Due the shutdown of non-essential workplaces, effective March 24, 2020, many employers have laid off, or will continue to consider temporarily laying off employees, particularly if those employers do not qualify as “essential workplaces”.
This is not a risk-fee, easy-to-do step by an employer, despite the catastrophic circumstances.
JUDGE-MADE LAW IN ONTARIO – LAY OFF CAN BE A TERMINATION OF EMPLOY:
Generally, at least before the pandemic, Ontario employers had no free-standing right, statutorily or otherwise, to lay off employees.
Rather, an employee may be laid off only if such a right is:
- expressly or impliedly contemplated by the contract of employment; or
- expressly agreed to by the employee.
Employers who lay off employees contrary their employment contracts are liable to provide those employees with reasonable notice or pay in lieu, resulting in potentially costly litigation and severance obligations.
Similarly, employees who decline to consent to a layoff must be treated, and provided with notice, as though terminated without cause.
The refusal of an employee to accept the proposed layoff is not a sufficient basis to allege cause for termination.
Whether the or not right to lay off an employee is contemplated by an employment contract, and whether or not a temporary lay off is appropriate for your business, requires both legal and factual analysis.
However, given the emergency declarations by both the federal and provincial governments, including the ordered closure of non-essential businesses in Ontario, this existing law is now entirely uncertain.
These issues have yet to be addressed and resolved by our Ontario Courts, most of which are operating on skeletal resources currently.
Accordingly, the pandemic is very likely to force changes, at least temporarily, to the law regarding lay offs in Ontario, mostly because there cannot be a flood of wrongful termination claims inundating a system that will already be challenged by lack of resources and judicial catch-up.
STATUTORY LAY OFFS IN ONTARIO:
Despite the above, Ontario’s Employment Standards Act, 2000 (the “ESA”) allows employers to invoke a temporary layoff, which does not amount to a termination or severance of employment.
Temporary Lay Off – Defined:
A temporary lay off is:
1. a layoff of not more than 13 weeks, in any period of 20 consecutive weeks;
2. 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:
- the employee continues to receive substantial payments from the employer;
- 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;
- the employee receives supplementary unemployment benefits;
- the employee is employed elsewhere during the layoff and would be entitled to receive supplementary unemployment benefits if that were not so;
- the employer recalls the employee within the time approved by the Director of Employment Standards;
- in the case of an employee who is not represented by a union, the employer recalls the employee within the time set out in an agreement between the employer and the employee; or
3. in the case of an employee represented by a union, a layoff longer than a layoff described in clause 2 above, where the employer recalls the employee within the time set out in an agreement between the employer and the union (i.e., recall rights in a collective agreement).
Any employers who temporarily lays an employee off, without specifying a recall date, is deemed not to have terminated the employ of the employee, unless the period of the layoff exceeds that of a temporary layoff.
So, if a layoff exceeds this period above, an employee will be deemed to have been terminated and, therefore, will be entitled to ESA termination pay and severance pay, if applicable.
In addition to providing pay in lieu of notice when a layoff exceeds the period in which it is considered temporary, employers in Ontario must provide employees who have more than five years of service with statutory severance pay when the layoff exceeds 35 weeks in a 52 week period. Similarly, federally regulated employers are required to pay statutory severance pay when a layoff exceeds certain timeframes.
Employers are not required to provide employees with notice in advance of a temporary layoff, but unionized employers may be subject to notice requirements under their collective agreements, which may create significant difficulty due to the Ontario Government’s reasonably unexpected order.
In a unionized workplace, there may also be layoff and recall procedures that must be followed.
In addition, if the layoff of a unionized employee extends beyond 34 weeks (i.e. lasts for 35 weeks or more) and the employer and the union have an agreement that requires a recall period of 35 weeks or more, the employee may elect to take statutory termination pay and severance pay, if applicable, or retain their recall rights, but not both.
The notice/pay in lieu of notice to which employees are entitled increases significantly when a layoff is considered a mass layoff. Layoffs are considered to be mass layoffs when:
- more than 10 employees are impacted within certain periods of time in New Brunswick, Newfoundland and Labrador, Nova Scotia and Saskatchewan; and
- more than 50 employees are impacted within certain periods of time in Alberta, BC, Manitoba and Ontario.
In addition, employers in many provinces must provide notice, sometimes in a specific form, to the government. The same applies for federally regulated employers.
If the lay off exceeds the required temporary period, there are also exceptions to an employer’s obligation to provide notice/pay in lieu of notice, including severance pay, if applicable, under the ESA, such as:
• when the employment contract is impossible to perform due to:
• unforeseeable or unpreventable causes beyond the employee's control; or
• a fortuitous or unforeseeable event or circumstance;
• the temporary or indefinite termination of employment because of lack of work; or
• the actions of any government authority that directly affects the operations of the employer.
These exceptions would, it appears, clearly be invoked by the COVID-19 pandemic and, if so, an employee may not be entitled to any statutory pay.
When employees are temporarily laid off, employers should issue Records of Employment, so the employees may apply for Employment Insurance (“EI”) benefits, if they qualify.
SO WHAT NOW?
Historically, even thought the ESA permits lay offs, if there is no term in an employment agreement (express or implied) permitting temporary layoffs (or in some cases an established practice relating to temporary layoffs), a layoff, even if intended to be temporary, may result in the risk of constructive dismissal claims. In other words, even if a temporary layoff under the ESA is carried out properly, such that employment is not deemed terminated under the ESA, if there is no agreement to the contrary and/or a well established practice, a unilateral layoff by an employer may result in triggering a termination of employ, pursuant to Ontario’s common law (i.e., Judge-made law).
However, COVID-19 is unprecedented. As a result, it is doubtful that the traditional legal approach would prevail, if an employee were to sue due to being temporarily laid off. Arguably there is an implied term in every employment relationship that a temporary lay off would be permissible in these catastrophic circumstances, particularly if an employer has been ordered shut down by the Government.
In addition, the virus and its extraordinary implications may create an argument that an employment relationship has been frustrated, unable to be performed due to circumstances beyond the parties’ control or management. Frustration is a legal principle providing that an unforeseen change to the circumstances underlying the contract, through no fault of the parties, renders the contract incapable of performance.
Moreover, a constructive dismissal claim may arise where there has been a unilateral change by the employer, which substantially alters an essential term of the parties’ employment contract, verbal or in writing. Therefore, if a change to the terms and conditions of employment are not imposed by the employer, but are rather imposed as a result of a mandatory closure ordered by the Ontario Government, it is very questionable in these extraordinary circumstances whether an employee would be able to successfully argue that the temporary layoff constitutes a constructive dismissal. An employee claiming constructive dismissal also has an obligation to mitigate any damages they allege to have suffered, which means that if a laid off employee is recalled to work and declines, a Court may subsequently determine that the employee failed to mitigate his or her damages, reducing the amount awarded for the termination.
Some employers, if financially able to do so, should consider continuing benefits and/or providing supplementary unemployment benefits to qualify for the longer temporary layoff period under the ESA.
Finally, employees are also entitled to a job-protected, unpaid leave of absence if the employee will not be performing the duties of his or her position due to emergency declared under Ontario’s Emergency Management and Civil Protection Act (“EMCPA”). Employees may also qualify for infectious disease leave of absence, too, being a job-protected, unpaid leave of absence as well, for which EI benefits are also available.