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As businesses across Canada hand temporary layoff notices to thousands of workers, employment lawyers are warning that the law does not actually permit short-term layoffs in many cases and employers could face lawsuits seeking severance payments.

Employers typically can’t impose temporary layoffs unless they have a contractual right to do so (through collective agreements in unionized workplaces or individual employment contracts) or, in some seasonal or cyclical industries such as construction, an implied right based on past practices. Without a contract, the law generally requires companies to pay fired workers a severance, not simply send them home with no pay and a promise it will be temporary.

But legal experts say the widespread disruption caused by the coronavirus outbreak could provide justification for employers to use temporary layoffs despite having no contractual right. Faced with few other options, many businesses are weighing the prospect of unmanageable payroll costs against the risk of lawsuits by workers, many of whom simply hope to return to their jobs rather than suing.

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“I believe it would be a mistake for people to look at this issue through the pre-COVID lens,” said Kathleen Chevalier, a partner at Stikeman Elliott LLP. She said laid-off workers could still seek severance pay and make a claim for constructive dismissal, which is when the employment relationship changes so much that the employee has effectively been fired.

“But the outcome of that claim could look very different than what people are used to seeing pre-pandemic,” she said. “Employers are making calculated risk assessments constantly."

Businesses – particularly retailers and others that have been forced to shut down according to government orders – could also argue that the employment contract has been “frustrated,” meaning it is impossible to perform as there is no work to do. In that case, there would be no obligation to pay severance, said Stuart Rudner, founder of Rudner Law, an employment law firm in Toronto.

But he urges both employers and workers to be familiar with their rights and obligations, noting, “Some companies are [knowingly] taking a chance and some just don’t know that they are taking a risk.” Mr. Rudner suggests employers ask workers to agree to the temporary layoff, noting that while most people have been co-operative so far, that could change as bills mount up. From an employee perspective, he suggests workers who do agree to a temporary layoff should make it clear – in writing if possible – that they are not agreeing to further such layoffs in the future.

Employment lawyers are waiting to see how judges will reconcile the law with the practical realities facing businesses today. “None of us really know how or whether that will shift in light of a worldwide pandemic. We all suspect that there will be some shifting in the law,” said Morgan Sim, a partner at Parker Sim LLP.

She works with many small business owners who have more personal relationships with their employees, which can help with assessing whether workers "would practically prefer to have the promise of a job as opposed to a lawsuit.”

In all cases, Ms. Sim urges employers to follow the minimum rules set out in provincial employment standards legislation, which apply to temporary layoffs that have been agreed to by contract. In Ontario, for example, the rules say a temporary layoff can last no longer than 13 weeks in any period of 20 consecutive weeks or, if the employer continues to pay certain benefits, it can last up to 35 weeks in a one-year period.

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“If you asked me two weeks ago what the risk would be for a constructive dismissal claim associated with a temporary layoff, I would say high," said Hena Singh, a partner at Singh Lamarche LLP. "If someone calls me now and says ‘I want to retain my work force but I can’t pay them right now,’ I would say the risk is low for a constructive dismissal case.”

“If an employee is going to claim constructive dismissal in the normal environment, they should do so relatively quickly after they are laid off so they can try to negotiate a severance package sooner rather than later,” she said. But in the current job market, she said, potentially having a job in the future may be more valuable to an employee than claiming they are no longer employed and filing a lawsuit. “Most of the time we are suggesting that the employee take a wait-and-see approach.”

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