Canada: Permitted Lay-Offs: Can You Let Them Go?

When going about the decision to lay-off an employee, it is important that you are aware of your rights to ensure the lay-off is valid and cannot be determined to be a termination by the courts. Ontario courts have consistently found that an employer cannot lay-off an employee unless there is an explicit or implied term in the employment contract permitting the lay-off – despite the existence of lay-off provisions in the Employment Standards Act, 2000 ("ESA").

So what does this mean for employers in Ontario?

If a contract has an explicit term permitting lay-off then you do not need to worry – you can validly lay-off the employee.

If there is no explicit term permitting lay-off, you will have to prove that the term was implicit if you want to proceed with the lay-off. Examples of cases in which a term permitting lay-off was implied include Greene v. Chrysler Canada Ltd. (1982), 7 C.C.E.L. 166 (B.C. S.C.); affirmed (1983), 7 C.C.E.L. 166 (B.C. C.A.) and MacKenzie v. Atlantic Neon & Plastic Signs Ltd. (1986), 14 C.C.E.L. 52 (N.B. Q.B.). In Greene, the employee was advised that recall would be possible if a position became available, and the employee was aware or should have been aware of the possibility of lay-off due to the economic difficulties of the employer. The benefits handbook in Greene also referred to benefits coverage during lay-off. In MacKenzie, the employer demonstrated that all employees were laid off due to economic circumstances, and the employee had been told that he would be recalled as soon as work was available. The employer had, in previous years, laid employees off seasonally.

If there is no evidence of economic difficulties or seasonal lay-offs, it is unlikely that a court will find an implied term permitting lay-off. In the case of Youkhanna v. Spina's Steel Workers Co. (2001), [2001] O.J. No. 4279, 15 C.C.E.L. (3d) 99, 2001 CarswellOnt 3915 , MacFarland J. (Ont. S.C.J.), the Court found that there was not an implicit term because the employer produced no records to demonstrate that business was falling off, produced no evidence to demonstrate seasonal layoffs, or that others were laid off at same time as the employee, and the employer was not able to demonstrate any economic reason for the employee's lay-off.

Changing law

There may be a very slight possibility to argue that the ESA does not require either an express or implied contractual term to permit a valid lay-off based on the court's decision in Trites v Renin Corp. (2013) CarswellOnt 5634 ON SC, where the court stated that "there is no room remaining at law for a common law claim for a finding of constructive dismissal in circumstances where a temporary layoff has been rolled out in accordance with the terms of the ESA". However, given the large number of cases decided against that, this argument is not likely to succeed.

How can you ensure that you have a right to lay-off?

The best way to ensure that you will be able to lay-off your employees is to enter into a written employment agreement with your employees that explicitly provides for a right to lay-off.

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.