Labour & Employment Law Blog

Layoffs, layoffs, layoffs …

Layoffs, layoffs, layoffs

I’ll say this again: Layoffs.

Whether you’re an employer or employee you have likely had your share of exposure to the aforementioned concept in the last few weeks on social media. There is a great deal of chatter about “being laid off.” Indeed, “laid off due to COVID-19” or “COVID-19 layoff” are now commonly searched phrases given the troubling downturn in the economy because of the pandemic. In fact, what a “layoff” actually means has been a source of confusion for my clients for years, employers and employees alike. Indeed, this confusion is compounded by definitional idiosyncrasies in Service Canada’s Record of Employment (“ROE”) codes, which do not entirely correspond to certain employment law concepts at the provincial level, including the notion of a “layoff.” In consequence, I have decided to join the chorus of numerous employment lawyers in an effort to clarify what a “layoff” actually means.

First and foremost, one has to understand that absent an enforceable contractual term, an employer cannot simply tell its employee that there is no work and that if there is work on a certain date in the future the employee would be able to continue his or her employment at that time. In common employment law parlance, such a state of affairs would amount to a “constructive dismissal” and entitle the employee to statutory and common law compensation because the employment agreement would be at an end.

This is where the concept of a “layoff” comes in. A layoff is a cessation of work not of employment. This means that if lawfully implemented, a layoff allows the employer to pause work without pay and without it being deemed a breach of the employment relationship (i.e. termination). It will allow the employer to essentially put work “on hold,” and not have to pay the employee their salary during this period of a temporary break.

Most of the employer clients who come to see me confidently tell me that the employee who is now suing them will not succeed as they had “laid off” him or her in accordance with the law. They proceed to voice their displeasure with having to deal with a civil action merely for following what is set out in the layoff provisions of the Employment Standards Act (“ESA”). This is the moment when I usually ask them if they have a written employment agreement with the said employee that sets out that they may layoff him or her in accordance with the ESA. Overwhelmingly (and expectedly) the answer is “no.”

Therein lies the second misunderstanding: a layoff is not lawful even if the employer’s “layoff” is otherwise conducted in compliance with the ESA. This is because the right to layoff is found in contract, not statute. The ESA is, of course, important for those employers governed by it. However, it does not grant the right to layoff. Instead, it sets out the legal framework for how to do so if the employer has such a right in the first place. Such a right has to somehow constitute a contractual term. Absent such a right – express or implied – the moment the employer “lays off” an employee, they are facing the possibility of a constructive dismissal action. This is a tough pill to swallow but this is the current state of affairs in Ontario. It is rarely if ever an issue in the unionized setting where a layoff is usually spelled out in the collective agreement.

A final word on ROEs. I have stated at the outset that some definitions are not entirely consistent with some provincial employment law concepts and “layoff” is one of them. For instance, whereas a ROE’s “Code M” stands for “dismissal,” “Code A” stands for “layoff.” However, Code “A” is also interpreted as letting an employee go in the event the position has become redundant or eliminated or if there is a temporary or permanent shutdown of operations. In other words, “Code A” may be regarded as an actual termination for the purposes of employment insurance (“EI”). Moreover, to the extent that “Code A” is interpreted as an actual layoff, it would not shield the employer from a constructive dismissal lawsuit; instead, it would merely entitle the employee to EI benefits. Again, the logic is the same: if a layoff is not a contractual term then a civil action could be looming on the horizon.

Where does this leave us? If you are an employer seeking to layoff an employee be sure that your written agreement says you can actually or that you are relying on some sort of implied right to that end. If you are an employee who has been laid off, ask yourself if the layoff was legal.

The above article is for general information purposes only, does not constitute legal advice or create a solicitor-client relationship. Because each case is unique and factually driven, 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. We represent clients in the Greater Toronto Area including Toronto, North York, Markham, Vaughan, Thornhill, Newmarket, Aurora, Brampton, Mississauga, Barrie, Ajax, Whitby, Pickering and Oshawa.