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Pandemic layoffs could result in litigation surge in Canada

Employers in Canada may be facing a surge in lawsuits charging that they mishandled widespread layoffs during the Covid-19 pandemic, according to a local attorney.

Layoffs in Canada, which are generally governed by rules that specify under what conditions employees can be let go and how long temporary layoffs can last, were uncommon before the pandemic, said Devan Marr, an attorney with Strigberger Brown Armstrong. But the volume of layoffs during the pandemic that ignored laws on how they are to be handled have sparked concern that employers will see a growing number of claims from disgruntled workers, he added.

Speaking at the Rims Canada 2021 Virtual Conference, Marr said the Employment Services Act that governs workplace standards in Ontario, where he practises, stipulates that temporary layoffs are allowed only if they are specified within an employment contract, are commonplace in the employer’s industry, or the employee consents to being laid off.

“That brings us to the pandemic,” Marr said, “because if you don’t have one of these three exceptions, you can run into problems.”

When businesses closed during pandemic lockdowns and because of the sagging Canadian economy, layoffs were widespread, Marr noted. “That’s the problem – just because you want to lay people off doesn’t mean you can. Usually what that can trigger is something called a constructive dismissal [if none of the three exceptions are present],” he explained.

Constructive dismissals can create significant payment obligations for employers, Marr explained. And employers could be facing a deluge of claims for those payments because they are accused of improperly letting workers go during the pandemic, he said.

A move by the Ontario government has provided some relief for employers but it may only be temporary breathing room. The government introduced regulations that reclassified layoffs due to Covid-19 as “infectious disease emergency leave”, said Marr. Employers are now able to argue that employees who were laid off were never constructively dismissed, but instead placed on leave, he said.

The regulation was retroactive to the beginning of the pandemic and will end on 31 December this year unless it is extended, Marr noted. “Everyone is holding their breath to see who’s going to bring claims when this period ends, and there have already been two cases that have been litigated.”

The cases, both of which Marr said are subject to appeal, were a split for employers, with one deciding that the new regulations altered common law and the other finding for the plaintiff that common law should be applied.

“These claims are coming,” he said, as the period allowing infectious disease emergency leave comes to an end and questions arise around employees’ work status.

The claims could hit employers’ D&O coverage, as Ontario’s Employment Standards Act stipulates that directors of an organisation can be named in employment practices claims, the panelists at Rims Canada 2021 pointed out.

Melanie Needham, president of MRD Training and Consulting, urged employers to be as transparent as possible when handling layoffs. “Obviously that advice would apply at all times, but it is even more important during this time.”

Lawsuits generally happen when people feel wronged, Ms Needham said. “Yet, when they have a hard explanation and there are facts behind it… then it’s really hard to feel like you’ve been wronged to the degree that would dictate a lawsuit.”

The discussion was moderated by Riaz Juma, director, insurance and risk management at real estate company CAPREIT.

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