Non-union layoffs: Balancing standards and obligations

Sticking to the standards of downsizing

Collective agreements in unionized workplaces, particularly in the manufacturing sector, usually outline the procedure and limitations employers must follow if they are laying off employees for a period of time due to cost cutting or a production slowdown. Though less common, non-unionized employers may also be faced with the need to temporarily lay off staff. Without a collective agreement, employers in this situation must act carefully.

Employment standards legislation provides guidelines to follow, but employers can find themselves exposed to constructive dismissal claims if they go about it the wrong way.

Jennifer Fantini and Lisa Cabel of Borden Ladner Gervais take a look at the potentially tricky practice of implementing temporary layoffs in a non-union workplace and the factors employers must take into account.

Staff cuts can be the unfortunate reality of a contracting economy, even if only temporary. Unionized employers have the ability to lay off employees temporarily and recall them when economic conditions improve, subject to the terms of the applicable collective agreement. Employment standards legislation would seem to give all employers the right to implement layoffs for a specified duration, subject to recall, without triggering a termination. However, there are other factors non-union employers must consider that could expose them to constructive dismissal claims.

The Ontario Employment Standards Act, 2000 permits a temporary layoff of an employee without pay, for up to 13 weeks within a period of 20 consecutive weeks. If the unpaid layoff exceeds that period, it will no longer be deemed “temporary” and the employer will become liable for reasonable notice and severance pay. In addition, the employer may lay off an employee for up to 35 weeks in a period of 52 consecutive weeks, provided it continues to provide certain benefits. The majority of other Canadian jurisdictions include similar provisions.

Employers’ common law obligations restrict temporary layoffs

Despite the fact layoffs are contemplated by employment standards legislation, an employer’s obligations at common law may restrict its ability to implement them. A layoff may be found to constitute constructive dismissal — a unilateral and fundamental breach of the employment contract — entitling the employee to consider himself dismissed. In Stolze v. Ontario, the Ontario Court of Appeal reconsidered an adjudicator’s decision permitting a temporary layoff. The employee was laid off temporarily without pay and the notice of layoff indicated, pursuant to employment standards legislation, the appellant’s employment would be considered terminated if the layoff exceeded 35 weeks in a 52 week period. Observing the terms of the layoff notice, the court found the layoff was indefinite rather than temporary. This required an objective assessment of the written communication, rather than relying on the employer’s intentions. Moreover, the employee argued the layoff constituted a constructive dismissal, since the terms of his employment contract did not contemplate unpaid layoffs.

The employer also did not have a past policy of laying off key employees, the court said, so the lay-off constituted a repudiation of a fundamental term of this employee’s contract.

More recently, this same principle was applied by the Ontario Superior Court in Dechenes v. Little Employment Group Inc. The court determined the employer's intention to temporarily lay off the employee was constructive dismissal because it was unable to provide any evidence of "a policy or practice of laying off key employees."

Employment contract provisions can protect from constructive dismissal

However, layoffs of non-union employees will not always amount to a constructive dismissal. There are exceptions, such as an express provision setting out the possibility of a temporary layoff. Similarly, an implied term permitting layoffs may exist where the employee was aware of the possibility of layoff, or where breaks in service are customary in the industry or at the employer.

An express term to temporarily lay off employees was found in Chaffee v. Federated Co-operatives Ltd. Two management employees were laid off and claimed their employment contracts had been wrongfully terminated. The British Columbia Supreme Court found an employee is entitled to treat an indefinite layoff as a termination of employment. In the absence of a contractual provision to the contrary, a layoff is considered a repudiation of the employment contract. The court reviewed the employer’s policy manual and found it allowed severance to be paid when an employee’s job was terminated due to changes that made the termination necessary. In addition, the policy stated severance was not to be paid “when a person is laid off subject to recall.” The court considered this an express term permitting temporary layoffs and found the employees had not been dismissed, constructively or otherwise, by the layoffs.

When layoffs are reasonably expected

Where layoffs occur regularly at the same time each year, or where the employee is effectively given notice of an impending layoff, a term permitting layoffs may be implied into the employment contract. In MacKay v. Intertape Polymer Group, the employee was familiar with the cyclical nature of the employer's business and knew there would be layoffs of employees with less seniority. The employee wanted to take a break from work and requested to be laid off. The employer accommodated his request but never recalled him back to work. The employer's handbook included a policy providing that where an employee was not called back to work within 180 days, seniority was lost, so the employee claimed constructive dismissal. The court followed Chaffee and dismissed the claim on the basis of the provision in the handbook and the fact the employer's practices were well known and communicated to the employee.

Suddenly implementing temporary layoffs, where the company has not historically done so, is likely to expose the employer to the risk affected employees will claim constructive dismissal. However, for employers that have express terms permitting layoffs, or in the past have implemented regular layoffs or short–term shutdowns — even if sporadic — temporary layoffs may be an effective way to manage a short-lived slowdown in business. Careful consideration should be given at the outset as to whether a temporary layoff is permitted by the employment contract and, if so, whether it will effectively address the situation the employer faces.

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