Business is down and the workforce is idle. The office staff are gossiping at the coolers and the plant employees are standing around exchanging jokes.

Confident that this is just a passing phase until the economy turns around, management decides to temporarily lay off staff. Someone calls the Ministry of Labour which informs them that as long as group benefits are continued, they remain employees and there is no obligation to give termination pay. The lay offs are announced and management breathes a sigh of relief.

Within one week, three lawyers’ letters arrive threatening lawsuits for constructive dismissal. Management panics and calls their counsel-only to be told that there is no right to lay off employees. Confusion reigns.

A number of other significant lessons can be drawn from this story for employers and employees alike:

  1. Two legal regimes govern the employment relationship: the Employment Standards Act, 2000 (“ESA”) which provides for minimum protections for employees which are enforced by the Ministry of Labour. Over and above that, the common law gives employees additional rights that can be asserted in court.
  2. The ESA permits an employer to lay off an employee for up to 12 weeks- or up to 35 weeks in any 52 week periods if benefits are maintained- without triggering the termination pay and severance pay obligations under statute.
  3. The statutory scheme has nothing to do with the common law. Temporarily suspending an employee’s right to work and earn salary is considered a fundamental breach of the employment relationship. A layoff gives rise to the ability of to sue his employer for constructive dismissal-as the Ontario Superior Court has affirmed recently in Elsegood v Cambridge Spring Service.
  4. So even if the employer has no intention to fire the employee, the law treats the layoff as if a termination has taken place.

What should an employer do? Introduce a written agreement for all new employees that explicitly authorizes the employer to lay them off according to the ESA. This affords the employer with greater latitude in adjusting its workforce at a minimum of costs. For existing employees, make any pay increase or additional vacation award conditional upon them accepting this authority. Most staff instinctively understands that such power is ultimately in their best interest in preserving long term employment.