Temporary layoffs not always allowed

This is no less true when there's a global pandemic

Temporary layoffs not always allowed
Stuart Rudner

As we try to navigate our way through uncharted waters, people can be forgiven for not being entirely clear on their workplace rights and obligations. However, there is one common misconception that underlies a substantial number of decisions that are being made every day since COVID-19 turned our world upside down:

Contrary to popular belief, businesses in Canada do not automatically have the right to lay people off temporarily.

That has always been true. It is true when businesses have economic struggles, even when they border on bankruptcy. It was true during the economic downturn a little over a decade ago. And it is no less true when there is a global pandemic.

I confirmed this point in a recent interview with Sarah Dobson in which we addressed the current situation facing businesses. Our firm also wrote about it two years ago (leading off with the point that “Employers should not assume that they have the right to temporarily lay off workers in the event of a seasonal or other slowdown”). And I have been saying it for as long as I have been practicing; I suspect that if I had more time, I could find articles I authored in Canadian HR Reporter and Canadian Employment Law Today on the same point dating back over a decade.

Yet the misconception persists, and businesses continue to unknowingly expose themselves to liability for constructive dismissal. This happens routinely, but it has perhaps never happened so often in a short period of time as it has in the past week. Many businesses have been forced to close their doors temporarily due to government order, and many others that did not have to cease operations have seen revenue shrink by nearly 90 per cent. However, that does not mean that they have the right to unilaterally lay staff off.

I often use the analogy of a commercial lease. Even if a business is struggling, they cannot go to their landlord and simply announce that they are “temporarily” halting the lease or will be making reduced payments. Many dental practices have been forced to close temporarily, but they must still pay rent. Similarly, an employer cannot unilaterally change the employment contract which, at its fundamental level, is that the employee will work and the employer will pay them.

I am often met with the objection that our news feed is filled with stories of companies announcing mass layoffs, including Air Canada and Cineplex. While I cannot speak to those particular cases, it is likely that many of those employees are governed by a collective agreement or a contract which explicitly permits temporary layoffs. That is the exception to the general rule that temporary layoffs constitute a constructive dismissal: a contract of employment can explicitly (or, in some cases, implicitly) permit temporary layoffs.

The confusion is compounded by the fact that some employment standards legislation, such as the Employment Standards Act, 2000 in Ontario, explicitly references temporary layoffs and sets out parameters for how they can be implemented. Not surprisingly, many employers assume that they have the right to temporarily lay off an employee. However, the legislation does not grant this right; it only sets out how layoffs can be implemented if the right already exists.

In the absence of the right to lay off the employee, doing so will constitute a constructive dismissal. As a result, the employee will be entitled to compensation in the same way as if they had been dismissed outright. As regular readers will know, that entitlement is governed by statute, common law, and contract, and it can be extensive; we know that “reasonable notice” pursuant to common law can be as much as two years -- see here, for example.

We are encouraging our clients to collaborate with their workforce to determine reasonable ways of addressing the current economic reality. Employees can, of course, agree to a temporary layoff, but they do not have to. If an employee will not agree, and the company cannot continue to pay them, then the parties will need to make a decision and, essentially, weigh the risks of each course of action.

In order to do so properly, they must have a clear understanding of their legal rights and obligations. The first thing they should do is check their contracts, to see whether the employer has the right to lay the employee off.

Latest stories