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When is a lay-off actually a termination?

Employers in Ontario must be cautious before implementing “temporary” layoffs.  Unless the employee and employer have a clear and valid agreement that stipulates that the employer can lay-off the employee, such as a lay-off clause in a valid employment agreement or collective agreement, imposing a lay-off will be considered a “termination” and the employee will be entitled to claim statutory and common law entitlements on termination.

Whether or not there was a clear and valid agreement on the issue of layoffs came up in a recent decision by the Ontario Superior Court of Justice, McLean v. The Raywal Limited Partnership.  Raywal designs and manufactures custom kitchens.  In 1998, Ms. McLean was hired as a kitchen designer under a written contract of employment which did not expressly provide that she could be temporarily laid off.  However, the contract referred to an obligation that she abide by the employee handbook.  The handbook provided that the company could, from time to time, initiate temporary layoffs, and it dealt with benefit continuation during that period.  Unfortunately, Ms. McLean was not provided with a copy of the handbook at the time of hire, and was not required to sign off on the handbook before commencing employment.  In 2008, Raywall required Ms. McLean to execute a new employment contract in order to, essentially, remain employed.  At that time it provided her with a copy of the handbook which she was required to review and execute.  That handbook did provide for temporary layoffs.

On October 22, 2010, Ms. McLean was purportedly laid off with a recall date of June 27, 2011, and Raywal continued her benefits during the layoff.  Both Raywal and Ms. McLean paid their share of benefit contributions until, on May 27, 2011, Raywal sent her a notice of recall.  She never returned to work.  Instead she sued for wrongful dismissal, claiming that her lay-off was, in fact, a termination of employment.  Raywal claimed that the layoff was valid and also took the position that Ms. McLean had abandoned her employment or had, at a minimum, failed to mitigate by not agreeing to return to work when recalled.

The court held that Ms. McLean had not agreed, explicitly or implicitly, to the layoff provisions in the handbook when she was initially hired.  Further, as she was provided no fresh consideration in exchange for the agreement in 2008 (when she did sign off on the handbook), it was unenforceable against her.  The court rejected Raywal’s arguments that she had condoned the change by continuing to pay her share of benefit premiums during the layoff, or that somehow benefit continuation itself was consideration.

This decision confirms that, in most cases, employers cannot unilaterally impose a layoff unless they have a clear and valid agreement with an employee that confirms that they have that right.  Anything short of this will not suffice, and laying off an employee will be considered a termination of their employment.

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