Does a Temporary Layoff Due to COVID-19 Trigger a Severance Package – The Jury is Still Out
As of June 30, 2021, Ontario will be moving into Stage 2 of the province’s reopening plan. Despite this benchmark, many government restrictions remain in place and there is still uncertainty as to when a full reopening will happen. In one of our recent articles (see “A Temporary Layoff Due to the Pandemic can Trigger a Constructive Dismissal “), we discussed legal recourse employees may have if they are temporarily laid off due to the pandemic. There have been developments in case law since, and in short, the case law is divided. This means that employees who have been temporarily laid off because of COVID-19, may be entitled to a severance package pursuant to the common law.
The Province enacted the Infectious Disease Emergency Leave regulation (“IDEL”) provisions. During the COVID-19 period (March 1, 2020 to September 25, 2021) a temporary layoff is deemed to be an IDEL, meaning employers can place employees on prolonged temporary layoffs without triggering an obligation to pay statutory termination pay or severance pay.
Despite the statutory protections for employers, in Coutinho v. Ocular Health Centre,  ONSC 3076 (“Coutinho”), the Ontario Superior Court held that employees may still have recourse for a ‘severance package’ under the common law. In Coutinho, the court held that in the absence of enforceable contract language permitting temporary layoffs, even a temporary layoff due to COVID-19 constituted a constructive dismissal at common law. Notwithstanding the extraordinary circumstances caused by the pandemic, the Court did not depart from prevailing case law on the issue.
Similarly, in Fogelman v. International Financial Group Ltd.,  ONSC 4042, the Court held that the employment standards regulations permitting extended temporary layoffs due to COVID-19 did not supersede civil remedies under the common law. In the result, Fogelman, who was temporarily laid off on March 16, 2020, was awarded 15 months of payment in lieu of notice. Notably, the CERB payments that he collected over the relevant notice period were not clawed back from his damages award.
However, in Taylor v. Hanley Hospitality Inc. o/a Tim Hortons,  ONSC 3135 (“Taylor”), the Court rejected the reasoning in Coutinho and Fogelman. Justice Ferguson for the Court held that IDEL changed the common law on constructive dismissal during the prescribed period (March 1, 2020, to September 25, 2021). In this case the Plaintiff was temporarily laid off shortly after the March 2020 lockdown order. She was advised by a letter in August that she would be recalled to work. Taylor argued that the IDEL regulation did not displace the common law doctrine of constructive dismissal and that she should be entitled to payment in lieu of reasonable notice (a severance package).
Justice Ferguson rejected the Plaintiff’s claim. Relying on the Court of Appeal decision in Elsegood v Cambridge Spring Service (2001) Ltd. 2011 ONCA 831 (CanLII)), Justice Ferguson reasoned that since employers had a statutory right to place an employee on an IDEL, this cannot be deemed to be a constructive dismissal or a permanent layoff, for any purpose, including the common law. From the Court’s perspective, the government recognized the inherent unfairness in subjecting employers to wrongful dismissal claims because of the government-imposed state of emergency. It was common sense that the province enacted protections for employers in the circumstances of the pandemic, particularly since the province’s lockdown measures placed employers in the difficult predicament of having to temporarily layoff staff. The Court noted the following:
I agree with Tim Hortons that exceptional situations call for exceptional measures. 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. If they did not take action, these claims would only serve to make the economic crisis from the pandemic even worse. It is just common sense. [para 22]
What is clear is the lack of clarity on this issue. The court decisions are presently divided until such time as the Ontario Court of Appeal may weigh in on the issue. Whichever way this goes, the IDEL constructive dismissal provisions will eventually expire and if employees are not recalled within the prescribed temporary layoff period under the ESA, employers will be obligated to provide a severance package.