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When lay-off rhymes with termination


Sometimes employers wrongly assume that because Ontario employment standards legislation permits them to temporarily lay off employees before termination obligations arise, they also have a contractual right to impose temporary lay-offs.


As the Superior Court of Justice has just noted in McLean v. The Raywal Limited Partnership, 2011 ONSC 7330, unless an employer can show that it has such a contractual right, a lay-off, even a temporary one, will amount to a termination without cause at common law, with all the consequences that flow from that.


In this case, the dismissed employee never did enter into a binding contract permitting the employer to impose a lay-off. According to the Court:


[10]           When Natalie was initially hired in 1998, Raywal had an employee handbook that included provisions for layoff.  At the time, Natalie was not advised of this in her written offer of employment, nor was she provided with a copy of the handbook.  Natalie was not obliged to confirm in writing that she acknowledged the existence of the handbook or that it was part of her contract of employment.

[11]           In June of 2008 while still employed by Raywal, Natalie was offered and accepted a new position that she described as a “lateral move”.  At the time, she was obliged to accept in writing a new offer of employment which indicated that she agreed that she had read and would follow the policies of the employee handbook.  The handbook contained provisions which govern layoff.

[12]           Aside from the ability to continue her employment, Natalie was not provided with any consideration in return for her agreement to the terms of the written offer of employment in June of 2008.


The employer’s first error then was in not ensuring that the employee was advised of the employee handbook and required to sign off on it at the time of hiring. Had this occurred, there would have been little question that the employer had a contractual right to later lay the employee off.


The second error was in not providing “consideration” to the employee when she accepted a new position. At that time the employee did sign off on the handbook permitting the employer to impose a layoff but this promise by the employee was not legally binding because of the common law “doctrine of consideration”, which requires that the employee be given something in exchange for her promise. The common law does not really care how much is given to the employee so long as something is given in exchange for her promise. Had the employer in this case, for example, raised the employee’s salary or benefits or even provided a one-time signing bonus of a nominal value that likely would have satisfied the “doctrine of consideration”. However, without it, the employee was able to argue that she was not contractually bound to the layoff.


As this case shows, it is always a good idea to have a written employment contract at the outset of the employment relationship which is expressly signed by the employee. Further, whenever significant changes occur in the middle of an employment relationship, they should be documented by an express new contract or amendment to the original employment contract and this should be accompanied by the exchange of consideration of some sort. It is always a good idea to seek professional legal advice on such questions.

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