Workplace Wire

Connecting employers to developments in labour, employment & pension law

Lay-off still rhymes with termination


A few weeks ago, Workplace Wire reviewed the Ontario Superior Court of Justice’s decision in McLean v. The Raywal Limited Partnership, 2011 ONSC 7330, where the Court held that unless an employer can show that it has such a contractual right, a lay-off, even a temporary one, will amount to a wrongful dismissal at common law, with all the consequences that flow from that.

The Ontario Court of Appeal’s recent dismissal of an employer’s appeal in Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831 not only deals with the ability of a laid off employee to claim common law damages for wrongful dismissal, but is also a decision that addresses the relatively novel question of whether the lay-off provisions of the Ontario Employment Standards Act, 2000 (“ESA”) can support such a claim.

In Cambridge Spring, an employee, whose employment relationship with his employer Cambridge Spring Service was not governed by a written agreement, was on lay-off and considered himself subject to recall.  Section 56(1)(c) of the ESA provides that an employer terminates the employment of an employee “for the purposes of  section 54” [notice of termination section] if the employer lays of the employee for 35 weeks in a period of 52 consecutive weeks.  When the cumulative duration of lay-off reached the statutory maximum of 35 weeks within the 52 week period, the employee, rather than claiming termination pay under s. 54 of the ESA, commenced an action for common law damages for wrongful dismissal in Small Claims Court.

The Small Claims Court judge awarded the employee damages reflecting a notice period of 6 months and the employer’s appeal to the Divisional Court was dismissed.

At the Court of Appeal, the employer based its appeal on the premise that the ESA and the common law are independent regimes; an employee’s “actual” employment status is defined by the common law and the ESA operates only to entitle an employee to the remedies under statute.  On the other hand, common law damages for wrongful dismissal are only available for what would constitute a dismissal at common law and are not available for a “deemed termination” under the ESA. 

In dismissing the employer’s appeal, the Court of Appeal concluded that a termination by operation of statute, in this case s. 56(1) of the ESA, also constitutes a termination at common law, thereby entitling the employee to claim wrongful dismissal damages.

In stating that it had reached this conclusion in two ways, the Court first dismissed the employer’s argument that an employee’s employment status at common law could somehow survive a termination under the lay-off provisions under the ESA, noting that a termination under statute displaces the common law and that any contrary argument would represent an attempt to improperly contract out of statutory entitlements under the ESA. 

The Court also rejected the employer’s second argument that the employment agreement contained an implied term that allowed for the employee to be placed on indefinite lay-off.  At common law, the Court noted, an employer has no right to lay-off an employee.  Absent a written agreement to the contrary, a unilateral layoff by an employer represents a substantial change the employee’s terms and conditions of employment and is a constructive dismissal.  Further, even where there is such a written agreement allowing for lay-off, any agreement that provides for a lay-off longer than 35 weeks violates the minimum ESA standards and would be void. 

As this case demonstrates, while a written employment agreement can be of significant benefit to an employer in allowing for a lay-off to be initiated without triggering a constructive dismissal, such an agreement can only go so far in providing an employer with flexibility regarding the employment relationship and must operate consistently with employment standards legislation.

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