June 1, 2020

Termination and Severance Pay Obligations Suspended

The Ontario government has published a new regulation under the Employment Standards Act, 2000 (“ESA”), which provides significant relief to non-unionized employers.  With a stroke of the pen, the legislature has converted layoffs resulting from COVID-19 to protected leaves of absence.  In doing so, employers have been relieved from paying termination and severance pay to employees who may have otherwise been deemed terminated by the temporary layoff provisions of the ESA, though additional statutory obligations have been created. 

Background 

Ontario regulated employers must provide termination and severance pay (if applicable) when terminating employment.  The ESA, however, creates an exception for temporary lay-offs as per Section 56(3).  Under that provision, employers may temporarily lay employees off for up to 13 weeks. The layoff may be extended to 35 weeks if certain conditions are met, one of which is the continuation of benefits.  Upon expiry of the applicable temporary layoff period, termination and severance pay must be paid. Employers have been bracing to pay termination and severance pay as the initial 13 weeks threshold approaches.  

One of the government’s early measures in the pandemic was to amend the ESA’s leave of absence provisions in relation to declared emergencies and infectious disease emergencies.  A new Section 50.1 was enacted whereby an employee unable to perform the duties of his or her position as a result of COVID-19 would be permitted an unpaid leave of absence for as long as the emergency situation lasted.  The reasons justifying the leave could include being quarantined or isolated and caregiver obligations as a result of school or daycare closures.  

The New Temporary Measure 

Under Section 4(1) of Regulation 228/20, an employee who has had hours reduced or eliminated due to COVID-19 is deemed to be on infectious disease emergency leave of absence under Section 50.1 ESA. 

Further, under sections 6 and 7 of the Regulation, a temporary reduction of hours or wages during the “COVID-19 period” does not constitute a lay off or constructive dismissal for the purposes of the ESA.

The COVID-19 period is defined to mean the period beginning on March 1, 2020 and ending on the date that falls six weeks after the government declares the COVID-19 emergency to have ended.  Thus, previous layoffs to address COVID-19, and any imminent layoffs, are caught by the regulation and will be characterized as a leave of absence.  

Under the general leave of absence provisions under the ESA, employers must continue benefit contributions.  Under the new Regulation, however, if an employer did not continue benefit contributions as of May 29, 2020, they would be exempt from this requirement.  

Employees who resigned in response to a constructive dismissal, or laid off for periods longer than a temporary leave under the ESA, prior to May 29, 2020, would not be considered to be on infectious disease emergency leave.  

Notably, if an employer has provided an employee with notice of termination after March 1, 2020 but before May 29, 2020, the employer and employee may agree to rescind the notice of termination.  In that scenario, the employee would be deemed to be on infectious disease emergency leave.  

The Upshot

These are the key takeaways from the new regulation:

  • 1- A temporary reduction of hours to deal with COVID-19 is not a layoff under the ESA.  As a result, termination and severance pay is not payable at 13 weeks following the onset of a temporary layoff.
  • 2- A temporary reduction or elimination of hours or wages will not constitute a constructive dismissal.  For any employers seeking to lay employees off after May 29, 2020 as a response to COVID-19, they do not need to be concerned about constructive dismissal claims at the Ministry of Labour.
  • 3- Employees laid off due to COVID-19 are now on job protected leave, for as long as the state of emergency in relation to COVID-19 lasts (and for a further 6 weeks).  At the end of the leave, employers will, presumably, be obliged to reinstate employees to their previous position, or to a comparable one.  

One interesting question arising out of this legislative change is whether or not employees can still claim constructive dismissal pursuant to the common law.  

Pre-pandemic, employers who laid employees off or significantly reduced wages without express contractual authority, faced credible allegations of constructive dismissal.  With these regulatory changes, the ESA has redefined layoffs resulting from COVID-19 as protected leave, which may preclude findings of constructive dismissal. On the other hand, a reduction of wages, while not a constructive dismissal under the ESA as per the regulation, does not create a deemed leave of absence.  Accordingly, constructive dismissal claims resulting from wage reductions, not layoffs, may bear more weight in court.  

Overall, a positive development intended for employers.