Possibility of Temporary Layoffs Must Be Included in Employment Contract

by & Christina Catenacci

The Ontario Superior Court of Justice just confirmed that when an employer attempted to temporarily lay off an employee of 12 years, it actually terminated her because the temporary layoff was made without providing consideration to the employee and was not a possibility included in the employment contract.

Since there was no mention of temporary layoffs in the employee’s employment contract or offer of employment, it all came down to whether the employee handbook formed part of the terms of employment.

Facts of the case

The employee, a kitchen designer, worked for the employer for 12 years.

When she was hired, the employer provided an employee handbook along with her written offer of employment. The handbook included provisions for temporary layoff, but the offer of employment did not mention this fact. The employer also did not request a signed acknowledgment that the employee read and understood the provisions found in the handbook. In addition, the employment agreement did not mention anything about temporary layoffs.

Ten years later, the employee made a lateral move in the company. She accepted a new offer of employment, which indicated that she agreed that she had read and would follow the policies of the employee handbook that mentioned the possibility of temporary layoffs. This lateral move did not include a raise, any other increased benefits or considerations.

A couple of years later, the employee was temporarily laid off and provided with a recall date eight months later.

The employee’s benefit package was continued during the period of temporary layoff, and the employer and the employee shared the premiums.

At the recall date, she did not want to return and did not accept the recall. The employer considered the employee to have abandoned her job. The employee sued for wrongful dismissal.

The employee claimed she was terminated without cause, and the employer claimed that there was a clear temporary layoff with an accompanying recall date.

Was the employee temporary laid off or terminated?

After analysis, the Court agreed that the employer did have a legitimate business reason for temporarily laying off employees and then recalling them in response to the cyclical demand for labour in the industry. However, the Court decided the employee was terminated based on the following findings:

There was no contractual basis for the temporary layoff: there was nothing in the employee’s initial employment contract or offer of employment about temporary layoffs

There was no consideration for the change in the terms of the new employment contract: there was no increase in compensation or other benefits that could constitute consideration for accepting the new terms of the employment contract and handbook; continued benefits were insufficient since employers continue benefits after dismissal for a variety of reasons

Since there was no consideration, the change in terms of employment so as to include the temporary layoff provisions of the employee handbook were unenforceable against the employee: the employee handbook could not become part of the terms of employment after the fact without consideration. As a result, the employee was entitled to damages for wrongful dismissal. The employee received 10 months of reasonable notice, but she did not receive a bonus in the year following her dismissal because it was unlikely that she would have received it anyhow. The fact that the employee did not return when recalled did not negate her entitlement to the damages.

What priciples can be taken from this case?

There are several principles stemming from this court case.

First, if your industry sector or business requires you to anticipate temporarily laying off employees, make sure you include a provision to allow you to do so in your offers of employment and employment contracts.

What you must understand is, even though the Ontario Employment Standards Act provides for temporary layoffs, it is not a general right. Employees have to know about it and agree that it may happen in the course of their employment.

This case clarifies that an employer cannot temporarily lay off an employee unless:

  • The contract of employment expressly provides for temporary layoff
  • Well-known industry-wide practices imply the need for temporary layoffs (e.g., logging, where work cannot be performed during certain times)
  • Employees agree to the temporary layoff

In the absence of an express or implied provision allowing temporary layoff, a temporary layoff constitutes termination of employment.

An employee is on temporary layoff when an employer cuts back or stops the employee’s work when there is not enough work to do, without ending the employee’s employment.

Section 56 (2) of the Ontario Employment Standards Act defines a temporary layoff as being:

a) Not more than 13 weeks in any period of 20 consecutive weeks, or

b) More than 13 weeks in any period of 20 consecutive weeks, but less than 35 weeks of layoff in any period of 52 weeks, where:

(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 would be entitled to receive supplementary unemployment benefits but isn’t receiving them because the employee is employed elsewhere, or

(v) The employer recalls the employee within the time frame approved by the Director of Employment Standards, or

c) A layoff longer than a layoff described in (b) where the employer recalls an employee who is represented by a trade union within the time set out in an agreement between the union and the employer.

Note: In Ontario, an employer may put an employee on a temporary layoff without specifying a date on which the employee will be recalled to work.

An assignment employee (employees from a temporary agency located in Ontario) is considered to be on a week of temporary layoff if he or she is not assigned by the agency to perform work for a client of the agency during that week. A week is not counted as a week of temporary layoff (i.e., is an “excluded” week) if, for one or more days, an assignment employee:

  • Is not able to work
  • Is not available for work
  • Refuses an offer by the agency that would not constitute constructive dismissal
  • Is subject to a disciplinary suspension or
  • Is not assigned to perform work for a client of an agency because of a strike or lockout at the agency

The second principle is that when an employer wants to change the terms of employment for a current employee, the employer must provide consideration. This means the employer must provide something in return for the changed terms. If this is not done, the employer is likely to be found liable for constructive dismissal.

Some examples include offering a raise in compensation, a bonus or an enhanced benefits package.

And the third principle: employee handbooks are wonderful-if the employee knows about them. It is important to ensure employees are aware of the handbook, read and understand it, agree to follow it and provide a signed acknowledgement of such as soon as they are hired.

View the case here.

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