The Ins and Outs of Temporarily Laying off Employees

Businesses are constantly changing, and so is the economy. At times, this may mean looking at ways to cut costs through downsizing or restructuring. For the majority of employers, this means terminating an employee without cause. However, some employers may just need to get through sales cycle, or a season, or they need time in order to win the next big project before getting their business back on track.

Good employers do not wish to lose valuable employees just because the company is not performing optimally at a specific moment in time.

In those situations, a temporary lay off of an employee might be the right answer. Before taking that step, Ontario employers need to inform themselves about whether they can temporarily lay off an employee to begin with. They also need to plan how to properly pull it off.

Can an employer temporarily lay off an employee?

The ability to do a temporary lay-off must be specifically addressed in an employment agreement or company policy despite an employer’s adherence to the requirements of the Employment Standards Act, 2000 (“ESA”) . In other words, it must be a term and condition of employment. Where no contractual provision exists, courts have consistently held that an employer is not entitled to unilaterally impose a temporary lay off. The easiest way to do this is to include a sentence in the offer letter or employment agreement which states that the company maintains the right to temporarily lay off an employee, if necessary.

Perhaps one day the law will change in this regard. If employers think about it, not every employment agreement provides a termination provision but an employer can still terminate an employee as long as they do so in accordance with the ESA and the common law. Why wouldn’t the same principle apply to lay offs? In other words, maybe some day a court will determine that a temporary layoff is an implied term of the contract. This is not the case currently.

How does an employer temporarily lay off an employee?

The ESA provides that an employer can temporarily lay off an employee for up to 13 weeks in a 20 week rolling period. Although employers are not required under the ESA to provide written notice of the temporary lay off, or even a reason, prudent employers should document the temporary lay off by way of a letter setting out the date of the lay-off and preferably the reason. There is also no requirement under the ESA to provide a recall date. If the employee is laid off one day past 13 weeks then the lay off is deemed a termination, and the employer must provide termination entitlements under the ESA (and under the common law or an employment contract) dating from the initial date of the temporary lay off. As a result, it is important for a company to monitor and track all temporary lay offs to properly manage the 13 week threshold period. As that 13 week period approaches, the employer will need to communicate the recall to the employee, or if the business has not improved then provide a termination package.

Under very limited and specific circumstances, an employee can temporarily lay off an employee for more than 13 weeks in a 20 week period but for no more than 35 weeks in a 52 week period where an employer continues to pay the employer substantial payments, the employer continues all benefit contributions or the employee receives supplementary employment benefits.

When a company necessarily resorts to a temporary lay-off due to business concerns (as opposed to avoiding severance obligations), it can provide that much needed break to allow time for a business to get its finances in order, and by so doing get a valued employee back to work.