Temporary Layoffs: What You Should Know

As businesses are gearing up to implement extreme measures in an attempt to offset their losses during the current economic turmoil, there is a lot of discussion about temporary layoffs for employees. Ontario is getting ready for the unemployment rate to largely increase in the coming weeks and business owners are anxiously trying to find solutions to ensure their business’ survival when ‘normalcy’ resumes.

Although many employers are now becoming familiar with the term “temporary layoff”, not all truly understand what it means and in what circumstances it is permitted.

 A temporary layoff is a reduction, either partly or wholly, of an employee’s employment for a specified period of time. This does not necessarily mean that the employee is not working at all, it could also account for circumstances where the employee is working less or earning less than they otherwise would be. Temporary layoff provisions are most commonly found in collective bargaining agreements for unionized employees, clearly outlining when and in what circumstances these layoffs are permitted.

Non-unionized workplaces may not have agreements with employees that allow for temporary layoffs. These layoffs can be considered a constructive dismissal unless there is an express or implied term in the employment contract permitting them.

Express Term Permitting Temporary Layoffs

Employers have no general entitlement to temporarily lay off employees at common law, despite express statutory rules that govern how such layoffs may be conducted. What this means is that a temporary layoff has to be contractually agreed upon at the time of hire. If a provision for a temporary layoff does not make up part of an employee’s employment contract (or collective bargaining agreement), the employer cannot simply opt for the temporary layoff option without considering the risks associated with that.

The main risk to employers who temporarily layoff employees (absent an express provision allowing for it), is that the layoff could be considered a constructive dismissal entitling the employee to damages for wrongful termination.

Implied Term Permitting Temporary Layoffs?

In the absence of an express provision permitting the use of a temporary layoff, the common law can infer the employer’s right to temporarily lay off non-unionized employees, in specific circumstances, such as:

• Where the employer has a history of temporary layoffs (for good reason);
• The employer is in an industry where temporary layoffs are common and part of the industry standard; and,
• The employer has a policy in place to warn employees that temporary layoffs are possible during economic downtown or shortage of work.

Length of the Temporary Layoff 

A temporary layoff cannot last longer than 13 weeks in a consecutive 20-week period. If it exceeds 13 weeks it becomes a termination entitling the employee to termination pay in lieu of notice.

The Employment Standards Act 2000, S.O. 2000, c. 41 (“ESA”) does provide for further extended periods of temporary layoffs only in certain circumstances and with specified conditions.

Benefits for Employers

 The main benefits to employers during temporary layoffs are:

• cutting costs during economic hardship;
• maintaining their valued employees; and,
• avoiding severance or termination costs so long as the employee returns to work after 13 weeks of being laid off.

Benefits for employees

The main benefit for an employee, other than the comfort of knowing they still have a job after the temporary layoff, is that they are still considered an employee of the business and can remain on the existing extended health care benefits package they have. This may include extended health benefits, such as medical, dental, disability insurance and more.

An employee is also able to collect employment insurance benefits (“EI”) (assuming they are eligible) during the temporary layoff period.

Note that if an employee quits before a layoff is over they are not owed termination pay or severance (if applicable).

COVID-19

Given our current and unprecedented time, it remains to be seen whether temporary layoffs by various employers, which were not in compliance with the ESA, will be considered constructive dismissal and be at risk for wrongful termination claims and to what extent.

We can assume that the Court’s application of the laws surrounding temporary layoffs will differ depending on the circumstances of the particular layoff, the industry and the undue hardship to the employers.

Alternative to Temporary Layoffs

As an alternative to layoffs, the employer may consider seeking government assistance through the Government of Canada's Work-Sharing program. This program allows for insurance benefits as income support for employees who are still working but on a reduced work week during the financial crisis.

Eligibility

A minimum of two employees form a “Work-sharing unit”. These employees must be permanent full-time or part-time staff that are eligible for EI benefits and will agree to reduce their typical work hours by up to 60% in order to share their work.

Employers may offer a work-sharing agreement that lasts a minimum of 6 weeks, lasting up to a maximum of 38 weeks, or 76 weeks if the business was directly impacted by the COVID-19 pandemic. To offer a work-sharing agreement, employers must demonstrate business decline by at least 10% and this decline is temporary and beyond their control, as well demonstrate their business status in Canada as private, publicly-held, or non-profit as existing for at least 2 years prior to applying for a work-sharing agreement. Employers may access the work-sharing application by clicking here. Additional information on this is available here.

Possible Solutions for Employers Considering Temporary Layoffs

1.     If the employees do not have provisions in their contracts permitting for temporary layoffs, approach the employee with a written proposal for a temporary layoff. Ensure to specify the parameters of the layoff, for example, specify the length of time and that the employee will be resuming his/her identical role upon return;

2.     If the employer is able to, financially, consider a top up during the temporary layoff period. For example, if you layoff an employee for 13 weeks so they can collect EI during that time consider maybe topping up on their EI to full salary or a percentage of their full salary for a specified period of time, either the full 13 weeks or however long possible without causing the business undue hardship. This will minimize the impact on the employee’s income but can alleviate the financial burden on the employer. This may also minimize exposure to constructive dismissal claims.

3.     As an alternative to layoffs, the employer may consider government assistance, such as the Federal Work-Sharing Program to manage business decline during the COVID-19 pandemic. Additional information on this is available here.

If you are thinking about temporary layoffs in your business or would like more information about the Federal Work-Sharing Program, please contact us for assistance in temporary layoffs or putting together a work-share application.

Written by: Eden Ifergan and Hani Shamsi

This update is for informational purposes only, is general in nature, and should not be relied on as legal advice or opinion. This publication is copyrighted by Teplitsky Colson LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Teplitsky Colson LLP.