Protecting your right to impose temporary layoffs

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When it comes to downsizing, restructuring, or otherwise cost-cutting, employers may consider temporary or permanent layoffs. While temporary layoffs can be an effective means of cost-saving, they can also be risky if employers have not protected their right to temporarily lay off employees in their employment contracts.

The Ontario Employment Standards Act, 2000 (ESA) allows employers to temporarily lay off employees, so long as the layoff lasts for no more than 13 weeks in any consecutive 20-week period. However, if a layoff extends for more than 13 weeks in any consecutive 20-week period, but lasts less than 35 weeks in any consecutive 52-week period, the layoff will still be considered temporary in some exceptional cases (i.e., if the employer has continued to pay the employees substantially and/or provides them with benefits, if the employees would be entitled to receive Employment Insurance, or if the employees are subject to a timely recall).

The 20-week period is a “rolling window,” such that if an employee is laid off for even one day more than 13 weeks in any consecutive 20-week period, the layoff ceases to be temporary. The same is true of the 52-week window described above, which applies in limited circumstances. If the applicable threshold is exceeded, termination is triggered, and is deemed to have retroactively occurred on the first day of the layoff.

Despite an employer’s right to temporarily lay off an employee under the ESA, where an employment contract does not provide for the possibility of such a layoff, Ontario courts have sided with laid off employees who claim to have been constructively dismissed. This case law exposes employers to a significant risk of liability for common law damages, even where they have complied with the temporary layoff provisions of the ESA.

To mitigate their risk, employers should include a provision in each employment contract that reserves their right to temporarily lay off employees in accordance with the ESA, and provides that such a temporary layoff will not constitute constructive dismissal.

In a recent cautionary tale, Bevilacqua v Gracious Living Corporation, the Ontario Superior Court of Justice held that the employer, Gracious Living, was not entitled to unilaterally impose a temporary layoff in the absence of a contractual term to that effect, even where the temporary layoff complied with the ESA. In so doing, the Court held that Gracious Living constructively dismissed Mr. Bevilacqua, a 15-year employee. Although Gracious Living had placed Mr. Bevilacqua on a temporary layoff with a set start and end date, the duration of which would not have exceeded 13 weeks in any consecutive 20-week period, and although Mr. Bevilacqua remained in receipt of company benefits, the Court held that, in the absence of an express or implied contractual term permitting temporary layoffs in accordance with the terms of the ESA, Gracious Living could not impose such a layoff without triggering the termination of Mr. Bevilacqua’s employment.

In reaching its conclusion, the Court opined that the fact that the layoff complied with the ESA was irrelevant to its determination of whether Mr. Bevilacqua had been constructively dismissed. Gracious Living’s intention that the layoff be temporary and not constitute a dismissal was similarly irrelevant. Finally, neither Gracious Living’s nor Mr. Bevilacqua’s expectations about the temporary nature of the layoff “made it any less of a constructive dismissal.”

Despite finding that Mr. Bevilacqua had been constructively dismissed, the Court awarded limited damages in light of his failure to mitigate. Before, and again during, the layoff, Gracious Living offered to reinstate Mr. Bevilacqua at the end of the three-month layoff to the same position and on the same terms. Mr. Bevilacqua refused those offers, made negligible efforts to mitigate in the following months, and commenced an action seeking 15 months’ salary in lieu of notice. The Court determined that nothing had prevented Mr. Bevilacqua from accepting Gracious Living’s offers to return to work, and awarded only three months’ salary, representing the period during which Mr. Bevilacqua would have been without work had he accepted Gracious Living’s offer to return to work.

This decision serves as an important reminder of the burden on employees to mitigate their losses. More importantly, it reminds employers that, at common law, employers have no right to temporarily lay off employees. Absent express agreement in an employment contract, a unilateral temporary layoff will likely bring about a substantial change in the employment contract sufficient to amount to constructive dismissal.

Still, some courts have inferred a right to impose a temporary layoff in the absence of an express contractual right in limited circumstances; for example, where:

  • The employer has a history of temporary layoffs for various reasons, including a shortage of work;
  • The employer is in an industry where temporary layoffs or breaks in service are common;
  • The employer has a policy in place to warn employees that temporary layoffs are possible when there is a downturn in business or a shortage of work; and/or
  • The employer continues to provide benefits to laid off employees during the layoff term

Nonetheless, the safest approach is to incorporate a standard layoff provision in all employment contracts that protects the employer’s right to temporarily lay off employees in accordance with the ESA and without further notice or compensation, and which precludes a claim of constructive dismissal.

For more information, or for assistance in limiting your exposure to the risks associated with temporary layoffs, please contact Colleen Dunlop at 613-940-2734 or Adam Gamwell at 613-940-2736.