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7 Key COVID-19 Labour & Employment Litigation Learnings

Published:

September 21, 2021

Author(s):

• Alex Warshick, Lawyer
• Andrew Kinley, Lawyer
• Yazan Matarieh, McInnes Cooper Alum

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We updated this publication on December 14, 2022.

COVID-19 has been changing Canadian workplaces for 18 months. For some employees, the pandemic led to a shift to working from home. For others, it meant temporary lay-off. For others still, it led to termination of their employment. For many, it meant temporary or even permanent changes to other terms of their employment: their schedule, hours, responsibilities, authority, or even their pay. And these changes have had consequences for employers: wrongful and constructive dismissal claims and grievances. As COVID-19 related claims proceed through courts (in the non-unionized context) and arbitration (in the unionized context), decisions – including about the enforceability of mandatory COVID-19 vaccination policies – are beginning to emerge. But make no mistake: this is only the beginning of COVID-19 labour and employment litigation. Employees continue to file claims and, in many instances, limitation periods (the time a person has to file their claim) have been extended due to court closures, or still have significant time to run. And while some decisions are consistent, others are not. Certainty about the outcomes of COVID-related litigation will emerge as more courts release more decisions, and as more cases reach higher courts, as they most definitely will.

In the meantime, here are seven key learnings that employers, forced by COVID-19 to make changes to employees’ terms of employment, can glean from the growing number of decisions released so far.

1. COVID-19’s economic impact likely extends the length of reasonable notice

In the absence of enforceable employment contract termination provisions excluding or limiting an employee’s entitlements on termination of their employment, an employee terminated without cause is entitled to reasonable notice. This is distinct from, and typically significantly greater than, the employee’s entitlement to minimum notice (and in some cases severance) under the applicable employment standards law. What constitutes “reasonable” notice isn’t a formula, and depends on a number of factors, including the employee’s age, years of service, character of employment, and the availability of similar work at similar conditions. It’s the availability of similar alternate employment that’s taken on additional weight in the general economic downturn and rise of unemployment that COVID-19 caused. Indeed, certain industries have, until recently, been nearly shuttered. This means an employee with years of industry-specific experience might have had little in the way of options to mitigate their lost employment. Recent decisions demonstrate that the effect of COVID-19 on the job market is one circumstance that will play at least some role in determining the length of reasonable notice – and reinforces the value of including a termination clause in every employment contract. For example:

• In Iriotakis v. Peninsula Employment Services Limited, the employer terminated an employee’s employment in March 2020, just as the first wave of the pandemic was in full swing. The Ontario Superior Court of Justice acknowledged that the pandemic created uncertainties that in turn necessitated a longer notice period.
• The Ontario Superior Court reached a similar conclusion in Lamontagne v. J.L. Richards & Associates Limited. The Court found the employer wrongfully dismissed the employee in February 2020, just as, it noted, the economic effects of the COVID-19 pandemic were beginning to be felt. Notably, in calculating the total award, the Court also considered these effects in determining the employee’s bonus entitlement, given the employer had suffered a downturn and expected to issue smaller (if any) bonuses, and overtime pay entitlement, given the employer had instituted a policy prohibiting overtime work.

• More recently, the Ontario Superior Court went further in Kraft v. Firepower Financial Corp. After determining the average reasonable notice period in similar, pre-pandemic cases, the Court added a month to the dismissed employee’s notice period award in light of evidence the pandemic had impacted the employee’s ability to find a new job.

• In Slater v. Halifax Herald Limited, the Nova Scotia Supreme Court also considered COVID-19 a relevant, though not a dominant, factor in calculating a dismissed employee’s compensation for wrongful dismissal.

• However, where the employees were dismissed before the pandemic began, and even though the pandemic was ongoing during the notice period, the Ontario Superior Court declined to factor the pandemic into the calculation of the notice period in Yee v. Hudson’s Bay Company and Herreros v. Glencore Canada. The Court’s reasoning was that the notice period calculation should account for the economic circumstances at the time of – not after – the termination date.

 2. Violating COVID-19 safety policies can be grounds for just cause termination

Employers might have been justified in terminating employees’ employment for “just cause” for failure to abide by their COVID-19 policies or public health guidelines. When an employer has just cause to dismiss an employee, the employee isn’t entitled to notice of termination or severance.* And sometimes, an employee’s violation of an employer’s policy can constitute just cause. As employers wrangle with mandatory employee testing and vaccination and vaccination policies, policies and rules instated earlier in the pandemic, particularly around not reporting to work when ill or isolating, have already been put to the test. Employers can take some assurance from these decisions in the unionized context:

• In Garda Security Screening Inc. v. IAM, District 140, one of the earliest reported pandemic dismissal decisions, an Ontario arbitrator upheld the for just cause dismissal of an employee who attended work while awaiting a COVID-19 test result, contrary to public health guidelines and the employer’s bulletin on testing and isolation. While the employee claimed she wasn’t symptomatic (which the evidence didn’t support), the employee’s subsequent test result was positive. The arbitrator found the employee disregarded the employer’s isolation guidelines and failed to inform her employer she had been tested, and at the hearing showed no remorse or concern for the potential consequences of her actions. The arbitrator concluded, “[t]he actions of the grievor were a clear violation of the employer’s and public health guidelines. Her claim of not feeling sick is absolutely irrelevant. She was required to isolate, as she knew, for the safety and health of others. She chose not to, thereby putting countless others at risk of illness or death.”

• In LIUNA Local 183 v. Aecon Industrial, an Ontario employee violated their employer’s COVID-19 policies by coming to the workplace after exhibiting COVID-19 symptoms and being instructed repeatedly to stay home. The employer dismissed the employee for just cause, and the union grieved. The arbitrator upheld the dismissal, agreeing with the employer that the policy violation constituted just cause.

• In Complainant v. CLAC Local 301, the Alberta Labour Board went as far as to say that a union doesn’t violate its duty of fair representation by refusing to proceed with a grievance on behalf of an employee dismissed for cause for violating COVID-19 policies. The union investigated the employee’s claim of unjust dismissal and attempted to informally advocate on his behalf, but ultimately took the view that a grievance would have little chance of success. The Alberta Labour Board agreed this was a reasonable conclusion.

• Though not a dismissal grievance, in Vancouver School District No. 39 and CUPE, Local 407 (Linde), Re, a B.C. arbitrator upheld a suspension for an employee, previously on sick leave with COVID-19 symptoms, who deliberately coughed on a co-worker. The arbitrator noted that the employee was “lucky that the employer did not terminate him”.

• While also not a dismissal grievance, in Canadian Union of Public Employees, Local 3513 v. Breton Ability Centre, an N.S. arbitrator found the directive of an employer, engaged in residential care and rehabilitation with acutely vulnerable people, requiring that employees not work for more than one employer was reasonable at the time of its introduction. This case is another example of recognition, at least at the arbitral level, that the pandemic’s circumstances have justified more stringent employer policies.

3. COVID-19-related layoff likely amounts to constructive dismissal

An employer that unilaterally changes, or fails to a meet, a fundamental term of an employee’s employment is considered to have “constructively dismissed” that employee: it has signaled an intention not to be bound by the employment agreement, allowing the employee to treat their employment as terminated without cause. The employee can then claim the same entitlements as if the employer had expressly dismissed them: statutory notice or pay in lieu of notice, reasonable notice, severance (where applicable), or reinstatement (in a unionized context). As a general rule, laying off an employee in the absence of a contractual right to do so amounts to constructive dismissal. And while many employees accepted temporary lay-offs during COVID-19, believing it to be the best alternative in the circumstances, and hoping to be recalled, not all did so. Recent decisions illustrate that layoffs due to COVID-19 are no exception to the general rule:

• In Ristanovic v. Corma Inc, the Ontario Superior Court of Justice found that temporary layoffs related to COVID-19 amounted to constructive dismissal. The Court acknowledged the pandemic had disrupted the employer’s operations significantly. However, it reasoned this disruption is akin to other adverse events that can derail a business, and such adverse events can’t justify unilateral layoffs.

• The British Columbia Supreme Court reached the same conclusion in Hogan v. 1187938 BC Ltd.

• Similarly, in Coutinho v. Ocular Health Centre Ltd, the Ontario Superior Court of Justice found that a COVID-19 related layoff amounted to constructive dismissal.

The Courts’ approach in these decisions underscores one of the contracting lessons employers learned in 2020: include a temporary lay-off term in all of your employment contracts, even in a non-unionized context.

4. Organization-wide changes to compensation due to COVID-19 can amount to constructive dismissal

It’s well-established that, as a general rule, an employee’s compensation is a fundamental term of employment, and a reduction in compensation will often amount to constructive dismissal. While courts have typically tolerated a minimal reduction in some circumstances, there’s no magic number for what will or won’t trigger a constructive dismissal. Indeed, courts are particularly attuned to context: whether a compensation reduction amounts to dismissal can depend on the employee’s total compensation; higher paid employees are generally expected to withstand a percentage reduction that other employees – particularly those already paid close to minimum wage – are not.

During COVID, many employees accepted some compensation reduction (whether reduced salaries, cancelled bonuses, or suspension of other incentives) considering it to be the best alternative in the circumstances, and hoping it would be temporary. But once again, it appears that compensation reductions as a result of the COVID-19 pandemic are no exception to the general rule. For example, in Kosteckyj v. Paramount Resources Ltd, the Alberta Court of Queen’s Bench decided that an employer constructively dismissed an employee affected by the employer’s company-wide salary reduction policy and suspension of RRSP contributions and bonuses, despite the fact these were a response to the pandemic. The employee’s total reduction in compensation was 20%. Though they were still due to earn over $130,000 that year, the Court found the employee was constructively dismissed. The employee was therefore entitled to compensation for a reasonable notice period.

5. CERB might not reduce the pay in lieu of notice an employer owes an employee

If a court decides an employer “wrongfully dismissed” an employee (terminated their employment either without providing any or sufficient reasonable notice), the employer is liable to pay the employee an amount equal to the employee’s compensation during the applicable notice period (which could include, for example, bonus or long-term incentive payments). Employees must repay employment insurance benefits they receive if they also receive wrongful dismissal damages for a reasonable notice period during the same period of time. To account for this, courts don’t deduct employment insurance benefits from such wrongful dismissal damages awarded to an employee. Early cases diverged on whether the compensation of an employee who received the Canada Emergency Response Benefit (CERB) during the notice period must be reduced to account for this. The diverging views were driven by uncertainty over whether government would treat CERB like employment insurance benefits, and require repayment if the employee receives wrongful dismissal damages covering the same period of time:

• In Hogan v. 1187938 BC Ltd, the British Columbia Supreme Court deducted a dismissed employee’s CERB payments from the final compensation award. The Court reasoned that failing to deduct the CERB payments would put the employee in a better position than he would be had he not been dismissed. In Abdon v. Brandt Industries Canada Ltd., the Saskatchewan Provincial Court followed this approach, and deducted the CERB payments the dismissed employee received during the reasonable notice period.
• In Slater v. Halifax Herald Limited, the Nova Scotia Supreme Court didn’t directly deduct the CERB a dismissed employee had received from its wrongful dismissal award, though it did reduce the overall compensation award slightly (from 24 months to 22 months) to account for the possibilities both that the former employee wouldn’t be required to repay the CERB back, and that he might find another job during the remainder of the notice period. The British Columbia Provincial Court also preferred this approach in Snider v. Reotech Construction Ltd.

• However, in Andrews v. Allnorth Consultants Limited, the British Columbia Supreme Court didn’t deduct the CERB payments the employee had received during the notice period from their wrongful dismissal award because the Court concluded it was likely the employee would have to repay the CERB benefits.
• Further, a court could decline to deduct the CERB payments where the result would be unfair. For example in Iriotakis v. Peninsula Employment Services Limited, the Ontario Superior Court of Justice found the wrongfully dismissed employee was entitled to only three months of notice. The Court declined to deduct the CERB payments from the employee’s wrongful dismissal compensation award, noting that doing so would substantially reduce it, leading to an unfair result.

• However, the most recent – and the only appeal level – case on this issue is the November 2022 decision of the B.C. Court of Appeal in Yates v. Langley Motor Sport Centre Ltd. There, the Court decided the CERB benefits a wrongfully dismissed employee received during their notice period aren’t deductible from their wrongful dismissal damages. Notably, the Court didn’t base its conclusion on whether the employee would be required to repay the benefit, noting this is “fruitless” and between the employee and the government, nor on whether the employee would be overcompensated for their loss of employment. Instead, the Court took the view that there were overarching policy reasons for not deducting the CERB benefits from the wrongful dismissal damages, including: the purpose of CERB as an emergency economic measure and its features as a “short-lived exceptional benefits program” meant to apply quickly and simply; that the employer shouldn’t benefit from breaching the employment contract; and that to the extent there were a windfall to be had it should be a benefit the employee not the employer. The Court expressly disagreed that the combination of CERB and wrongful dismissal damages would leave an employee better off than had their employment not been terminated. This decision is binding only in B.C., but as the only appeal level court decision on the issue to date, it could hold persuasive sway in other provinces and territories.

6. Employees must still make reasonable efforts to mitigate their losses even during the COVID-19 pandemic

Employees have an obligation to attempt to mitigate their wrongful dismissal losses by making genuine efforts to find new employment after their dismissal. Any income they earn as a result of successful mitigation efforts is deducted from the compensation for which their former employer is liable because the employee ought not end up in a better position, or effectively “double-dip”. And if the employee fails to mitigate, courts can still reduce their wrongful dismissal damages. Job search efforts are harder during a global pandemic when government-imposed restrictions prevent knocking on doors or lunch meetings. However, recent decisions indicate that courts expect a dismissed employee to still actively search for new employment, including reaching out to contacts, writing cover letters and following up on calls, emails and letters; sitting at home scanning the internet for an identical position isn’t enough to fulfill the duty to mitigate:

• In Moore v. Instow Enterprises Ltd., the British Columbia Supreme Court deducted three months from the employee’s reasonable notice period for failure to mitigate, finding creating a resume, doing online searches for an identical job and submitting a few online job applications wasn’t active mitigation.

• Similarly, in Goetz v. Instow Enterprises Ltd., the British Columbia Supreme Court reduced the employee’s reasonable notice period by two months for failure to mitigate, finding that speaking to people in the industry and registering for job sites weren’t forms of active mitigation.

7. COVID-19 doesn’t frustrate an employment contract

It’s a basic principle of contract law, also applicable to employment contracts, that a contract can be “frustrated”: automatically terminated without the fault – or liability – of either party (the employer or the employee) if there’s a supervening event that resulted in a fundamental change in circumstances making further performance of the contract either impossible or so radically different from what the parties intended that the contract can be said to no longer exist or be binding. But practically, frustration of contract is risky because the legal standard to prove a contract has been frustrated is very high, and is therefore rarely applied. In the context of labour and employment law, employers typically only attempt to rely on frustration of contract in cases where employees are on long term disability leave – until the COVID-19 pandemic. Some employers hit by business disruptions and declines have attempted to argue that the COVID-19 pandemic operated to frustrate their employment contracts, automatically ending them without any liability on the employer to provide their employee with reasonable notice of termination. However, early indications are that courts won’t accept that argument, highlighting yet another 2020 contracting lesson: as permissible by employment standards legislation, include a force majeure clause in your employment contracts:

• In Verigen v. Ensemble Travel Ltd., the employer, which operated in the travel agency industry, temporarily laid off most of its workforce as a result of the COVID-19 pandemic and eventually terminated the employee’s employment. The employer claimed the global collapse of the travel market, the fact that the employee spent most of her time traveling for work, and that the employer’s actions were necessary for it to survive the pandemic, all supported a conclusion that the employee’s employment contract was frustrated. The British Columbia Supreme Court disagreed, deciding the contract wasn’t frustrated due to the pandemic. The Court acknowledged the travel market collapse made it more difficult for the employer to perform the contract, but found this didn’t change the nature of its obligation. And although the employer had experienced a significant business loss, not all of this business loss was permanent, and the employer had decided to keep some positions and add new employees after the pandemic.
• Similarly, in Slater v. Halifax Herald Limited, the employer, a newspaper, initially argued the pandemic operated to frustrate the employment contract of a very long term (39 year) employee, giving it the right to dismiss the employee without notice or compensation. The employer abandoned the frustration argument the day before trial. While the Nova Scotia Supreme Court didn’t decide the question of whether the contract was indeed frustrated, it did comment that, “The [employer] acknowledges now that it did not have the right to dismiss [the employee] without notice or compensation after 39 years of service. You just can’t treat people that way, even during a pandemic.”

*In Ontario, as could eventually be the case in some other provinces, the interpretation of the standard for a termination without notice has changed such that an employer might have “just cause” (a common law standard) to terminate but could still owe statutory notice of termination and severance.

Please contact your McInnes Cooper lawyer or any member of our Labour & Employment Team @ McInnes Cooper to discuss how to handle employee claims resulting from COVID-19 related employment changes.

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