When layoff becomes termination: Getting it right from the start

The combination of employment standards and a collective agreement creates a complex set of rules that can pose challenges requiring careful negotiation.

In Ontario, a layoff can transform into a termination of employment by statutory operation due to paragraph 56(1)(c) of the Employment Standards Act, 2000 (ESA), triggering entitlement to notice of termination and, if applicable, severance pay. In such circumstances — the Ontario Ministry of Labour’s Policy and Interpretation Manual tells us — “working notice of indefinite layoff that is of sufficient length” or termination pay in lieu of notice is required unless a statutory exemption applies.

Layoff becomes termination

Under the ESA, layoff becomes a termination of employment when it lasts longer than a temporary layoff period.

Temporary layoff period includes layoff: not longer than 13 weeks in a period of 20 consecutive weeks; or not longer than 35 weeks in a period of 52 consecutive weeks if certain conditions outlined in paragraph 56(2)(b) are met; or not longer than a temporary layoff period agreed to in a collective agreement (such as the period during which an employee has right to recall). British Columbia has a similar provision whereby layoff can also transform into a termination of employment if it lasts longer than a period of “temporary layoff” as defined in that province’s employment standards statute (subsections 1(1) and 63(5)). Similarly, under the Alberta employment standards statute, layoff becomes termination when the recall right in an applicable collective agreement expires (paragraph 63(1)(c)).

Under the ESA, despite paragraph 56(1)(c), subsection 56(4) permits an employer to lay off an employee without a recall date so long as the layoff does not last longer than the temporary layoff period. However, care must be taken in a unionized workplace where the contractual — as opposed to statutory — temporary layoff period applies.

This is because the Ontario Court of Appeal has held that the contractual temporary layoff period is only triggered if a “timely” offer of recall is extended to the employee. A timely recall offer is one that occurs before an employee’s employment is deemed to have been statutorily terminated and, in all events, within the maximum recall period fixed by the collective agreement. Consequently, the best practice is to ensure a timely recall offer occurs within either of 13 weeks in a 20 consecutive weeks period or 35 weeks in a 52 consecutive weeks period (if other conditions are met); such offer must indicate the employee will resume work before the expiration of the contractual temporary layoff period.

An important element of layoff is the effect of subsection 4(2) of Ontario Regulation 288/01. This convenient provision allows a unionized employer to effectively terminate employment without breaching the just cause provision of its collective agreement, so long as it provides the employee with a written notice of indefinite layoff, which will be deemed to be a notice of termination at the end of the applicable temporary layoff period.

Where an employer relies on this regulatory provision — in combination with paragraph 56(1)(c) and subsection 56(5) of the ESA — the notice of indefinite layoff provided to the employee will, if sufficient, satisfy the statutory requirement for notice of termination.

If the notice of layoff is insufficient, the employee is entitled to appropriate notice, subject to set-off for any notice provided at the time of layoff (this set-off may not be available if there is a distinct, contractual right to a notice of layoff). As one arbitrator put it, subsection 4(2) of Regulation 288/01 provides employers “an option to manage things differently. Should it prefer, for example, to terminate, or at least provide an immediate notice of termination to its employees in order to generate clarity around which employees may choose to abandon their recall rights, it may opt to issue indefinite layoff notices which are deemed to be notices of termination and, in turn, lead to employee elections.”

Employment termination is not the only issue that arises during layoff. One must also be mindful of employment severance as a result of layoff. In a unionized workplace, employment termination and employment severance may not occur simultaneously. The ESA provides that severance occurs once layoff lasts longer than 35 weeks in a period of 52 consecutive weeks or the layoff is the result of permanent discontinuance of all of the employer’s business at an establishment.

Unionized employee can waive right to recall

Where a collective agreement contains a temporary layoff period provision and severance occurs before the end of that period, the employee is entitled to elect to immediately receive her severance pay or maintain her right to recall. An employee who elects to receive severance pay is “deemed to have abandoned the right to be recalled,” triggering entitlement to notice of termination or payment in lieu of notice. If the employee elects to maintain her right to recall, the severance pay is held in trust until she either accepts a recall offer or the recall right expires, resulting in the termination and entitlement to severance pay and payment in lieu of notice of termination.

There is no entitlement to severance pay before severance actually occurs and the ESA has no provision for deeming a payment upon layoff to be severance pay when severance eventually occurs. Therefore, if an employee is eligible for severance pay, the employer must wait for severance to occur and then pay it promptly, subject to the employee’s election to receive it or wait for recall.

Tips for employers

It is advisable for an employer who is unsure whether employees will be recalled to work out the various outcomes of the layoff at the beginning of the exercise.

Doing so will enable the employer to get it right from the start and avoid violating the applicable employment standards inadvertently. So, under the ESA, an employer that anticipates that an employee’s layoff will become a termination has the following options:

• Give the employee working notice of indefinite layoff equivalent to or better than the statutory notice of termination.
• Indefinitely lay off the employee with immediate effect and provide payment in lieu of notice that is equal to or better than the statutory notice of termination.
• Indefinitely lay off the employee with immediate effect and be prepared to provide termination pay equal to or better than the statutory minimum once the layoff becomes a termination under the ESA.
• Be prepared to pay severance pay when severance occurs, subject to the employee’s election right.

For more information see:

• Elsegood v. Cambridge Spring Service 2001 Ltd., 2011 CarswellOnt 14782 (Ont. C.A.).
• National Automobile, Aerospace Transportation and General Workers Union of Canada (C.A.W. – Canada), Local No. 27 v. London Machinery Inc., 209 OAC 226 (Ont. C.A.).
• Meridian Lightweight Technologies Inc. v. Radan (Oct. 27, 2011), C. Schmidt — Arb. (Ont. Lab. Rel. Bd.).

Amandi Esonwanne is a Toronto-based lawyer. His areas of practice include labour and employment law, human rights, workers compensation, occupational health and safety law, and workplace investigation. He can be reached at [email protected].