The truth about temporary layoffs

I was recently approached by a concerned employer with an interesting question. His business was facing a slowdown, however, new orders were anticipated by the end of the year. Rather than terminate some of his employees, or worry about short-term finances, he wanted to know if he could issue temporary layoffs, calling back his employees when business picked up.

When considering temporary lay-offs, particularly in Ottawa’s labour market, it’s important to distinguish between unionized and non-unionized employees. With unions, temporary layoffs are often common and based on seniority. Depending on the language of the union’s collective agreement, the employer may be able to issue a temporary layoff to employees when demand is low.

For non-unionized employees, employers cannot assume that they have the right to temporarily lay off their employees. Extra precautions must be taken to ensure such layoffs are legal.

Employees’ rights typically come from two primary sources: 

  1. From provincial employment standards legislation; or 
  2. From the common law (i.e. from Court precedent).

In Ontario, the Employment Standards Act, 2000 (or “ESA”) recognizes that when dealing with a non-unionized work environment, a temporary layoff means “a layoff of up to 13 weeks in any period of 20 consecutive weeks”.  An employer can temporarily lay off an employee for a period of up to approximately 3 months at a time.

While the ESA specifically addresses temporary layoffs, it does not mean employers have a right to temporarily lay off any employee.  There must be a contract that has been signed by the employee that explicitly allows the employer the ability to impose a temporary layoff. If that isn’t the case, the layoff can be considered a termination and that employee would be owed severance pay.

In the 1997 case of Stolze v. Addario, 1997 CanLII 764 (ON CA), the Ontario Court of Appeal confirmed that, in the absence of an express or implied term in the employment contract permitting an employer to lay off an employee temporarily without pay, the layoff would be considered a constructive dismissal, entitling the employee to damages for wrongful dismissal.

It may seem frustrating that the ESA recognizes the possibility of temporary layoffs while the common law has made it clear that an employee can treat a temporary layoff as a constructive dismissal. If an employer issues a layoff of a non-unionized staff member, or at least wants to have the option to do so, what precautions should be taken to limit liability or risk of a wrongful dismissal lawsuit? 

There are four things to consider:

  1. Introducing a written employment contract and presenting it to all new hires. This contract should have clear language stating that the employer reserves the right to issue temporary layoffs in accordance with the ESA.

  2. If introducing contracts with a temporary layoff provision for existing staff, additional precautions must be taken to ensure that contracts are enforceable. Speak to an employment lawyer before presenting new contracts or policies to employees.

  3. Familiarize yourself with lay-off provisions under the ESA. Temporary layoffs can last up to 13 weeks in a consecutive 20-week period.  An employer can also extend the duration of a layoff past the 13-week period, provided that the employer provides substantial payments to the employee, continues the employee’s benefits, or if the employee is called back to work within the approved timeframe. This extension of the layoff cannot exceed 35 weeks in a consecutive 52-week period.  

  4. Employers should create a company-wide policy detailing temporary layoffs.  This policy should align with the ESA and be reviewed annually.

For employees, it is extremely important to immediately seek legal advice if your employer decides to temporarily lay you off. It may make much more sense for an employee to treat the temporary layoff as a termination/constructive dismissal. Agreeing to a layoff would become a permanent term of employment moving forward. Particularly when it comes to long-term employees, whose severance entitlements could be significant. 

If you have any questions regarding temporary layoffs, severance pay, employment contracts, or employment law please visit our website or contact us at 1-855-821-5900 or help@employmentlawminute.ca.

Alex Lucifero leads Samfiru Tumarkin LLP’s Ottawa office as its managing associate, providing sound advice to both employers and employees on all aspects of labour and employment law, including wrongful dismissal, severance packages, terminations and workplace harassment.

Stay up-to-date on workplace rights in Ontario by watching Alex on the Employment Law Minute.