Q. When Is a Layoff Not a Layoff?
A. When it’s a termination.
A recent decision of the Ontario Superior Court has given some employers confidence that they will always be allowed to lay off employees provided they follow the requirements of the Employment Standards Act, 2000 (“the ESA”). Unfortunately, we think that confidence may well be misplaced!
In Trites v. Renin Corp. 2013 ONSC 2715 (CanLII), the Court was dealing with a company, Renin Corp., that had been faced with significant financial challenges over a number of years. In response, one strategy of the company involved the use of temporary layoffs on a rotating basis. Ms. Trites was the division controller and, ultimately, she too was laid off in November of 2011. In January of 2012 Ms. Trites was advised that she would be recalled in July of 2012, resulting in a layoff in excess of seven months’ duration. Ms. Trites took the position that she had been constructively dismissed and, in the final result, the Court agreed with her, awarding a notice period of some thirty-three weeks based on common law principles.
What is interesting about Ms. Trites’ case is a statement in the decision about the interplay between the ESA and the common law. The Court found that the employer’s layoff could not be considered to be “temporary” as the treatment of Ms. Trites did not support such a finding. For example, in order for a layoff in excess of 13 weeks to be considered temporary the employer must meet certain requirements (e.g. continuation of benefits, provision of “substantial payments” during the course of the layoff etc.). In the absence of those steps being taken in this case, the Court found that Ms. Renin had been constructively dismissed.
However, the Court also found that had the employer met the requirements under the ESA to maintain her temporary layoff status, there could be no finding of a constructive dismissal:
In my view, there is no room remaining at law for a common law claim for a finding of constructive dismissal in circumstances where a temporary layoff has been rolled out in accordance with the terms of the ESA. This said, however, I am not persuaded that the layoff in question in this case qualifies as a temporary layoff under that Act.
This statement seems to be at odds with earlier caselaw in Ontario which appears not to have been considered in Ms. Trites’ case. Specifically, the Court of Appeal in Stolze v. Addario 1997 CanLII 764 (ON CA), dealt with a fact situation which is eerily similar to that in the case of Trites v. Renin Corp. Otmar Stolze was the Controller for Delcan Corporation. He was given notice of temporary layoff by the employer due to an “insufficiency of work”. While much of the decision-making in this case at lower levels focused on the issue of Mr. Stolze’s apparent resignation following receipt of the layoff notice as well the question of whether the layoff was temporary or indefinite, the Court of Appeal dealt squarely with the issue as to whether a notice of layoff, although in compliance with the ESA, can constitute a constructive dismissal.
The issue is stated by the Court of Appeal in the following terms:
 The law is clear that in assessing whether there has been a constructive dismissal of an employee the terms of the employment contract between the parties must be ascertained. The court must then consider whether the act or acts of the employer have been such as to constitute a repudiation of the fundamental terms of the contract. If so, the employee was constructively dismissed when the facts constituting the repudiation were completed: see David Farber v. Royal Trust Company,  1 S.C.R. 846.
 In this case, if the lay-off — be it temporary or indefinite — constituted a repudiation of the fundamental terms of the employment contract, then the appellant was constructively dismissed on receipt of the May 1, 1992 letter from his employer.
The Court of Appeal then went on to find that there was no evidence to support a determination that it was term and condition of Mr. Stolze’s employment, whether explicitly or implicitly, that he might be laid off. As such, his employer’s decision to lay him off, albeit in compliance with the provisions of the ESA, must be a constructive dismissal. The Court’s determination on this point reads:
 Although the memorandum referred to by the Divisional Court did not refer to any terms of employment, the history of the appellant’s relationship with the respondent gives rise to obvious implied terms of employment, which include employment at an annual salary for an indefinite period of time. In our view, such implied terms, in the absence of evidence of a policy or practice within the employer company of laying off “key” employees, constitutes the lay-off a repudiation of a fundamental term of this employee’s contract. He was, therefore, constructively dismissed.
Many employers proceed on the assumption that if their actions are in compliance with the ESA, they have met all their obligations at law. Unfortunately, that is just not the case. Providing an employee with notice under the ESA may not be enough if the employee has an entitlement to notice base on common law. Similarly, advising an employee that they have been temporarily laid off in accordance with the ESA may create serious problems if the employer cannot show that the possibility of such a layoff was one of the terms and conditions of employment agreed to by the parties (whether explicitly, through a written contract and/or well-communicated policy, or implicitly, through a widely known practice within the employer’s organization or industry).
Two important lessons can be learned from the case of Trites v. Renin Corp.:
- Sometimes even a court case can lead you astray; and
- There is no substitute for a properly written employment agreement that clearly lets both parties know what to expect!
For more helpful information, see my colleague, Mary Lou Brady’s excellent blog posts, Temporary Layoffs – A Lesson for Unwary Employers and
Temporary Layoffs – Another Lesson for Unwary Employers.