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Lay-off Treated as Constructive Dismissal by Superior Court, Awarded Termination Pay

The Ontario Superior Court of Justice found that the employer, Gracious Living Corp., wrongfully dismissed the plaintiff-employee after having temporarily laid him off for three (3) months, despite having complied with Employment Standards Act (“ESA”) requirements regarding temporary lay-offs. The decision, following a similar one made in 2011 by the Court of Appeal in Elsegood v Cambridge Spring Service, serves as an important reminder for employers to ensure that temporary lay-offs are part of the employment agreement prior to taking any such action.

The Facts

The plaintiff-employee was laid-off for three (3) months after sixteen (16) years of service with the employer. At no point was the plaintiff told that he was being terminated, nor was he lead to believe so. The issue turned on whether the employer had the right to temporarily lay-off the plaintiff as per the employment agreement. The Court found that the employer had neither the express nor implied right to do so and therefore the temporary lay-off constituted constructive dismissal. As such, the plaintiff was entitled to termination pay.

Our Thoughts

Constructive dismissal occurs when an employer unilaterally alters a fundamental term of the employment contract. This can occur in the context of a written employment agreement, or an implied agreement, and often leaves employers on the hook for termination pay. 

The ESA allows for temporary lay-offs, subject to certain conditions set out therein. Nevertheless, a temporary lay-off must be part of an employment agreement, otherwise the employer risks exposure to liability. Therefore, it is always good for employers to include a clause in the employment agreement to the effect that they retain the right to temporarily lay-off the employee, subject to compliance with the ESA. A well-placed “lay-off clause” can go a long way in saving everybody the headache of having to defend a lawsuit later on.
 
See: Bevilacqua v Gracious Living Corp. 2016 ONSC

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.