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The Question

In light of the COVID-19 pandemic, my business can no longer provide work for a number of employees. Can I temporarily lay off these employees until my business recovers?

The First Answer

Natalie C. MacDonald and Mackenzie Irwin, MacDonald & Associates, Toronto, Ont.

In this unprecedented world health crisis, both employers and employees are encouraged to be as flexible as possible.

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However, employers do not have the right to lay off employees, unless there is an express written contractual right to do so in the signed employment contract with the employee, where it has been done historically. So, as long as the employee provides written consent to the layoff, the business can enact a temporary layoff.

If the employer has written consent to lay off the employee, the Ontario Employment Standards Act, 2000 (ESA) allows temporary layoffs for up to 13 weeks in a 20-week period, or up to 35 weeks in a 52-week period should the employer provide a top-up in compensation and/or continued benefits. Employers must promptly issue Records of Employment (ROE) for their employees, citing an interruption in earnings as the reason for the layoff, not termination of employment.

Absent explicit written consent from the employee, or a historical practice of doing so, an employee may ordinarily claim for constructive dismissal, given that the employer is ceasing to pay the employee without an express right to do so. This will expose an employer to damages. However, in today’s current climate, that issue may not be so straightforward.

The federal government unveiled a $27-billion emergency support benefit package for businesses and workers, including emergency care benefits for those not entitled to Employment Insurance (EI) and a wage subsidy for eligible small business owners of 10 per cent of the salaries of their employees for up to three months and up to a maximum of $1,375 per employee and $25,000 per employer, in order to encourage employers to keep their employees on payroll. It also unveiled a $55-billion tax deferral program to assist employers in meeting their liquidity needs. Therefore, as the COVID-19 crisis changes by the hour, we must look to the government for continued direction.

The Second Answer

Pamela Connolly, associate lawyer, Ukrainetz Workplace Law Group, Vernon, B.C.

Temporary layoffs are governed by provincial Employment Standards legislation and, for federally regulated employers, by the Canada Labour Code. These provisions allow employers to temporarily lay off employees for an extended period without triggering a termination of employment and requisite severance payments. Each jurisdiction differs, with the duration ranging from weeks to months under various conditions. It is important to review the applicable legislation for the specific details. Temporary layoffs can give struggling businesses relief from making payroll during periods of economic hardship. Employees put on temporary layoff experience an immediate wage stoppage, so must be issued a record of employment coded for shortage of work (A) and can apply for Employment Insurance benefits.

Given that temporary layoffs are onerous for employees, the law has developed so that employers can only implement temporary layoffs if there is a contractual term in employment agreements allowing layoffs or if temporary layoffs are common in the industry, such as construction. Otherwise, a temporary layoff may be considered a constructive dismissal. This means that the employee has a basis to claim their employment has been effectively terminated and there is an entitlement to at least statutory severance. While employers are experiencing unprecedented financial challenges that require flexibility, there has been no express change to the law in this area.

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To answer your question, whether you can safely temporarily lay off employees will depend if you meet the above criteria. If reducing your workforce cannot be avoided, it may be necessary to assume the risk of temporary layoffs or even terminate employment with working notice or pay in lieu, with the hope of rehiring employees later on. A temporary layoff may actually be beneficial for both parties where employees are otherwise unable to work due to childcare or other responsibilities. I recommend speaking to an employment lawyer about creative solutions and financial exposure in order to choose the right approach.

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