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While watching a professional development webcast for employment lawyers last month, what stuck in my mind was that I needed to blog about temporary layoffs.

Why, you ask?  Well, after practicing employment law for the past 12 years, I have come to realize how few employers understand their potential exposure when placing non-unionized employees on temporary layoffs.  Employers generally assume that, if they follow the temporary layoff provisions in the applicable employment standards legislation, they will be fine.  Unfortunately, this is not always the case.

To explain, here is a brief 101 on temporary layoffs:

  1. Most employment standards legislation (like Ontario’s Employment Standards Act, 2000) allows employers to place employees off work on unpaid temporary layoffs for certain maximum periods.  Once the applicable maximum period has been reached without a recall to work, the employment relationship is considered to be “terminated” and/or “severed”, as the case may be.  Only then is the employee entitled to termination and/or severance pay under that legislation.
  2. In contrast, employers do not have the automatic right to place employees off work on unpaid temporary layoffs under our common laws.  It is up to the employer, under common law, to prove that there is an express term (e.g. verbal or written agreement by employee) or an implied term (e.g. employee notified or warned of possible unpaid temporary layoffs; employee placed on temporary layoffs in past; employee aware of temporary layoffs in past of employees in same or similar positions; established industry practice of temporary layoff; temporary layoff policies; etc.) in its contract of employment with the employee being placed on temporary layoff that allows for such temporary layoff.
  3. When there is no such express or implied right under common law, a non-unionized employee may – often through his lawyer – take issue with the temporary layoff, claiming that it was a constructive dismissal (e.g. a unilateral and fundamental change by the employer to the employment relationship) and seeking damages for the resulting constructive dismissal.

On a positive note, there are only a handful of Canadian decisions dealing with this issue (see 1997 decision of Martellacci v. CFC / INX LTD).  I have, however, seen a growing trend of employee counsel taking issue with unpaid temporary layoffs in recent years, which are generally settled prior to trial.  

Don’t take me wrong, employers.  I am not suggesting that you shouldn’t place employees on temporary layoffs when reductions in business so dictate.  What I am saying is to exercise some caution when doing so.  Understand your potential risks and, when possible, take steps to mitigate those risks.  

The easiest way to do so is to add a temporary layoff provision to your employment agreements / offer letters when hiring a new employee and/or promoting an existing employee.  The employee would clearly acknowledge and agree (via that provision) to being placed on an unpaid temporary layoff, from time to time, for up to the maximum durations permitted by the then applicable employment standards legislation and, furthermore, that such temporary layoffs would not constitute in a termination / severance of the employment relationship unless and until they exceeded such permitted durations.  

You may wish to contact your employment counsel for assistance in drafting such temporary layoff provisions.

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