The Swap Out – More than a slight of hand

As promised, we delve deeper into the legal issues addressed – and raised by – the amendments to the Employment Standards Act (“ESA”) through the the most recent version of the Infectious Disease Emergency Leave Regulation under the ESA (the “IDEL Regulation”) in this e-newsletter. 

Why was this Regulation Needed?

Prior to these amendments, a temporary lay-off under the ESA was “temporary” if: (a) it lasted no more than 13 weeks in cases where employment benefits were not continued (referred to herein as the “13-Week Rule”); or (b) 35 weeks if employment benefits were continued (referred to herein as the “35-Week Rule”).   Under either of these Rules, should an employee not be returned to active employment (i.e. recalled) within the applicable timeframe, the employee in the normal non-pandemic course would be “deemed” to be automatically terminated (whether that was the employer’s intention or not) as of the first day of the layoff. The employee would then be entitled to termination pay and severance pay as applicable, under the ESA (“Deemed Terminations”).  Such Rules were practical, logical and helpful in the normal course but proved to have serious limitations in our current declared state of emergency reality.    

Recall that the state of emergency for the COVID-19 pandemic was initially declared in Ontario on March 17, 2020.  Also recall that as a result of this declaration and its associated orders, the following establishments were legally required to close immediately:

  • All facilities providing indoor recreational programs;
  • All public libraries;
  • All private schools as defined in the Education Act;
  • All licensed child care centres;
  • All bars and restaurants, except to the extent that such facilities provide takeout food and delivery;
  • All theatres including those offering live performances of music, dance, and other art forms, as well as cinemas that show movies; and
  • Concert venues.

As a consequence, many Ontario employers were forced to cease their operations as of March 17  and others were required to reduce their staffing compliment by temporary layoff under the ESA through no fault of their own – as a direct result of the declared state of emergency. Moving forward, those employers then faced Deemed Terminations triggering severance obligations as early as June 16, 2020 (under the 13-Week Rule) without any real opportunity to recall employees to return to active employment.  

It is noteworthy that according to Statistics Canada Ontario has seen a 2,496% increase in temporary layoffs in 2020 over 2019. 

In the face of mass Deemed Terminations, employers and/or their directors faced significant liability for paying out termination, severance and vacation pay obligations, as applicable, at a time when they had no earnings. That was apt to put many employers permanently out of business or into insolvency.  To avoid that reality, the Ontario Government changed the definition of a temporary lay off and effectively “swapped out” Deemed Terminations for Deemed Infectious Disease Emergency Leaves (IDELs) for non-unionized employees during the defined “COVID-19 period”.  Meaning all employees who were actually placed on a lay off are now, by operation of law, on a job-protected leave of absence under the ESA (with most of the regular protections of a statutorily protected leave of absence).  

We say “most” as the Government must have realized in “swapping out” a temporary lay off (with no right of job protection or benefit continuation) for a deemed statutory leave (with the right to reinstatement to the same job if it exists or to a job similar if it doesn’t) it would come with a recognition of the reality of this slight of hand.  Meaning, the Government in making this swap could not realistically go back in time and require employers to provide benefits that they had already discontinued or put a further disproportionate burden on the employers most negatively impacted by the declared state of emergency.  As such, the Government retroactively waived only the default obligation to provide benefit coverage to any employee during this statutory leave period if benefits ceased prior to May 29, 2020.  The apparent compromise and attempt to shoe-horn this first ever deemed leave in with other statutorily protected leaves of absence under the ESA was to not waive this obligation going forward.  Meaning that where employers had provided benefit continuation during any period of lay off occasioned by the COVID-19 pandemic during the COVID-19 period, they are required to continue them during the COVID-19 period the same as all other statutorily protected leaves of absence under the ESA.  This amounts to differential treatment for employers and employees where the 13-Week Rule vs. the 35-Week Rule would have applied but for this slight of hand in relation to the general obligation of employers to continue benefits during a statutorily protected leave.      

What Does this Mean?

These rules are retroactive to March 1, 2020 (not March 17, 2020), the beginning of the “COVID-19 period” under the IDEL Regulation, and continue forward until 6 weeks after the state of emergency ends.  With the state of emergency most recently being extended until June 30, 2020, the swapping out of a lay off for an Infectious Disease Emergency Leave will continue until at least August 11, 2020.    

The parties are not forced to end the employment relationship artificially through the automatic application of the Deemed Termination provisions.  This provides peace of mind to all parties.  

The non-application of the Deemed Termination provisions during the COVID-19 period provides employers with the opportunity to recall their trained workforce when the state of emergency ends or as business permits.  

For employees, the shift to the IDEL allows them to maintain their employment and be eligible for federal emergency income support programs. 

A layoff that meets the requirements of the IDEL Regulation will not count for any statutory temporary layoff calculations in the future (from May 29, 2020) during the COVID-19 period.

This swap out only applies where there hadn’t already been a Deemed Termination under the ESA before May 29, 2020 (i.e., a lay off before March 2, 2020).  If the 13-Week Rule applied and this period ended before May 29, 2020, the Deemed Termination provisions still applies and employers must pay out affected employees their entitlements under the ESA (unless agreed otherwise).  The same applies to a reduction of salary or working hours being declared to be a constructive dismissal under the ESA if claimed within ‘a reasonable period in response’ to such reductions prior to May 29, 2020.

Where the swap out does not apply – all of the normal ESA rules apply during the COVID-19 period.  Further, outside of the COVID-19 period and any future defined pandemics in the IDEL Regulation we go back to “normal” 13 and 35-Week Rules.

These changes do not apply to unionized employees in Ontario.

How IDEL Regulation will impact on employers’ common law wrongful dismissal obligations where the employer does not have the right to lay employees off during their employment and the employee asserts that such a lay off is a constructive dismissal is yet to be seen but is sure to be the subject of much debate and litigation.  If you as an employer face and issues, concerns or confusion about applying these complex changes to the ESA, our employment lawyers are here to assist you.

Disclaimer: Information made available in this article is provided for general information purposes only and is provided without representation for its accuracy or completeness. It is not legal advice and should not be relied upon. You should not take any action or fail to take any action based on the information set out in this article or on this website.  Consult a lawyer at Sullivan Mahoney LLP and seek professional legal advice tailored to your unique situation.