Temporary layoffs risk dismissal claims (Legal view)

A history of layoffs and contractual provisions lessen risk

Staff cuts, both temporary and permanent, are often the unfortunate reality of a contracting economy.

While unionized employers have the ability to lay off employees temporarily and recall them when economic conditions improve, subject to the terms of the collective agreement, employment standards legislation seems 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.

Take, for example, Ontario. The province’s Employment Standards Act 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, if applicable.

In addition, the employer can lay off an employee for up to 35 weeks in a period of 52 consecutive weeks, as long as it continues to provide certain benefits. The majority of other Canadian jurisdictions include similar provisions.

Common law obligations restrict temporary layoffs

Despite the fact layoffs are allowed under employment standards legislation, an employer’s obligations under 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, 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 reliance 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, said the court, so the layoff constituted a repudiation of a fundamental term of this employee’s contract.

This same principle was applied in the 2003 Ontario Superior Court decision of Deschenes v. Little Employment Group Inc. The court determined the employer’s intention to temporarily lay off an employee was constructive dismissal because the company was unable to provide any evidence of “a policy or practice of laying off key employees.”

Contract provisions can protect from constructive dismissal

However, layoffs of non-union employees will not always amount to constructive dismissals. There are exceptions, such as an express provision setting out the possibility of a temporary layoff, an implied term permitting layoffs if the employee was aware of the possibility of layoff, or if 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 subsequently 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 an employee is effectively given notice of an impending layoff, a term permitting layoffs may be implied in the employment contract.

In MacKay v. Intertape Polymer Group, an employee familiar with the cyclical nature of the employer’s business knew employees with less seniority would be laid off. 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 stated if 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, if a company has not historically done so, is likely to expose an employer to a claim of 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. But careful consideration should be given as to whether they will effectively address the situation.

For more information see:

Stolze v. Ontario (Adjudicator appointed under Employment Standards Act), 1997 CarswellOnt 4691 (Ont. C.A.).

Deschenes v. Little Employment Group Inc., 2003 CarswellOnt 5337 (Ont. S.C.J.).

Chaffee v. Federated Co-operatives Ltd. (May 11, 1987), Doc. Vernon 9600252 (B.C. S.C.).

MacKay v. Intertape Polymer Group, 2008 CarswellNS 17 (N.S. Small Cl. Ct.).

Jennifer Fantini is a partner in the labour and employment law group of Borden Ladner Gervais in Toronto. She can be reached at (416) 367-6726 or [email protected]. Lisa De Piante is an associate in the same group. She can be reached at (416) 367-6217 or [email protected].

Latest stories