Does ESA’s IDEL Restrict Employee’s Ability to Pursue Civil Claim for Constructive Dismissal? Court of Appeal Needs to Provide Answers

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As Focus readers may recall, as detailed in our earlier Focus Alert, the Ontario Superior Court of Justice previously examined in the case of Coutinho v. Ocular Health Centre Ltd. (April 27, 2021) whether the reference to “constructive dismissal” in Regulation 228/20 (Infectious Disease Emergency Leave) (“IDEL Regulation”) made under the Ontario Employment Standards Act, 2000 (“ESA”) restricted an employee’s ability to pursue a complaint (or claim) against an employer for constructive dismissal under both the ESA and the common law, or whether it was confined to the ESA alone. In that case, the Court held that the IDEL Regulation did not restrict the employee’s ability to pursue a civil claim against her employer for constructive dismissal at common law.

However, as Focus readers may recall, as detailed in our earlier Focus Alert, the Ontario Superior Court of Justice subsequently came to a completely opposite conclusion in Taylor v. Hanley Hospitality Inc. (June 7, 2021), finding that the IDEL Regulation does restrict an employee’s ability to pursue a civil claim for constructive dismissal at common law.

To add further confusion, another decision from the Ontario Superior Court of Justice, also issued in early June 2021 (Fogelman v. IFG, 2021 ONSC 4042), has concluded that the IDEL Regulation does not restrict an employee’s ability to pursue a civil claim for constructive dismissal at common law. The Fogelman case was decided within a few days of the Taylor case. It is interesting to note, however, that the Court in the Taylor case specifically considered and commented on the Coutinho case in its analysis and found that the Coutinho case was “wrongly decided” while the Court in Fogelman makes no mention of the Coutinho case at all. It is unclear if this is because the Fogelman case was heard before the Coutinho case, however, we note that Coutinho was released more than a month before Fogelman.

 

Fogelman v. IFG, 2021 ONSC 4042

Background

Mr. Fogelman was placed on temporary layoff on March 16, 2020, as a consequence of the downturn in the business of the employer, International Finance Group (“IFG”), resulting from the COVID-19 pandemic.

In response, Mr. Fogelman filed a Statement of Claim alleging that he had been constructively dismissed at common law because his contract did not permit IFG to place him on a temporary layoff. However, IFG claimed that the IDEL Regulation disentitled Mr. Fogelman from pursuing a civil claim for constructive dismissal.

The Court was therefore asked to consider, by way of summary judgment, whether the IDEL Regulation restricted Mr. Fogelman’s ability to pursue a civil claim for constructive dismissal at common law. Another issue in this case was whether Canada Emergency Response Benefit (“CERB”) payments should be deductible from wrongful dismissal damages owing by an employer. The Court had also been asked to review IFG’s conduct and make a determination as to whether punitive damages should be awarded in the circumstances.

 

Court’s Findings

Application of the IDEL Regulation

The Court indicated that it was asked to consider the potential applicability of the IDEL Regulation, and it agreed to do so, even though it acknowledged that the employer “did not seriously pursue this line of argument”. The Court found that the IDEL Regulation was enacted by the Ontario government as a measure to provide temporary relief to employers from paying statutory notice and severance under the ESA during the course of the COVID-19 pandemic by providing that, for purposes of the ESA, temporary layoffs would not constitute constructive dismissal (subject to stated exceptions) within the meaning of that statute. The Court also noted that the Ontario Ministry of Labour bulletin entitled “COVID-19: temporary changes to ESA rules” stated that the rules did not address what constituted a constructive dismissal at common law. The Court relied on subsection 8(1) of the ESA, which states that “[…] no civil remedy of an employee against his or her employer is affected by this Act.” The Court interpreted subsection 8(1) of the ESA as meaning that the ESA does not supersede the civil remedies otherwise available to an employee at common law or in equity.

As Mr. Fogelman was not pursuing his rights under the ESA but rather was pursing his civil remedies, the Court concluded that the IDEL Regulation did not apply to restrict Mr. Fogelman’s claims made under the common law pursuant to subsection 8(1) of the ESA.  Essentially, the Court found that the IDEL Regulation did not limit Mr. Fogelman’s ability to pursue a claim for constructive dismissal against his employer pursuant to common law. It is interesting to note that the Court also indicated that if this conclusion is erroneous in law, the result would be the same in any event as the Court interpreted the circumstances as falling outside of the scope of the application of the IDEL Regulation due to the timing of the constructive dismissal and Mr. Fogelman’s resignation all occurring prior to May 29, 2020.

 

Deductibility of CERB payments from wrongful dismissal damages

Mr. Fogelman had applied for, and received, the income support payment under the Canada Emergency Response Benefit Act (“CERB Act”), in the sum of $2,000 per month, for five months from April to August 2020. IFG submitted that the Court should reduce any award it made by the CERB sums Mr. Fogelman received. The Court therefore considered whether CERB payments should be deducted from the amounts found to be owing by the employer as damages for wrongful dismissal. The Court concluded that CERB payments should not be treated as income for purposes of mitigation, and therefore declined to deduct the CERB income support payments received by Mr. Fogelman from the wrongful dismissal damages awarded.

 

Determination of an Award of Punitive Damages

Lastly, in addition to awarding a common law notice award, the Court awarded punitive damages in the amount of $25,000 for the following reasons:

  • IFG had not behaved well in its dealings with Mr. Fogelman over the termination. First, it took the position that Mr. Fogelman was an employee since 2009 and produced sworn evidence to this effect and this position was also reflected in its statement of defence. Then, later, by way of a supplementary affidavit, IFG changed its position and stated that Mr. Fogelman was actually an independent contractor for the first five plus years of his employment and produced an employment contract.  IFG did not amend its statement of defence to plead the employment contract and its termination clause.
  • IFG did not recall Mr. Fogelman or tell him about his prospects of being recalled despite previously advising him at the time of his layoff that it would provide him with an update on his layoff status.
  • IFG made it difficult to affect service of the Statement of Claim, notwithstanding the pandemic (its lawyer declined to accept service and then IFG’s personnel were instructed not to accept service). It was noted that this pattern of conduct, during a pandemic, was designed to make it as difficult as possible for Mr. Fogelman to proceed with his lawsuit.

As part of the analysis related to an award of punitive damages, the Court also held the following:

[120] It is also my view that the failure to comply with the ESA is an independent wrong that is outrageous and reprehensible behaviour deserving of punitive sanction. The purpose of the ESA is to provide employees with minimum standards, including minimum notice and severance in the case of termination without cause. Employers cannot be permitted to ignore their obligations under the ESA while awaiting the outcome of a court proceeding where the termination was conceded to be without cause. It is critical that the courts protect the statutory rights of employees, especially in harsh economic times. I agree with Mr. Fogelman’s position that IFG’s refusal to pay anything to Mr. Fogelman was an attempt to play hardball with him.

 

In Our View

With respect to the Court’s award of punitive damages, employers should certainly make note of the reasoning set out in this decision, particularly as it relates to the Court’s belief that the employer’s actions (including not paying out ESA entitlements, when applicable) constituted “playing hardball”.

The decision on punitive damages will likely be further scrutinized. In reading the reasons, it is apparent that the Court felt the employer had been acting in a heavy-handed manner in its handling of the litigation and such a finding will always bring a risk of a further award of damages. However, with respect to the impact of the employer’s failure to pay ESA statutory termination entitlements, the Court does not provide much analysis or explanation as to when, based on the facts of this particular case, a termination under the ESA actually occurred such that the statutory obligation to pay those ESA termination payments was triggered. This particular analysis would have been of assistance to better understand the Court’s ultimate finding that the employer failed to comply with the ESA and that such action was another factor supporting the determination that the employer was “playing hardball” with Mr. Fogelman.

Unfortunately, at this time, it remains unclear whether an employee on IDEL is restricted from pursuing a constructive dismissal claim at common law, given the number of conflicting decisions on this issue from the Ontario Superior Court of Justice (Coutinho and Fogelman vs. Taylor). We will continue to monitor new cases and developments in this area; however, we are also hopeful that the Court of Appeal for Ontario will soon consider and provide the much-needed analysis, guidance and clarity on this point.

In addition, we also believe that there is more to be said with respect to the potential for the common law to evolve to recognize that some temporary layoffs as a result of the pandemic were not constructive dismissals at common law, irrespective of the pre-pandemic case law on the subject. We suspect that the Court’s analysis may be different depending on the situation facing the employer during the early part of the pandemic, such as in cases where an employer was not deemed essential and was not permitted in law to operate at all for a period of time.

In the meantime, given the current uncertainty, employers dealing with choices related to employee layoffs, recalls or ongoing IDEL should seek legal advice in order to obtain support and assistance in navigating these uncertain circumstances.

For more information, please contact Sheri Farahani at 613-940-2745 or Kyle Shimon at 613-563-7660 ext.269.