Taylor v. Hanley - Counterpoint

A recent decision from Ontario's Superior Court has found that their COVID regulations, which extended temporary layoffs and characterized them as "Infectious Disease Emergency Leave", effectively gave employers the contractual right to temporarily lay employees off during the pandemic.

This would be unusual. Outside of union contexts and very specific industrial contexts, it's very rare to see an employment contract where the employer is entitled to impose temporary layoffs. The default implied term is the opposite - so doing so constitutes a constructive dismissal.

It also runs directly contrary to a prior Ontario decision in Coutinho.

Even though most employment standards regimes include some regulation of temporary layoffs, the prevailing jurisprudential wisdom is that they don't create a contractual entitlement to lay off, and therefore employers can still be liable in contract (constructive dismissal) even if they've complied with the statutory requirements. This is in large part because employment standards legislation is uniformly designed to protect minimum standards, and expressly doesn't adversely affect civil remedies available to employees.

Hat tip to Sean Bawden for his summary of this case, which is quite good, and I recommend reading it. The text of the decision is linked in Sean's post.

The employee was temporarily laid off on March 27, 2020, and recalled September 3, 2020. She returned, but sued in constructive dismissal. (NB: Circling back to my ongoing saga on constructive dismissal, I might argue that characterizing this as constructive dismissal is unnecessary, and plays into unnecessary complications. Call it breach.)

The employer brought a motion to dismiss her claim.

Granting the motion, Justice Ferguson ran through a series of submissions of the employer, with which she agreed, departing from Coutinho on the basis that it didn't address these supposed problems. I'm going to go through the list, and explain why none of them are supportable bases for the court's finding.

1. It offends the rules of statutory interpretation to give an interpretation that renders legislation meaningless. That issue was never addressed in Coutinho.

Firstly, the Coutinho approach doesn't render the language meaningless. I'll come back to that under the next point. But it bears noting that the IDEL provisions relied upon are part of the regulation, not legislation, and they cannot fundamentally change the nature or meaning of the provisions they operate within.

The framework here is that the statute includes a range of protected leave provisions, including "Emergency Leaves", which employees are "entitled" to take in a range of circumstances.

The regulation basically says that, if the employer reduces/eliminates your hours temporarily, that's one of the circumstances that triggers the entitlement...and if you're not working because of COVID, you're deemed to be on the leave. And it's NOT a constructive dismissal.

So there's a real problem here in the sense that the operation of the regulation really does seem to be incompatible with the language of the statute it operates under. The statute expressly creates an entitlement, but the regulation tries to pervert it into something that can be foisted onto an unwilling employee. Even if the language of the regulation failed to have any effect because of this inconsistency, that would not offend the rules of statutory interpretation; it would be a proper constraint on executive authority in changing the meaning of legislation.

2. Coutinho never addressed the consequential analysis: What does IDEL mean if not what Tim Hortons says it means?

That's actually not controversial.

What it means is that statutory termination remedies aren't necessarily available. Ontario's ESA has a framework for constructive dismissal, where an employee who has been constructively dismissed can resign and get statutory termination entitlements.

If the IDEL is effective at all - and I have my doubts - it's very likely that an employee would be precluded from seeking statutory termination pay and severance. But that's not the same as common law notice.

As well, the court in Coutinho expressly cited Ministry of Labour materials that acknowledged that IDEL doesn't affect an employee's right to sue in constructive dismissal. That should send up a HUGE red flag for an argument that the interpretation renders IDEL without meaning, when it's the very interpretation supported by the Ministry.

3. Section 8(1) simply sets out that the ESA does not set out an exclusive forum for addressing matters set out in the Act.

No.

This is...just...wrong. Section 8(1) provides that "no civil remedy of an employee against his or her employer is affected by this Act" - subject to narrow exceptions set out in s.97, which actually make it really, really clear that it's not just talking about the forum for statutory rights, because it bars civil wrongful dismissal claims for employees who have made statutory termination pay claims.

And there's plenty of case law, going back decades, establishing that the purpose of that language is to clarify that the point of the statute is not to limit or reduce contractual entitlements of employees. Within the Ontario case law, see - for example - Scapilatti and Martellacci.  There's also plenty of extra-Provincial and Federal jurisdiction material considering very similar language.

4. The ONCA in Elsegood confirmed that the ESA can and does displace the common law.

Yes, but it does so asymmetrically, by establishing minimum standards. At common law, by default, an employer and employee could agree to a wage of a dollar an hour.  Employment standards sets a minimum wage that displaces that; it does NOT, however, displace a $100/hour wage.

This is a deliberate policy choice by legislators, and one that is well-recognized in the jurisprudence, right up to the Supreme Court decision in Rizzo.

5. Elsegood concluded that a termination under the ESA is a termination for all purposes; therefore, following that logic, when the ESA does NOT treat an event as a termination, it's deemed NOT a termination for all purposes.

All dogs are mammals, therefore all mammals are dogs, right?

The employment contract is, at its core, a creature of common law. It is modified by statute, and when a statute says it's terminated...it's terminated.  However, the ESA does not purport to comprehensively catalog the events which will terminate the contract.

Another instance would be an asset purchase. For ESA purposes, an employee who remains employed through such a transaction has his continuous employment recognized - no termination has occurred which incurs statutory consequences like severance or termination pay - but at common law, we actually regard the relationship as being broken by the transaction. The contract with NewCo is, in fact, a different contract than the one with OldCo, which came to an end. (See, for example, H.J. Hotels v. Stone.)

The deemed continuity under the ESA has a number of statutory implications. But only statutory implications. NewCo can't take the position that contractual terms with OldCo survived the transition without being recognized in a new written contract.

This is important in certain classes of cases. One of the more common ones - while still rare - is a scenario where the employee remains with NewCo for a short time before being dismissed: It's fairly uncontroversial, really, that the employee can still have a live wrongful dismissal action against OldCo (in respect of the termination that arose by operation of law at the time of the asset transfer), even though nothing OldCo did constitutes a termination under employment standards legislation.

In other words, there's nothing incoherent about the ESA not recognizing and providing recourse for termination events that are, and remain, termination events at common law.

A similar fallacious interpretation of Elsegood occurred in Trites v. Renin. Much has been written on that subject - okay, yes, a lot of it was by me - as to why it was wrong. It hasn't subsequently been followed by Ontario courts, who have concluded it was wrongly decided.

That being said, I acknowledge that the issue here is slightly different from the ones that arise in typical 'temporary layoff' cases. In the binding temporary layoff cases like Stolze, one of the arguments is purely structural - that a common law constructive dismissal, even by way of a statutorily-authorized temporary layoff, still amounts to a termination under the ESA.

Assuming the effectiveness of the regulation, that's probably not the case here. A COVID layoff may not trigger an ESA termination event at all. And yet, that still doesn't overcome the fundamental issues that employment standards - based on interpretive provisions not changed by COVID legislation or regulations - is not interpreted as conferring contractual rights upon employers, and doesn't purport to set out an exhaustive regime for termination events - such as, for instance, an asset transfer.

6. The courts have never before held that section 8(1) prevents the ESA from displacing the common law.

Yes, yes they have. That's exactly what they've said, time and time again - that section 8(1) prevents the ESA from being interpreted as displacing an employee's common law and contractual rights and remedies.

Displacing employer rights and remedies under a contract, on the other hand...well, that's really most of what the ESA actually does, and that's what the court in Elsegood was saying. And Machtinger, too.

[Numbers 7 and 8 are simply restatements of points already covered.]

9. One should not forget that the common law evolves as the changing times make it necessary to do so.

Okay, this one is an interesting proposition, and might call for additional discussion...which isn't here. Statutes can displace the common law, but evolution is something that happens in the courts.

Should there be a recognition in the common law that the implied terms as we've discussed them for decades may not quite apply in the same way in the context of a pandemic?

Should the common law of frustration evolve to include temporary emergencies like a pandemic? How would that look? What would the prerequisites be for a company to be able to claim that a contract has been frustrated by the pandemic?

None of these have any bearing on the question as to whether IDEL precludes a constructive dismissal action, and a Rule 21 Motion would absolutely be the wrong forum for trying to parse these kinds of challenges.

10. IDEL is a creature of the Act. The right of the employer to place an employee on IDEL arises from the Act.

Well, again, the regulation, not the Act, and that's not the same thing, because calling it an employer right at all is directly at odds with the statutory language.

But it's also not really a 'right' in the sense of a freestanding entitlement to do the thing - more in the sense of saying that it's not illegal to do it.

By analogy, backyard barbecues are (or soon will be, depending on jurisdiction) legal again (yay!). That doesn't, however, give your downstairs tenant greater rights to use your backyard or your grill than were already contained in your lease.

11. The Regulation retroactively deemed layoffs/reductions prior to May 29 to be IDEL

Yes, that's pretty much what the language says.

12. The Regulation can and did change the common law.

That's not really what the regulation says or does. The relevant statutory provision changes the common law, in the sense of giving an employee a right to emergency leave in circumstances where the contract may or may not otherwise provide such a right. The regulation can only inform that right. It's a very finite, narrow change to the common law.

13. The legislature created a problem for employers by requiring them to close or scale back their operations, which would expose employers to liabilities to employees for breach of contract.  The legislature then solved that problem by amending the ESA and creating the regulation to remove those liabilities.  That's clearly the legislative intent.

Okay, a lot to unpack in this one.

Firstly, there's a rather stark constitutional error in attributing everything to the 'legislature', conflating executive action with legislative action.

It's also a pretty simplistic analysis of legislative intent, when other interpretations are available. But the biggest question is this: If the legislature really intended to remove contractual/civil remedies from employees, why wouldn't they have just said so? Why couch it in language of a 'deemed leave', rather than just creating a statutory immunity for employers against civil remedies?

Perhaps because the framing here is rather tone deaf, and statutory immunity would really hang a lantern on the OTHER problem here. "Let's see...the government forced employers to lay off workers, which creates liabilities...then they fixed the problem so employers aren't going to get sued because their workers are out of work.  Everybody wins! You know, except for the employees who probably live hand-to-mouth and are suddenly without a paycheque, in breach of their contractual rights."

The midway solution here IS what the government did: We're going to force you to shut down, and we're not going to force you to pay termination pay or severance pay to employees, but we're not going to touch whatever contractual issues may exist between you and your employees.

Conclusion

The remainder of the paragraphs are conclusory, saying that Coutinho was wrong and therefore shouldn't be followed. I mean, if a Superior Court Judge really believes a prior non-binding precedent was wrong, nothing wrong with not following it...BUT it should be regarded as persuasive, and a court should first be pretty confident that it has a full grasp on the issues and purported errors made by the other court.

As in Trites v. Renin, the court in Taylor v. Hanley failed to appreciate that the underlying fundamental interpretive questions simply aren't new.

When the court in Coutinho interpreted s.8(1) as preventing the statute from limiting or eliminating an employee's contractual/common law rights, that's an interpretation that's well-grounded on the case law.  When the court said in Taylor that the courts have never previously interpreted s.8(1) that way, that is simply an objectively false (and easily disproven) statement of the law.

So while there are certainly complexities in the overall factual and legal matrix, the decision - on the whole - is premised on a deep misunderstanding of how s.8(1) - and employment regulation more generally - operates.

*****

Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.

This post does not contain legal advice, but only general legal information.  It does not create a solicitor-client relationship with any readers.  If you have a legal issue or potential issue, please consult a lawyer.