Mandatory unpaid leave

Question: Is an employer in Ontario allowed to make employees take five days of mandatory unpaid leave?

Answer: Employers in Ontario and around the world are seeking new and creative ways to reduce their labour costs in these difficult economic times. In many cases, there has been strong reluctance to downsizing, for a variety of reasons. In such circumstances, organizations have sought to reduce their labour costs by, among other things, reducing wages, reducing hours of work and implementing “mandatory” time off.

The difficulty, of course, is that changes to an employee’s terms of employment can constitute constructive dismissal. In many cases, this becomes a “threshold issue,” such as determining how much of a pay cut constitutes a substantial change and therefore a constructive dismissal. Mandatory unpaid leave can be perceived as similar to an unpaid suspension. Although not disciplinary in nature, the effect is the same:

The employee is told not to come to work and is not paid her regular wages. This is contrary to the very heart of the employment agreement, in which the employee agrees to provide services in exchange for pay. Forcing such a period of leave on the employee can certainly constitute a constructive dismissal.

That said, organizations, employees, and courts will take a pragmatic view of such efforts if they are done properly and genuinely. Employers should approach their workforce, explain their financial difficulties and that the proposed cost-cutting measures are necessary in order to protect everyone’s job and help the company to continue operating. In most cases, employees will prefer a reduction in wages, or a brief period of unpaid leave, over the loss of their job altogether. As a result, in many cases, it is possible to enter into an agreement to put the cost-cutting measures into place.

In some cases, an employer may have the contractual right to impose mandatory unpaid leave, although that is quite unusual. Like most employment law issues, the starting point is to look at the contract that is in place, be it written or verbal. In some industries, temporary layoffs are the norm. For example, in the construction industry, it would not be unusual for an employer to tell some or all of their employees they are not needed for the next few weeks. That would not constitute a constructive dismissal if there is an explicit or implicit term allowing such a temporary layoff.

In the absence of such an explicit or implicit right, organizations should proceed carefully and attempt to work with employees to agree on such cost-cutting measures. There is certainly some risk, but in many cases, the risk can be avoided and the benefits worthwhile.