COVID-19 and Employment Contracts

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COVID-19 has posed great challenges for employers who are facing an interruption, modification, or perhaps even a closure of their businesses.  In an effort to survive, employers have terminated or laid off employees, or modified working conditions or wages.

These moves have exposed employers to claims under the Employment Standards Act and claims in the courts for constructive dismissal.  It is yet to be seen how these claims will be handled by the courts but there is no doubt that there will liability to employers in some cases for severance pay or damages for constructive dismissal.  (Constructive dismissal is explained here: Constructive Dismissal.)

The good news for employers is that uncertainty regarding the ability to lay-off or terminate in the event of a crisis like COVID-19 can be effectively mitigated in a properly drafted employment agreement. While these agreements cannot avoid the payment of statutory severance pay (unless the concept of frustration comes into play COVID-19 and Frustration of Contracts) the agreements can sanction modifications in working conditions and compensation and limit severance pay to the minimum standards in the Employment Standards Act.