Recent court decisions increase uncertainty in whether right to lay off employees must be established in employment agreement
By Jeffrey R. Smith
Anyone who’s been part of a business can tell you it can be a roller coaster ride sometimes — there are times when business is good and times when it’s not so good. When things aren’t going so well, it can put a strain on a company’s finances and it may look to cut some expenses.
Payroll is one of the biggest costs for a business and, if things are on the downswing, it may make sense to cut employees. In some industries, companies choose to temporarily cut workers with the intention of bringing them back — this saves the expense of paying termination pay and the hassle of hiring new employees when business improves. In fact, it can be normal practice for some employers who have normal fluctuations in business, such as seasonal businesses. However, though temporary layoffs are included in most employment standards legislation, it doesn’t mean it’s an option for everybody.
Most jurisdictions specify what constitutes a temporary layoff — a certain number of weeks in a certain time period, for example — and if the employee is out of work for longer than that, the layoff becomes a termination of employment notice and severance pay.
There have been several cases recently where courts and arbitrators have found the temporary layoffs are not always permitted. Rather, they are expected or normal practice for certain employers but, for others, they are not expected nor allowable. So an employer looking to cut workers to save money may have to do it through outright termination.
A couple of years ago, a British Columbia lumber mill informed a long-term employee it was laying him off due to a decrease in production. The employee was told the layoff was indefinite, so he refused to accept it and filed a wrongful dismissal suit. As it turned out, the employee had no written employment contract that allowed for temporary layoffs and, though the province’s Employment Standards Act covered temporary layoffs, the B.C. Supreme Court found the legislation “appears to be qualifying employment agreements in which the right to lay off already exists.”
Essentially, said the court, the right to lay off employees must be outlined in an employment contract or collective agreement for it to be an option, and only then must an employer follow the guidelines in the act (see Hooge v. Gillwood Remanufacturing Inc., 2014 CarswellBC 17 (B.C. S.C.).
Employers have been tripped up by this detail before in other cases. However, the tide may be turning. Last year, the Ontario Superior Court of Justice disputed the idea that layoffs must be permitted by an employment agreement in order to be used. In hearing a laid-off employees constructive dismissal claim, the court found the temporary layoff provisions in the Ontario Employment Standards Act, 2000, applied regardless whether there was an express or implied contractual right to lay off an employee, provided the employer complied with the statutory requirements for a temporary layoff under the ESA.
As is often the case when a notable court decision is released that challenges previous thinking in an area of employment law, it can serve to confuse matters more.
What does this mean for employers? Do they need a provision in the employment contract or collective agreement to lay off employees? We may have to wait for some more rulings to know for sure.