September 11, 2013
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The firm gratefully acknowledges the assistance of Stéphane Serafin, Student-at-Law in gathering information for this article.

You're an employer struggling with cash flow. You're hoping for a big order or new funding, but in the meantime, you've got all these employees and you're worried about being able to meet payroll.

In your search to cut costs, you discover that the Ontario Employment Standards Act, 2000 ("ESA") contains provisions that permit employers to temporarily lay-off employees without having to provide them with notice or severance pay, at least not right away.

You know that the ESA is your basic reference source for how to handle various employment scenarios and the temporary lay-off provisions seem pretty straightforward. Actually, they are complex, with a lot of conditions, but once you've figured out whether you are going to lay-off employees for up to 35 weeks by maintaining a financial connection with the laid-off employees, or for up to 13 weeks if you don’t, they look easy to implement.

You provide written notice of temporary lay-off, as the ESA says you must, and the employees stop reporting to work. But then, like many employers over the past decade, you get a letter from the one of the laid-off employee’s lawyers, saying that you didn't have the right to temporarily lay-off the employee after all, and that the employee has been constructively dismissed.

It turns out that while the Ontario government seems to authorize temporary lay-offs as an employment standard, courts have dramatically limited the use of the ESA temporary lay-off provisions as a tool for managing costs in a fluctuating economy.

Traditionally, lay-offs were common in seasonal industries such as logging and tourism, and in manufacturing operations, where no orders meant no work, but where there was also a mutual expectation that laid-off employees would be recalled.

Starting in the early 2000s, with the economy worsening, more modern companies (including many in the high tech sector), where work was neither seasonal nor irregular, looked to the ESA temporary lay-off provisions as a way to avoid or postpone both payroll and severance obligations.

They were then surprised to learn that courts in Ontario viewed a temporary lay-off as a constructive dismissal. The courts' reasoning was that, absent express or implied terms in the contract of employment, an employer's failure to provide work and pay wages was a fundamental breach of the employment agreement. The effect of this was that employers who laid employees off were found to have terminated their employment.

In light of this background, a recent decision of the Ontario Superior Court of Justice has renewed debate among lawyers advising employers and employees. The judge in Trites v. Renin Corp. appeared to contradict settled law by reasoning that the employer could use the ESA temporary lay-off provisions without being liable immediately for notice and severance pay, even though the employment contract did not give the employer the right to temporarily lay the employee off in accordance with the ESA.

Significantly, Trites is a single decision by a first-level court, so it is open to other judges to ignore the reasoning in this case. In the end, the judge's willingness to approve the use of the ESA lay-off provisions did not determine the outcome of this case – the employee was awarded the amount she was seeking because the employer had inadvertently failed to comply with the technical requirements of the lay-off provisions – so the judge's conclusion about use of those provisions will not be appealed.

The Court of Appeal last dealt with this issue in 2001, when it affirmed the traditional view of temporary lay-offs in the absence of the employee's express or implied consent in Elsegood v. Cambridge Spring Service (2001) Ltd. Until such time as that Court revisits the subject, employers should not view the Trites decision as giving them a license to temporarily lay-off employees when times get tough.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Employment Law