Written by David Doorey, York University
Late Friday afternoon, as the rain battered Toronto, a curious little Regulation mysteriously appeared on the government’s Laws website. So mysterious was this Regulation that it didn’t even have a name:
You can only imagine the excitement that settled over the nerdy employment law community, who were already well into their regular Friday afternoon virtual cocktails.
The Reg was enacted under the Employment Standards Act. For you non-lawyers, statutes (like the ESA) regularly include a provision that permits the government to introduce Regulations, which clarify details relating to the legislation.
The new Regulation is short, just 11 sections long. However, its brevity bears no correlation to its potential to cause confusion in the employment law bar. The main issue that caused considerable Twitter debate into the late hours of Friday related to the question of whether the Regulation reaches beyond clarifying and adjusting specific rules in the ESA and significantly alters the common law of employment contracts as well. The specific issue of debate concerns the application of constructive dismissal.
Here’s a quick overview of the debate, and my early “hot take”. I’m looking forward to smarter lawyers telling me why I’m wrong.
First a quick overview of the Regulation. The first part of the Regulation repeats (and replaces) an earlier Regulation (Regulation 66/20) which designated COVID-19 a designated disease that qualifies employees to access the Emergency Leave provisions of the ESA (found in section 50.1). Sections 2-4 of the new Regulation deem employees who have had their hours/pay reduced due to COVID as being on Emergency Leave effective starting March 1. By declaring employees on Leave, the Regulation triggers various rules relating to Leaves, including requirements for the continuation of benefits, and a statutory right to return to work after the Leave is over.
Also, because employees are “deemed” to be on Emergency Leave if their hours are reduced or cut entirely moving forward, the clock stops ticking towards that time when a “temporary layoff” become a “termination” under Section 56. Other provinces have previously legislated similar changes to avoid a layoff due to COVID becoming a “termination” under employment standards legislation. This is probably the most important purpose of this new Regulation.
Section 5 of the new Reg touches on the constructive dismissal issue, so let’s pause for a second for some Employment Law 101.
Constructive dismissal is a doctrine that originated in the common law of contracts. Basically, the doctrine is this: if an employer commits a fundamental (or “repudiatory”) breach of contract, the employee can elect to treat that breach as having terminated the employment contract by quitting and suing the employer for wrongful (constructive) dismissal. If the employee wins, they would be entitled to damages calculated on the basis of lost wages and benefits for a period of notice of termination that the contract required the employer to provide the employee.
There is lots of common law case law in which courts have ruled that cuts to wages and hours of work are fundamental breaches of contract that employees can treat as a constructive dismissal. Therefore, we would normally anticipate that if due to COVID-19 an employer cut an employee’s pay by, say, more than 15-20% or cut the employee’s hours by a degree that produces a loss of pay in that range or more, that the employee could quit and sue for constructive dismissal.
Now, there’s already debate within the employment law community about whether courts would protect employers from that sort of action by implying a term into employment contracts that effectively says that the parties agreed that if the cut in hours or pay was due to an unforeseen medical emergency, that there would be no breach of contract. Employers have also been hoping that governments would step in and legislate that there is no constructive dismissal if a cut in hours or pay is due to COVID, to avoid this uncertainty.
Okay, now back to the Regulation. The confusion arises because the Employment Standards Act also includes reference to “constructive dismissal”. This is an example of what I call in my Law of Work text regime interaction: the government took the common law doctrine of constructive dismissal and incorporated it into a statute.
Section 56(1)(b) of the Ontario ESA says that a “termination” occurs for the purpose of entitlement to statutory notice of termination (or termination pay) if “the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period”.
So both the common law and statutory law both treat a constructive dismissal as a termination. The importance of this is that an employee who is terminated is entitled to “notice of termination”. In the common law, the amount of notice required is determined by the contract, and if the contract is “silent”, the courts imply “reasonable notice”, which can be very long, up to 2 years for very senior employees. In the regulatory regime, the notice is much shorter, maxing out for most employees at 8 weeks for employees with 8 or more years’ service. In Ontario, a constructively dismissed employee may also qualify for “severance pay”.
Remember that the common law and ESA create separate legal regimes. That means that an employee can choose whether to sue the employer in court for breach of contract or file a complaint under the ESA alleging a breach of the statute. The question raised by the new Regulation is whether it prohibits employees from bringing a lawsuit for constructive dismissal in the common law regime as well as under the ESA.
Let’s go back to the Regulation. Section 5 is the first specific reference to the ESA’s constructive dismissal provision. It says in s. 5(1)(b) that a person who was terminated by constructive dismissal before May 29 is not deemed to have been on Emergency Leave. That seems to mean (IMO) that it is possible to bring an ESA complaint alleging constructive dismissal due a reduction in pay/hours that took place prior to May 29. [Am I misreading that legal beagles?]
Section 6 of the Regulation next discusses when a temporary reduction or elimination of hours/wages constitutes a “layoff” for the purposes of the termination and severance sections of the ESA. In brief, the ESA includes rules that define when a temporary layoff becomes a “termination” triggering entitlements to termination and severance pay. Section 6 says a person who experiences a reduction or elimination in hours due to COVID after after May 28 is not on “layoff”, which makes sense because the Regulation already says that they are on Emergency Leave.
Then comes section 7, which deals specifically with constructive dismissal and is the source of the debate. Here it is:
7(1) The following does not constitute constructive dismissal if it occurred during the COVID-19 period:
1.A temporary reduction or elimination of an employee’s hours of work by the employer for reasons related to the designated infectious disease.
2. A temporary reduction in an employee’s wages by the employer for reasons related to the designated infectious disease.
The question is whether this reference to “constructive dismissal” refers not only to the use of that terminology in the ESA (which it clearly does), but also to the common law doctrine of constructive dismissal.
My first reaction was that the Regulation is simply clarifying the application of constructive dismissal found in Section 56(1)(b) of the ESA (and Section 63(1)(B) relating to severance pay). The Regulation says that, as of May 29, moving forward, a cut in pay or hours will not be treated as constructive dismissal triggering statutory notice and severance pay requirements.
This is consistent with the overall scheme of the Regulation and the ESA. A cut in hours/pay is not a constructive dismissal under the ESA because an employee who suffers a cut in pay/hours is now on Emergency Leave. It wouldn’t make sense that an employee “deemed” to be on Emergency Leave can turn around and claim that they meet the definition of being constructively dismissed under the ESA. This argument that s. 7 of the Regulation is referring to the ESA scheme (and not also the common law) is consistent with Section 8 of the Reg, which talks about “complaints” files under the ESA alleging constructive dismissal, but not civil actions.
I’d argue that if the government intended to intervene in the common law and prohibit a long-standing common law doctrine like constructive dismissal, it could very easily have done so by just saying that explicitly. However, my argument would that when you read the entire scheme of the new Regulation alongside the ESA, which is what you must do, the best reading is that the Regulation is simply qualifying the application of “constructive dismissal” in section 56 (and 63 re severance pay) as affected by hour and pay cuts due to COVID in light of the new rule that cuts in hours and pay after May 28 lead the employee to be deemed on Emergency Leave. The intention was not also to reach into the common law.
Also, keep in mind that section 8 of the ESA states that “no civil remedy of an employee against his or her employer is affected by this Act”. If the government intended to override that provision, it would do so in very clear explicit language, not through a vague Regulation dropped quietly on a Friday afternoon with no prior warning.
However, that’s just my initial hot take. Other lawyers in the Twittersphere have already disagreed with me and argued that the Regulation prohibits constructive dismissal lawsuits based on pay and hour cuts due to COVID in the common law as well as the Regulatory Regime. And I am not afraid to admit that I have been wrong before!
So I’d welcome anyone submitting a comment arguing the opposite case to that which I have made here. Why does this new Regulation block employees from filing constructive dismissal lawsuits based on them suffering a loss of pay/hours due to COVID-19?
Or better yet, consider submitting a blog post! Enjoy your weekend people.
David Doorey, “Ontario Quietly Drops #COVID-19 ESA Regulation, Confusing Everyone” Canadian Law of Work Forum (May 30 2020): http://lawofwork.ca/?p=12577