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COVID-19 – The Legality of Temporary Lay Offs

On March 20, 2020, Toronto employment lawyer Howard Levitt wrote an article for the Financial Post entitled, “Looking to temporarily lay off staff during the coronavirus crisis? Wait, that’s illegal”. While technically a correct interpretation of the common law regarding temporary lay offs, the article is also fundamentally irresponsible and people should really be hesitant to assert a position that they have been constructively dismissed (wrongfully terminated) simply by virtue of a lay off in the midst of an unprecedented pandemic. The Levitt article is simply designed to be inflammatory and rile up already nervous employees facing or already subject to temporary lay offs.

The reality is as follows:

Although not explicitly written in the Employment Standards Act or its regulations, according to the common law (the history of precedents of court and judge’s decisions) a fundamental term of an employment agreement is that “an employee works and is paid” and based on this, an employer cannot lay off an employee unless:

  1. their employment contract expressly permits a layoff;
  2. layoffs are a well-known industry-wide practice; or
  3. the employee consents to the layoff.

During these unprecedented times, many employers are faced with the prospect of having to lay off employees when the circumstance never would have otherwise presented itself. As such, if the employment agreement (if there is one) is completely silent on temporary lay offs, or the lay offs are not a well-known or industry-wide practice for the particular industry at issue; then, the employee would be required to consent to the lay off.

If the employee does not consent to the temporary lay off what happens? Well, the answer is not particularly palatable for most – the employee is terminated without cause – meaning that post-pandemic, the employee is remains unemployed and their position is not protected from being filled by someone else. When an employee is terminated without cause, they are entitled to reasonable notice. Reasonable notice is determined by 3 factors:

  1. If there is a valid employment agreement that legally limits the reasonable notice to Employment Standards Act minimums or somewhat more;
  2. The Employment Standards Act; and
  3. The common law.

If there is a valid employment agreement that limits the reasonable notice (legally) to the Employment Standards Act minimums (or even a little more), then the terminated employee is entitled to those minimums. These are not much and are dictated solely by length of service of the employee as follows:

Length of ServiceNotice Required under ESA
Less than 3 monthsNo notice required
3 months to 1 year1 weeks’ notice
1+ years to 3 years2 weeks’ notice
3 – 4 years3 weeks’ notice
5 – 6 years5 weeks’ notice
6 – 7 years6 weeks’ notice
7 – 8 years7 weeks’ notice
8 or more years8 weeks’ notice

 

A week’s pay is calculated by:

  • Totalling the employee’s wages, including overtime, earned in the last eight weeks in which the employee worked normal or average hours; and
  • Dividing the total by eight.

So, if an employee has a valid, legally enforceable, employment agreement limiting their pay in lieu of notice in the event of a termination without cause, and they worked for a period for 3.5 years, they would be entitled to 3 weeks’ notice under the Employment Standards Act. Once that pay is made, then the employee could apply for Employment Insurance benefits in the normal course, however, most employees would issue the Record of Employment with a reason code indicating that the employee refused to consent to temporary lay off and was, accordingly, terminated without cause. Whether the employee would be entitled to Employment Insurance benefits in this circumstance would be determined by Service Canada with limited appeal options.

Absent a written employment agreement, a terminated employee is entitled to Employment Standards Act minimum notice (as outlined in the chart above) PLUS common law notice. Common law notice is dictated by a number of factors deemed important by the courts in determining what is subjectively reasonable for a notice period, including, but not limited to: the length of service, the availability of reasonable alternative employment, whether the position was managerial or not, the age and skillset of the employee, etc. In interpreting these factors, the courts have consistently, held that the Employment Standards Act minimums are just that, minimums, and employees (without employment agreements) are entitled to an enhanced notice amount of 2, 3, 4, 5 additional weeks PER year of employment – with a general (although not strictly enforced rule of thumb of one month per year of employment to a maximum of 24 months).

However, it is important to note that the common law notice is only given when:

  1. The employer gratuitously provides it to the employee;
  2. The employer is ordered to by the court after a protracted and expensive legal battle; or
  3. A somewhat lesser amount is negotiated between the parties (usually their lawyers to avoid a protracted expensive legal battle).

As such, an employee simply asserting that they are constructively dismissed (wrongfully terminated) because they refuse to consent to a temporary lay off is a risky venture. Not only are the current economic times making it difficult for employers to continue operations, there will be a resulting negative cash flow to most businesses in the near and immediate future. This will undoubtably lead to unprecedented bankruptcies and permanent closures of businesses. They simply will not be around to pay the “reasonable” notice that the employees are asserting for wrongful termination in these circumstances. If the employer has long-term financial staying power to weather this pandemic, then the employee will be trading guaranteed Employment Insurance benefits income and the return to work (eventually) for a tenuous legal battle that could take months if not years.

In an uncertain economic reality, it would be extremely short-sighted for an employee to refuse a temporary lay off and exchange that for a tenuous wrongful termination claim.

Additionally, Mr. Levitt’s article fails to address that unprecedented times result in unprecedented measures and an employee refusing to consent to a temporary lay off in times of a unprecedented global pandemic would likely face particular scrutiny by a judge looking at their case for increased notice for wrongful termination/constructive dismissal. It is not outside the realm of possibility that judges looking back on employees who traded a temporary lay off for a wrongful termination claim as behaving unreasonably under the circumstances of the world today and either deny enhanced common law notice amounts or reduce them significantly. After all a terminated employee has an obligation to mitigate their damages and refusing to consent to a temporary lay off to trigger guaranteed Employment Insurance benefits in exchange for a tenuous wrongful termination claim is essentially irresponsible and a failure to mitigate.

As always, before making a decision, it is always safest to check your position with an Employment lawyer who can guide you through the myriad of ever-changing issues surrounding COVID-19, and the unprecedented recommendations for self-quarantine, travel restrictions, and closures of non-essential businesses.

Please feel free to contact the Employment Law Group at Doak Shirreff Lawyers LLP for more information by contacting Scott Chambers at [email protected], or call 250-979-2527, or through our toll-free number at 1-800-661-4959. We can consult with you remotely as needed.