Temporary layoffs: Don’t believe the legislation

Employment standards legislation makes allowances for temporary layoffs of non-union employees but common law sets a higher bar

By Jeffrey R. Smith ([email protected])

Temporary layoffs are often discussed in a tough economy as businesses look for ways to cut costs. In many industries that are seasonal in nature or where business moves in cycles, layoffs are recognized as a normal part of the business.

In unionized environments, collective agreements usually set out the terms for temporary layoffs. In non-unionized workplaces, employers may look at employment standards legislation that spells out the standards for temporary layoffs as a green light to implement them. However, many of them would be wrong.

Employment standards legislation across Canada sets out requirements for employers to temporarily lay off employees without terminating their employment. For example, the Ontario Employment Standards Act, 2000, permits a temporary layoff of up to 13 weeks in a period of 20 weeks, and up to 35 weeks in a period of 52 consecutive weeks. Anything beyond that would constitute a termination and require reasonable notice and severance pay.

An employer looking to cut costs to get through some hard times could look at this and start planning temporary layoffs without worry, right? But the reality is that laying off employees could result in constructive dismissal unless the employment contract or the nature of the job contemplates layoffs. If an employer can’t prove layoffs can be expected as part of the job, a temporary layoff will most likely result in a unilateral and fundamental breach and repudiation of the employment contract.

Two years ago, a dental practice in Hope, B.C., was struggling a little bit around the time one of its receptionists was ready to come back after being off recovering from an operation. The dentist couldn’t afford to have her back right away and felt he would be in better position to pay her in a few months. He checked the province’s employment standards legislation, saw the allowance for temporary layoff, and informed the receptionist she would be laid off for just under 13 weeks.

Unfortunately for the dentist, there had been no previous layoffs and nothing in the receptionist’s employment contract that allowed for a layoff. After being contacted by the receptionist’s lawyer, he realized the situation and quickly offered her immediate reinstatement. The matter went to the B.C. Supreme Court, however, which found the dentist liable for compensation from the time of the receptionist’s layoff.

Back in 1997, the Ontario Court of Appeal found an employer guilty of constructive dismissal when it gave an employee a notice of layoff that said the employee would be terminated if the layoff exceeded the 35 weeks stipulated in the Employment Standards Act, 2000. However, even though the employer intended to bring the employee back before then, this was not expressly stated in the notice, which made the layoff indefinite instead of temporary. This was compounded by the fact the employer did not have a past practice of laying off employees.

So, when employers look at temporarily laying off employees as belt-tightening solution during lean times, it might not be as simple or affordable as they might think. Just because legislation says they can do it doesn’t mean the courts will agree. Without the proper precautions, constructive and wrongful dismissal damages might make temporary layoffs less attractive as a cost-saving measure, which could frustrate employers who think they’re doing the right thing by abiding by the legislation. Are courts being unfair to struggling employers by going beyond the scope of employment standards legislation with regard to temporary layoffs?

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