I’ve noted before that the intersection between the common law regime of the employment contract and the statutory regime of employment standards is often confusing. One of the most mysterious intersections is the contrasting treatment of temporary layoffs.
Under the common law, a temporary layoff will amount to a breach of the employment contract, and probably a constructive dismissal, unless there is an expressed or implied term in the contract granting the employer the right to temporarily layoff workers. That was the point raised in the decision Davies v. Fraser Collection (2008). A temporary layoff is really just an employer telling an employee that they are not permitted to report to work until told otherwise and they will not be paid in the interim. This amounts to a fundamental breach of the employment contract unless the parties have agreed otherwise. The employee has the option to treat the layoff as a dismissal and recover their contractual entitlement to notice of termination.
Enter the Ontario Employment Standards Act. That legislation expressly recognizes a legal right to temporarily layoff workers in the definition of a termination. It does so in the following way. Section 54 of the ESA says that an employee with at least three month’s service cannot be “terminated” without having been given statutory notice. Section 56 then reads (in part) as follows:
What constitutes termination
56. (1) An employer terminates the employment of an employee for purposes of section 54 if...
(c) the employer lays the employee off for a period longer than the period of a temporary lay-off.
(2) For the purpose of clause (1) (c), a temporary layoff is,
(a) a lay-off of not more than 13 weeks in any period of 20 consecutive weeks;
(b) 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, [there is a list of situatuions that follows, one of which must be present.]
Temporary lay-off not termination
(4) An employer who lays an employee off without specifying a recall date shall not be considered to terminate the employment of the employee, unless the period of the lay-off exceeds that of a temporary lay-off.
Deemed termination date
(5) If an employer terminates the employment of an employee under clause (1) (c), the employment shall be deemed to be terminated on the first day of the lay-off.
This is a complicated statutory mechanism, but in essence it says that a temporary layoff is not a termination or a constructive dismissal for the purposes of the ESA, until a certain period of time has passed, after which a temporary layoff becomes a dismissal. Therefore, we are left with the apparent anomoly that a temporary layoff is a fundamental breach of contract (at common law), but not a breach of the ESA creating an entitlement to termination pay under that statute.
A great new case from the Ontario Court of Appeal explains how these two regimes interact. It’s called Elsegood v. Cambridge Spring Service.
The employer lays off the employee who had 7 year’s service for a period that ends up being longer than 35 weeks in a 52 week period. Therefore, the temporary layoff becomes a termination under the ESA by operation of Section 56(2)(b). The employee then sues the employer for wrongful dismissal rather than file a claim for statutory notice. He is awarded nearly $10,000 for reasonable notice by a Small Claims Court reflecting a period of 6 month’s notice, far more than the 7 week’s notice he’d be entitled to under the ESA.
The employer appeals. It makes the peculiar argument that the employee was never terminated under the common law, because the ESA is a distinct regime. In other words, it claims that the fact that a temporary layoff becomes a dismissal under section 56 of the ESA after 35 weeks does not effect the parties’ contractual situation under the common law! By this reasoning, says the employer, the employment contract was never terminated at all, even though the employee had become entitled to termination benefits under the ESA. Apparently, the employment contract would just continue on indefinitely into the future with the employee on temporary layoff.
The Court opens its reasoning by reminding us that “statutes enacted by the legislature displace the common law“. This leads to the conclusion that the state has defined the end point of the employment relationship in the statute:
The legislature has provided that when a layoff reaches 35 weeks in 52, the employee is terminated. The legislature’s action leaves no room for the continued operation of the common law respecting when an employee is terminated.
Therefore, it appears that at the very latest, an employment contract ends under both the ESA and the common law when a temporary layoff becomes a dismissal under the ESA. However, the contract may come to an end sooner than that under the common law. In fact, it can end the moment that a layoff is implemented if the employee elects to treat the layoff as a dismissal.
The court affirms that a temporary layoff is a constructive dismissal in Ontario, unless the contract includes a term stating otherwise:
 At common law, an employer has no right to layoff an employee. Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment, and would be a constructive dismissal.
Since the ESA does not displace any common law rights flowing from an employment contract (see Section 8), this means that an employee who is laid-off under a contract not providing the employer with the right to layoff can quit and claim their contractual notice of termination (which is usually more than the ESA minimum notice), notwithstanding that their entitlement to minimum notice under the ESA has not yet been triggered.
Parties Cannot Agree to a Term Granting Employer to Temporarily Layoff a Worker for Longer than a Temporary Layoff Under the ESA
The Court notes also that even if the contract here included an implied term allowing a temporary layoff, which the employer asserted it did, that term could not grant the employer the right to layoff the employee for a greater period than described in Section 56(2). If it did, it would amount to contracting out of the right to termination pay created by Sections 54 and 56, and the parties aren’t permitted to contract out of an ESA benefit (see section 5).
Result: Employer loses appeal. Employee entitled to the reasonable notice, plus interest, plus legal costs amounting to an additional $15,000.
What do you think? Is all of this sensible, or clear as mud?