The Law: Temporary Layoffs In Ontario

Two legal schemes, (1) employment standards and (2) the common law interplay with each other in reference to temporary layoffs in Ontario. Read below for the employment standards procedure for temporary layoffs, but read further to discover that employers following Ontario employment standards procedure can still result in a common law “constructive dismissal“. Lastly read about unique layoff caveats in regard to business closures and slowdowns resulting from COVID-19 novel coronavirus.

Layoff Ontario: Minimum Employment Standards

Ontario’s Employment Standards Act, 2000 (“ESA”) allows for temporary layoffs and an employee is not terminated (for the purpose of the ESA) until and unless his or her temporary layoff exceeds the time frames allowed by s. 56(2) of the ESA, prior to which time he or she is not entitled to termination or severance pay pursuant to the ESA. If the layoff does exceed these timelines, then the employee has been terminated as per the ESA and is entitled to termination or severance pay pursuant to the ESA.

In summary, the ESA layoff provisions provide that:

1. it is not a termination of employment under the ESA to temporarily lay off an employee so long as that temporary layoff does not exceed the definition of “temporary layoff” in s. 56(4) of the ESA;
2. an employer may not contract or lay off employees below the ESA layoff rules and therefore may not contract for provisions or conduct a layoff that allows temporary layoffs that exceed the timeframe set out in s. 56 of the Act;
3. once a layoff Ontario exceeds the definition of “temporary” it is a termination of the employee’s employment pursuant to the ESA.

ESA Layoff Procedure

Ontario employers do not need to provide advanced notice of layoff.

Layoffs under the ESA are unpaid. But employees can apply for and receive EI. Employers must submit an ROE on behalf of laid-off employees using code A, work shortage.

Employers do not need to continue benefit or pension plans during a layoff unless the layoff is longer than 13 weeks.

ESA Layoff Timeline

A “Temporary layoff” is defined in part XV, section 56(2) in the ESA. An ESA permissible temporary layoff is:

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

(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.

In short, layoffs are only permitted for 13 weeks in a period of 20 weeks, or a layoff is permitted for 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:

1. the employee continues to receive substantial payments from the employer;
2. 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;
3. 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.

ESA Recall Dates

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

ESA Terminations and Layoff

Section 56(1)(c) of the ESA 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 of the ESA provides that no employer shall terminate the employment of an employee who has been continuously employed for three months or more absent minimum notice of termination under the ESA or having made appropriate payment in lieu of such minimum notice.

Section 56(1) of the ESA provides that an employer terminates the employment of an employee for purposes of s.54 if:

1. the employer dismisses the employee or otherwise refuses or is unable to continue employing him or her;
2. the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period; or
3. the employer lays the employee off for a period longer than the period of a temporary layoff.

Employers without rights in their contract to temporarily layoff employees should consider getting their staff to agree to an ESA compliant layoff in writing.

Layoff Ontario: Common Law

Although the ESA permits Ontario temporary layoffs without triggering an ESA termination, the common law does not permit temporary layoffs without triggering a common law termination called a “constructive dismissal”.

At common law, an employer has no right to lay off an employee. Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment and would be a constructive dismissal (Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831 (CanLII)).

In the textbook, Employment Law in Canada (Peter Barnacle et al., 4^th ed., (Markham: Lexis Nexis Canada Inc., 2005) the authors state that “the traditionally-accepted view is that there is no standard implied term in the employment contract permitting an employer to lay off or suspend an employee from work without pay (page 11-56)… The common law does not recognize the concepts of economic layoff, disciplinary suspension or lockout in their own right… Thus, there is no principle of employment common law that allows an employer to impose layoffs, disciplinary suspensions or lockouts (page 18-17).

Although this may sound confusing, consider the role of the ESA and the Common Law:

The ESA only outlines the minimum responsibilities of employers and the rights of employees. On the other hand, the common law provides employees ancient rights of “contract”, to which parties are owed “damages” if there is a breach of contract. The ESA is a floor and the common law is a ceiling.

In this effect, essentially, all the ESA does is make sure employers provide at least a minimum amount of “rights” in their contracts. In regards to layoffs in Ontario, all the ESA does is say that an employer may contract to temporarily lay off an employee without breaching minimum employment standards so long as the above-noted requirements are met.

The common law, on the contrary, says that a layoff in Ontario, unless specific contractual terms say otherwise, is a termination and therefore common law damages (i.e. “notice” or pay in lieu) are owed.

Accordingly, employers can choose to insert a layoff procedure that complies with the ESA in their contracts. If employers do not choose to use this layoff procedure in their contracts, then they have no right to lay off an employee under the common law.

In summary, although a temporary layoff is not a termination under the ESA, it is a termination under the common law absent any contractual layoff term. As labour law professor David Doorey put it best:

“we are left with the apparent anomaly that a temporary layoff is a fundamental breach of contract (at common law), but not a breach of the ESA creating an entitlement to termination pay under that statute….. Since the ESA does not displace any common law rights flowing from an employment contract (see Section 5), this means that an employee who is laid-off under a contract not providing the employer with the right to layoff can quit and claim their contractual notice of termination (which is usually more than the ESA minimum notice), notwithstanding that their entitlement to minimum notice under the ESA has not yet been triggered.”

Nevertheless, if an employer recalls a laid-off employee who claimed or was going to claim constructive dismissal, then the good news for employers is that an employee may only be entitled to common law damages for the time the employee was laid off, not the entire reasonable notice period. Once an employer recalls a laid-off employee, the employee’s damages are “mitigated”. See Bevilacqua v Gracious Living Corporation, 2016 ONSC 4127 (CanLII) at paragraph 27.

Ontario layoffs because of COVID-19 Coronavirus

There is a chance that an Ontario layoff in these unique circumstances, the worsening global COVID-19 novel coronavirus global pandemic, is not a constructive dismissal in perhaps certain instances. Read my article on the topic here.

Otherwise, I would put forth that businesses ordered to shut down by the government may not have “constructively dismissed” their laid-off employees because such a work stoppage would be extraordinary and unforeseen, and therefore it may have “frustrated” the employment relationship.

Employers are encouraged to contact an employment lawyer, this article is not legal advice and nothing has been tested by the courts in response to COVID-19 novel coronavirus yet.

How to avoid Layoffs?

How can employers avoid layoffs? There are two legislative options: the Work Sharing program and the Supplementary Unemployment Benefit program.

Employer Rights with COVID-19 Coronavirus