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Temporary Lay-Offs due to COVID. Employer & Employee Rights and Obligations

Where 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. Since COVID-19 has resulted in significant business closures, many employees have been temporarily laid-off and are no longer being paid their salary.

Typically, where no agreement (employment contract) exists that expressly indicates that the employer was entitled to layoff the employee for any period of time, 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.

In its clear and plain wording, the Employment Standards Act (ESA) allows for temporary layoffs and an employee is not terminated (for the purpose of the statute) until and unless his or her temporary layoff exceeds the time frames allowed by s. 56(2), prior to which time he or she is not entitled to termination or severance pay pursuant to O.Reg 288/01. If the layoff does exceed the timelines, then the employee has been terminated.

That said, the temporary layoff provisions of the ESA operate separately from an employees common law rights. The ESA provisions are intended to provide protection to employees in situations where layoffs are otherwise permitted as an express term of the employment contract by limiting temporary layoffs to the maximum time periods stated in the ESA.

“Temporary layoff” is a defined term[8] in the ESA, as follows:

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,

                                       i.              the employee continues to receive substantial payments from the employer;

                                    ii.              the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan;

                                   iii.              the employee receives supplementary unemployment benefits; and

                                   iv.              the employee is employed elsewhere during the layoff and would be entitled to receive supplementary unemployment benefits if that were not so,

Section 56(4) allows an employer to layoff an employee without specifying a recall date without being considered to have terminated the employment unless the period of layoff exceeds that of a temporary layoff.

Section 56(1)(c) provides that an employer terminates the employment if it lays the employee off for a period longer than the period of a temporary layoff.

Section 54 provides that no employer shall terminate the employment of an employee who has been continuously employed for three months or more absent written notice of termination under the act or having made appropriate payment in lieu of such notice.Section 56(1) provides that an employer terminates the employment of an employee for purposes of s.54 if:

a)         the employer dismisses the employee or otherwise refuses or is unable to continue employing him or her;

b)        the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period; or

c)         the employer lays the employee off for a period longer than the period of a temporary layoff.

 s. 56(1) of the ESA operates to terminate an employee’s employment in law, so that the employee may claim for common law wrongful dismissal damages. The evident purpose of s. 54 is to prevent employers from avoiding the liabilities that flow from terminating the employment of employees under the guise of placing them on indefinite layoff. The legislature has provided that when a layoff reaches 35 weeks in 52, the employee is terminated.

At common law, an employer has no right to layoff an employee. Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employer’s employment, and would be a constructive dismissal.

More specifically, a proper reading of the ESA layoff provisions requires the conclusions that:

a.         it is not a termination of employment to temporarily lay off an employee so long as that temporary layoff does not exceed the definition of “temporary” – s.56(4);

b.         an employer may not contract below the Act and therefore may not contract for provisions that allow that temporary layoffs exceed the timeframe set out in s.56 of the Act;

c.         once a layoff exceeds the definition of temporary it is a termination of the employee’s employment pursuant to the Act and pursuant to the common-law, as the Act no longer protects the employer by displacing the common-law jurisprudence and the Act itself also deems a termination; and

d.        the common-law doctrine of constructive dismissal is suspended until such time as the layoff exceeds the definition of  “temporary” in the Act.

TAKEAWAYS

  • 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.
  • 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.

If I Am Subject to Temporary Lay-Off Due To Coronavirus, Am I Entitled to Severance Pay?

The coronavirus (COVID-19) has resulted in business closures and downsizing, in some cases temporary and others on a permanent basis. The Employment Standards Act in Ontario expressly enumerates in s.56(2) the requirements for a temporary lay-off to occur. Specifically, the criteria include the following:

A temporary layoff is,

(a) a lay-off of not more than 13 weeks in any period of 20 consecutive weeks;

(b) 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 and,

(i) the employee continues to receive substantial payments from the employer,

(ii) the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan,

(iii) the employee receives supplementary unemployment benefits,

(iv) the employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so,

(v) the employer recalls the employee within the time approved by the Director, or

(vi) in the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee; or

(c) in the case of an employee represented by a trade union, a lay-off longer than a lay-off described in clause (b) where the employer recalls the employee within the time set out in an agreement between the employer and the trade union.  2000, c. 41, s. 56 (2); 2001, c. 9, Sched. I, s. 1 (12).

Generally, the common law in Ontario has held that a temporary lay-off is not permitted in Ontario unless it is expressly authorized in a employee’s employment contract and the employer follows the specific requirements outlined above. At this time, the Courts have not rendered a decision on whether a temporary lay-off constitutes a constructive dismissal (i.e., termination of employment) absent an express term of an employment contract permitting such a lay-off, which has been the law to-date.

Rather, it is probable that a Court may find that an economically required lay-off is not deemed to be a termination of employment because of the unique financial circumstances and constraints that have been posed by the virus. Nevertheless, each case is fact-dependent, and it is best to consult with an employment lawyer to discuss the potential outcomes should you pursue a claim for constructive dismissal.

Can an Employer Terminate My Employment Due to a Business Down-Turn Resulting from the Coronavirus (COVID-19)?

In Ontario, it is a well-established principle of employment law, that an employer can terminate an employee at any time without cause for any reason, so long as the reason is not discriminatory or a breach of a human right. Typically, where an employee is terminated without cause, they are not provided with any advanced notice of dismissal. With ongoing concerns associated with the COVID-19 pandemic, large contracts and business relationships have been terminated that will inevitable result in a paring down of the workforce without advanced notice.

At law, there is no difference between the right of an employer to provide working notice (i.e., advanced notice of termination) or payment in lieu of notice of termination (i.e., a lump sum severance payout). Accordingly, in many cases businesses will prefer to immediately terminate an employee without cause while providing pay in lieu of notice to avoid the potential morale drain, transfer of confidential information, solicitation of clients or colleagues, or other potential implications of providing working notice to a disgruntled employee.

If you have recently been terminated from your employment in Ontario, it is likely that you have received a termination letter from your employee which outlines the specific severance package. The employer does not need to provide any specific reason for the dismissal, though more recently many employers are terminated employees due to the business realities caused by the global COVID-19 pandemic.

An employer who terminates an employee without cause is required to make the employee whole during the period of reasonable notice. In other words, at common law, the employee is entitled to continue to receive all the compensation (including commissions, bonuses and stock options) and benefits that he or she would have enjoyed if still actively employed with the employer throughout the notice period.

If you have been terminated from your employment, contrary to what most employment lawyers will tell you, it is generally a very straightforward and simple process to negotiate an enhanced severance package, and where litigation is required – the substance is simple (i.e., it does not require a law degree, let alone a high school diploma to determine how much severance you may be entitled to) – it is merely the unfortunate procedure that lawyers have developed in order to protect their profession and demand unjust and punitive hourly rates that make the process challenging.

If you are contemplating hiring a lawyer, be very careful in understanding the retainer agreement. Under no circumstances, unless for senior executives with potentially 100’s of thousands of dollars of severance pay outstanding, you should not pay more than $2,000.00 as an up-front retainer to a lawyer. Again, these matters are very simple and straightforward. The work is typically done by template and the system is often designed to enrich the lawyer to your benefit. At Goldstein Law, we believe that we put the client first by acting transparently and only taking on cases where there is a real economic benefit to be realized by all parties involved. Thanks for reading.

Fixed Term Contracts – Termination Clauses

Employers may wish to enter into fixed-term employment contracts for various reasons, most commonly where the employee is hired to complete a specific project or task for the employer with a defined deadline or where the employee has been hired during another employees leave of absence (i.e., maternity leave, sick leave, disability-related absence, etc.). When the full-time employee returns from leave, the services of employee that is working on a fixed-term contract will no longer be required.

Substantial litigation in Ontario has surrounded the early termination of fixed-term employment contracts. In other words, how much is the fixed-term employee owed if the employer opts to terminate their employment prior to the end of the expiry of the fixed term? In some cases, a clear and unambiguous termination clause will obligate the employer to only pay the amounts indicated in the clause (i.e., typically, 2 weeks of advanced notice of early termination or payment in lieu thereof); however, where these restrictive early termination clauses are ambiguous, they will be interpreted and construed in favour of the employee, in accordance with the principle of contract law referred to as contra preferentem.

As noted in Howard v. Benson 2015 ONSC 2638, in the absence of an enforceable (i.e., unambiguous) contractual provision, a fixed term employment contract obligates an employer to pay an employee to the end of the term and the obligation will not be subject to mitigation.  Where the language of a termination clause is unclear or can be interpreted in more than one way, the court should adopt the interpretation most favourable to the employee (Wood v. Fred Deeley Imports Ltd. 2017 ONCA 158).

Ambiguity can relate to any number of factors. In one case, our clients fixed term employment contract stipulated a minimum notice requirement but not a maximum. In other words, there was no language that clearly indicated that the 2 weeks notice represented all obligations of the employer to the employee on termination.In addition, it is a complete contradiction in terms to suggest that a contract is for one-year and then say it may be for just two weeks, at the whim of the employer. 

It is arguable that all fixed term contracts that purport to allow early termination for unspecified reasons ought, in principle, to be considered ambiguous, and interpreted contra proferentem.   However, there does not yet appear to be any jurisprudence which goes quite so far.  The point wasn’t raised in Benson, which looked instead for technical ambiguities in the wording of the termination clause itself.  It seems to me to be a contradiction in terms to state that you have a contract for a year, and then say that it might be a contract for just two weeks, at the whim of the employer.  

In any event, if you are an employee that has been terminated prior to the end of a fixed term contract, it is in your interest to have the severance package reviewed by an employment lawyer to determine whether the employer has provided you with your full entitlements based on the wording of your employment contract.

Updating and Amending Employment Contracts

After you have worked for a company for a period of time, your employer may request to update or amend your employment contract for any number of reasons. These reasons typically include an update to reflect a promotion or change in job position, a demotion, a restructuring of the organization, change in the amount of compensation earned (i.e., from salary to commission or vice versa), a change in the location of where job duties are to be carried out (i.e., at home or remote, or a new company office) and any other changes.

In order for an updated or amended employment contract to be considered enforceable by the Courts in Ontario, it must be accompanied by fresh consideration. In other words, and as noted in the BC Court in the case of Krieser v. Active Chemicals Ltd, 2005 BCSC 1370, an updated employment contract will only be enforced if there is a further benefit to both parties.

One of the common and relevant terms that employers attempt to include in updated employment contracts are restrictive termination clauses. We have written about the impact that a restrictive termination clause can have on your severance entitlements in the event of a without cause termination from employment here. A restrictive termination clause, if properly drafted, and compliant with the Employment Standards Act (“ESA”) in Ontario, will limit a terminated employees severance entitlements to the minimum amounts prescribed by the employment standards legislation in the province.

The minimum termination entitlements of an employee terminated without cause in Ontario is equivalent to one-week of termination pay per year worked up to a maximum of 8 weeks pay; and one-week of severance pay per year worked up to a maximum of 26 weeks, in the event a certain eligibility test for severance is satisfied, as further described here. These represent an employees minimum entitlements, which are applicable in the event a restrictive termination clause is included in an employment contract.

Absent such a termination clause, terminated employees are entitled to “reasonable notice” of termination, further described here. Severance packages calculated on the basis of reasonable notice are substantially higher than those that are merely based on the ESA minimums. These packages can amount to awards of 1 month of more per year of service, rather than the one week per year enumerated in the ESA. Accordingly, it can amount to a huge financial gain for the employee to receive reasonable notice on termination rather than the statutory minimum. Accordingly, an updated employment contract with the inclusion of a restrictive termination clause can be of immense benefit to the employer and detrimental to the employee. As such, Courts will not enforce such updates absent fresh consideration (or benefit) flowing between both parties.

Reasonable notice is calculated based on a host of factors recognized by Ontario Courts over the years, including but not limited to the following:

-Age of the employee (more advanced age employees are entitled to larger severance packages, all else equal);
-Years of service (the longer duration of employment will justify a larger severance award);
-Specialization and availability of comparable employment (as severance packages are designed to bridge the gap during a period of unemployment, employees with highly specialized jobs may find it more challenging to find comparable employment after a termination);
-Income level;
-Other unique circumstances.

Clearly there is a large benefit to receiving reasonable notice on termination. As such, if an employer attempts to update your employment contract, it is best to contact a qualified employment lawyer for a review.

Reasonable Notice Periods on Termination

Age and tenure of services are typically positively correlated, and they are two of the key factors considered by a Court in determining a terminated employee’s reasonable notice entitlement.  It has been recognized in case law that the availability of similar employment opportunities diminishes as the prospective employee ages.  As a result, recent decisions have that the Courts are more willing to extend the reasonable notice period beyond the previous maximum of 24 months.

O’Reilly v. Imax Corporation – after 22 years of employment, the Plaintiff was dismissed without just cause at the age of 54.  The employee was a commissioned salesperson and lost a substantial book of business as a result of the termination. In this case, the Plaintiff did not establish that there were exceptional circumstances to justify a reasonable notice period beyond 24 months.

Beattie v. Women’s College Hospital – two Plaintiff doctors commenced an action against the Hospital for wrongful dismissal. The co-Plaintiffs were 64 and 65 years of age and had been employed for 21 and 30 years by the hospital, respectively. The Plaintiffs were awarded greater than 24 months of notice irrespective of the fact that alternate employment was available to them.

Dawe v. Equitable Life Insurance Company  – Employee was part of the senior management team, he was 62 years of age at the date of dismissal and had worked for the employer for 37 years. The Plaintiff was found entitled to 30 months of notice given that there was no comparable employment available and the termination was tantamount to forced retirement.

Recent case law is clear that courts in Ontario are willing to extend the reasonable notice period beyond 24 months. The demographic shift is changing the age composition of the workforce and expectations regarding retirement. As such, notices awards in excess of 24 months are likely to become more common.

 

 

 

Executive Severance Pay

As we have commented on various posts, employees that are terminated without cause from their employment are entitled to a severance package in accordance with the Employment Standards Act (ESA) in Ontario and the common law. Those employees that are terminated for cause from their employment may also be entitled to severance pay so long as the ‘misconduct’ that was used to justify the dismissal does not rise to the level of ‘just cause’ as determined by Court precedent.

The calculation of severance pay is dependent on each specific circumstance.  For certain, an employee in Ontario is entitled to the minimum amounts of notice of termination, or payment in lieu of notice of termination, in accordance with the ESA (provincial employment standards legislation) as described in more detail here and here.  To reiterate, the ESA sets out the minimum rights of an employee upon termination.  There is a presumption that an employee is also entitled to reasonable notice of termination or payment in lieu thereof, in accordance with the principals enunciated by the common law in Ontario.

The common law refers to judge-made law and is comprised of the body of precedent cases that have been heard and ruled on in this province. Judges are required to follow-up and/or be persuaded by similar precedent cases when rendering judgments. Accordingly, over-time, various principals have been established via Court precedent to determine the quantum of severance pay an employee is entitled to upon termination of employment.

The well-documents factors include, but are not limited to the following:

  1. The Terms of An Employment Contract or Offer of Employment

Many cases (precedents) have touched on termination clauses in employment agreements.  In order to reduce the severance pay owing to an employee upon termination in Ontario, an employer can draft a clear and unambiguous termination provision, which limits an employees’ rights to severance pay upon termination to the statutory minimum (thereby rebutting the presumption of entitlement to common law or reasonable notice).

If you have been terminated from your employment, it is of paramount importance that your employment contract is reviewed to determine whether the precise wording of the termination provision in your employment contract would be enforceable by a Court or not.  Specific language around statutory notice, benefits continuation, and otherwise, must be included in these clauses in order for them to be enforceable, otherwise, a Court will award the employee reasonable notice, which is often greatly enhanced over and above the statutory minimum.

2.  Age

Typically, the more advanced the age of an employee, the more difficult it will be to re-train for another career or find another job in a timely manner.  Accordingly, employees of advanced age are typically awarded more severance pay that younger employees that have brighter job prospects.

3. Seniority in the Company

Executives are typically entitled to enhanced severance pay periods as compared to minimum wage or lower income workers as fewer comparable jobs are available to executive. As such, the severance package should be designed to bridge the employee in between employment.  For an executive, the severance negotiation can come down to salary, benefits, equity compensation, pension payouts, and other forms of compensation.

Often, employers will seek to have an executive sign off on a severance offer without it being reviewed by an employment lawyer. It is important to ensure that your rights and entitlements are protected; as such, contact an employment lawyer in Ontario today for a free severance package review.

 

Severance Packages as Salary Continuance Payments

When an employee is terminated without cause from their employment in Ontario from their employer, the employee is entitled to a severance package, which, as we have discussed here, is based on a host of factors, including but not limited to the terminated employees age, length of service with the company, seniority in the company, job specialization, annual compensation, and otherwise.

In structuring severance packages to terminated employees, employers have the option to either pay severance by way of a lump sum payment or on a salary continuance basis. When paid on a salary continuance basis, an employee will continue to receive regular bi-weekly (or semi-monthly) payments, dependent on the typical process employed by company payroll.   As when the employee is employed for the company, such salary continuance payments will be subject to regular statutory deductions (i.e., income tax deductions, Canada Pension Plan contributions and Employment Insurance premiums).

Severance packages structured on a salary continuance basis are most common in a few different scenarios, including but not limited to the following:

  • Where the employee has been terminated by a business with a rather small payroll, a lump sum severance payment may not be feasible on account of cash flow constraints; as such, the employer wishes to spread out the severance obligations to the terminated employee as a function of cash flow management;
  • Where the employee has a high salary or holds a senior position with the company and has contributed a long duration of service, the severance entitlement could be substantial (typically, up to 24 months of pay). In such a case, again, the employer wishes to spread out the severance obligations.
  • The primary benefit to employers for structuring a severance package by way of salary continuance payments is when “claw-backs”, which are typically included in such packages, may allow the employer to avoid some of the severance obligations altogether.

What is a Claw-Back in a Severance Package Payable by way of Salary Continuance?

A claw-back in a severance package will usually contain language a kin to the following:

“At the date of termination, the company will provide payments equivalent to regular base salary payments, in accordance with the company’s regular payroll practices, for a period of 12 months. These payments shall continue for a period of 12 months, or until you commence alternate employment, whichever occurs first.

According to the above-referenced salary continuance severance package provision, the employee is entitled to 12 months of severance in this example, except if comparable alternate employment is secured prior to the end of the 12-months period.

Do Payments End Completely If You Secure Employment Before the end of the Salary Continuance Period?

Typically, the employers’ severance payments to the employee will cease immediately upon being notified that the employee has obtained other employment. The typical wording of the remainder of the salary continuance clause is as follows:

“Should you commence alternate employment prior to the end of the salary continuance period, all salary continuance payments will immediately cease but you will be paid a lump sum equal to fifty percent (50%) of the salary continuance payments then remaining.”

Accordingly, if the employee secures a job after 6 months of a 12-month salary continuance period, the remaining 6-months of regular salary payments remaining will transfer into a lump sum payment of three (3) months regular pay. By way of mathematical example, we note the following:

Example:

Employee earning $100,000, terminated an provided with a 12-month salary continuance period, with a 50.0% claw-back should alternate employment be secured before the end of the salary continuance payments.

Salary: $100,000            Semi-Monthly Payroll

Estimated Net Pay (after per deductions) Per Payroll Period: $2,915

Salary Continuance Period: 12 Months         No. Months to Obtain New Job: 6 Months

Total Payout at 6-month period = $17,500 (3 months pay).

What about the Employee’s Employment Standards Act (ESA) Entitlements?

As we have discussed here, an employer has a minimum obligation to an employee upon a termination without cause, which is provided for by the Employment Standards Act in Ontario. Notwithstanding an employer’s right to structure an employees severance package as a series of salary continuance payments with a claw-back in the event the employee obtains alternate employment before the end of the period, at all times the employer must satisfy the employees’ Employment Standards Act entitlements.

Accordingly, if an employee has worked for an employer for fifteen (15) years, and the employee is entitled to both termination pay and severance pay under the ESA, then the employee would be entitled to approximately 23 weeks or almost 6 months of severance. Accordingly, the 23-week statutory entitlement cannot be subject to any form of claw-back by the employer and must be guaranteed. If, for example, the employer offered a 6-month salary continuance period, with a claw-back if the employee obtained another job during this period of time, the severance package would be illegal as non-compliant with the ESA. In no circumstances can an employee receive less than their entitlements under the ESA.

What to do if you have Received a Severance Package in Ontario?

Prior to signing back a severance package, it is imperative that you obtain legal advice to ensure that your employer is complying with its obligations under the ESA and the common law in Ontario. You cannot be pressured or forced into immediately signing back a severance package; the law provides you with a reasonable amount of time to consult with a lawyer to discuss your options. The worst decision you can make is an ill-informed decision.

Accordingly, there are a host of qualified employment lawyers in Toronto and the surrounding regions. At Goldstein Law, we dedicate ourselves to superior client service and providing honest and effective advice. We will always reply to you in a timely matter and work to resolve your case so you can have peace of mind. If you are seeking an employment lawyer in the Greater Toronto Area (GTA), please contact us today for a free consultation at 647-838-6740.