Courts Split on Temporary Layoffs of Non-Union Employees

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Can employers temporarily lay off non-union employees? Or does such an action trigger an employee’s right to termination pay under the Employment Standards Act or amount to wrongful dismissal under the common law? In two recent separate decisions, the Ontario Divisional Court has considered whether non-union employees may be temporarily laid off, and has arrived at seemingly contradictory conclusions.

Stolze: Silent Contract Permits Temporary Layoff

Stolze v. Adjudicator Lisa Addario, a case decided on December 19, 1995, involved a complaint under the Employment Standards Act by Otmar Stolze, a middle management employee who had been temporarily laid off due to shortage of work. His salary was discontinued, but some benefits were maintained.

Following the layoff, Stolze commenced an action for wrongful dismissal and also claimed termination and severance pay under the ESA, arguing that the layoff constituted a breach of his employment contract. The Employment Standards Adjudicator decided against Stolze, ruling that the Act contemplated temporary layoff without pay and that, in doing so, it drew no distinctions between hourly-rated employees and salaried employees, such as Stolze. The Adjudicator further found that, by treating the layoff as a termination, Stolze had moved first to end the employment relationship, thereby `quitting’ and forfeiting his entitlement to severance and termination pay. Stolze applied for judicial review.

The Divisional Court dismissed the application, upholding all of the Adjudicator’s rulings on the ESA. The Court also noted that the Adjudicator’s finding that Stolze had `quit’ was reasonable because his contract of employment did not expressly prohibit temporary layoffs without pay:

“It was not suggested that the contract of employment contained any express prohibition of temporary lay-offs without pay. It was reasonable for the adjudicator to make her finding that the employee “quit” on the footing that there was no such prohibition.”

However, the Court suggested, the result in the case might have been different had there been an agreement between the parties to pay a particular salary for a specific year, for each year indefinitely, or for a fixed term.

Style: Silent Contract Prohibits Temporary Layoff

In Style v. Carlingview Airport Inn, decided on February 27, 1996, the Divisional Court considered an appeal from a decision of the Small Claims Court denying an employee’s claim for wrongful dismissal damages. Laurel Style, a chamber maid, alleged that she had been fired after being accused of theft and subjected to racial slurs. The employer denied these allegations, contending that Style had been temporarily laid off for lack of work. One month after her release, Style was offered her job back, but was unable to accept for medical reasons. However, she did not advise the employer of those reasons. The lower court accepted the employer’s account of events, and held that Style had terminated her own employment when she failed to return to work.

In granting Style’s appeal, the Divisional Court focused on the fact that nothing in the contract of employment authorized a temporary layoff. Further, the Court added, there had been no layoffs before, nor had any warning been given of a possible layoff. Because there was no term in the contract permitting temporary layoffs, the Court held that the contract had been breached and Style wrongfully dismissed:

“In my view there was no express or implied term of the contract of employment that the employee could be temporarily laid off without pay. … I therefore conclude that [the employee] was wrongfully dismissed.”

The Court distinguished the decision in the Stolze case by pointing out that, in that case, the Court was dealing only with a claim under the ESA. The ESA, the Style Court observed, sets up a separate statutory code for the payment of termination pay, but does not affect common law rights and obligations regarding dismissal. Therefore, the Court held, the Stolze decision was not determinative of the issues in Style’s wrongful dismissal case.

In Our View

While it is possible to explain the differing results in these cases as being due to the fact that Stolze was decided under the ESA, and Style under the common law, the key to their divergence appears to be the different views taken of what is permissible under a contract that is silent about temporary layoffs.

The apparent assumption of the Divisional Court in Stolze was that temporary layoffs are permitted if the contract is silent, while that of the Style Court was that such layoffs are prohibited if the contract is silent. This contradiction underscores the importance for employers of including language in their employment agreements reserving the right to implement temporary layoffs in accordance with the ESA.

Leave to appeal the Stolze decision to the Court of Appeal has been granted. (For more recent developments, see Stolze temporary layoff ruling reversed” on our Publications page.)

For more information on this subject, please contact Andrew Tremayne (613) 563-7660, Extension 236.