Employment terminations are never easy for either the employer or employee. However, when a business is facing financial constraints, parting ways with staff may be the only viable option. However, businesses may not be aware of another potential viable option, such as implementing a temporary layoff. Viable as they may be, temporary layoffs are nuanced and require consideration before making abrupt decisions.
What is a temporary layoff?
A temporary layoff is where an employer lays off an employee for a temporary period. Importantly, despite apparent authority to do so under the Employment Standards Act, there is no inherent right to lay off an employee. If the employment contract does no authorize temporary layoff, then such an act will constitute a fundamental change of the employment contract exposing the employer to a constructive dismissal claim by the employee. In the absence of a term permitting temporary layoff, the employer may obtain the employee’s express consent.
Where temporary layoffs are permitted, there are also strict conditions. A temporary layoff can last:
- Not more than 13 weeks within a 20 week consecutive period; or,
- More than 13 weeks out of 20, but less than 35 weeks in any consecutive 52 week period so long as the employer either provides substantial payments to the employee, pays their continued benefits, the employee is receiving supplementary unemployment benefits, or the employee is recalled within an agreed upon time period.
Although Ontario’s Employment Standards Act does not oblige employers to issue written notice for a temporary lay-off, putting the details in writing is still smart HR practice. A concise lay-off letter, or even a detailed email, gives employees a clear record of the start date, and can outline whether benefit-continuation will be provided and the recall process.
What happens to employees on a temporary layoff?
Employees are eligible to collect EI while they are on a temporary layoff. Employers should issue a record of employment to employees so that they can collect EI. However, EI rules still apply, so employees need to have worked enough hours in order to qualify.
Employees can also find work elsewhere during a temporary layoff to supplement their income. With this in mind, it is prudent for employers to provide as much notice as possible when recalling an employee and it’s the employer’s responsibility to confirm that the employee has received this notice. An employee may choose not to return, but that decision is classified as a resignation.
What employers need to know about temporary layoffs
There are two primary situations in where a temporary layoff constitutes termination without notice. These are easy mistakes for employers to make so employers must be prudent when handling temporary layoffs.
The first is in forgetting to watch the clock. The time limits under the Employment Standards Act are strict. If an employee is laid off for one day longer than the 13 or 35 weeks allowed under the law, that is legally considered a termination without notice.
The second is a unilateral temporary layoff without contractual authority to do so. As noted above, a temporary layoff must be expressly permitted in an employee’s written employment contract in order to be valid. Unless an employee has previously agreed to a layoff with that employer, the contract must include a clause allowing temporary layoffs. Otherwise, a sudden and unannounced removal of an employee’s duties and pay can be considered a constructive dismissal.
Termination without notice can be a costly mistake. Even if unintentional, the employee may claim termination and severance pay at least in accordance with their employment contract terms. If the contract does not meet the latest legal standards to limit an employer’s termination obligations, that employee may be entitled to common law reasonable notice, which is almost invariably significantly more than minimum statutory entitlements.
Without a contract that limits an employee’s entitlements, an employee who works even one day over the maximum layoff period, or an employee who is laid off without a layoff clause in their contract, can be entitled to receive common law reasonable notice. Since the employee has already been laid off, this will take the form of payment in lieu of notice. Common law reasonable notice accounts for an employee’s age, years of service, job title and responsibilities, and the current job market.
Final Thoughts on Temporary Layoffs
Employers should regularly review their contracts with an employment lawyer to make sure that they are up to date with the latest legal standards. A temporary layoff clause is always wise, even if you do not plan on making any layoffs at that time. Not having the clause at all can become a costly mistake if your business falls on hard times or if another global pandemic hits.
Second, the law regarding termination clauses is dynamic. Language that may have protected your business 2 or 5 years ago may no longer be acceptable to a court today. Regular review of your employment agreements with an employment lawyer ensures your business keeps up with the changing legal landscape.
Lastly, consult your employment law experts before making any layoff decisions to ensure you are not putting your business at risk. Our employment lawyers routinely advise employers of all sizes throughout the Cambridge, Kitchener, and Waterloo Regions, and we would be glad to help you as well. Contact us today to set up a consultation.