By Nicola Watson

Pink Larkin’s COVID-19 Workplace Fact Sheet #3 highlighted the possibility of constructive dismissal claims arising from temporary lay-offs effected as a result of COVID-19.

Constructive Dismissal

A claim for constructive dismissal may arise when an employer unilaterally changes a fundamental aspect of the employment relationship. If an employment contract does not address layoffs, it is likely that a failure to provide work and compensation would constitute such a change. While a temporarily laid off employee may not have been fired, the common law often treats them as if they have. (Halifax Herald Limited v. Clarke, 2019 NSCA 31, para 1)

In Nova Scotia, where employees have up to two years to pursue a claim for constructive dismissal, employers will remain vulnerable to such claims for periods extending long after COVID-19 closures and slowdowns.

Defending Against Constructive Dismissal Claims

The commentary on constructive dismissal claims in the COVID-19 era has focussed on two potential defences to these claims: (1) frustration of contract, and (2) implied contractual provisions allowing employers to lay off employees due to a pandemic. The availability and applicability of either of these defences is, at best, uncertain.

Generally, frustration of contract is difficult to establish. It will depend on the specific circumstances of the employer. Based on the pre-COVID-19 case law, a reduction in, or temporary closure of, the employers’ operations, without more, is unlikely to be enough. In relation to implied contractual provisions allowing employers to lay off employees due to COVID-19, it is unclear in what cases, if any, the courts would be willing to find such provisions exist.

Practical Advice for Reducing Risk

One way for employers to reduce the risk of constructive dismissal claims that has not been discussed in much of the commentary surrounding COVID-19 lay-offs is through recalling employees. Perhaps the recall of employees has been overlooked because it is presumed that the intent to recall employees is implied by deeming lay-offs as “temporary.” However, recalling laid off employees, even when they have filed a claim for constructive dismissal or indicated an intent to, is a practical way to mitigate damages.

At common law, an employee who claims that they have been constructively dismissed has a duty to take reasonable steps to mitigate their damages. One way an employee can mitigate their damages is to return to employment with their employer. In fact, the Supreme Court of Canada has held that, in the absence of conditions that would render the return to work unreasonable, an employee can be expected to mitigate damages by returning to work for the employer (Evans v Teamsters, Local 31, 2008 CarswellYukon 22, para 30). An employee’s failure to do so may result in a dismissal of their constructive dismissal action or a reduced damage award.

In Gent v. Strone Inc., 2019 ONSC 155, Strone Inc. temporarily laid off a 23-year employee, Mr. Gent, due to a significant decrease in business. At the time of lay-off, Mr. Gent was advised that he would be recalled as soon as possible when business improved. Mr. Gent subsequently sued Strone claiming that the temporary lay-off constituted constructive dismissal. Despite Mr. Gent’s claim that he was constructively dismissed, Strone recalled him 3.5 weeks later. Having commenced his claim, Mr. Strone refused to return to work.

While the lay-off in Gent was due to a non-COVID-19 related decrease in business, the decision provides guidance to both employers and employees in relation to post-COVID-19 recalls.

In Gent, the Court agreed with Mr. Gent that the temporary lay-off by Strone constituted constructive dismissal. He was therefore entitled to damages for Strone’s failure to provide reasonable notice of his termination. Mr. Gent’s entitlement to reasonable notice, however, was subject to his obligation to mitigate his damages.

Strone argued that Mr. Gent failed to mitigate his damages when he refused Strone’s offer to be recalled to work. The Court agreed. While the Court concluded that Mr. Strone would have been entitled to 18 months of notice, his failure to mitigate his damages by accepting an offer of re-employment with Strone led the Court to reduce this amount to just 3.5 weeks, representing his loss of income between the date he was temporarily laid off, and the date he was offered re-employment.

Lessons for a Post-COVID-19 World

Based on the Court’s analysis in Gent, it would be prudent for employers to recall employees even if they have expressed an intention to pursue a claim for constructive dismissal. While a return to work will not preclude such a claim from being brought, it can significantly mitigate the potential damages recoverable against the employer. Further, if an employee refuses to return, the employer can argue, as Strone did in Gent, that the employee has failed to mitigate their losses.

In determining whether an employee had a duty to accept an offer of re-employment, the key issue is whether a reasonably objective individual would have concluded that returning to work would be too embarrassing, humiliating or degrading. Some of the factors a Court would likely consider are:

  • Is the salary being offered the same?
  • Are the working conditions substantially the same?
  • Was it expressly communicated to the employee that the lay-off was temporary?
  • Are there acrimonious personal relationships involved?
  • Has the employee commenced litigation?

In Gent, some of the factors the Court considered in concluding that Mr. Gent had a duty to accept Strone’s offer of re-employment were that Strone had assured Mr. Gent that: the work was consistent with his previous work, that it still considered him a valued employee, and that he would not suffer any reprisal as a result of his pending claim against the company. Strone had also confirmed with Mr. Gent that it understood that his return to work was not an admission that layoffs are permissible and did not signal any agreement with Strone’s position in the pending litigation.

Strone’s communications with Mr. Gent in relation to his recall undoubtably played a significant role in the Court’s decision that Mr. Gent should have returned to his employment to mitigate his losses. In order to avoid and mitigate the potential damages in constructive dismissal claims, employers should seek advice regarding their communications to employees during layoffs and if/when those employees are recalled to employment.

Similarly, employees who are considering whether to pursue a constructive dismissal claim against their employer as a result of a COVID-19 lay-off should seek legal advice before refusing a recall to work. The Court’s decision in Gent concluded that Mr. Gent should have returned to work, despite having commenced litigation and attesting that it would be humiliating to return, serves as a cautionary tale of the potential impact refusing to return to work could have on a constructive dismissal claim.

For further information, contact us at (902) 423-7777, toll-free at 1-800-565-4529, or [email protected].

* This information is not legal advice.  The answers to these questions will vary, depending on the circumstances of each case. Consult legal counsel for information and advice relevant to your individual circumstances.