Laid Off Due to Covid-19? You May be Entitled to Severance Pay

By Karen Zvulony, Toronto Employment Lawyer

Due to the fallout from the Covid-19/ Corona-virus pandemic, many employers have had to layoff employees, that is they have temporarily reduced employee hours or have had to stop them completely. Can an employer do so and expect an employee to return to work when business resumes to normal? 

A temporary lay off occurs when an employer significantly reduces an employees work hours, or fails to provide them with any work and tells them to stay home but expects to recall the employee back to work at some future time. The employer does not tell the employee that their employment has ended. 

In Canadian common law, the general rule is that employers do not have any legal right to “lay off” employees temporarily. There are some important exceptions to this general rule, such as unionized employees, if an employment contract provides for temporary lay-offs, if the nature of the employment contemplates layoffs (i.e. seasonal workers), or if the employee agrees to the layoff arrangement.  

If an employee is temporarily laid off (Covid-19 related or not) and, it does not meet any of the one exceptions noted above then the law of Ontario treats that lay-off as a termination of the employment relationship.

The employee could then claim any entitlements the employee may have such as damages for wrongful dismissal (i.e. for severance/pay in lieu of notice).  

If the employee is later recalled to work, then any entitlement to damages for wrongful dismissal would be limited to the period of layoff. 

Does Covid-19 Change the General Rule?

Would it be different for employees who are laid off because the government has mandated that their employer’s close their business due to Covid-19? It is too soon to tell for sure, as the courts have not dealt with this issue, but it is reasonable to presume Covid-19 precautions will change the general rule. 

An employer who has been forced to close because of a government order due to Covid-19, could make a strong argument that the employment contract has been frustrated rather than terminated. 

Frustration of contract refers to situations when the contract is incapable of being performed due to an unforeseen event (or events), and through no fault of either party. Whether or not the current pandemic would be considered as a “frustrating event”, is a legal argument that the courts will no doubt have to deal with. 

If an employment contract is frustrated, then the employer is not terminating an employee, but rather the employment contract has simply come to an end. Since there is no termination, the employee would not be entitled to common law damages for severance or pay in lieu of notice. However, the employee is not completely out of luck as the Ontario Employment Standards Act provides that an employer must provide an employee with termination pay and severance in the event of frustration. This amount would be limited to the minimums outlined in the Employment Standards Act, 2000.

If you have been laid off due to Covid-19, you may be entitled to severance. As each case is different, it is best to speak to an employment lawyer to see what your entitlements may be.