Wednesday, November 10, 2010

Ontario Employment Law: Temporary Layoffs - Common Law and the Employment Standards Act

One important area where the Ontario Employment Standards (ESA) and the common law appear to be wholly at odds relates to the consequences of temporary employee layoffs.

The ESA provides that under certain circumstances, an employer may temporarily lay off an employee, and even though no work is provided and no compensation is paid, the employment is not considered terminated, so long as the employer squarely complies with the Act.

No such right to layoff exists at common law. In a non-unionized workplace, unless an employment agreement provides that layoffs may occur or an employee acquiesces, a layoff may constitute a termination of employment, with the employee thereby becoming entitled to pay in lieu of notice and other compensation.

These drastically different approaches certainly create a bit of a legal fog that has great potential to confuse employers and employees alike as to the legal consequences of layoffs.

We'll try to shed some light in this article.


Under the Ontario Employment Standards Act, an employer must generally provide termination pay where it chooses to sever the employment relationship. An employee will typically have additional rights to compensation at common law or, if unionized, under a collective agreement.

Of course, there are some notable exceptions to this, including:
  1. Where the employer can establish that it had “just cause” to terminate the employee;
  2. Where the employee can establish that the employee has engaged in wilful misconduct, disobedience, or wilful neglect of duty.
Under the Employment Standards Act, but not necessarily at common law, a further exception occurs, where the employer lays the employee off for a period not longer than the period of a “temporary layoff.”

Layoffs under the Employment Standards Act

Under the Act, a “temporary layoff” in the case of a non-unionized employee is defined as:
  1. a layoff of not more than 13 weeks in any period of 20 consecutive weeks, or
  2. a layoff of more than 13 weeks in any period of 20 consecutive weeks, if the layoff is less than 35 weeks in any period of 52 consecutive weeks and, at least one of the additional conditions prescribed by the Act is met, for example the employee continues to receive substantial payments from the employer during the period of layoff.
In the very recent case of Printlinx Corporation v. Errol Bennett and Director of Employment Standards, the Ontario Labour Relations Board explained the relationship between an employer’s termination pay obligations under the Act and the exception to this in the case of “temporary layoff,” also recognized by the Act:
Under the Act, termination pay is presumptively payable where an employment relationship is severed because of an employer’s actions. The Act recognizes that a period of layoff will not always sever an employment relationship. It therefore contains provisions that permit employees to be laid off temporarily without triggering notice of termination or termination pay obligations. The corollary is that where a layoff exceeds a temporary duration it is characterized as a termination with the attendant obligations.
What this means is that where an employer recalls the employee within the time frames and in fulfillment of any conditions required by the Act, termination pay will not be owed to the employee since a "termination" will not be found to have occurred.

In Printlinx, the employee, Mr. Bennett, chose to ignore a notice of recall that he believed had arrived too late and chose not to return to work, instead insisting that his former employer pay him termination pay in accordance with the Act.

The employee and employer in that case disagreed on whether the layoff to which Mr. Bennett was subject had exceeded a temporary duration, and thus whether a "termination" had occurred with the attendant obligations that would thereby be triggered under the Act:
The Employer’s position is that Bennett was temporarily laid off, and was recalled to work within that period of temporary lay-off. He did not report to work within a reasonable time after being given notice of recall. It was his failure to return that severed the employment relationship, and he is not therefore entitled to termination pay. Bennett’s position is that he was promised termination pay on January 26, 2009 and he was entitled to ignore the recall notice and collect the termination pay.
The Board concluded that Mr Bennett’s layoff had exceeded a “temporary layoff” and constituted a “termination” before any attempt to recall him was made:
Bennett was first laid off on April 14, 2008, and only recalled for a couple of weeks. Within the 52 week period commencing April 14, 2008, he had been laid off for 35 weeks by the time the last week of December 2008 came around. No attempt to recall him to work was made until the first week of January 2009. Bennett’s layoff therefore exceeded a “temporary layoff” and amounted to a termination before any attempt to recall him was made. It follows that he is owed termination pay.
Worthy of note, the Board pointed out that the number of weeks of layoff, for the purposes of the Act, are calculated on a cumulative basis over either a 20 or 52 week consecutive period; the weeks of layoff need not run consecutively for the layoff to exceed a "temporary layoff" as defined therein.

Layoffs under Common Law

At common law, an Ontario employer has no entitlement to temporarily lay off an employee, unless an employment agreement between the parties provides for this.

As a result, at common law, a temporary layoff without the employee's consent or acquiescence may give rise to a wrongful dismissal, irrespective of the provisions of the Employment Standards Act.

In Martellacci v. CFC/INX Ltd., 1997 CanLII 12327 (ON S.C.), Ontario Supreme Court Justice Anne M. Molloy considered the consequences of layoff without an employee's consent, and concluded unequivocally that in that case a wrongful dismissal had occured. Her judgment states:

2. Did The Lay-off Constitute Wrongful Dismissal?

29 It is trite law that if an employer changes a fundamental term of employment, this may constitute constructive dismissal. It is difficult to imagine a more fundamental term of employment than that the employee be paid his or her salary.

30 In this case, there was no agreement that the employer was entitled to lay off the employee for any period of time. In the absence of such an agreement, the employer cannot simply place an employee’s employment status on hold without pay and without substantial benefits and expect that this will not constitute constructive dismissal. If the demotion of an employee or a reduction in pay and responsibilities of an employee constitute constructive dismissal, then surely indefinite suspension with no guarantee of recall, no salary and virtually no benefits must also qualify for the same treatment at law.

31 This issue was dealt with by the Divisional Court in Style v. Carlingview Airport Inn. The Divisional Court found that a lay-off amounted to wrongful dismissal and held at page 166 to 167:

In the case at bar, the plaintiff had a contract of indefinite hiring. There was no express term contemplating layoff as in a collective agreement. There had been no lay-offs before, nor was any warning of possible layoff given. Nor were any benefits paid during the layoff. The hours of employment were adapted on an ongoing basis to the work available based on the occupancy of the hotel, but there had never been a layoff. Also, the plaintiff was often called upon when there was extra work to do, indicating that the employer was satisfied with her work.

In my view there was no express or implied term of the contract of employment that the employee could be temporarily laid off with out pay.

32 In the case before me, there was no agreement with respect to lay-offs and there were no warnings. The lay-off was imposed unilaterally. With respect to the April lay-off, however, there was at least a triable issue as to whether the employee acquiesced and accepted that particular lay-off as part of her employment agreement. I do not say that this is necessarily the case, but merely that on a summary judgment motion, I am not prepared to say that there is no triable issue on this point. Also, although the plaintiff’s material suggests that the employer was not acting bona fide when issuing the lay-off and that the employer, in fact, had no real intention of returning her to her position, again, in my view, the defendant has raised a triable issue on this point. I am not prepared to conclude, applying the test for a summary judgment motion, that the lay-off on April 12th was termination of employment.

33 However, with respect to the July lay-off, there can be no doubt. The employee by then had retained counsel. Clear letters were sent requesting clarification and assurances. Those were not provided. The July lay-off most clearly was not accepted by the employee. On the contrary, the employee, as a consequence, sued for wrongful dismissal.

34 When an employer without prior agreement lays off an employee, the employee may elect to wait and see. The employee may acquiesce in the lay-off to see if later he will be able to return to his previous job. However, an employee is not obligated to do that. An employee may treat the lay-off as a wrongful dismissal. Ms. Martellacci clearly treated the July lay-off as a wrongful dismissal of her employment.

35 I agree with counsel for the plaintiff. There had been a fundamental change in the employment relationship. Ms. Martellacci was not working and she was not being paid. This constitutes wrongful dismissal.

Accordingly, even if a layoff may be provided for by the Ontario Employment Standards Act, it may still give rise to a wrongful dismissal at common law, and a laid off employee may therefore have entitlement to significant compensation.

If you believe your layoff may amount to a wrongful termination, seek legal advice as to your specific entitlements under both the Ontario Employment Standards Act and at common law.

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