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Constructive dismissal and COVID-19 | Stuart Rudner

Thursday, April 02, 2020 @ 12:58 PM | By Stuart Rudner


Stuart Rudner %>
Stuart Rudner
For decades, we have had an underlying tension in the world of employment law. Specifically, although employment standards legislation sets out the parameters for how a business can impose temporary layoffs, it does not give businesses the right to do so. The legislation explains how long a layoff can last, and other parameters such as when it will be deemed to be a termination of employment, but the right to impose a temporary layoff must come from contract.

I have been warning clients and anyone that will read my articles or listen to my presentations about this for as long as I have been practising law. The law has always been clear: an employer can only temporarily lay people off if they have an explicit contractual right to do so (either in a collective agreement or an individual contract of employment) or there is an implied right to do so based upon the nature of history of the industry of business. The construction industry is a good example of one where there is an expectation of layoffs in slower seasons.

A constructive dismissal is a unilateral and substantial change to a fundamental term of the employment relationship. The very basis of that relationship is that the employee will work, and the employer will pay them their wages for doing so. Changing that, even temporarily, is by definition a constructive dismissal.

We occasionally see employers that either assume they have the right to impose layoffs and unknowingly risk a constructive dismissal claim, or do so with full knowledge but a willingness to take a risk. However, we have never been in a situation like we are now, and never has this tension been so acute.

Businesses are in an impossible situation. Many have been ordered to cease operations altogether, and most others have seen a dramatic decrease in revenue. The status quo cannot continue, as their businesses will not continue to be viable unless they can dramatically reduce their costs. As a result, they often turn to layoffs.

Unfortunately, the common misconception that employers automatically have the right to lay people off means that many businesses have already done so, entirely unaware of the legalities. Their belief is bolstered by the numerous media headlines about large-scale layoffs. What they don’t recognize is that in most of those cases, the large companies imposing layoffs are unionized and therefore governed by a collective agreement which explicitly provides the right to do so. Many other large businesses have standard form employment contracts that do the same.

When we work with clients, we routinely recommend including a temporary provision. In many cases, we are met with reluctance and an insistence that the company never lays people off. We usually suggest that it would be good to keep the clause in the contract, “just in case.” Never did we imagine a case like this, but our clients are glad that we gave them the advice that we did.

Over the past week or so, I have very publicly stated that in my view, many of the layoffs that are taking place are not permitted by contract and are therefore constructive dismissals. I am very concerned that businesses may face claims in the future; after all, people have two years to do so. Although most people are willing to accept temporary layoffs right now in light of the unprecedented circumstances we are in, their mindset may change as time goes by and their money runs out.

Some of our colleagues have suggested that it is not right to assess constructive dismissal through a pre COVID-19 lens. That is a compelling position, and I have tremendous sympathy for the businesses that, realistically, have no choice. The law was certainly not created to handle situations like this, but at this point, the law of constructive dismissal has not changed.

It is quite possible that a court will, when asked to interpret the current set of circumstances, decide that the law of constructive dismissal cannot be applied in its current state to the entirely new situation we face. Or it is possible that a government body will intervene. However, neither of those things has happened yet.

How our courts will treat this unprecedented situation in the future remains to be seen. At this point, many businesses have no choice but to lay their employees off. My concern is that most do so without a proper understanding of the law. My goal is to help them make informed decisions, rather than assuming that they have the right to impose layoffs and unknowingly exposing themselves to liability. They may still decide to lay people off, but as in any circumstance, the decision should be made based on an understanding of the legal situation so there are no surprises in the short or long term.

Stuart Rudner is a leading Canadian employment lawyer and mediator at Rudner Law. He is the author of You’re Fired! Just Cause for Dismissal in Canada. He can be reached at 416-864-8500 or stuart@rudnerlaw.ca

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