In the recent (and currently unreported) decision of Fogelman v IFG [Fogelman], the Ontario Superior Court of Justice (the “Court”) held that O. Reg. 228/20: Infectious Disease Emergency Leave (the “Regulation”) under the Employment Standards Act, 2000 (the “ESA”) does not prevent common law constructive dismissal claims, that CERB payments should not be deducted from wrongful dismissal damages, and that an employer’s failure to pay statutory termination entitlements to an employee who has claimed constructive dismissal justifies punitive damages.
As we have written about previously, there are currently two reported decisions on whether the Regulation prevents Ontario employees from successfully claiming constructive dismissal under the common law where they have been laid off for reasons related to COVID-19, and these decisions reached opposite conclusions (for more information on these decisions and the Regulation, please read our earlier blog). As a result, Fogelman has tipped the scales in favour of employees by finding that the Regulation does not prevent common law constructive dismissal claims in these circumstances, although there will continue to be legal uncertainty until the Ontario Court of Appeal weighs in on this issue.
Similarly, there has been legal uncertainty as to whether any CERB payments that a wrongfully employee received during the common law reasonable notice period will reduce the damages to which they are entitled. Although there has been one reported Ontario decision in which the Court found CERB payments don’t reduce wrongful dismissal damages (please read our blog on this decision) the British Columbia Superior Court subsequently reached the opposite conclusion in Hogan v 1187938 BC Ltd [Hogan]. Unfortunately for Ontario employers, the Court in Fogelman followed its previous decision and ruled in favour of employees on this issue as well.
Fogelman v IFG
The Regulation Does Not Prevent Constructive Dismissal at Common Law
In Fogelman, an employee who was temporarily laid off for reasons related to COVID-19 claimed that he had been constructively dismissed and was entitled to common law reasonable notice because his employer had not reserved the right to lay him off.
The Court ruled that the employee had been constructively dismissed and that the Regulation had no bearing on an employee’s ability to claim constructive dismissal under the common law, despite that the Regulation effectively states that employees who have been laid off for reasons related to COVID-19 are deemed to be on an infectious disease emergency leave that such layoffs “do not constitute constructive dismissal”.
The Court reached this conclusion because s. 8(1) of the ESA provides that the ESA and the regulations under it do not affect an employee’s right to civil remedies against their employer under the common law. Further, the Court noted that the Ontario Ministry of Labour, which is responsible for administering the ESA and the Regulation, published a bulletin which stated that the Regulation only impacts what constitutes constructive dismissal for the purposes of the ESA and that it does not address what constitutes constructive dismissal at common law.
CERB Benefits Do Not Reduce Wrongful Dismissal Damages
Notably, the employee in Fogelman received five months’ worth of CERB benefits after he was laid off, during the reasonable notice period, and his former employer argued these payments should be deducted from the wrongful dismissal damages awarded to him.
The Court declined to deduct the CERB payments the employee had received from the damages awarded to him because it found these benefits should not be considered income which mitigated the employee’s damages. In reaching this conclusion, the Court followed its previous decision in Iriotakis v Peninsula Employment Services Limited and noted that the Canada Emergency Response Benefit Act itself provides little guidance on the relationship between CERB benefits and wrongful dismissal damages, but that s. 12(1) requires CERB recipients to pay back any overpayments of benefits that they receive.
Failure to Pay Statutory Termination Entitlements Justifies Punitive Damages
The Court in Fogelman also awarded the employee punitive damages, which are a type of extraordinary damages that courts may award where they find a defendant’s conduct to have been so outrageous and malicious that it should be punished, denounced, and deterred.
Notably, a court can only award punitive damages in an action for wrongful/constructive dismissal where it finds that the employer committed an independent, actionable wrong, beyond the wrongful/constructive dismissal at issue.
Although the courts have previously recognized that an employer’s failure to comply with the ESA can constitute an independent actionable wrong which allows for punitive damages to be awarded, the Court found that the employer in this case had failed to comply with the ESA for an arguably novel reason. Namely, the employer did not provide the employee with their statutory termination and severance entitlements once the employee took the position that they had been constructively dismissed. The Court reached this conclusion despite that the employer arguably had a reasonable basis for taking the position that the employee had not been constructively dismissed.
Moreover, although the Court found that the employer had acted unfairly and inappropriately in a number of ways which justified punitive damages, it also found that the employer’s failure to provide the employee with his ESA termination entitlements was in itself “outrageous and reprehensible behaviour deserving punitive sanction”.
Unfortunately, Fogelman is not good news for employers who have been forced to place employees on temporary layoff due to the COVID-19 pandemic and who did not reserve the right to place such employees on layoff in their employment agreements. Not only does Fogelman suggest that employees can claim common law constructive dismissal in these circumstances, despite the Regulation, it also suggests that the damages such employers may be required to pay to wrongfully dismissed employees will not be reduced by any CERB payments that they received during the common law reasonable notice period.
As noted above, the law on these issues is still uncertain and until they are addressed by an appellate court it remains to be seen how these issues will be decided by the courts going forward. In the meantime, employers who have laid employees off during the pandemic might consider recalling them sooner rather than later, if possible, in order to avoid potential liability of such employees claiming constructive dismissal.
Finally, Fogelman suggests that employers may be liable for punitive damages where they disagree that they have constructively dismissed an employee who has alleged constructive dismissal and refuse to provide them with their statutory termination entitlements. This is likely another issue that will require clarification from an appellate court, as it seems unreasonable to require employers to provide termination entitlements to employees who allege constructive dismissal, and to impose punitive damages if they do not, where the employers have a reasonable basis for believing that such employees have not been constructively dismissed.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.