Temporary layoffs: Understanding the right

Layoff is a word often used to describe termination of employment, but for many employees who specialize in seasonal or fluctuating industries, the ability to temporarily lay off employees for a period of time and then bring them back when there’s work available is essential to doing business. But those employers must follow certain rules and practices to ensure they are able to manage employees whose work comes and goes a different times of the year.

A common misconception in employment law is an employer’s right to temporarily lay off an employee. In order to understand how this misconception arises, we need to properly understand what a temporary layoff is. While the word layoff is often synonymous with termination, a temporary layoff differs from a permanent layoff or termination in that the employee remains an employee of the employer, but the employer — often for financial, seasonal or production-related reasons — advises an employee or group of employees not to report to work for a period of time. This period of time may be undefined or clearly defined, depending upon the employer’s business requirements or the issue giving rise to the temporary layoff. When used properly, a temporary layoff can be an effective arrow in an employer’s quiver, allowing for greater flexibility to meet operational demands.

Below we will discuss the common mistakes employers make (and the consequences) when they conduct temporary layoffs. We will also outline strategies employers can utilize to mitigate and practically eliminate the risk associated with conducting a temporary layoff.

There are two primary problems associated with temporary layoffs.

First, employers often do not clearly understand the rules associated with temporary layoffs and may fail to give notice (if required) or recall the employee within the required time frame, thus triggering a termination.

While applicable provincial/federal minimum employment standards legislation may outline the rules associated with temporary layoffs — such as permissible length of a temporary layoff, notice requirements, or compensation obligations — the ‘right’ to lay off a particular employee is not granted by legislation. Without the right to lay off an employee, an employer is put in a position of potential liability when it decides to temporarily lay off one or more employees.

As can be seen from the table to the right, legislation governing temporary layoffs varies greatly from province to province.

The second, and more common, problem is that employers mistakenly assume that they have the right to temporarily lay off the employee in the first place. As mentioned above, while the legislation explicitly references temporary layoffs and how layoffs must be conducted, the legislation does not give the employee the right to impose such a layoff. The right to temporarily lay off an employee generally stems from the employee’s written employment agreement. Courts and employment/labour standards boards have consistently held that in the absence of a contractual right to lay off a particular employee — or in rare cases, where layoffs are a common industry practice — a temporary layoff, even if recalled within the specified time limits, will constitute a constructive dismissal regardless of whether the layoff was conducted in accordance with the legislation. An employee’s successful constructive dismissal claim may prove to be a costly exercise for employers, giving rise to termination and severance pay, including, where applicable, common law reasonable notice. Therefore, in order to avoid any uncertainty surrounding temporary layoffs, it is recommended to include a temporary layoff provision in every employment contract (coupled with an enforceable termination provision). Provided such a provision is included in an otherwise enforceable employment agreement, something similar to what is set out below should provide for the ‘right’ employers need to temporarily layoff any given employee:

Here’s and example of a temporary layoff provision:

“Temporary layoffs

Due to the nature of the business, there may be slowdowns in work during various times throughout the year or other circumstances may arise where the company may be required, in its sole discretion, to provide you with a temporary layoff. You acknowledge and agree that such temporary layoffs, so long as they are in accordance with the applicable minimum provincial employment standards legislation, shall not constitute a termination of or constructive dismissal from your employment. In the event that you are not recalled within the applicable time limits prescribed by the applicable provincial minimum employment standards legislation, your employment will be deemed to have been terminated and the company will comply with its obligations under the termination provision set out in this agreement. Further, in the event that you do not return from layoff within a reasonable period once recalled, you will be deemed to have resigned and/or abandoned your employment with the company.”

When an employer has the right to temporarily lay off an employee, provides notice (where applicable) and recalls the employee within the required time limits, it will not owe severance and termination payments. Further, should an employee fail to return from layoff within a reasonable period of time, she will be deemed to have quit and will not be owed anything beyond outstanding wages and vacation pay. When an employer fails to recall an employee before the deadline imposed by the legislation, the employee is considered to be permanently laid off and will be eligible for notice, and where applicable severance pay and common law reasonable notice.

Understanding the rules and having the appropriate contractual provision in place will go a long way towards eliminating the uncertainty and cost associated with getting temporary layoffs wrong.