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January 7, 2012

Layoffs Longer than 35 Weeks and Constructive Dismissal

The Ontario Court of Appeal recently released a decision that touches on the interaction between theEmployment Standards Act, 2000 and constructive dismissal in the context of an indefinite layoff.

The case is Elsegood v. Cambridge Spring Service.

Section 56(1) of the ESA provides as follows:

56(1)  An employer terminates the employment of an employee for purposes of section 54 if,

(a) the employer dismisses the employee or otherwise refuses or is unable to continue employing him or her;

(b) the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period; or

(c) the employer lays the employee off for a period longer than the period of a temporary lay-off.

 The Ontario ESA also provides that an employer terminates the employment of an employee “for purposes of section 54” if the employer lays the employee off for 35 weeks in a period of 52 consecutive weeks.

The Ministry of Labour in one of its online Guides puts it succinctly:

If an employee is laid off for a period longer than a temporary layoff as set out above, the employer is considered to have terminated the employee’s employment. Generally, the employee will then be entitled to termination pay.

The Ministry’s only jurisdiction is with respect to the enforcement of the ESA only.

In the Elsegood case, the employee was on layoff and considered himself subject to recall.  However, when his layoff extended beyond the 35 week mark the employee commenced an action in Small Claims Court seeking damages for common law reasonable notice (rather than claiming termination pay under the ESA, as was his option).

The employee won at trial and was awarded a period of reasonable notice of 6 months.  The employer appealed to the Divisional Court and lost.  It further appealed to the Court of Appeal.

The Court of Appeal put the issue as follows:

The employer’s appeal is based on a simple premise: the ESA and the common law are independent regimes; an employee’s “actual” employment status is defined by the common law, and the ESA operates only to entitle the employee to the remedies under theESA. On this premise, common law damages for wrongful dismissal are only available for what would constitute a dismissal at common law and are not available for a “deemed termination” under the ESA.

It’s a really interesting issue (to me at least) as the Court has, of late, considered in a few cases how theESA interacts with the common law.

The unanimous Court of Appeal concluded that section 56(1) of the ESA operates to terminate an employee’s employment in law, so that the employee may claim for common law wrongful dismissal damages.

In other words, a “termination” by operation of the statute constitutes a termination for common law purposes and any purported argument to the contrary would constitute a contracting out from the minimum ESA requirements and would be void under section 5 of the ESA.

The Court then went on to discuss layoffs “at common law” and held, consistent with other cases, “at common law, an employer has no right to layoff an employee.   Absent an agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment, and would be a constructive dismissal.”

Any agreement that a layoff longer than 35 weeks in an employment contract (express or implied) would be void, according to the Court.

The interaction between the ESA and common law always seems to come back to the “you can’t contract out of the minimum standards under the ESA” analysis discussed in the leading case of Machtinger v. HOJ Industries Ltd.

Non-unionized employers who conduct layoffs should take note of this decision

An interesting issue not discussed is where the employer recalls the employee to work after the 35 weeks and a possible failure to mitigate argument (based on Evans and Russo).  Maybe that will be the next chapter in the discussion.