This article was prepared with the assistance of Michael Sherman, summer student, Norton Rose Fulbright Canada LLP (Toronto)

What can a company do when hard times mean short-term downsizing?

That was the question answered by the Ontario Superior Court of Justice in Trites v Renin Corp, 2013 ONSC 2715.

Trites saw an established accounting firm, Renin Corp., facing hard times from the 2008 recession.  In an effort to save the business Renin began a program of temporary layoffs.  By 2011 Renin had not recovered and on November 15, Ms. Trites was laid off for a period of up to 34 weeks.  During Ms. Trites’ layoff, Renin stopped paying her salary, benefits, and CPP contributions.

In January 2012, Ms. Trites was invited to return to work beginning in July 2012.  However, with such a long layoff, Ms. Trites had found another job and subsequently filed suit against Renin for damages stemming from constructive dismissal.

Ontario courts have repeatedly ruled that placing an employee on a temporary layoff constitutes a constructive dismissal and entitles an employee to notice unless their contract specifically allows for such layoffs.  Martellacci v CFC/INX Ltd, 1997 CanLII 12327 (ON SC) is but one example.

But in Trites, Justice Moore has potentially flipped that law on its head when he wrote:

In my view, 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 [Employment Standards Act, 2000].

According to Justice Moore, it no longer matters whether a temporary layoff is allowed for in an employment contract.  Any employee can be temporarily laid off as long as relevant provisions of the Employment Standards Act, 2000 (ESA) are complied with.

So when is a layoff temporary?

Section 56(2) of the ESA tells us that one way to fit into the temporary layoff category is to lay off an employee for no more than 34 weeks during a 52 week period while also:

  • Making “substantial payments” to the employee;
  • Providing the employee with benefits during the layoff;
  • The employee receives unemployment benefits during the layoff, or
  • The employee is employed elsewhere during the layoff and would be entitled to receive supplementary unemployment benefits if that were not so

Justice Moore ultimately concluded that Ms. Trites was constructively dismissed.  Because Ms. Trites was not paid any salary or benefits during her layoff, Justice Moore found that Renin had not complied with section 56(2) of the ESA.

So what does this mean for employers?  Can employers now temporarily lay off an employee in accordance with the ESA and no longer fear claims for constructive dismissal?

Although Justice Moore’s decision certainly appears to break new legal ground, employers should continue to be cautious in determining whether to implement temporary layoffs.  Justice Moore’s decision is entirely at odds with well-established case law (including the Ontario Court of Appeal’s decision in Stolze v. Addario, 1997 CanLII 764 (ON CA)) that has consistently held that employers do not have an automatic right to lay off employees despite the layoff provisions of the ESA that seem to suggest otherwise.  At common law, absent an employer’s contractual right to the contrary, a temporary layoff has traditionally resulted in constructive dismissal.  As a result, before implementing layoffs based on the reasoning espoused in Trites, employers may want to let the dust settle and see whether subsequent decisions ultimately uphold Justice Moore’s decision.  Finally, it is always recommended that if a business contemplates that temporary layoffs may be necessary to include a clause in an employment contract that expressly authorizes such action.

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