Following a novel decision at the Ontario Court of Appeal,
employers may now be on the hook for more termination pay when
employees are laid-off for an extended period of time.
In the recent decision of Elsegood v. Cambridge Spring Service (2001)
Ltd. ("Elsegood"), the Court concluded that when
a layoff becomes a termination for employment standards purposes,
non-union employees can sue for wrongful dismissal under the common
law. They are not limited to the statutory amounts.
The Elsegood Case
Mr. Elsegood was a 48 year old technician. He'd been
employed by Cambridge Spring Service for seven years. He was
laid-off once in April 2009, recalled in June and then laid-off
again in July. By January 2010, he had been temporarily laid-off
for 35 weeks in a 52 week period. Under Ontario's
Employment Standards Act ("ESA"), that period of
layoff gave him entitlement to termination pay in lieu of notice.
But, instead of bringing a claim for 8 weeks of termination pay
under the ESA, he sued in Small Claims Court for wrongful
dismissal. The courts have generally awarded higher amounts for
wrongful dismissal under the common law than the ESA provides.
Cambridge Springs argued that Elsegood's employment had not
been terminated for purposes of the common law, but only for
purposes of the ESA. His status as an employee continued under the
common law. Therefore he was only entitled to the termination pay
set out in the ESA. The trial judge disagreed and ruled in favour
of the employee. Elsegood was awarded $9,900 as pay in lieu of
notice for a period of six months. He was also awarded $2,060 in
interest and costs.
The employer's appeal to the Ontario Divisional Court was
dismissed. A further appeal went to Ontario's highest court,
the Court of Appeal. In a unanimous decision, that Court also
upheld the trial judge. It ruled that the operation of the ESA
could indeed support an employee's claim for common law
damages. Since the ESA and the common law do not exist
independently of each other, once an employee is terminated under
the ESA, employment is also terminated under the common law. The
Court reasoned that the purpose of this part of the ESA is to
prevent an employer from avoiding termination pay in lieu of notice
by indefinitely laying off employees.
As a result of the decision, Elsegood was able to sue in court
for wrongful dismissal because his temporary layoff had ended by
operation of the ESA.
When a Temporary Lay-off Becomes a Termination
The determination of when a temporary lay-off becomes a
termination varies from province to province. The employment
standards law in each province spells this out. For example, in
broad terms a temporary layoff in Ontario may become a termination
if it continues for 13 weeks in any period of 20 consecutive weeks
unless pay or benefits are continued, or if it continues for 35 out
of 52 weeks. By comparison, under the Alberta Employment
Standards Code employment is generally deemed terminated after
the 60th consecutive day of lay-off. And of course there are
various exceptions and qualifications.
Employers must be aware, if implementing temporary lay-offs,
that the rules are complex. They should consult with legal counsel
for specific advice.
Statutory Notice Versus Common Law Notice
Once the temporary layoff becomes a termination, the employer
must provide pay in lieu of notice. After Elsegood, for
non-union employees the notice period may now include the lengthier
common law notice period and not just the shorter statutory period.
Statutes typically require amounts of 1 to 8 weeks' pay in lieu
of notice. In the case of a lengthy employment history, common law
pay in lieu of notice may be up to 24 months' pay.
Employers who wish to temporarily lay-off employees must of
course monitor the length of the lay-off, to avoid its becoming a
termination. Given the Elsegood decision, the cost of exceeding the
statutorily permitted period of temporary layoff may now be much
higher in the case of non-union employees. Employers must now
factor in the cost of the lengthier common law notice periods.
Employers involved in extended lay-offs should contact legal
counsel to discuss their options in light of this recent
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