Temporary Layoffs – Another Lesson for Unwary Employers

In July 2011, I posted a blog on Temporary Layoffs – A Lesson for Unwary Employers.  

Since then, on December 23, 2011, the Ontario Court of Appeal released an important decision dealing with temporary layoffs. This decision can be found at Elsegood v. Cambridge Spring Service (2001) Ltd.

The facts are simple.  

Mr. Elsegood was employed as a spring technician for approximately 7 years. He first went on temporary layoff on April 4, 2009 with a recall date of June 9, 2009. He was then laid off again on July 28, 2009. On January 22, 2010, the cumulative duration of his layoffs reached the maximum period permitted for temporary layoffs (i.e. 35 weeks in any 52-week period) under Ontario’s Employment Standards Act (the “ESA”).  

Mr. Elsegood did not claim his 7-weeks’ termination pay under the ESA. Rather, he successfully brought a claim for common law damages for wrongful dismissal in the Small Claims Court, and was awarded damages equal to a 6-month reasonable notice period, plus interests and costs. Below are the important lessons for employers from this decision:

• Absent an agreement to the contrary, an employer has no right to place an employee on a temporary layoff. See my July 2011 blog as to when such express or implied agreement may exist.
  
• Where the employer does have that right, the employee will be terminated for the purposes of both the ESA and the common law as soon as that layoff exceeds the maximum period permitted by the ESA. The employee will then be entitled to his/her ESA minimum termination / severance entitlements or common law reasonable notice entitlements, whichever is greater.
  
• Employers need to be very careful about how the temporary layoff provisions in their employment agreements / offer letters are drafted. In particular:
  • Provisions that allow for layoffs of indefinite duration, or of a duration greater than otherwise permitted by the ESA, will be null and void. The result is that the agreement is left without a term allowing for any layoff at all and, as such, the employee could claim successfully constructive dismissal as of the first day of the layoff.
    
  • The cautious approach, therefore, would be for a clearly drafted provision that gives the employer the right to place the employee on an unpaid temporary layoff, from time to time, for up to the maximum durations permitted by the then applicable employment standards legislations and, furthermore, that such temporary layoffs only constitute a termination / severance of the employment relationship if and when they exceed such permitted durations.
    
  • That said, for Ontario employers that wish to attempt to effectively extend temporary layoffs beyond the “35 weeks in any 52-week period” threshold, there is some suggestion of an ability to do so in light of section 67(3) of the ESA. That section requires employees (both unionized and non-unionized) with a right to be recalled under their employment agreement to elect to forego receiving their ESA termination / severance entitlements if they want to retain their right to recall. What is not clear is whether such election can only be made, on a case-by-case basis, after an employee’s temporary layoff has triggered a termination / severance of the employment relationship. Or if an employee can provide such election in advance via the temporary layoff provisions of an employment agreement.

Because of the complexity of these issues, I again strongly recommend contacting your employment counsel for assistance in drafting such temporary layoff provisions.   This would also be a good opportunity for employers to consider adding termination provisions into their employment agreements / offer letters, which can – if properly drafted and legally enforceable – limit the employer’s common law reasonable notice obligations in the event that an employee’s temporary layoff exceeds the maximum period permitted by the then applicable employment standards legislation.