been laid off pursuant to the ESA where their employer temporarily reduces or eliminates an employee's hours of work, or temporarily reduces an employee's wages (in each case, for reasons related to COVID-19 and during the COVID-19 Period) . 

This change does not apply to an employee whose employment was already terminated, including due to the expiry of a temporary layoff period in accordance with the ESA, before May 29, 2020.

Ministry of Labour complaints deemed not to have been filed

The Regulation also provides that complaints filed with the Ministry of Labour that a temporary reduction or elimination of an employee's hours of work or a temporary reduction in an employee's wages (each, a "Change") constitutes the termination or severance of the employee's employment are deemed not to have been filed if the Change occurred during the COVID-19 Period for reasons related to COVID-19, with some exceptions.

Going forward

Overall, the Regulation provides some temporary assistance to employers as they address compensation and hours of work during the COVID-19 Period. If, at the end of the COVID-19 Period, employers are not able to recall laid-off employees to their previous job, or to a comparable job, the notice and severance requirements under the ESA will apply.

* For the sake of brevity, we refer to COVID-19; however, in some instances the Regulation also applies to other designated infectious diseases.