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THE LAW AT WORK

By Mark Daly & Ned Nolan

June 2021 

A number of important employment law precedents have been set in the last year or so which will have a significant and lasting impact on wrongful dismissal claims. We will discuss two of these below. The first signals a largely unexpected shift pertaining to the enforcement of contractual termination provisions. The second represents the first guidance from courts regarding the issue of constructive dismissal as it pertains to Covid-19 lay-offs.

WAKSDALE AND CONTRACTUAL TERMINATION PROVISIONS

An employee is entitled to reasonable notice upon termination (or pay in lieu thereof) if the termination is without cause. It is a rebuttable common law presumption that can be ousted if the employment contract contains a properly drafted termination provision that limits an employee’s entitlements. The provision cannot seek to provide the employee with anything less than their entitlements under the Employment Standards Act (the “ESA”) because that would be deemed unenforceable and void as a consequence.           

The issue addressed by the Ontario Court of Appeal in Waksdale v. Swegon North America Inc. 2020 ONCA 391 was whether the invalidity of a termination with cause provision impacted the validity of the termination without cause provision in the employment contract. The plaintiff worked for a company which had him sign a contract containing a relatively normal termination without cause provision seeking to cap his entitlements to reasonable notice. The contract also contained a termination with cause provision (which the parties agreed was unenforceable) and a severability provision. The plaintiff was terminated without cause and paid only the required amounts pursuant to the termination without cause provision. The employee posited that the unenforceable with cause provision also rendered the without cause provision unenforceable. The employer relied on the argument that the two termination provisions were separate and discrete contractual terms, meaning that the invalidity of one should not impact the validity of the other, particularly in light of the severability provision. The Court held that the correct analytical approach was to determine whether the termination provisions read as a whole violated the ESA. It is particularly noteworthy that the Court considered it irrelevant whether the two provisions were found together or separately in the contract. The invalidity of one provision caused the other to be invalid and the Court declined to give effect to the severability clause based on the rationale that it could not sever the offending provision if the two provisions were to be understood together.

The significance of Waksdale is mainly the understated principle that a relatively typical with cause termination provision can a) be interpreted as violating the ESA and b) could now void the entire termination section of an employment contract. This principle has since been expanded upon in Sewell Provincial Fruit Co. 2020 ONSC 4406 and Ojo v. Crystal Claire Cosmetics Inc. 2021 ONSC 1428. In both cases, relatively typical termination with cause provisions were found to violate the ESA and were therefore fatal to otherwise enforceable ESA caps. The termination with cause provisions in both cases purported to allow the employer to terminate their employees without any notice or pay in lieu of notice whatsoever, for just cause. The Court, in both instances, followed Waksdale, and determined that the provisions offended O. Reg 288/01 of the ESA which sets out that an employee may only be terminated without at least their statutorily mandated compensation in circumstances where they are guilty of willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the employer. Asserting that an employee can be fired for just cause and no compensation at all is an impermissible attempt to contract out of the ESA because it seeks to replace the strict ESA requirement of “willful misconduct” with the less stringent common law threshold of just cause. The consequence of this finding was that the termination clauses were found to be unenforceable and the employees had common law entitlements.

Waksdale  has very wide ranging implications for employers and employees, calling into question the validity of many employment contracts currently in place in the labour market. Leave to appeal was denied by the Supreme Court on January 14, 2021.

COVID-19 LAYOFF FOUND TO BE CONSTRUCTIVE DISMISSAL

Another important recent case tackled the question of whether a Covid-related lay-off constitutes a constructive dismissal. Prior to the pandemic, (except in some cases where permitted by contract) a temporary lay-off would normally constitute a fundamental breach of the employment contract that would permit an employee to bring a constructive dismissal claim. These are uncertain times, however, and there was considerable debate whether a lay-off based constructive dismissal claim could be successful when the layoff was legitimately related to the pandemic. Further cause for uncertainty was introduced by O. Reg 228/20 of the ESA which sets out that an employee who has had their hours reduced or eliminated has not been laid off but is deemed to be on an “infectious disease emergency leave” for the purposes of the ESA. This was the issue before the Court in Coutinho v. Ocular Health Centre Ltd. 2021 ONSC 3076.     

Coutinho worked as a technician at an ocular health clinic. A dispute around COVID-19 safety protocols led to the clinic being closed and Coutinho being laid off from her position in May 2020. She was brought back by the employer at a different clinic in July 2020 (at an increased salary to boot), but brought a claim for constructive dismissal nonetheless.

At summary judgment, the defendant employer made two central arguments: 1) pursuant to O. Reg. 228/20, Coutinho had not, in fact, been laid off but rather was on an infectious disease emergency leave and, further, that her leave did not constitute a constructive dismissal; and  2) the temporary lay-off did not constitute a constructive dismissal because Coutinho failed to make inquiries regarding when she would be called back to work.

In evaluating the first argument, the Court disagreed and pointed out that s. 8(1) of the ESA unequivocally sets out that no civil remedy of an employee against their employer is affected by the ESA which led the Court to rule that O. Reg 228/20 had no bearing on the civil remedy of constructive dismissal under the common law. The Court then took note of Elsegood v. Cambridge Spring Service 2002 Ltd., 2011 ONCA O.J. No. 6095 (CA) and affirmed the principle that an employer has no automatic right to lay-off an employee and that, absent an agreement to the contrary, a unilateral lay-off by an employer is a substantial change to the employment contract that would trigger a constructive dismissal.

In evaluating the second argument, the Court was of the view that Coutinho was entitled to treat the unilaterally imposed lay-off as bringing the contract to an end and had no obligation to make inquiries of the employer regarding a callback.

It should be noted that this is the first time the courts have wrestled with this issue, and there may be future decisions that call this ruling into question. For the time being, however, it is applicable law.

The Covid-19 pandemic has majorly disrupted the labour market, leaving many workers with new working conditions and, in some cases, with no work at all. The legal landscape continues to evolve rapidly in spite of - and to some degree because of - the pandemic and will require a careful eye as unique employment issues work through the legal system.

Mark and Ned are employment lawyers at Nolan, Ciarlo LLP.