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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.

Temporary Layoffs in Ontario

Temporary laying off an employee in Ontario often occurs in the context of seasonal businesses that required a reduced headcount during slow times of year or businesses that are in general decline. Rather than paying our full severance obligations to an employee, as required on the termination of employment, as discussed here and here, a temporary layoff affords the employer the opportunity to take an employee off of payroll for a defined period of time.

In employment law in Ontario, termination and a layoff have two very distinct meanings. A termination is a complete end to an employment agreement, which, if implemented on a without cause basis, gives rise to severance obligations. A layoff, on the other hand, is when an employer temporarily cuts off an employees employment, with the expectation that they will return back to work within a defined time period. Should the layoff exceed the maximum amount of time permitted to layoff an employee in accordance with the employment standards legislation in the province, the layoff will transform into a termination.

Under the Employment Standards Act in Ontario, employers are permitted to temporarily layoff an employee for a period of up to 13 weeks in a 20-week period. There are also rights to extend the layoffs under certain conditions. Under the Employment Standards Act, section 56 governs the layoff of employees working in Ontario.

A key issue with layoffs that an employer must be aware of is that despite the right to issue a temporary layoff as contained in Section 56 of the Employment Standards Act, an employer does not have the unilateral right to temporarily lay off an employee without a contractual right to do so. In other words, an employment agreement must be signed between the employer and employee that expressly authorizes a temporary layoff. Absent an agreement authorizing the layoff, the employer is not permitted to layoff the employee for any period of time. As such, the layoff will constitute a constructive dismissal at law, if the employer does not agree to bring the employee back to work immediately.

If you are an employee that has been temporarily laid off in Ontario, it is best to consult with an employment lawyer to determine whether the employer has complied with their obligations. It is imperative that you seek legal advice before agreeing to a layoff to ensure that you understand your legal rights.