Despite COVID-19, temporary layoffs may not be allowed

6 key questions on how employers should handle staffing during pandemic

Despite COVID-19, temporary layoffs may not be allowed

The questions keep flying when it comes to how employers can and should respond during the COVID-19 pandemic. Stuart Rudner, founder of Rudner Law in Toronto, is here to answer some top-of-mind questions.

Q: Can we temporarily lay off employees until business improves?

A: “It’s hard because this is obviously an unprecedented situation. But although some laws have been amended, the fundamental law hasn't changed. And this comes as a shock to a lot of people but employers don't automatically have the right to [temporarily] lay people off.

There's always an assumption that if things slow down, if you don't have much work, you can just send people home for a little while. And that may be true in certain industries in the construction industry, for example, it's pretty much a given that [because of] the seasonal work, things slow down, and you lay people off temporarily. But aside from that, unless there's either an explicit agreement in the contract or it's implied by the nature of the of the workplace or industry, then you don't have that right.

And if you do lay somebody off [temporarily], then that would be a constructive dismissal and you're on the hook for severance all of a sudden.”

Q: What’s involved with a temporary layoff?

A: “Assuming that you do have the right or that the employee agrees, then employment standards legislation sets out what the parameters are. So, for example, in Ontario, you can temporarily lay someone off for up to 13 weeks, which can be extended up to 35 weeks in some circumstances. Once you go past that, it becomes a termination.

I've had clients go and ask their employees to agree to temporary layoffs; I've had clients ask their employees to agree to reductions in hours of work, and in some cases reductions in pay. And it goes over a lot better if you can tell your staff that the management and owners are taking a hit as well.

People should not make any assumptions about how the law works. So, don't assume you can lay people off; don't assume you can just change their hours. Make sure to get proper legal advice because the worst thing to do as an employer is to try to cut costs by laying somebody off [temporarily] and inadvertently exposing yourself to a wrongful dismissal claim.”

Q: What if an employee doesn’t agree to a temporary layoff?

A: “There are two scenarios. The first one is where there is a contract in place that allows the employer to temporarily lay off the employee, in which case they can imply proceed to do so in accordance with the parameters set out in employment standards legislation.

The second scenario is where there is no contractual or implied right to lay people off temporarily, in which case most of them are going to their staff -- and we're encouraging them -- to have very frank discussions and explaining that “Given the unprecedented circumstance we're in, everyone's going to need to pitch in” and ask them essentially to agree to a temporary layoff. And if the employee agrees, then of course they’re [OK] to do it.

If they don't agree, then an employer has really got two choices. You can either keep things as is and continue to employ them or lay them off or reduce their hours, and take a risk that they'll bring a constructive dismissal claim against you. At some point, it’s a weighing of risks.”

Q: Could this situation be considered a frustration of contract?

A: “The fundamental definition of a frustration of contract is an unanticipated event, not caused by any party, that makes it impossible to complete the contract. So, the classic example is if you agree to rent a condo and the building burns down before you move in, then it's impossible to complete the contract. This would be analogous to that.

And I could certainly see the argument being made that this was entirely unanticipated, and it's certainly not the fault of either party. And because of changing circumstances, it's not possible to complete the contract, therefore, the contract has been frustrated. I think we're going to see that argument being made, at least until the government's closes that loophole, which they could.

It's arguable and it will definitely have to be assessed on a case-by-case basis. The strongest argument for frustration would be where there has been a government order that the business shut down. If that's the case, then I think it's a strong argument for frustration; if it's a matter of an employer just choosing to shut down under the circumstances, I think it may be harder for them to claim frustration.”

Q: What happens if there is a frustration of contract?

A: “That means that there's a termination of the employment agreement, but there's no obligation to provide severance or anything else, aside from statutory obligations. The contract just basically comes to an end. It might make some employers’ lives easier but it's a harsh result for employees to be told that your employment is ending and you're not owed any compensation.”

Q: Can employers offer additional compensation?

A: “A lot of our clients have been really great about trying to help their staff by trying to cushion any economic blow. And, conversely, I think a lot of employees at this point are being very cooperative and everyone is looking at this as something that we're all in together.

Some employers are offering to top up the employment insurance benefits, which is permissible in certain circumstances. They are also allowing employees to access sick days and vacation time, even borrowing ahead if none has accrued.

Everyone is trying to be creative. So, employers might say, “We'll pay you until the end of March and then we'll have to reassess at that time.” Or, obviously, if you're sending people home, it could be a paid leave. But most employers can't afford to do that for very long. So, at some point, it becomes an unpaid leave, which essentially is a temporary layoff.”

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