COVID Related Temporary Layoffs: Is Being Kicked to the CERB a Constructive Dismissal?

Throughout the COVID-19 pandemic, many employers have been placed in the challenging position of being forced to temporarily lay off employees due to public health restrictions and other COVID-19 related factors. This puts employers at risk of constructive dismissal claims from those affected. Outside of the unionized sector, the common law provides that a temporary layoff is really a termination of employment unless the right to temporarily lay off is a specific term of the employment contract.

Recent decisions in B.C. and Ontario appear to contradict one another regarding the application of the common law to COVID related layoffs and whether they constitute a constructive dismissal. B.C. and Ontario decisions also take different approaches when addressing how CERB payments affect any damages award. This perhaps leaves Alberta employers guessing whether COVID related layoffs will be interpreted as a constructive dismissal (i.e. termination of the employment relationship and requiring pay in lieu of notice). Moreover, if the common law does apply, can employers expect any deductions from a damages award for CERB payments received by dismissed employees?

Constructive Dismissal

Recent amendments to the Ontario employment standards legislation provide that all COVID related temporary layoffs are deemed to be Infectious Disease Emergency Leaves (“IDELs”), retroactive to March 1, 2020 and continuing until the prospective end of the pandemic. More importantly, the Infectious Disease Emergency Leave, Ontario Regulation 228/20 (“IDEL Regulation”) provides that any temporary reduction in hours or wages due to the pandemic is not considered a layoff or constructive dismissal.

In the recent decision of Taylor v Hanley Hospitality Inc., 2021 ONSC 3135 (“Taylor”)the Ontario Superior Court held that common law does not apply to COVID related layoffs since they are in fact IDELs. This means that the normal rights for statutory leaves apply including reinstatement and benefit continuation. The Court in Taylor commented that the “Ontario Government recognized the inherent unfairness in subjecting employers to wrongful dismissal claims as a result of the government imposing a state of emergency” through the IDEL Regulation. Thus, any argument at common law regarding layoffs is “inapplicable and irrelevant.”

Interestingly, not long prior to Taylor, the Superior Court in Coutinho v Ocular Health Centre Ltd., 2021 ONSC 3076 (“Coutinho”), held that the common law did apply and that the IDEL Regulation did not displace the employee’s right to pursue a civil claim for constructive dismissal. Notably, the Court in Taylor denounced the decision in Coutinho stating that the analysis was “wrong in law.”

Similar legislative provisions do not exist in Alberta (or B.C.) so there is no guarantee that a court in Alberta would reach a similar conclusion. In fact, in a recent B.C. decision, where, as in Alberta, there are no such legislative provisions, the British Columbia Supreme Court in Hogan v 1187938 B.C. Ltd., 2021 BCSC 1021 (“Hogan”), held that the Plaintiff was constructively dismissed when he was laid off on March 30, 2020 due to the pandemic.

CERB Payments

The approaches taken in Ontario and B.C. also differ with respect to deducting CERB payments from wrongful dismissal damages. Traditionally, employment insurance (“EI”) benefits received by an employee following termination are not deducted from any damages award since these benefits will need to be repaid pursuant to the Employment Insurance Act. However, it is unclear whether CERB benefits will need to be repaid in similar circumstances.

In Hogan, the Court held that the CERB payments should be deducted from the damages award. After a wrongful dismissal, the employee is entitled to be paid everything the employee would have earned had they remained employed during the reasonable notice period. After considering CERB payments, the Court found no reason to depart from the general rule that contract damages should place the plaintiff in the same economic position, as if the defendant had performed the contract. In comparing to EI payments, the Court considered CERB, and stated:

  • But for his dismissal, the Plaintiff would not have received the benefit.
  • The nature of the benefit is one of indemnity for wage loss caused by the employer’s breach but the employee did not contribute in order to obtain the entitlement.
  • There was no evidence that the CERB would have to be repaid (unlike EI benefits).
  • The CERB payments are not private insurance. Neither the employee nor the employer contributed to them. As a result, they are not delayed compensation or part of the plaintiff's earnings.

Allowing the employee to retain both the CERB and full compensation for the reasonable notice period would have allowed the employee to “double dip”.

The approach in Hogan can be distinguished from two prior decisions in Ontario: Iriotakis v Peninsula Employment Services Limited, 2021 ONSC 998 (“Iriotakis”) and Gray v Safecross First Aid Ltd., 2021 CanLII 18879 (“Gray”). In Iriotakis, the Ontario Superior Court refuse to deduct CERB benefits from the award. Notably, the employment contract at issue provided that Iriotakis was not entitled to commission upon termination. Commission made up the bulk of his pre-termination earnings. In the circumstances, the Court commented that it would not be equitable to reduce his damages given the already limited entitlements following termination relative to his pre-termination earnings.

Similarly, the Ontario Labour Board in Gray refused to deduct CERB benefits stating that it would not be “fair or appropriate” in the circumstances. The Board commented that the way to ensure Gray was made whole was by not deducting the CERB payments because Gray may be required to repay these amounts. Accordingly, there would be no “double award” as suggested by the employer.

What to expect in Alberta?

Although there are certainly arguments that a COVID related layoff should not be seen as constructive dismissals (and in many cases were actually a genuine attempt to retain employees without having to terminate them), there is certainly a real risk that that Alberta courts will follow the B.C. approach in the absence of Ontario style legislative provisions. Further, absent clarity regarding the repayment of CERB benefits, it is difficult to predict whether Alberta courts will deduct CERB benefits from damages awards. What we do know is that the law will continue to develop as more COVID related cases reach the courts and we will continue to monitor them closely to evaluate risks to employers as the COVID fallout continues.

For questions regarding the information in the article above or any other labour and employment matter, contact any member of our Labour & Employment practice group.