Employment Practices Liability During COVID-19 In Canada

Liability 101 | Understanding Employment Practices Liability during COVID-19

The statistics are in. And they are grim. The COVID-19 pandemic continues to reshape the world we live and work in. Meanwhile across Canada, an estimated 40% of the workforce is experiencing anywhere from 1% to 100% layoffs due to COVID-19.1

That is to say…

“On average, 12.4% of Canadian paid workers aged 15 to 64 have been laid-off on a monthly basis since February 2020. In contrast, average monthly layoff rates during the first two months following previous labour market downturns varied between 2.5% and 3.5%.”2

COVID-19 stats are even more troubling when you look at the breakdown by specific industries. And as some industries are experiencing 100% of their workforces being laid off due to COVID-19, these impacts aren’t recoverable. For example, according to Statistics Canada, the following industries have laid off 100% of their workforce:

  • Accommodation and food services 23.8%
  • Health care and social assistance 19.0%
  • Majority ownership, women businesses 17.8%
  • Arts, entertainment and recreation 16.6%
  • Retail trade 16.3%
  • Businesses of 1 to 4 employees 16.1%
  • Businesses of 5 to 19 employees 15.2% 3

Unfortunately, layoffs are the difficult reality of COVID-19 across the country. And when layoffs are on the horizon for your business, it is important to manage the specific risks exposures that are related to employment practices. This is why we have compiled some relevant information about employment practices liability and what you need to know during COVID-19.

During COVID-19 here’s what you need to know if you’re contemplating layoffs

Employer liability. As if there wasn’t enough to worry about during the pandemic, employers making difficult decisions about their workforces are also facing significant risks.

A recent Canadian HR Reporter article about COVID-19 risks points out that the legal risks associated with employee layoffs – such as constructive dismissal – should be on every employer’s radar.

For instance: “Employment standards legislation across Canada recognizes an employer’s right to temporarily lay off an employee for a prescribed period of time, following which the layoff is deemed to be a termination of employment.

Despite the statutory entitlement, courts have held that unless an employment contract or other agreement includes an express or implied right to lay off an employee, an employer has no right to do so. If there is no express or implied right, a layoff may, in certain circumstances, amount to a unilateral, fundamental breach of the employment contract (whether or not the contract is in writing).

Common law reasonable notice requirements are generally considerably higher than requirements under employment standards legislation.”4

However, employers should be aware that “a constructive dismissal arises only if there has been a unilateral change by the employer to the terms and conditions of employment. If an employee agrees to the change in the terms of employment (the temporary layoff), no constructive dismissal arises. Similarly, if the change is not imposed by the employer but is the result of a government directive (shutting down operations), an employee may not be able to successfully assert the layoff constitutes a constructive dismissal.”5

Canadian HR Reporter goes on to explain that “Even if the layoff might be a constructive dismissal, the employee has an obligation to mitigate their potential losses.

For example, if a laid-off employee is recalled to work and declines (and the employer-employee relationship is not so damaged that it would be reasonable for the employee to return), a court may find the employee failed to mitigate their losses (in whole or in part) by failing to return to work. This will reduce the value of the claim against the employer.”6

Why frustration of contract should be on your radar during COVID-19

We are living in difficult and unprecedented times. The decision to temporarily or permanently layoff even one employee isn’t one that anyone makes lightly. And if you are laying off multiple employees, the decision is all that more challenging.

COVID-19 related layoffs are generating headlines from coast-to-coast-to-coast. For instance, a recent CTV News Toronto report notes,

“the City of Vaughan…is temporarily laying off 1,100 workers due to the impacts of the COVID-19 pandemic. … ‘Due to a shortage of work in some departments caused by these extraordinary circumstances, the City…is temporarily lay[ing] off approximately 1,100 employees.’ In 2019, the City of Vaughan had the equivalent of 1,768 full-time employees.”7

Certainly, these are difficult decisions. Therefore, it is important to understand potential outcomes of layoffs in the weeks, months or even years following. Canadian HR Reporter cites frustration of contract as being a second important exposure that businesses in Canada should be aware of.

In other words, “even if an employer takes all appropriate steps, it may still be faced with a constructive or wrongful dismissal claim from a laid-off employee. If the layoff resulted from COVID-19-related reasons, included a government-mandated closure, an employer may be able to defend itself by relying on the doctrine of frustration of contract.

Frustration of contract arises when an unforeseen event, outside of the control of either party, renders the contract impossible to perform. In that case, the employee is not entitled to any damages under common law or employment standards legislation.”8

Above all, understanding employment practices liability during COVID-19 in Canada is essential if and when you need to make difficult decisions about your workforce.

How employment practices liability insurance can fill important gaps

During a period of layoffs, thoughtful and respective management of employee exits is essential. However, despite implementing all government mandated termination guidelines and HR best practices, any company that lays off employees faces risks. Some of the employment exposures that employment practices liability (EPL) insurance will respond to are listed below.

  • Actual or alleged wrongful or constructive dismissal, discipline, discharge or termination
  • Breach of oral or written employment contract
  • Discrimination and/or Defamation
  • Employment-related libel, slander, humiliation, defamation or invasion of privacy, misrepresentation
  • Invasion of privacy
  • Punitive damages where insurable by law
  • Sexual harassment
  • Wrongful failure to employ or promote
  • Wrongful deprivation of a career opportunity, wrongful demotion or negligent evaluation
  • Vicarious liability for intentional acts

Moreover, risk management best practices for employment exposures are also important when managing your EPL risks. This can include well-organized and credible documentation that demonstrates fair treatment, deters litigation and ensures employee honesty. In addition to EPL, by following employment best practices, you are also actively:

  1. Protecting against wrongful termination, discrimination or sexual harassment suits from current, prospective or former employees
  2. Covering all employees of an organization including directors and officers as well as potentially extending coverage to third party liabilities

Ultimately, employment practices liability compliments your internal human resources practices. EPL provides the necessary resources to defend your company against a suitor to pay a claim.

This important insurance product can be a stand-alone coverage. Talk to an ALIGNED Insurance broker for expert guidance about employment practices liability options during COVID-19.

Source(s): 1,3 Statistics Canada. Table 33-10-0232-01 Percentage of workforce laid off because of COVID-19, by business characteristics; 2 Statistics Canada. COVID-19 and job displacement: Thinking about the longer term; 4,5,6,8 Canadian HR Reporter: Managing workplace risk during COVID-19 pandemic; 7Toronto.ctv.news.ca: Vaughan temporarily lays off 1,100 workers due to COVID-19 pandemic

Where to find more info about COVID-19 and the Canadian workplace

The pandemic is changing how we live, work and interact with each other. To help understand COVID-19 risks and commercial insurance Canada products, read our Insurance Blog. In addition, you can keep current by subscribing to our e-news ALIGNMENT Matters on our homepage.

Here’s a selection of recent COVID-19 related news articles that we hope you will find helpful.

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