The Sky Hasn’t Fallen, Yet

A little over a year ago, employment lawyers across Canada began cautioning employers about the risks associated with laying off employees due to the COVID pandemic.  Lawyers and businesses were between a rock and a hard place; employers couldn’t afford to keep operating but lawyers were advising them that laying off employees could result in substantial liabilities.

Because we’d never lived through a global pandemic before (you can now check that one off your “bucket list”), we didn’t know how courts and other adjudicators would treat layoffs in this situation.  We gave clients our best estimate but, ultimately, advised them that we wouldn’t know the real answer for a year or two when courts started deciding the resulting civil actions.

I addressed the topic, early on in the pandemic, here…

Coutinho v. Ocular Health Centre Ltd.

Here we are, about 14 months later, and the first judicial decision has appeared.  At first glance, it’s not a particularly good result for employers, and it’s created a lot of alarming headlines, but it doesn’t cause me any real concern.

The case was filed quickly after the beginning of the pandemic, and that’s why the decision has come out so soon.  The decision, Coutinho v. Ocular Health Centre Ltd., arose in Ontario.  It was a somewhat messy scenario, most of which doesn’t really bear on the question of employers’ liability arising from COVID-necessitated layoffs.

Coutinho appears to have been laid off, initially, for reasons relating to a business dispute, not due to COVID.  The employer appears to have later attempted to justify the layoff as COVID-related.

The employer applied for summary judgment in order to have Coutinho’s claim dismissed.  The judge’s decision effectively turned on the issue of whether an “Infectious Disease Emergency Leave” regulation issued pursuant to the Ontario Employment Standards Act in May – stating that a temporary layoff for reasons relating to COVID did not constitute a constructive dismissal for the purposes of the Act - prevented a laid-off employee from suing in court for constructive dismissal damages.

The presiding judge easily found that “the IDEL Regulation does not affect Coutinho’sright to pursue a civil claim for constructive dismissal against Ocular at common law.”  He went on to state, “In my view the written notice by Ocular on May 29, 2020 to Coutinho that she was being laid off without pay constituted a constructive dismissal and Coutinho was not barred by the IDEL Regulation from bringing an action against Ocular at common law as a result.”

In dismissing the employer’s application to dismiss, the judge stated, “It is well-established that at common law, an employer has no right to lay off an employee and that absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment, and would be a constructive dismissal”.  That’s the well-known legal principle which caused employment lawyers sleepless nights a year ago.

Is the Coutinho Decision Cause for Concern?

What this decision didn’t do is address the applicability of the common law doctrine of “frustration” to employment situations in which layoffs were the direct result of the onset of the COVID pandemic.  That’s the key topic which employment lawyers and employers are waiting to have addressed.

A year ago, I asked, how will the common law courts treat these employment cessations?  Will they see the usual legal principles as being unaffected by the COVID pandemic (such that pay in lieu of working notice will be required)?  Or will they – in this unprecedented situation - accept the broad applicability of the “frustration” doctrine and excuse employers from paying in lieu of notice?

The answer will have a huge effect on the ability of businesses to resume operations and recover from the impact of COVID and it will have an equally huge impact on the financial stability of many, many employees.  Unfortunately, the courts won’t provide the answer until the initial claims have worked their way through the litigation process.

In my own view, the way the civil courts will react to what may be a deluge of civil claims for wrongful dismissal damages will turn on one question…

Can the employer demonstrate that, as a direct and unavoidable impact of the COVID pandemic, the employment relationship could not be continued?

Some cases will be comparatively easy; there will be a plainly identifiable, straight line connecting the pandemic to the termination.  Think, for instance, about businesses which shut down completely in March of 2020 and never re-opened.  That direct line should be fairly simple to draw.

But, there will also be those terminations falling within a grey zone, ones which are perhaps far more discretionary in nature or in which an employer simply selected one employee to keep over another.  Will those “grey zone” instances qualify for the “frustration” doctrine such that pay in lieu of notice will not have to be paid?  I suspect not.  I don’t imagine the courts will simply give all employers a “get out of jail free” card, effectively leaving all terminated employees as a group with no remedy.

For now, all we can do is continue to wait.  But, as far as the Coutinho decision is concerned, I think it’s fair to say that the sky has not fallen.  Yet.




This item is provided for general information purposes only and is not intended to be relied upon as legal advice. Informed legal advice should always be obtained about your specific circumstances.

Making a living is hard work.

We’ll help you get organized, resolve disputes, and save money.

Get in Touch