Canada: Temporary Layoffs: A Cautionary Tale For Employers

Last Updated: July 3 2012
Article by Nav Bhandal

When times are tough, layoffs provide an efficient way to temporarily reduce labour costs while riding through the economic downturn. In the absence of providing temporary layoffs, employers would have to dismiss employees, incur the cost of paying severance packages, and then have to spend additional time and money hiring new employees once the downturn is over.

However, two recent cases provide a timely wakeup call to employers that if layoffs are not administered in the right fashion, companies could be forced to pay expensive severance packages, which the layoffs were designed to avoid in the first place.

McLean v. The Raywal Limited Partnership, 2011 ONSC 7330 examined the issue of including a clause related to temporary layoffs in the employment contract. Ms. McLean joined the company in 1998. At that time, Raywal's handbook had a provision stipulating that the company could temporarily lay off its employees. However, Ms. McLean was not advised of this fact in her written offer of employment and she was not given a copy of the handbook at that time. In effect, Raywal neglected to make the handbook a term and condition of her employment. In 2008, Ms. McLean accepted a new position with Raywal and she was required to accept a new offer of employment. The new offer indicated that she had read and would follow the policies of the handbook, including the provision governing temporary layoffs. In October 2001, Ms. McLean was placed on a layoff. On May 27, 2011, Raywal sent her a notice of recall, but Ms. McLean took the position that Raywal constructively dismissed her by placing her on layoff in the first place. Raywall argued that the layoff was valid.

The Court held that Ms. McLean was dismissed when she was placed on layoff. Ms. McLean's 1998 employment contract did not contemplate that she could be laid off as there was no express reference to layoffs, and there was no reference to indicate that the terms of the handbook (including the layoff provision) applied to her employment. Although the 2008 contract referenced the handbook, the Court held that she was not provided with any fresh consideration in exchange for signing the 2008 contract. In effect, she ought to have been provided with some "benefit" (i.e., compensation or promotion) for signing the 2008 contract, in order to make that contract enforceable. Ms. McLean was awarded 10 months' damages for wrongful dismissal.

The case of Elsegood v. Cambridge Spring Service (2001) Ltd., 2011 ONCA 831 examined whether a termination for the purposes of the Employment Standards Act, 2000 ("ESA") entitles an employee to damages under the common law. Mr. Elsegood was employed with Cambridge for more than seven years. The relationship was not governed by a written contract. Mr. Elsegood was laid off for economic reasons on April 4, 2009. He was recalled on June 9, 2009, but was laid off for a second time on July 28, 2009. Throughout both of the layoffs, Cambridge continued to pay its portion of Mr. Elsegood's benefits. Pursuant to Section 56(1)(c) of the ESA, an employee's employment is terminated if the layoff lasts for 35 weeks in a period of 52 consecutive weeks. By January 2010, the layoff had reached 35 weeks within a 52-week period. Rather than filing a complaint with the Ministry of Labour for his statutory termination entitlements, Mr. Elsegood elected to bring a Small Claims Court action for common law damages for wrongful dismissal. Cambridge paid Mr. Elsegood his entitlements under the ESA, but argued that he was not entitled to common law damages since his dismissal was only a "termination" for the purposes of the ESA. The Small Claims Court judge disagreed with Cambridge awarded Mr. Elsegood six months' damages for wrongful dismissal. The case was ultimately appealed to the Ontario Court of Appeal.

Cambridge argued that the ESA and common law are independent regimes, in that the employee's "actual" employment status is defined by the common law, and the ESA operates only to entitle the employee to the minimum remedies under the ESA. Cambridge further argued that common law damages for wrongful dismissal are only available for what would constitute a dismissal at common law and would not be available for a termination under Section 56(1)(c) of the ESA. The Court of Appeal rejected Cambridge's argument. The Court concluded that the common law and ESA do not exist independently of one another – a termination pursuant to a statute (e.g. ESA) also constitutes a termination at common law, thereby entitling the employee to make a claim for wrongful dismissal. The Court reasoned that the alternative would mean that employers could avoid providing termination entitlements by simply laying employees off indefinitely.

The Court also affirmed the long-standing principle that an employer has no universal right to lay-off an employee. Unless the employment agreement, either expressly or implicitly provides that the employer can temporarily lay off an employee, a unilateral layoff triggers a constructive dismissal. Furthermore, even if the agreement provides for layoffs, such layoffs cannot be so long as to trigger a termination under the ESA.

Employers Beware

These cases illustrate the common pitfalls that employers can fall into with respect to layoffs.

First and foremost, there must be a clear agreement providing that employers can lay off employees. In the absence of such an agreement, a layoff, regardless of the duration, will trigger a constructive dismissal. Preferably, this agreement should be in writing and made with the employee at the outset of the employment relationship. If the provision is set out in an employee handbook, then employers must provide employees with a copy of the handbook, ask them to acknowledge that they have received and read it, and reference the handbook in the employment agreement. If such an agreement is not made at the outset, employers can incorporate a layoff provision into the agreement at a later date provided the employee is given something in exchange for signing the new agreement. The safest "exchange" is a signing bonus.

Second, even if an employment agreement is in place permitting layoffs, employees must be recalled within the time stipulated in the ESA (or other applicable employment standards legislation), so as not to trigger a termination under the statute.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.