Given the ongoing challenges in today’s economic climate, and particularly during periods of economic downturn, employees are at more risk of being laid off from work.  Temporarily laying an employee off can be enticing to an employer who may be experiencing a short decline in business and who would not be able to afford terminating that employee and having to incur notice and/or severance costs that would flow from the termination.

However, both employees and employers have many misconceptions when it comes to temporary layoffs.  Examples of such misconceptions include under what circumstances layoffs are acceptable, how long they may last, and what rights employers and employees have while the layoff is ongoing.

What is a layoff? Generally speaking, while many individuals often equate the words “layoff” and “termination” with the same meaning, in law they are two very distinct concepts.  A temporary layoff is when an employer temporarily cuts back or ceases an employee’s employment with the understanding that the employee will be recalled within a certain period of time.  Should the layoff exceed the maximum length under the applicable employment standards legislation, it will transform into a termination at law.  If this happens, the employee will be entitled to notice of pay in lieu notice and/or severance under the applicable employment standards legislation and possibly under the common law as well.  Practically speaking, there is no difference between a permanent layoff and a termination.

Under provincial jurisdiction, and specifically in Ontario, temporary layoffs can last up to 13 weeks in a consecutive 20-week period, and can include either time not worked by the employee or time where the employee is earning significantly less income (i.e. 50% or less) as compared to their regular earnings pre-layoff.  An employer can extend the duration of a layoff past the 13 week period noted above, provided that the employer, provides substantial payments to the employee, continues the employee’s benefits, if the employee receives or is entitled to receive supplementary unemployment benefits, or if the employee is called back to work within the approved timeframe under the applicable legislation.

In Ontario, this extension of the layoff cannot exceed 35 weeks in a consecutive 52-week period.  Reference to layoffs in the Ontario Employment Standards Act can be found under Section 56.

Employers are not required to provide notice of the layoff to the employee prior to the layoff itself, provided the employer recalls the employee back before the specified date.  Should the layoff exceed the time allowed under the employment standards legislation, the first day of the temporary layoff is considered the date of termination.

 

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One of the main things employers need to know about temporary layoffs is that, while the Employment Standards Act specifically addresses layoffs, this does not mean employers have a free-standing right to temporarily layoff any employee they see fit.  There must be something in a contract that has been signed or otherwise approved by the employee affording the employer this right.  If there is no such contractual right and an employer imposes a temporary layoff against an employee, that employee is entitled to treat the layoff as a constructive dismissal (i.e. the unilateral imposition by the employer of a significant change in that employee’s employment). The employee will then be able to seek damages for wrongful dismissal, which could likely find an employer faced with a lawsuit.

Employers who wish to preserve their ability to impose temporary layoffs should get the agreement of the employee they wish to layoff in writing at the time of hire.  Where there is no contract affording the employer this right, employers should consider approaching the employee with a proposed temporary layoff.  The employee may much rather prefer this to termination and agree to the layoff.  Employers should also advise the employee of their entitlement to collect Employment Insurance benefits during the layoff.

In cases where employers have imposed a layoff, contrary to the employee’s rights and entitlements under the law, the full negative impact this can have on the employer may be minimized if the employer recalls the employee back to work as soon as possible.  In some cases, where the employee rejects this recall, the employee may be said to have failed to mitigate his or her damages by not returning to work, thereby negatively impacted the employee’s claim against the employer.

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Takeaways for employers:

  • Always seek legal advice before deciding to temporarily layoff an employee.
  • Review any relevant contracts or documents pertaining to the employee you are considering laying off before doing so.
  • If there is no contractual right to temporarily layoff the employee, consider speaking with the employee beforehand and document in writing any agreements made.

Takeaways for employees:

  • Anytime an employer decides to lay you off or approaches you enquiring about laying you off, always seek legal advice.
  • If you are considering being temporarily laid off, or have been laid off by your employer, be aware of the maximum time period a lay off can last under the Employment Standards Act, and what obligations the employer has to you during the layoff itself.
  • In the event that the employer does not have a contractual right to lay you off, be aware of your potential obligations to that employer and the impact to any lawsuit you commence should the employer recall you back to work within the time period allotted under the Employment Standards Act.