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Mar 26, 2020

Temporary Layoffs During a Global Pandemic – Difficult Choices Shared by Businesses and Employees

By Lorenzo Lisi and Michael F. Horvat

We are living in difficult times. We are right to be worried about our families, jobs and businesses. And there is real uncertainty on when the impact of the COVID-19 virus will subside. This has translated to social and economic measures implemented by the federal and provincial governments to assist both employers and employees during a global pandemic that has affected every aspect of our lives. Difficult times mean difficult choices, and employers are unfortunately tasked with making decisions which are necessary to preserve what they can of their business, all while understanding the impact those decisions directly have on their employees.

One of the tools being widely considered and implemented by employers is the use of temporary layoffs. The business rationale behind a temporary layoff is to allow the company to wind down operations in the face of reduced capacity, dwindling customers and even a delay in receipt of accounts, while still preserving the employment relationship, allowing eligible employees to access Employment Insurance (as well as other income support programs being implemented during this emergency), with the goal of returning those employees to work when the economy and business recovers.

Given the current circumstances, there is real anxiety for both employees and employers concerning what will happen next, particularly with respect to employment. This anxiety has been fuelled by numerous articles and interviews on the use of temporary layoff, and specifically that a business that engages in a temporary layoff is breaking the law. Aside from unnecessarily fuelling anxiety and concern during difficult times, these statements are simply not correct. The law with respect to temporary layoffs in Ontario is the Employment Standards Act, 2000 (the “ESA”), which specifically permits employers to engage in the temporary layoff of their employees. Provided an employer follows the requirements set out in the ESA (and its regulations), the ESA will not deem an employee to be terminated (at which time statutory notice and severance, if applicable, would be owed) until the applicable period of permitted temporary layoff is exceeded and the employee has not been recalled to work. This legislation is structured to permit, in effect, a pause in employment, provided the company follows the ESA’s rules and allows for their recall to employment.

However, it not just the ESA which governs an employment contract. And an employment contract is just that, a contract. Should a party to a contract breach its terms, that party could be liable for damages. In employment law terms, implementing a temporary layoff where there is no contractual authority to do so can constitute a breach of the employment contract or a “constructive” dismissal.

For employers facing difficult decisions on how to manage the business, or even keep it functioning, a claim by an employee that they have been constructively dismissed because their contract is silent about temporary layoffs, or because the business has not engaged in the past in temporary layoffs as part of its regular practice (for example, seasonal businesses), is a risk. A judge may determine that, despite the exceptional and unforeseen economic circumstances facing every business in the province (and country) during a global pandemic, which has also required dramatic government intervention, a temporary pause to their employment was not reasonably justified, and damages arising from the constructive dismissal could be owed.

However, such a claim is not without risk to an employee. All parties (employer and employee) must remember that the expected goal of a temporary layoff is that the employee will be recalled to employment within the time period(s) allowed under the ESA. In addition, the obligation of a “wrongfully” terminated employee, at law, is to take all reasonable steps to mitigate their damages, which would very likely include accepting a recall or return to work to their employer, unless they are required to return to a toxic work environment or the layoff is humiliating or perhaps punitive. In other words, it would be difficult for an employee to quit and not return to work where the reason for the layoff is due to emergency measures during a global pandemic.

Simply “quitting” or alleging constructive dismissal does not guarantee damages (not to mention that quitting and trying to find a job during this period of massive unemployment might be deemed by a court to be an extreme reaction to a layoff). A claim for constructive dismissal requires the employee to prove their damages. There is no automatic award of damages. Courts will look at the actual financial loss, not necessarily what is claimed.

A couple of examples of the risk to employees in respect of the choices they make were set out in Gent v. Strone Inc., 2019 ONSC 155 and Bevilacqua v. Gracious Living Corporation, 2016 ONSC 4127. In both cases, the employees were temporarily laid off, despite their long tenure (Mr. Gent had 23 years of service, Mr. Bevilacqua 15), and both successfully claimed they had been constructively dismissed because their respective employment contracts did not specifically reference the potential of a temporary layoff. However, both employees had also been recalled to employment to their prior positions (4 weeks and 13 weeks later, respectively), which recall both employees refused. Having been found by the judge to have failed to mitigate their damages and accept recall, Mr. Gent received, after 23 years of employment, damages equal to one-month notice and Mr. Bevilacqua, with 15 years of service, received three months’ pay.

This demonstrates that there is no easy claim for damages arising from a layoff. When you add to the mix the fact that many courts might take the approach (in the future, after the pandemic has subsided) that the employee acted unreasonably, the risk becomes much higher to the employee.

These are unprecedented times. Employers are forced to make difficult decisions. Not because they choose to, but because they must. In most cases, the intent is to return employees to work as soon as the risk to public health subsides. If the employee is not returned to work, they remain entitled to notice/severance under the ESA and can assert their common law rights for damages. But alleging that a temporary layoff is constructive dismissal, notwithstanding the ESA and current circumstances, and possibly even ignoring a potential recall, creates a real risk to an employee.

A better approach for employers and employees is to coordinate a response. Options include work sharing, temporary pay cuts or deferred payments once the health risk subsides. There is also employment insurance and other subsidies available to employees who are impacted by the current crisis. There is no one solution, and much of this is being done on the fly. This may be a time for cooperation, not confrontation.

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