2020.03

Temporary Lay-offs in Light of COVID-19

By: David Bleiwas

As COVID-19 continues to impact the majority of Ontario workplaces, many employers are being forced to consider implementing temporary lay-offs. The need to implement such lay-offs will depend on the nature of the industry, including whether the employer has been mandated to close, and whether or not staff members are able to effectively work remotely.  This article outlines some of the key legal issues regarding temporary lay-offs.

What is a Temporary Lay-off?

A temporary lay-off is a period when an employer ceases to provide work and (in most cases) compensation to an employee temporarily in accordance with the provisions of the Employment Standards Act, 2000 (the “ESA”). A temporary lay-off does not end the employment relationship and the expectation is that work and compensation may resume in the future.

In Ontario, a lay-off week is a week where the employee earns less than one half of the amount that they would earn at their regular rate in a regular week or their average earnings for the period of 12 consecutive weeks prior to the lay-off period. As such, it may be possible to reduce an employee’s work hours, or compensation, without it being considered a temporary lay-off.  If that is not the case, employers will likely want to take advantage of the temporary lay-off provisions under the ESA. 

The Canada Labour Code, which applies to federally regulated employers, allows a temporary layoff of 3 months or less, subject to certain exceptions.  This article focuses only on lay-offs under the ESA so federally regulated employers should contact a member of our team for additional information. 

How Long can a Temporary Lay-off Last?

If a temporary lay-off exceeds the time limited permitted under the ESA, the employer will, subject to certain exceptions, be deemed to have terminated the employment relationship. 

 In Ontario, temporary lay-offs cannot exceed:

 (a)        13 weeks in any period of 20 consecutive weeks; or

 (b)        more than 13 weeks in any period of 20 consecutive weeks but less than 35 weeks in any period of 52 weeks where:

 (i)         the employee continues to receive substantial payments from the employer, or 

(ii)        the employer continues to make payments for benefits or a legitimate retirement or pension plan, or 

(iii)       the employee receives supplementary unemployment benefits, or 

(iv)       the employee would be entitled to supplementary unemployment benefits but isn’t receiving them because they are employed elsewhere, or 

(v)        the employer recalls the employee within a time frame approved by the Director of Employment Standards or as set out in an agreement with an employee not represented by a trade union, or where the employee is represented, as set out in an agreement with the trade union.

Is Advance Notice Required?

In Ontario, there is no advance statutory notice requirement before an employee can be placed on temporary lay-off. However, in order to manage staff morale during this anxious time, some prior notice may be beneficial, or at least a letter explaining the basis for the decision and that the hope is to recall the employee when business conditions improve. 

Do Employees Get Paid While on Temporary Lay-off?

Generally, employers are not obligated to pay employees during a period of temporary lay-off.  However, that may not be the case if there is an employer policy, employment agreement or collective agreement which provides otherwise.  The employee may elect to use accrued vacation time to continue receiving pay during a portion of the temporary lay-off. 

Are Employers Required to Continue Benefit or Pension Contributions?

Unless an employment contract, collective agreement, employer policy, or the terms of the benefit plan provide otherwise, in most cases employers are not required by statute to continue benefits or pension plan contributions during temporary lay-offs.  However, during these difficult times, employers may wish to continue pension and benefit contributions and, as detailed above, the period of temporary lay-off may be extended if such contributions are continued.

Does it Matter How Many Employees are Temporarily Laid Off? 

In Ontario, there are no mass or group termination considerations for temporary lay-offs. However, should the lay-offs extend beyond the statutorily permitted time, it could result in a deemed termination at which point mass termination considerations may apply.

Other Considerations  

By implementing a temporary lay-off, the employee may qualify for Employment Insurance benefits, or other new benefits introduced by the Government of Canada in response to the COVID-19 pandemic.   

Even on a temporary lay-off, you may still be able to have the employee do some work.  The EI rules generally allow employees to do some work during the lay-off (either from home given the current circumstances or in your business premises if you are permitted to remain open).  If employees work reduced hours during the lay-off, they will get a combination of employment income and EI benefits and may be better off financially. 

For example, if an employee was earning $1000 a week and is laid off, they will receive $550 per week in EI.  However, if, for example, you need that employee to work 2 days a week, you would pay the employee $400 for the two days.  The employee would eventually have to repay EI $0.50 for every $1.00 of income they earn (up to 90% of their pre lay-off income at which point the repayment is dollar for dollar).  Using this example, the employee would have to repay $200 to EI, leaving them with $350 from EI and $400 from the employer for a total of $750 compared to $550 from EI alone.    

These are unprecedented times and hopefully lay-offs will be temporary.  Keep in mind that lay-offs which go longer than permitted under the ESA may become a termination, in which case employers will incur potentially termination and severance obligations under the ESA, an employment contract or at common law.  

Employers should also note that despite being permitted to use temporary lay-offs under the ESA, there is still a risk that it may result in a constructive dismissal claim where a temporary lay-off is not also specifically permitted by the employment contract.     

In order to implement a temporary lay-off, the employer is required to file a Record of Employment with Service Canada.  In most cases, it will be appropriate to use Code “A” (Shortage of Work) on the ROE and the recall date can be marked as unknown.   

While the situation continues to evolve on a daily basis, and employers may be forced to make rapid decisions, employers are encouraged to provide timely, open and honest communications with employees with respect to lay-offs and anticipated recall dates.  As always, employers may wish to seek the advice of counsel before proceeding.   

The team at Morrison Brown Sosnovitch LLP is pleased to assist and support your business during this difficult time.  For more information, please contact David Bleiwas at 416-368-5956 or dbleiwas@businesslawyers.com or Christopher Robertson at 416-526-0498  or crobertson@businesslawyers.com.

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