Given the current economic downturn, many employers are looking for ways to adjust staffing levels. On the one hand, they wish to reduce head count and wage costs. On the other hand, they do not want to trigger their termination obligations, and they wish to leave open the possibility of staffing up, once the recession is over. Is there a lawful way of doing this?

In some limited cases, the answer is yes. Under the Employment Standards Act, there is a provision for temporarily laying off an employee. These lay-offs can be of two different durations. The first is a lay-off of not more than 13 weeks in any period of 20 consecutive weeks. The second is a lay-off of more than 13 weeks in any period of 20 consecutive weeks, if the lay-off is less than 35 weeks in any period of 52 consecutive weeks. In this longer lay-off, to be consistent with the ESA, employers must continue to provide their share of employee benefits (i.e. medical or drug insurance) and contributions to any retirement pension or group insurance plan if such exists. In addition, the employer must ensure that it sets a recall date, and actually recalls the employee within the time frame described above.

These recall dates can be extended, provided that they comply with the time frames set out above. If the lay-off does not have a recall date – typically evidenced by the employer filling out the Record of Employment with “unknown” in the recall box, the lay-off will be considered to be a “sham” and the employee will have been terminated, and entitled to termination and severance pay (if applicable) under the ESA. Conversely, if the employee is recalled, and does not return to work, he or she has resigned, and is not entitled to any payments under the ESA.  

We are often asked by our employer clients if they follow the technical requirements of the ESA, can they lay-off any employee without triggering any legal liability? The answer to this question is no. While an employer may have complied with the ESA and created a valid statutory lay-off, the fact is that if the possibility of a lay-off is not a term and condition of the employee’s employment, the lay-off may trigger a constructive dismissal. In this case, the employee will be entitled to pay in lieu of notice. The easiest way for an employer to show that there is such a term, is through the existence of a written employment contract that says that it may lay-off the employee in certain circumstances. Absent that, a court would look for the employer’s general practice – and whether there have been lay-offs in the past – as well as what occurs in the employer’s industry.

What does this mean for employers?

Adhering to the requirements To create a valid lay-off, employers must adhere to the technical requirement of the ESA. Because of the strict timing requirements, we recommend that there be at least one person in the organization who has the various dates diarized, so that sloppy administration does not inadvertently trigger an employee termination. In addition, special care needs to be taken in filling out employee Records of Employment for the same reason.

Planning ahead with benefits

Employers should realistically gage their staffing requirements. If there is even the remotest possibility of a 13 week lay-off being extended, then the employee’s benefits should be continued. In most cases, this is a minimal cost, and it provides the employer with additional flexibility in terms of the length of the lay-off. In addition, while it is never pleasant to be told that your employment income will be discontinued for a period of time, the extension of benefits over the lay-off period softens the blow to employees, and provides them with support in addition to any employment insurance benefits they might receive.

Right to lay-off employees

If you operate in an environment where you anticipate the need to lay-off employees periodically, then an explicit term should be included in your employment contracts and policies. This could be helpful to employers who experience large seasonal variations in their business, or employers who engage in project work that sees them ramping up staffing, and then once the project is over, ramping down.