Common challenges

Addressing the Elephant in the Room: Constructive Dismissal Claims

March 26, 2020

It is never easy to deliver bad news to an employee about their employment. During the current COVID-19 pandemic, many employers and HR professionals find themselves having to arrange such conversations. It is a time of high stress for everyone involved, and management must work with employees to navigate this uncertain landscape. But even with a careful approach and sensitivity to the feelings and emotions of employees, there is still a frequent fear that employees may interpret major changes to their employment status as constructive dismissal.

Questions about constructive dismissal have become more frequent during the COVID-19 pandemic as many organizations explore options to alter or scale back their operations, such as temporary layoffs or reduced working hours for staff. Below we answer some common questions we've received relating to the pandemic and employers' fears of taking action that would lead to a constructive dismissal claim.

Should I be concerned about constructive dismissal claims for temporary layoffs or reducing staff hours?

Yes, this is an area of concern for many business owners. In normal circumstances, reducing hours or issuing temporary layoffs for staff either who have permanent employment contracts that do not include language related to either scenario or in jurisdictions that require staff to approve the temporary layoff could result in a constructive dismissal claim.

 

What is constructive dismissal?

Constructive dismissal occurs when an employer unilaterally alters a fundamental term of the employment relationship, such that the employee feels the relationship is irreparably broken. Putting an employee on a temporary layoff without the employee’s approval, under normal circumstances, has been deemed by Canadian courts to constitute such an alteration in the employment relationship.

To make a claim for constructive dismissal, the employee needs to seek out legal support and provide notice to the employer that they believe they have been constructively dismissed, and so would seek either an immediate return to work or a termination package. Termination requests could involve a common-law entitlement.

 

The current pandemic does not seem like normal circumstances for my business. Does the principle of constructive dismissal still apply?

Governments are ordering many businesses to shut their doors or scale back their operations whether for being deemed a non-essential service, due to significant changes in their revenue, or being unable to complete work based on the closure of other services.The situation today is unprecedented for many Canadian businesses. While the principle of constructive dismissal is still applicable, there might be an exemption for frustration of contract in some circumstances.

 

What is frustration of contract, and how does it relate to temporary layoffs?

Frustration of contract means the employment contract has become impossible to fulfil through no fault of either party. Many Canadian businesses find themselves in situations that may meet this definition. For example, if a business is ordered to shut down by the government, this is beyond the business’s control, and there is simply no work available for their staff. It may be possible for the business to use frustration of contract to justify a temporary layoff in these circumstances. However, always seek a legal opinion before exploring that option.

If frustration of contract does in fact exist, this would limit the termination payment to the minimum statutory entitlement in your jurisdiction. For most jurisdictions, this entitlement is a range of one to eight weeks of payment based on completed years of service. In some jurisdictions, the employee may also be entitled to severance obligations also contained within the employment standards (this applies in Ontario, in Nova Scotia, and for federally regulated employers).

If successful, the frustration of contract determination reduces or eliminates a common-law entitlement that would often provide employees with a much greater entitlement.

 

My business was ordered to close. Does frustration of contract apply?

The governments of Ontario and Quebec have ordered all non-essential businesses to close. In many cases, this closure may be enough to argue frustration of contract. However, businesses should explore all of their options, including remote work, before turning to frustration of contract. And always seek a legal opinion before making such an argument.

If you decide to proceed with temporary layoffs based on frustration of contract, we recommend including the following language in the temporary layoff letter:

“Based on the recent government announcement of the temporary closure of all non-essential businesses, we are mandated to close effective (insert date) for approximately (insert number) weeks. The mandate could change and result in a longer disruption to our workplace. As a result of this mandate, you will be temporarily laid off until the government enables a return of business.”

Following this language, include the details of any benefit plans the employee has access to, a link or information on how to apply for Employment Insurance, and your communication plan.

 

What can I do to mitigate the potential of an employee filing a constructive dismissal claim?

The best thing that a business can do today is to talk with employees and keep them informed of the situation. Involve your staff in the decisions that your business makes. These are not normal circumstances; the issues today are not limited to only your business.

Present the situation, discuss options, and if possible let employees select the option that works best for them. Some options to consider may be:

  • Temporary layoff;
  • Reduced hours;
  • Job-sharing;
  • Supplementary unemployment benefits to top up payments provided through Service Canada;
  • Allowing staff to use available vacation pay, sick leave, and other paid time off; and
  • Remote work.

The more you can involve employees in your decision-making, the less likely they are to make a claim of constructive dismissal.

Regardless of the decisions you make today, keep communicating and updating your employees. Look at strategies to support your workers and your business during these stressful times, and be available to talk about changes.

 

What about human rights? How do they apply?

Under Canadian human rights legislation, an individual cannot be discriminated against based on prohibited grounds of discrimination. Each jurisdiction has its own list of prohibited grounds of discrimination, but some common ones include age, disability, citizenship, and family status.

If your business decides to temporarily lay off employees to whom prohibited grounds of discrimination are applicable (for example, laying off older workers, or laying off workers with disabilities) but retain the rest of your workforce, this could lead to the perception of discrimination, because it would appear that the decision was made solely based on the individuals’ association with prohibited grounds. This could lead to laid off employees filing complaints with your jurisdiction’s human rights commissioner and seeking damages for loss of dignity, income, and pain and suffering.

 

Information related to COVID-19 suggests that individuals who are over 70 or who have underlying health conditions are at risk. Shouldn’t I try to protect my employees by keeping at-risk persons from the workplace?

It is wonderful that the business is concerned and trying to protect employees who are at risk. We all have to perform our due diligence to mitigate health and safety concerns. However, focussing only on those whom you believe are at risk and imposing a burden on them may be seen as discrimination. To mitigate this risk exposure, talk to your employees. Communicate with those at an increased risk, and offer employees options. One of those options could be a voluntary temporary layoff or leave of absence until the pandemic concerns have cleared. Make these offers to all employees, as you may not be aware of concerns that other employees may have. We are in unprecedented times. Having conversations and communicating are vitally important. Connect with employees whom you are concerned about and ask them how they are doing. Let them know that you are worried about them and want to support them in remaining healthy during this time. Leave the door open to discuss options. If the employee is part of the conversation and you are clearly working in their best interests, they are less likely to feel that their human rights have been violated.

 

Looking for more information?

HRdownloads is here to support your business as questions arise and circumstances continue to change. Properly completing a Record of Employment (ROE) is another topic employers and HR professionals are feeling unease about given the unprecedented circumstances we are in. Get answers to frequently asked questions in our recent blog post: Record of Employment (ROE) Challenges During the COVID-19 Pandemic

As the pandemic continues to progress, we will continue to update our blog as frequently as possible to provide you the resources and answers you need. 

 

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