Temporary layoffs: An on again, off again affair

Businesses regularly experience ups and downs

Temporary layoffs: An on again, off again affair

Businesses regularly experience ups and downs. In some cases the good and bad cycles can be predictable and in some cases a downturn is unexpected. In all cases, employers have to manage payroll and expenses, which can mean difficult decisions with respect to staffing. In cases where the intention is to turn the business around or there is an expectation of increased sales or work in the near future, many employers choose to use a temporary layoff. The concern is that many employers make the decision to layoff their employees without fully understanding the risks.

A recent decision, decided on summary judgment, by the Ontario Superior Court is a good reminder to employers of the risks of a temporary layoff and some ideas for risk management. In this decision a Company faced an economic downturn and placed many employees on layoff, including the plaintiff. The plaintiff was placed on a temporary layoff, where his benefits were continued, but he was asked to return all company property. The Company also asked to be kept up to date on the plaintiff’s availability to return to work. This decision to layoff the plaintiff placed the Company at risk.

The law around layoffs is commonly misunderstood. Without a contractual right to layoff an employee the mere act of placing an employee on layoff can be considered a fundamental breach of the employment relationship and an employee can claim constructive dismissal. This is true even though the Employment Standards Act has language on temporary layoffs. This is the scenario of the plaintiff’s case. The best solution to using temporary layoffs and avoiding claims is to include in a written employment contract that the employer reserves the right to place the employee on layoff. The terms of the layoff should be in accordance with the Employment Standards Act to avoid being deemed void. If you establish this contractual right to a layoff at the beginning of employment you can avoid much of the messy litigation that often results when a layoff is put in place.

If there is no contractual right to a layoff, the employee can claim constructive dismissal. The plaintiff in this case claimed constructive dismissal by arguing that even though the business was cyclical there was no agreement that he could be sent home without pay and that the Company effectively terminated his employment. A claim was filed. Whenever a claim is filed alleging wrongful termination one of the main issues is how much notice should the employee be entitled to. In this case the plaintiff had lengthy service with the Company and sought a long notice period – as it was not limited to the Employment Standards Act, but was instead determined by common law reasonable notice. This is a second good reminder for employers to have an employment contract in place limiting an employee’s entitlements on termination.

Even though the Company in this case had a difficult situation to manage, they effectively reduced their exposure by recalling the plaintiff to work within one month of the layoff. When an employee is claiming common law reasonable notice the employee is required to mitigate their losses, which can include returning to their former job if offered. In this case, the Court ruled that the plaintiff should have returned to work for the Company as the employment relationship had not broken down, the salary and terms were the same, and there was no evidence that a return to work would be demeaning. As a result the Company was only liable for damages from the time of the layoff to the date of the recall. The decision to recall the plaintiff limited the damages that would have been awarded to three and a half weeks from eighteen months. As an employer if you are faced with a constructive dismissal claim you may want to consider a re-employment offer to reduce exposure to a lengthy damage award.

Overall, this case is a reminder that it is a benefit to consider the worst outcome for an employment relationship or difficult economic times in the business at the beginning of employment as it allows an opportunity to create flexibility and options for employers and reduce liability. The lawyers at CCPartners are well versed in navigating all employment issues – including temporary layoffs and can assist you in determining the best option for your business.

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