Even if employers have a temporary layoff clause, they need to be sure that the agreement as a whole is enforceable
On one hand, it is clear that temporary layoffs are, in many cases, a constructive dismissal that exposes the employer to potential liability. On the other hand, many people have asserted that this long-standing legal principle should not be applied to the current set of circumstances. More specifically, they assert that it is simply not appropriate to put businesses in the position where they either have to maintaining operating costs that they cannot possibly afford or risk even greater liability through a constructive dismissal claim.
I have been quite vocal in my efforts to remind everyone that employers do not automatically have the right to impose temporary layoffs (see, for example, this post). I have done so not in an effort to promote disputes or litigation, but to ensure that decisions are being made based on a proper understanding of the legal consequences. I want people to make informed decisions, with a full understanding of the costs, benefits and risks.
I have tremendous sympathy for the employers that have been placed in unbelievably difficult situations through no fault of their own. And I do agree that it is quite possible that our courts will look at these circumstances sometime in the future and find that the legal principles must be adapted to the current circumstances. However, that has not happened yet, and there is no guarantee that it will. Employers and employees should understand that.
There is no easy answer and none that will satisfy everyone; if a court does find that employers had the right to lay off employees during the COVID-19 pandemic, there is likely to be a strong outcry that the burden of the current situation should not be shifted to employees and their families.
The desperate situation that many businesses and families find themselves in is why every level of government has announced various efforts to help. In particular, the federal government has enacted numerous initiatives, many of which have been revised several times as the situation becomes clearer and more dire.
The Canada Emergency Wage Subsidy may help avoid layoffs
The Canada Emergency Wage Subsidy (CEWS) will cover up to 75 per cent of wages for businesses that qualify, and the government is trying to make it so that most employers will. It is a clear effort to avoid layoffs and reduce the number of people dependent upon employment insurance benefits, although the cost is estimated to be $30.5 million per week. And although the details have not yet been finalized and the money will not flow for at least another month, it seems to be working.
I have seen our discussions with clients shift from layoffs to subsidies, with many businesses expressing their hope that the CEWS will allow them to either avoid layoffs or reverse any that have already been implemented. At the same time, we have seen public announcements from major corporations along the same lines.
For example, Air Canada has already announced that it will apply for the subsidy for its 36,000 Canadian employees. Notably, it was not long ago that Air Canada announced that it was laying off 16,500 of those workers; they will now be recalled.
It should be noted that Air Canada did not have a risk that the layoffs would be deemed to be a constructive dismissal, since their collective agreements presumably permit temporary layoffs. For other employers that do not have the right to impose layoffs, the CEWS is an even greater benefit: it will allow them to keep employees on payroll but have the government pay up to 75 per cent of their salaries. That will avoid the risk of a claim for constructive dismissal due to a temporary layoff.
Is a temporary layoff always a constructive dismissal?
The simple answer: no.
Under the law as it currently stands, a temporary layoff is a constructive dismissal if there is no contractual right to impose it and the employee does not agree.
In other words, businesses that have individual employment contracts or collective agreements that give the employer the right to impose layoffs can do so. Otherwise, they can ask the employee to agree. If the employees do not, they can still proceed, but should be mindful of the risk when making their decision.
We have been recommending the inclusion of temporary layoff clauses in employment agreements for years, although we often get pushback from clients who proclaim that they “don’t lay people off”. We always recommend keeping the clause in “just in case” and the current scenario, which no one anticipated, is a perfect example of why. The clients who took our advice are in a far stronger legal position, with more flexibility to implement cost-cutting efforts.
Should you consider a temporary layoff?
If you are considering your options as you assess the need to reduce costs, take a look at your employment agreements to see if they give you the right to impose a temporary layoff. Bear in mind that even if you do have a temporary layoff clause, you also need to be sure that the agreement as a whole is enforceable; many are not, and the most common reason is that they were signed on the employee’s first day of employment or after, when it is too late.
If you don’t have the right to impose a layoff, you can still do so if the employee agrees. We have worked with many clients over the past few weeks to navigate this process and get consent, which will insulate them from a future claim. In most cases, employees have been willing to work with the employer in order to get through this crisis.
When we are consulted by individuals, we do not advise them to blindly insist upon their legal rights; we encourage them to take a pragmatic approach and discuss the situation with the employer to seek a mutually acceptable approach.
any individuals do not want to be at work in the current climate, and they are quite happy to agree to a temporary layoff and collect Employment Insurance benefits. In those cases, we will help the parties document the agreement so there is no misunderstanding. In particular, we advise employees to make it clear that their agreement to accept a layoff is limited to these extraordinary circumstances and should not be seen as a precedent to be relied on in the future.
Of course, with the implementation of the CEWS, many businesses, like Air Canada, will choose to avoid layoffs altogether.