Can an employer temporarily lay off employees due to financial difficulties?
Question: Can an employer temporarily lay off employees due to financial difficulties if it’s never done so before?
Answer: A layoff is “temporary” in nature and is generally caused by a short-term disruption in business, such as periods of slowdown. A temporary layoff should not be confused with a job elimination or a dismissal. Most Canadian jurisdictions permit employers to impose temporary periods of interruption in employment without bringing the employment relationship to an end altogether. The definition of a layoff varies from province to province.
Provincial employment standards legislation will specify the formal requirements for conducting a temporary layoff, including:
- How much layoff notice is required and in what circumstances (such as an unforeseeable event) can a temporary layoff be conducted without notice.
- What the permissible temporary layoff period is (for example, in Ontario, it is 13 weeks in any period of 20 consecutive weeks).
- What happens when the temporary layoff period expires (usually, the employee is deemed terminated and termination pay is owed).
- What an employee is entitled to during a period of temporary layoff.
- How to recall an employee from temporary layoff.
Employers should be aware that statutory temporary layoff provisions can, in certain circumstances, be replaced by the terms of the employment contract or collective agreement. Particularly, if the contract or agreement includes layoff terms that offer a “greater right or benefit” than the statutory layoff provisions, then that contract or agreement will prevail.
Temporary layoffs are not without risk. The term “layoff” in the non-union setting has no technical meaning and is simply a euphemism that connotes loss of employment without attribution of wrongdoing to the employee. There is case law in many jurisdictions that supports the notion that the fact that employment standards legislation may authorize temporary layoffs does not affect common law rights and obligations concerning dismissal: see, for example, the Alberta decisions of Vrana v. Procor Ltd. and Turner v. Uniglobe Custom Travel Ltd., 2005 ABQB 513. If an employment contract does not specifically provide for temporary layoffs, or if it is unusual for an industry to perform temporary layoffs (such as a retail store versus a construction site), there is always risk that an employee will allege they have been constructively dismissed at common law and wrongful dismissal damages are owing.
In order to sustain a constructive dismissal claim, an employee would need to be able to demonstrate that the employer intended to no longer be bound by an employment agreement. However, the mere fact that an employer issues a temporary layoff notice is the antithesis to a claim that it no longer intended to be bound by an employment agreement. Further, there is no constructive dismissal if an employee agrees to the temporary disruption in earnings.
Ultimately, and acknowledging these risks, an employer may be able to conduct temporary layoffs even if it has never done so before. We generally recommend in such a circumstance that the employer have a candid discussion with the impacted employees regarding the business, political or other (such as COVID-19) circumstances that have necessitated the need to conduct temporary layoffs; and then ensure that a proper layoff notice is provided that explicitly states that it is a temporary cessation from work.
For more information, see:
- Vrana v. Procor Ltd., 2003 ABQB 98 (Alta. Q.B.).
- Turner v. Uniglobe Custom Travel Ltd., 2005 ABQB 513 (Alta. Q.B.).
Tim Mitchell practises management-side labour and employment law at McLennan Ross in Calgary. He can be reached at (403) 303-1791 or [email protected].
