For many businesses the onset of Covid-19 has resulted in loss of work, cancellation of contracts and in some cases even a cessation of all business activity. Most of us are familiar with layoffs in the context of a unionized environment. One of the most common questions we have received in the last few weeks is whether an employer can temporarily layoff its regular non-unionized ‘contractual’ employees.

What is a layoff?

A layoff is a situation in which the employer temporarily ceases to provide work and usually compensation to employees in response to a decrease in business, with the intention of reinstating the employees when business returns. During the period of the layoff, the employees remain employees of the business as there has been no termination. However, the employee may be entitled to financial assistance under applicable Employment Insurance programs.

When is a layoff permitted?

So, can any business temporarily layoff employees? Yes, but only if it has an explicit right to do so.  By that, I mean there is an express provision in an employment agreement that clearly outlines the employer’s ability to layoff an employee during a pandemic, or the employer has implemented an appropriate policy in its employee handbook.

If there is no explicit right, putting employees on temporary leave would constitute a constructive dismissal, giving rise to termination entitlements (termination pay and/or severance).  Fundamentally, a temporary layoff (which has not been agreed to) is akin to a reduction in salary or a change in an employee’s position. An employer cannot unilaterally impose these changes.

What can an employer do if a layoff is not permitted?

So, what can you do if your employment agreements do not authorize a layoff?  You can speak with each employee to see if he/she will consent to a temporary layoff. As we are assuming there is no collective agreement, the layoff must be agreed to separately by each employee as you are, in effect, varying the terms of each individual employment agreement. If it’s a decision between termination or temporary leave, employees may be understandable.  Alternatively, you can exercise your right of termination by providing the required notice or pay in lieu of notice (in accordance with the employment agreement).

Proper documentation is crucial.

If you decide pursue layoffs to cut costs it is crucial to properly documented the terms to ensure you do not exceed the maximum periods permitted by Ontario’s Employment Standards Act. If not, you again expose yourself to a claim for constructive dismissal.

Make sure you are fully informed.

Before you make any decisions, review available funding and subsidy programming. Loans, subsidies, credits and other forms of assistance may be available to your business. New programs are constantly being introduced, and existing programs are being updated.

If you have any questions, don’t hesitate to reach out to one of the lawyers at Ross Rumbell. We will guide you through the process, outline your obligations and prepare the required documentation to ensure you are in compliance with applicable law.