By: Tim Schjerning
What is a lay-off?
In some workplaces, lay-offs are a frequent occurrence. Lay-offs can be important cost-cutting measures for employers, especially in industries with seasonal work. However, in Ontario there are key limitations to lay-offs, protecting workers from being laid off indefinitely. If a lay-off is conducted improperly, an employee will be considered to be terminated and must receive termination entitlements. As a result, it is essential to understand whether a lay-off has been conducted properly.
A lay-off refers to circumstances where an employer stops their employees from working their normal hours of work. This can occur through either a substantial reduction in working hours or through being asked not to return to work.
A lay-off is either considered temporary or permanent. A temporary lay-off occurs over a short period of time. However, this reduction or cessation of working hours must be within relevant legislative timelines, and the employees must return to their normal working hours at the end of the temporary lay-off. In Ontario, the Employment Standards Act (“ESA”) sets the timeline for how long a temporary lay-off can be for. If a lay-off is within this period, the laid-off employee must either return to work when recalled or resign, as they will not be considered to be terminated.
A permanent lay-off occurs when the employees are never able to return to their normal working hours. In this case, the lay-off is treated as a termination of these workers. Any lay-off that exceeds legislative timelines will be considered to be permanent. The employer will then be required to pay all applicable termination and severance entitlements.
When is a lay-off permissible?
In Ontario, temporary lay-offs will not result in the termination of employees so long as several important steps are met.
First, the employment contract must allow for temporary lay-offs to occur. If no such provision exists in the employment contract, or if there is no written employment contract signed, then an employer must obtain employee approval prior to implementing the temporary lay-off. Without an employee acceptance of a temporary lay-off, Ontario courts are clear that all employees have the implicit right to work their normal working hours. As a result, unless an employee has contractually agreed to temporary lay-offs, a reduction or cessation of their work may constitute constructive dismissal and the termination of their employment.
If the employment contract allows for temporary lay-offs or an agreement is reached, the next step is to look to the length of the temporary lay-off. The ESA governs the maximum amount of time an employee may be temporarily laid off.
The ESA sets out three possible timelines for a permissible temporary lay-off:
(1) a lay-off of not more than 13 weeks in any period of 20 consecutive weeks; OR
(2) a lay-off of more than 13 weeks in any period of 20 consecutive weeks, if the lay-off is less than 35 weeks in any period of 52 consecutive weeks and,
(i) the employee continues to receive substantial payments from the employer, or
(ii) the employer continues to make payments for the benefit of the employee under a legitimate retirement or pension plan or a legitimate group or employee insurance plan, or
(iii) the employee receives supplementary unemployment benefits, or
(iv) the employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so, or
(v) the employer recalls the employee within the time approved by the Director, or
(vi) in the case of an employee who is not represented by a trade union, the employer recalls the employee within the time set out in an agreement between the employer and the employee; OR
(3) in the case of an employee represented by a trade union, a lay-off longer than a lay-off described in clause (b) where the employer recalls the employee within the time set out in an agreement between the employer and the trade union.
For most workplaces, a temporary lay-off will be calculated using the first timeline of a maximum of 13 weeks laid off over a cumulative 20 week period. So long as an employee does not spend more than 13 weeks over a 20 week period without their normal hours of work (and assuming the employment agreement allows for temporary lay-offs), the lay-off will be permissible.
The ESA also allows for employers to draft employment agreements that utilize a timeline of 35 weeks over a 52 week period, assuming the benefit conditions laid out above are met.
Finally, the ESA allows for unionized workplaces to supersede the 35/52 week maximum, through explicitly establishing a lay-off procedure in the collective agreement.
What are the consequences for an illegal lay-off?
If an employee is laid off without a lay-off provision contained in the employment agreement, or the employee is laid off for a greater period of time than the maximums contained in the ESA, then the employee is considered to be terminated. If this occurs, the employee would then be entitled to their applicable termination and severance entitlements, beginning from the date the lay-off began.
In Ontario, there are several sources for these entitlements. First, every employee is entitled to minimum notice of their termination, or pay in lieu of this notice, as set out in the ESA. All employers must abide by these notice minimums when terminating their employees.
Additionally, the common law may require reasonable notice to be provided to the terminated employee. Common law notice requirements are often significantly greater than ESA notice minimums. However, employment agreements may waive common law entitlements in favour of only ESA notice requirements.
Some employers are also required to pay severance to their long-term employees. Severance payments are additional sums of money to be paid upon termination. However, only severance-paying employers have severance obligations. Severance-paying employers are employers who:
- Have a payroll in Ontario of over $2.5 million, OR
- severed the employment of 50 or more employees in a six-month period because all or part of the business permanently closed.
The ESA sets out severance pay calculations for severance-paying employers.
Finally, the ESA characterizes circumstances where 50 or more employees are terminated over a 4-week period as a mass termination. Mass terminations significantly increase notice obligations for the employer. Specifically, in the event of a mass termination notice obligations are calculated by the number of employees terminated over a 4-week period, as opposed to each individual employee’s length of service.
What does this mean for me if I am laid off?
Given the potential termination and severance entitlements available, it is important to determine whether your lay-off is considered to be temporary, or whether you have in effect been terminated. The MyOpenCourt Termination Compensation Calculator will offer a predictive assessment of your lay-off, and will refer you to a lawyer if it is likely your lay-off is illegal.