Howard Levitt: Punitive damages from a pandemic layoff are a cautionary tale for employers

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Generally a case captures the authorized zeitgeist. Such a case simply reached my desk and, because it occurred, I had supplied some recommendation on it, as I usually do, earlier than it reached trial.

In a current column, I famous that there was, at the moment, a one-to-one tie amongst Ontario Superior Courtroom judges debating whether or not Ontario’s Infectious Illness Emergency Go away (IDEL) protects employers from constructive dismissal claims after they lay off staff throughout COVID. It’s now two to at least one declaring that such a layoff is certainly a constructive dismissal — the place I declared to be the legislation from the outset of the pandemic on this column and to my purchasers. It was additionally the place taken by the Ontario Ministry of Labour in a personal briefing I attended when the laws was introduced.

However this case provides a harmful new twist for employers who don’t observe that recommendation. Justice Susan Vella discovered that an employer shedding staff non-consensually, with out paying out at the least Employment Requirements Act termination and severance entitlements, is sufficiently malicious and outrageous conduct as to warrant punitive damages.

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Gary Fogelman labored for Worldwide Monetary Group (IFG), which conducts job recruiting for the monetary trade, from June 13, 2009, when he was employed and paid by way of his firm, till his momentary layoff on March 16, 2020, due to  COVID. In 2014, he signed an employment contract with termination provisions, and that contract referred to him as an worker. From then on he was paid immediately.

Upon being laid off, he instantly had a lawyer declare constructive dismissal. In defending itself, IFG took a variety of authorized positions that labored to its drawback, a lesson for employers on what positions not to take.

IFG argued that the IDEL regulation to the Ontario Employment Requirements Act permitted Fogelman’s layoff with out recourse to the courts. The final legislation is {that a} layoff is a constructive dismissal allowing an worker to resign and sue as if that they had been fired. However many employers consider that IDEL gave them a full exemption.

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The courtroom famous that the ESA makes clear that IDEL was not meant to have an effect on civil (judge-created) rights and subsequently didn’t preclude Fogelman from taking the place in courtroom that he was constructively dismissed and suing for wrongful dismissal. The courtroom stated IDEL solely impacts rights in ESA instances, not in courtroom. Realistically, since ESA awards in virtually each case quantity to a really small share of what a courtroom offers a dismissed worker, the IDEL laws offers employers with no sensible safety.

The courtroom made quick shrift of IFG’s subsequent place — that Fogelman was an unbiased contractor throughout his first 5 years as a result of he contracted his providers by way of an organization. The courtroom declared it to be of little significance that he was paid by way of his firm and famous that nothing actually modified when he later signed the contract as an worker.

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It is a reminder to employers and staff that it takes excess of merely billing by way of an organization to make a employee an unbiased contractor. They should be genuinely unbiased of that “employer,” use their very own instruments to carry out their capabilities, work for a variety of totally different  “employers,” and have a real likelihood of revenue or danger of loss. In addition they can’t be built-in into the corporate in the identical trend as an everyday worker. The truth is that most likely 90 per cent or extra of Canadian staff who declare they’re unbiased contractors — and file taxes as such — are staff at legislation and at real authorized danger. So are the employers that take part in what can be a tax sham.

The contract Fogelman signed in 2014 restricted his severance entitlement to solely the employment requirements minimal and so IFG subsequent argued that that restricted severance was all that it needed to pay. The courtroom concluded that Fogelman had acquired nothing of worth in return for giving freely his wrongful dismissal rights in that 2014 contract, and that lack of “consideration” made it unenforceable. It based mostly that ruling upon a choice of the Ontario Courtroom of Enchantment, Hobbs v TDI, which I gained in 2004.

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Firms too usually overlook that when an settlement is made as to the phrases of employment, even when that settlement is oral or in some fast emails, something signed after that containing new phrases is unenforceable except the worker receives some new consideration in return for the brand new restrictions.

Lastly, IFG argued that the CERB funds Fogelman acquired following his dismissal ought to be deducted from the damages it needed to pay. The courtroom refused to deduct them just like the legislation respecting Employment Insurance coverage. Many employers had appeared to save cash on severance by having terminated staff accumulate CERB. There was differing authority throughout the nation, however this case mirrored the bulk view of non-deductibility.

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This case touched on so many 2021 themes, however maybe essentially the most fascinating facet was the awarding of punitive damages in opposition to an employer which will have believed it had the correct to put off staff with out severance. That is one thing that a lot of company Canada has carried out in the course of the pandemic, and the overwhelming majority have gotten away with it.

In awarding $25,000 in punitive damages, on prime of 15 months’ wrongful dismissal damages (fairly than barely greater than the 4 months’ employment requirements would have awarded), the courtroom famous the next:

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Lastly, and most devastatingly, the courtroom concluded: “Employers can’t be permitted to disregard their obligations below the ESA whereas awaiting the result of a courtroom continuing the place the termination is conceded to be with out trigger. It’s crucial that the courts defend the statutory rights of staff particularly in harsh financial instances.”

This judgment is a cautionary story for employers and a roadmap for workers looking for punitive damages. More and more, employers want sound authorized recommendation to deal with the missiles being thrown at them, and the identical is true for workers looking for to maximise their restoration.

Acquired a query about employment legislation throughout COVID-19? Write to Howard at levitt@levittllp.com.

Howard Levitt is senior accomplice of LSCS Law, employment and labour attorneys. He practices employment legislation in eight provinces. He’s the writer of six books together with the Regulation of Dismissal in Canada.