Pitfalls of Temporary Lay-offs

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The last twelve months have been difficult for many employers. The poor economy has forced some employers to adjust staffing levels to deal with a temporary lack of work. Employers have done this by a variety of means: terminations, early retirement, job-sharing, reduced work-weeks, unpaid leaves of absence, etc. One method commonly used, but poorly understood, is the temporary lay-off.

People use the term “lay-off” in a variety of ways. It is a term often used to describe a dismissal from employment because of a general workforce reduction or other “not for cause” reasons. It is also used in a more technical and perhaps accurate way, to describe a non-permanent cessation of work with an expectation of recall to work within either a fixed or indeterminate period. A “temporary lay-off” obviously falls in the latter category. It is essentially a short term unpaid suspension or cessation of work after which the employee is “recalled” to his or her position. The Employment Standards Act, which distinguishes between a lay-off and a temporary lay-off, defines a temporary lay-off as a lay-off of not more than 13 weeks in any 20 weeks period, or a lay-off of more than 13 weeks but less than 35 weeks in a 52 week period, provided certain other conditions are met.

Temporary lay-offs are common in unionized workplaces. Collective agreements, which set out the essential terms and conditions of work in a unionized setting, usually govern the manner in which lay-offs are to take place, which employee is laid off first, the rights of employees who are affected by the temporary lay-off, bumping rights, the length of a temporary lay-off and the order and mechanics of recall to work. In short, if an employer in a unionized workplace follows the terms of the collective agreement with respect to temporary lay-offs, things are fairly straight forward.

In non-unionized workplaces, however, temporary lay-offs are less common and can be potentially hazardous for unsuspecting employers. Courts have taken the position that – absent an express or implied term in an employment contract – a temporary lay-off will generally be considered a constructive dismissal (i.e. a repudiation of the employment agreement), allowing an employee to quit and claim his or her employment has been wrongfully terminated. This in turn gives rise to questions about the notice, or damages in lieu of notice, to which an employee is entitled as a result of the termination.

Employers are often surprised by this. One would think that because temporary lay-offs are permitted under the Employment Standards Act, an employer would naturally have the right to use them to adjust staffing levels on a short term basis. However, courts have said that even though employment standards legislation may permit temporary lay-offs, it does not alter common law notion that unless there is an express or implied right in the contract to use temporary lay-offs imposing one can amount to constructive dismissal.

There are exceptions to the court’s treatment of temporary lay-offs in non-unionized settings. As mentioned above, a temporary lay-off will not be considered a constructive dismissal if an employee’s contract of employment, whether written or oral, expressly or by implication permits temporary lay-offs. For example, a temporary lay-off will likely not be considered a constructive dismissal in the following circumstances:

1. The employer and employee have entered into a written employment contract that includes a term specifically permitting temporary lay-offs from time to time.

2. A clearly written and communicated employment policy, forming part of the terms of the employee’s employment, which specifically permits temporary lay-offs. Such policies will usually define “temporary lay-off” and set out a process for lay-offs and recall from lay-off.

3. A clear and consistent practice by the employer of lay-offs and recall from lay-offs which is generally known to employees. In some industries, such as seasonal ones, for example, lay-offs are so frequent and common that employees would have to understand that a temporary lay-off was a possibility or even an eventuality.   

It is important to remember the Employment Standards Act, even if the above circumstances apply. Lay-offs of longer than 13 weeks in a 20 week period can, notwithstanding terms or implied terms of a contract, result in an inadvertent termination.

Using temporary lay-offs can be an effective tool in addressing short-term workforce adjustments, but employers have to be careful that a temporary lay-off does not become wrongful dismissal litigation.            

David J. Spears is an Associate lawyer with BrazeauSeller.LLP. David practices in the areas of Employment & Labour Law. David can be reached at 613-237-4000 ext. 207 or at dspears@brazeauseller.com. For more information about David, please visit www.brazeauseller.com.

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