Do employers have right to temporarily lay employees off due to shortage of work?

Recent decision appears to give employers facing financial difficulties more flexibility

Stuart Rudner

By Stuart Rudner

As I mentioned in my recent post, How dusty are your employment contracts?, the law of employment never stops evolving.

Just recently, the Ontario Superior Court of Justice rendered a decision which, on its face, appears to have changed the law with respect to temporary layoffs. This decision is good news for employers, who may now have more flexibility when they face financial difficulties.

In December 2011, I wrote a post titled Don't assume you can suspend or temporarily lay off employees, in which I explained that many employers incorrectly assume they have the right to lay workers off temporarily in situations where there is a shortage of work. As I explained

In order to be entitled to lay workers off temporarily, there must be an explicit or implicit agreement. The best way to show such an agreement is to have clear and unambiguous wording in a written contract of employment. Alternatively, some employers will be able to show that within their company, or their industry, it is implied and understood that temporarily layoffs are a possibility. The construction industry would be a good example. However, in the absence of an express or implied right to temporarily lay employees off, employers cannot do so. If they do, it can constitute a constructive dismissal.

The law has always been that, by default, there was no right to temporarily lay an employee off; doing so constituted a breach of contract, or termination, and effectively triggered the same rights and obligations as if the employee had been dismissed outright. The only exception was where a contract (verbal, written, or implied) provided for temporary layoffs, in which case the employer had to comply with applicable employment standards legislation.

However, the recent decision in Trites v. Renin Corp. adopted a different approach. The employee had been temporarily laid off and claimed to have been constructively dismissed. Counsel for the plaintiff referenced the existing case law, which stood for the proposition that a temporary layoff is a constructive dismissal in the absence of a contractual agreement providing otherwise. However, the court wrote as follows:

"In my view, there is no room remaining at law for a common law claim for a finding of constructive dismissal in circumstances where a temporary layoff has been rolled out in accordance with the terms of the ESA." 

In this case, the layoff did not comply with the terms of the Employment Standards Act; for that reason, the layoff was found to be a constructive dismissal. However, if it had complied, then based upon the wording above, the court would have concluded differently.

This is a dramatic change in the law. For years, employment lawyers have been warning their employer clients not to assume that they have the right to lay employees off temporarily, and have been advising employees that a temporary layoff is, in most cases, a dismissal. We may all need to adjust to a new reality.

Stuart Rudner is an HR lawyer and a founding partner of Rudner MacDonald LLP, a Toronto-based firm specializing in Canadian employment law. He provides clients with strategic advice regarding all aspects of the employment relationship, and represents them before courts, mediators and tribunals. He is author of You’re Fired: Just Cause for Dismissal in Canada, published by Carswell. He can be reached at [email protected]. You can also follow him on Twitter @CanadianHRLaw and join his Canadian HR Law Group on LinkedIn. 

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