Dispelling Common Assumptions about Employees’ Legal Right to Sick Pay

Written by Professor Brian Langille and Saambavi Mano (3L), University of Toronto Faculty of Law

In these times of COVID-19, there has been much discussion, worry, and political positioning about the need for legislated sick pay.  This short essay makes one observation and one point about this ongoing controversy. The observation is that these debates often proceed from a common assumption – that employees are not entitled to sick pay (and thus the legislature needs to step in and fill that gap). The point, which is where this brief note spends its time, is that this common assumption is wrong.

As far as we can tell, the only time the Supreme Court of Canada addressed the issue of an employee’s entitlement to sick pay, in Dartmouth Ferry Commission v. Marks, it wrote as follows (at para. 9):

There is no analogy between such permanent disablement and temporary sickness. The law permits the latter on the ground of common humanity to be offered as an excuse for not discharging duty temporarily and suffers the disabled party to recover wages for the time he is temporarily away from his work.

Marks remain good law in Canada.[1] For example, in 2016 the Ontario Superior Court of Justice, citing Marks, affirmed that employees can recover wages for the time that they are away from work due to temporary sickness in Boucher v Black & McDonald Ltd (para. 34):

Permanent disability will frustrate a contract. However, employment is not frustrated by temporary sickness. The law permits temporary sickness and moreover, allows the disabled to recover: Dartmouth Ferry Commission v Marks (1904), 1904 CanLII 61 (SCC), 34 SCR 366 at para 9.

In the few cases dealing with this issue post-Marks, courts have turned to the nature and terms of the employment contract in assessing sick pay entitlement. For example, in Colman v Naish, a 1914 British Columbia County Court decision, the court focused on the “nature of the contract sued upon” in finding that wages could not be withheld while the employee was off work due to temporary illness.[2]  In Low v Toronto (City), a 1947 Ontario Court of Appeal decision, the court found that an employee under a scheme of regularly renewed temporary employment contracts was not entitled to sick pay.[3] In these and other cases, Canadian courts are applying basic principles of the common law of the contract of employment. They are looking to the agreed upon terms of the contract to determine whether the parties provided for sick pay.

Some have suggested that these subsequent cases have read down the proposition in Marks that employees are entitled to sick pay at common law.[4] That is not our reading. These decisions merely emphasize the obvious contract law principle that one must first look to the employment agreement to determine if the parties have addressed sick pay entitlement. This includes attention to implied terms based upon commonly understood and applied practices. However, where the employment contract is silent as to sick pay entitlement, the “rule” in Marks stands. (And, as we will discuss, Marks fits with the rest of our law of employment.) When one looks around, even casually, it will be apparent that many employees expect, enjoy, and are contractually entitled to sick pay when they are ill and cannot attend work for short periods. Of course, there are cases where the contract contains different and more complex terms – for example, by providing insurance coverage for well-defined short- and long-term absences. (Collective agreements and sophisticated human resource policies will almost always do something along these lines.) And in other cases, it may be clearly understood and agreed, either expressly or impliedly, that employees are to be paid only for hours actually worked.[5] It depends, as it always does in contract law, on the terms to which the parties have agreed.

A more interesting question for our purposes may be whether it can be said that there is a default rule – a rebuttable presumption – regarding sick pay entitlement in the Canadian context. In England, the Court of Appeal stated in Mears v Safecar Security Ltd that the earlier English approach imposing a rebuttable presumption of sick pay entitlement has since given way to an approach “unprejudiced by any preconception, presumption, or assumption.”[6] However, the Court goes on to describe what appears to be, if not a rebuttable presumption, something very close (at 80):

Where […] the tribunal are searching for the right term to imply relating to the payment of wages during absence through sickness and are left by lack of material in doubt about that particular term, the doubt will be resolved in favour of the employee[…] When the missing term relates to payment of wages during periods of absence through sickness, the tribunal must approach the search for the missing term by considering all the facts and circumstances, including the subsequent conduct of the parties, and only if they do not indicate what that term is or must be, should the tribunal assume that it is a term that wages should be paid during those periods[…]

While the Mears approach emphasizes, as usual, the importance of looking first to the express or implied terms of the contract, it does not challenge the earlier “rule” that employees are entitled to sick pay where the employment contract is silent. It appears, then, that England has maintained a baseline default rule of sick pay entitlement. What is the Canadian position? It is, the same. It is the position articulated by the SCC in Marks.

To take another tack, which goes directly to the one point this brief intervention seeks to make – at the very least, Canadian employment law cannot support a presumption againstcommon law sick pay entitlement – and that is the assumption from which much current debate begins.

The common law surrounding “lay-offs”, most recently discussed in the long-awaited Coutinho v Ocular Health Ltd decision, is helpfully illuminating in this respect. In Coutinho, the Ontario Superior Court of Justice confirmed the  unremarkable and perhaps obvious  view that recent regulations concerning lay-offs under the Employment Standards Act  have no impact on the common law of termination. However, the more interesting affirmation for the purposes of this note is that a lay-off is a “substantial change” in the employment agreement that constitutes constructive dismissal at common law.[7] In other words, the common law does not imply a  contractual term that grants an employer the right to lay-off an employee without wage payments.

That is, and has long been, clear law. So have some other very basic  rules about the contract of employment. Before examining this package of legal rules, we should observe that in so doing we are implicitly deploying Mark Freedland’s two-tier account of the legal structure of employment contracts.[8]  On this analysis, the first tier of the contract is concerned with the straightforward exchange of work for remuneration. The second tier consists of an exchange of promises about the continuation of the first tier. These promises about the “ongoingness” of the employment relationship create a longer term – relational, to use Macneil’s word – contract rather than a series of “spot” transactions.[9] So, for example, the most important second tier term is the obligation to provide reasonable notice of termination of the first tier. But there is more. An employer does not have to provide reasonable notice if the employee has given cause for termination by committing a serious “repudiatory” breach. However, lack of work – i.e. redundancy – whether due to lack of market demand for product, supply chain problems, or pandemics, is not part of “cause” thinking. This is because “lack of work” is not a matter of employee contractual performance, fault, misconduct, or breach – but rather, a management problem. Absent express or implied terms in the employment agreement providing for lay-offs, notice must be given.

There is more. Illness too does not provide the employer with cause for termination without notice. This is the fundamental holding in Marks (and many other cases). Illness, like lack of work/redundancy, cannot be discussed by reference to cause because it is not a matter of fault or breach – employees do not guarantee they will not get sick. Instead, illness is part of the law of frustration which is, as all contract law students know, a matter of the “fault of neither party.” Canadian courts have long held that temporary interruptions in performance, such as period of temporary illness, do not frustrate the employment contract.[10] In the context of temporary illness, then, we are where Marks says we are.

This is where cases like Coutinho enter the scene and help sketch in the rest of a familiar legal scene. Consider a case where the employer must temporarily shut down its operations because of COVID-19 restrictions. Or, consider a case involving an employee who is ill with COVID-19, or forced into quarantine. We have all the legal rules (i.e., the content of Freedland’s second tier) clearly in place in our law. And they are not, it seems, what many think they are:

1. Lack of work/redundancy is not cause. The unavailability of work is irrelevant to the employees’ performance and cannot form the basis of an employee breach. The employer must continue to pay wages or provide reasonable notice.
2. Temporary illness is not cause, it is part of the law of frustration – and it is not a frustrating event. The employer must continue to pay wages or provide reasonable notice.
3. Employers cannot unilaterally “lay-off” as an alternative to paying wages or providing reasonable notice. This would constitute (wrongful, constructive) dismissal.
4. While employers cannot act unilaterally in laying off employees, or withholding wages during periods of illness, the parties can always contract around of these default rules. There may be express or implied terms in the employment agreement changing the default rules – for example, by providing for lay-offs and recall, or indicating that employees will only be paid for hours worked, but will not be terminated, and so on.
5. Alternatively, in the absence of established terms dealing with lay-offs or temporary illness, the employer can offer to renegotiate “on the spot” (rather than act unilaterally) when confronted with lack of work or employee illness – for example, by offering not to dismiss in return for recall after layoff, or payment for some of the period of employee illness.[11] However, in this sort of “on the spot” negotiation, the employer is seeking to vary the existing contractual terms.  In proposing a modification of the contract the employer is faced with the very basic truth about contract modification – there can be no unilateral modification of a contract. And when an employer makes such a proposal to vary the existing set of contractual entitlements, the options available to the employee are very familiar to all employment lawyers. They have been set out repeatedly by the Ontario Court of Appeal in cases such as Hill v Peter Gorman:

Where an employer attempts to vary the contractual terms, the position of the employee is this: He may accept the variation expressly or impliedly in which case there is a new contract. He may refuse to accept it and if the employer persists in the attempted variation the employee may treat this persistence as a breach of contract and sue the employer for damages, or while refusing to accept it he may continue in his employment and if the employer permits him to discharge his obligations and the employee makes it plain that he is not accepting the variation, then the employee is entitled to insist on the original terms.[12]

This package of rules is simply a statement of basic contract law principles as applied to employment contracts. These rules are all well-established – indeed basic – in our law. But what seems to have been missed is the legal truth to which these rules add up: namely, that we cannot start our discussion of the important issue of sick pay on the assumption that there is no legal entitlement to sick pay. To do so is to start, legally speaking, from the wrong place.

Brian Langille & Saambavi Mano, “Dispelling Common Assumptions about Employees’ Legal Right to Sick Pay” Canadian Law of Work Forum (May 17 2021): https://lawofwork.ca/commonlawsickpay/

[1] See e.g. Edmonton (City) v ATU, Local 569, 2017 ABQB 59 at para 144; Parks v Atlantic Provinces Special Education Authority Resource Centre for the Visually Impaired, 1992 CanLII 2564, 109 NSR (2d) 113 (NSCA) at para 57.

[2] Colman v Naish(1914), 28 WLR 487, 1914 CarswellBC 82 (BC Co Ct) at paras 1, 6.

[3]Low v Toronto (City), [1947] 2 DLR 718, 1947 CarswellOnt 149 at para 4; See also Montague v Grand Trunk Pacific Railway, [1915] 23 DLR 355, 1915 CarswellMan 146 (Man CA).

[4]Geoffrey England & Innis Christie,Employment Law in Canada, 4^thed (Toronto: LexisNexis Canada, 2004) at §10.69.

[5] Of course, this is subject to potential rights claims relating to disability, which is not dealt with in the same way as illness under the common law of employment.

[6] Mears v Safecar Security Ltd, [1983] QB 54, [1982] 2 All ER 865 (CA) at 74-75.

[7] Coutinho v Ocular Health Centre Ltd at para 50, citing Elsegood v Cambridge Spring Service 2002 Ltd, 2011 ONCA 831 at para 14.

[8] Mark R. Freedland, The Contract of Employment(Oxford: Clarendon Press, 1976).

[9] Ian R. Macneil, The New Social Contract: An Inquiry into Modern Contractual Relations(New Haven: Yale University Press, 1980).

[10] Dartmouth Ferry Commission v Marks; Irvine v Jim Gauthier Chevrolet Oldsmobile Cadillac Ltd, 2013 MBCA 93; Yeager v R.J. Hastings Agencies Ltd.,[1984] BCJ No. 2722, 1 WWR 218.

[11] Note that there are many technical issues under the Employment Standards Act with respect to lay-offs of uncertain duration which employers must consider when bargaining in this manner. We leave these issues aside here.

[12] Hill v Peter Gorman, (1957) CanLII 393 (ON CA) at para 26; See also, approving Hill and to the same effect, Winkler CJO in Wronko v Western Inventory Service Ltd, 2008 ONCA 327 at paras 33-36, 41.