A new Ontario regulation (Reg. 228/20) (Regulation) under the Employment Standards Act, 2000 (ESA) is a key and welcome development for non-union employers. In summary:

• Temporary layoffs of employees for reasons related to COVID-19 have been converted – for any period of layoff after March 1, 2020 and until six weeks after Ontario’s state of emergency ends – to leaves of absence, “stopping the clock” on automatic terminations under the ESA for those employees; and
• Pay and hours cuts for reasons related to COVID-19 and during the period from March 1, 2020 until six weeks after Ontario’s state of emergency ends, are not a “constructive dismissal”.

The Regulation was filed on Friday May 29, 2020 and was effective immediately on that date.

Layoffs because of COVID-19 converted to leaves of absence

The Regulation states that any employee who was on temporary layoff:

• During any period from March 1, 2020 until 6 weeks after Ontario’s state of emergency ends, and
• “For reasons related to” COVID-19,

will now be considered to be on “infectious disease leave” – and is no longer on temporary layoff – for any period of layoff on or after March 1, 2020 and until six weeks after the state of emergency ends. This has at least two major implications for employers:

• The “clock has been stopped” on deemed terminations under the ESA for layoffs that exceed the maximum 13 weeks (or less than 35 weeks if certain conditions are met, such as continuation of benefits), if the layoff was “for reasons related to COVID-19”. This means that as long as Ontario’s state of emergency continues, any weeks of layoff after March 1, 2020 will not count towards the “deemed termination” maximums under the ESA, and employers do not, at present, need to decide whether to recall such employees in order to avoid an “automatic termination”; and
• Because the layoff is now a leave of absence under the ESA, the obligations relating to leaves of absence apply to the formerly laid-off employees who are now on leave. In particular, the employer must reinstate the employee to his or her most recently held job when the infectious disease leave ends (6 weeks after the state of emergency ends) or, if that job no longer exists, to a “comparable position”. Importantly, though, employers are not required to continue contributions to the employee’s pension plan, life insurance plan, accidental death plan, extended health plan, or dental plan during the leave if, as of May 29th, the employer was not making contributions. Employees that stopped participating in these benefit plans as of May 29th are also exempt from continued benefits during the leave period.

Temporary reductions in hours or wages because of COVID-19 are not a constructive dismissal

The Regulation states that employees (a) whose hours of work are temporarily reduced or eliminated, or (b) whose wages are temporarily reduced, for reasons related to COVID-19 and during the period from March 1, 2020 and until 6 weeks after the declaration of emergency ends, are not considered to be constructively dismissed.

This is a key development. Pre-COVID-19 case law in Ontario had indicated that a temporary layoff of a non-union employee was a constructive dismissal unless the employee’s contract permitted temporary layoff, or the employer had a history of temporary layoffs or an enforceable temporary layoff policy. The Regulation effectively overturns that case law in respect of temporary pay or hours cuts on or after March 1, 2020 and up until 6 weeks after Ontario’s state of emergency ends, as long as the pay cut or hours cut is for reasons related to COVID-19.

Some existing employment standards complaints effectively dismissed

The Regulation provides that complaints filed with the Ministry of Labour claiming that a layoff, pay cut or hours cut was a constructive dismissal under the ESA, are deemed not to have been filed – which means that the complaint is effectively dismissed. There are some exceptions to this automatic dismissal of complaints, including for employees who were constructively dismissed and had already resigned before May 29th, or the employee’s temporary layoff already, before May 29th, exceeded the maximum temporary layoff period.

Legal issues and arguments anticipated

The Regulation will be a big help to many employers. However, as with any important new legal development, we expect disputes regarding some of the language in the Regulation.

We anticipate that some employees and their lawyers will argue that a particular layoff, pay cut or hours cut was not “for reasons related to COVID-19” and therefore that the pay cut or hours cut is still a constructive dismissal. However, we expect that most layoffs, pay cuts and hours cuts on or after March 1, 2020 will likely be clearly related to the COVID-19 pandemic and the resulting economic crisis.

We also anticipate that lawyers will argue that the new “pay cut or wage cut is not a constructive dismissal” rule will apply only for the purposes of the ESA – and not for the “common law” (wrongful dismissal law). However, the Regulation does not limit the application of that rule to the ESA, and in our view, it should also apply to the common law.

Lastly, employees and their lawyers may argue that pay cuts and hours cuts were not “temporary” and therefore do indeed constitute a constructive dismissal, because the Regulation only exempts “temporary” pay cuts and hours cuts from the normal constructive dismissal rules. It will be important, therefore, for employers to clearly communicate that pay cuts and hours cuts are temporary.

What employers should do

In light of this important new Regulation, employers should consider doing the following:

1. Provide a letter to employees who were on “temporary layoff” to advise that they are now on “infectious disease leave” under the ESA, and communicate what that means for employees;
2. Reconsider their staffing strategy given that the clock is no longer running, for many employees, on an automatic termination under the ESA. For instance, many planned recalls may now be deferred without resulting in an automatic termination;
3. Demonstrate in company records, if this is not already apparent, that temporary layoffs, pay cuts and wage cuts were clearly “for reasons related to COVID-19”;
4. Consider communicating clearly to employees, if this was not already done, that pay cuts and wage cuts are “temporary”; and
5. Start developing a strategy for dealing with reinstatement obligations for employees whose layoff has been converted to a leave. What will the employer do if it is unable to reinstate employees to their jobs by the deadline (6 weeks after the state of emergency ends)?

We are ready to assist you

This Regulation raises many questions and will require employers to communicate with employees who have been on layoff. Employers who engaged in temporary layoffs should also consider their staffing (recall) strategy. We expect the Ministry of Labour to offer more guidance on this important development, and we will continue to monitor this situation. If you have any questions, please do not hesitate to contact any member of our Employment and Labor team.

Please note that the information provided in this insight does not constitute legal or professional advice or a legal opinion. Please contact legal counsel with respect to any specific legal issues. One of the members of the Dentons Canada Employment and Labour Law group would be happy to advise.