February 25, 2014

Desperate Times Do Not Justify Desperate Measures

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In Trites v. Renin Corp, 2013 ONSC 2715, the court considered “the novel and perplexing legal issue” of whether an employer that is experiencing significant financial difficulties can unilaterally impose a temporary layoff on an employee in the absence of an express or implied term in the contract of employment to support the employer's action.

In 2008, the employer initiated a rotating temporary layoff program in which a group of employees were laid off for a period (typically 35 weeks or less) and then recalled. As they were recalled, another group would be temporarily laid off. The employer argued that this permitted the company to stay within its financial means without dismissing employees or shutting down.

The plaintiff in the case was laid off in January, 2012, with a recall date of July, 2012 (seven months). She took the position that she had been constructively dismissed and brought an action for damages.

The Court held that despite the employer’s financial struggles, it did not have the right to impose a temporary layoff in the circumstances of this case. It noted that the employer’s fiscal reality was an explanation, but not a legal excuse for changing the terms of the plaintiff’s employment.

The Court accepted the employer’s argument that a temporary layoff does not constitute constructive dismissal because it is authorized by the Employment Standards Act. The Court stated “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.” (para 29) However, the employer in this case did not meet the requirements of the ESA. While the layoff was not for more than 35 weeks, the employer did not meet the requirements of the Employment Standards Act to continue to provide her with substantial payments and/or supplementary unemployment benefits. Further, she was not offered ongoing entitlement to medical or dental benefits as a term of layoff. Therefore, the layoff was not justified by the Employment Standards Act and the employer did not have a common law right to impose the layoff. As a result, the Court found that the employee was constructively dismissed.

This case shows that an employer’s financial circumstances will generally not relieve them of their legal obligations to employees. In considering measures to continue operations in the face of financial hardship, employers must ensure that they comply with employees’ common law and statutory rights, or they will be exposed to claims of wrongful dismissal. This case also shows that, at least in Ontario, it is possible for an employer to impose a temporary layoff provided that it complies with the terms of the Employment Standards Act.

For more information, please contact Alison Bird at coxandpalmer.com.

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