Navigating the maze of temporary layoffs

The pandemic has made it easier to temporarily lay off employees — within certain limits

Navigating the maze of temporary layoffs

The COVID-19 pandemic has radically changed many aspects of doing business. The circumstances surrounding the spread of the coronavirus and the resulting shutdowns of many businesses, along with the restrictions on gatherings, has created a new reality over the past year-and-a-half. The employment law realm has been a part of this, as emergency legislation and rapidly changing ways of doing business have thrown established processes and doctrines out the window.

One established concept of employment law prior to the pandemic was that of temporary layoffs. While there may have been some confusion with some employers, it was widely accepted that employers could only temporarily lay off employees if it was expressly allowed in the employment contract.

Even if employment standards legislation contemplates temporary layoffs, they aren’t permitted unless they are in the employment contract or have been part of the employer’s established regular practice in the past.

Temporary layoffs were common for unionized workforces, as collective agreements usually set out the circumstances for them and recall. However, they are fairly rare in non-unionized employment contracts, meaning such layoffs were often characterized as constructive dismissal by courts.

However, the conditions of the pandemic caused many employers to lose business or shut down completely. Naturally, it was difficult for them to retain or pay staff, so they were forced into layoffs. Governments across Canada recognized this and the need to protect businesses, so they passed legislation allowing temporary layoffs for reasons related to the pandemic — in Ontario, for example, such layoffs were labelled Infectious Disease Emergency Leave (IDEL).

In most cases, such legislation provided that temporary layoffs during a specified period of time during the pandemic could not be classified as constructive dismissal. And, of course, if those employees aren’t brought back by the time government deems the emergency leave period to be over, then they will be deemed terminated with the appropriate entitlements.

An employment law expert answers six questions on how employers should handle staffing during the pandemic.

Legal layoff or constructive dismissal?

This past spring, the Ontario Superior Court of Justice made some waves in employment law circles with two opposing decisions dealing with pandemic-related temporary layoffs. In the first decision, the judge found that the Ontario Employment Standards Act, 2000’s (ESA) statement that “no civil remedy of an employee against his or her employer is affected by this act” meant that the IDEL regulation under the act didn’t prevent a common law finding of constructive dismissal.

In the second decision, a different judge determined that IDEL regulation stated that all temporary layoffs related to the pandemic were IDEL and not constructive dismissal, which changed both legislation and the common law. This was the government’s intention and was “just common sense,” said the second judge.

While the two Ontario court decisions show two sides to interpreting employers’ ability to temporarily lay off employees for reasons related to the pandemic, there is also a question of what actually constitutes pandemic-related reasons. This came up in a recent case involving an employer that laid off employees due to a drop in business a short time before the pandemic or any related emergency legislation arrived in Canada.

Drop in business leads to layoffs

A corrugated plastic pipe manufacturer in the Toronto area, Corma, had a lot of its supply chain and business in overseas markets. When COVID-19 started spreading in China in late 2019 and early 2020, that company’s shutdowns caused a 40-per-cent drop in the company’s business. As a result, it had to lay off several employees for what it called “the unstable political climate” in China.

It told the laid-off employees that they would be recalled “when it was financially feasible” but it would be within 35 weeks — the maximum allowable length under Ontario’s ESA.

The court — once again, the Ontario Superior Court of Justice — found that there was no provision for temporary layoffs in the employment contracts and the pandemic couldn’t be considered extraordinary circumstances justifying the layoffs because it hadn’t affected Ontario and Canada at the time of the layoffs and the company wasn’t prevented from operating by any shutdowns.

In addition, the company told the employees the reason for the layoffs was the political climate in China, not the pandemic. The drop in business at the time wasn’t much different from “any other adverse situation that might commonly affect a business,” said the court in finding the employees were constructively dismissed: see Ristanovic v. Corma Inc., 2021 ONSC 3351.

The legal landscape around temporary layoffs is different right now than it used to be, but employers still don’t quite have free reign to do what they want.

An employee handbook mentioning the possibility of temporary layoffs did not make them part of the employment contract, an Alberta court ruled.

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