Termination vs. Layoff
Terminations and layoffs are not the same concept in law. While many people may use these terms interchangeably, there is a difference, and now our wrongful dismissal lawyer Toronto will explain it. A termination ends the relationship between an employee and employer. A layoff is a temporary measure which can become a termination if it continues beyond a period of time acceptable under the Employment Standards Act (ESA).
Since a layoff is temporary, there is no right to collect notice or severance pay, but they do get to return to work. In a termination scenario, there is no return to work but instead the employee received notice and/or severance pay.
What is Layoff in Canada?
Layoff is a tool that employers have to temporarily stop providing work and pay to laid off employees, without terminating them, and thus needing to provide employees with their termination entitlements. However, laid off employees are allowed to collect employment insurance (EI). Due to its temporary nature, the intention of a layoff is to bring the employee back to work after a period of time allowable under the Employment Standards Act.
When an employer lays off an employee, it is not required to compensate the individual (salary, benefits, or any other form of remuneration).
The Employment Standards Act provides the following on what is considered a temporary layoff:
- A layoff of not more than 13 weeks in any period of 20 consecutive weeks; or
- A layoff of more than 13 weeks in any period of 20 consecutive weeks, if the layoff is less than 35 weeks in any period of 52 consecutive weeks and
- The employer continues to make substantial payments to the employee
- The employer continues to make payments towards an employee’s retirement, pension or employee insurance plan
- The employee received supplementary unemployment benefits
- The employee is employed elsewhere during the lay-off and would be entitled to receive supplementary unemployment benefits if that were not so
- The Employer recalls the employee within the time approved by the Director of Employment Standards
- The employee is recalled within a time frame agreed upon by the parties
What are the Reasons for Layoffs?
Employers typically use the layoff mechanism when companies have work shortages but anticipate the downturn being a temporary or short-term problem. The employer may not be able to afford the employee temporarily but won’t want to lose them permanently as they may be a good, well-trained employee. As such, the employer will merely lay off the individual rather than terminate them.
An economic recession, industry-wide downturn, or simply a slow time for a business are examples of reasons an employer may choose to lay off employees. Another clear example of when employers have used the layoff mechanism is during the COVID-19 Pandemic. Many businesses had to close or significantly alter their business during that time temporarily. Employers around Ontario and elsewhere in Canada had no choice but to lay off employees as they could not afford to keep paying them while their revenues were minimized. Once businesses opened again, many employees were recalled.
Constructive Dismissal
Employers are expected to abide by the layoff provisions in the Employment Standards Act, 2000. In normal circumstances, a temporary layoff cannot be no more than thirteen (13) weeks in any period of twenty (20) consecutive weeks. If the employer breaches this provision, the layoff may be deemed constructive dismissal. Thus, the laid off employee is entitled to the termination pay.
However, it is important to note that as of March 21, 2020, employees cannot claim constructive dismissal based on the Employment Standards Act (“ESA”) for temporary cuts to their pay or hours of work because of COVID-19, according to Regulation 228/20 issued by the Ontario government on March 29, 2020. These employees are deemed to be on “emergency leave”. On December 17, 2020, the Ontario Government amended Regulation 228/20 by extending the “COVID-19 Period” to July 3, 2021. In other words, employees who experience a temporary layoff due to COVID-19 will be on a deemed emergency leave until July 3, 2021.
Since the Regulation only deals with constrictive dismissal claims under the Employment Standards Act but not the common law, it may not necessarily bar employees from bringing common law constructive dismissal claims to the court.
If you are experiencing constructive dismissal issues in connection to your temporary layoff, it is advisable to seek legal advice from an experienced employment lawyer.
What is Termination in Canada?
While a layoff is a temporary work stoppage, a termination is when the employment relationship is completely severed. This means the employer does not wish to bring the employee back. Reasons for this could be downsizing, job performance, restructuring or simply the financial realities of the company.
Unlike a layoff, employers must provide employees with notice of termination or compensation in lieu of notice as per the Employment Standards Act. Employers must give advanced notice (or pay in lieu) to allow for the dismissed employee to find new work. A laid-off employee does not get notice because the intention is for the employer to bring the individual back.
An employer must give sufficient notice to an employee who is terminated without cause. If sufficient notice is not provided, this is considered a wrongful dismissal.
Termination Without Cause
In Ontario, an employer is entitled to terminate any employee at any time for any reason that is not discriminatory. However, it must provide notice or pay in lieu of notice of termination. This is what we call termination without cause. Examples of termination without cause due to the Covid-19 includes, inter alia, lack of work, reorganization, redundancy of work force.
If you are terminated without case, you are entitled to termination/severance pay determined by either your Employment Standards Act (“ESA”) minimums or common law reasonable notice. In most cases, a terminated employee could receive a much greater severance package under common law than the minimum standards under the ESA. Common law severance pay is available to any employee, as long as they are not terminated for just cause and as long as they are not subject to a valid termination clause that replaces the common law entitlements.
The common law severance package that an employer should pay to a terminated employee depends on a number of factors. Relevant factors include, inter alia, length of service, age, salary, the position the employee held within the company, whether the employee was actively recruited and the general economy. There is no easy calculation to determine the amount of severance that an employee will receive at common law. Therefore, it is advisable to consult an experienced employment lawyer about this.
Termination for Cause
In the case of termination for cause, it means that an employer may not have to provide with an employee with common law severance.
It is a high bar to terminate someone with cause. Generally, there must be some serious misconduct that harms the employment relationship, such as theft, violence, fraud rising to the level of gross misconduct. The reason for the high bar is that in the event of willful misconduct, an employee will not receive any termination or severance pay.
If you are an employee who has been fired for cause, you should absolutely reach out to a lawyer to review the circumstances of your dismissal. You may have a case for wrongful dismissal.
Group Termination
A group termination is when an employer dismisses 50 or more employees working at a single establishment either on the same day or within a four-week period. When this happens, the employer must notify the Director of Employment Standards in writing of their planned group termination at least sixteen weeks before the employment terminations take place.
The information that must be included:
- The economic circumstances surrounding the terminations;
- Consultations taking place with the communities in which the group terminations will take place;
- Any proposed adjustment measures and the number of employees expected to benefit; and
- A statistical profile of the affected employees.
Employers must also provide the individual employees who are being terminated notice or pay in lieu of notice. This is in addition to the group termination of employment notice that must be provided to each individual affected.
A joint planning committee must also be established immediately upon providing a notice of group termination.
An employer may request that the Minister of Labour waive an employer’s requirement to give notice if it can show that:
- It would be unduly prejudicial to the interests of affected employees or of the employer;
- It would be seriously detrimental to the operation of the industrial establishment;
- Similar measures are already in place.
For more information, please visit the Canadian Government website or contact Ball Professional Corporation to set up a consultation.
Can Layoff Become a Termination?
A layoff can become a termination if the employer does not recall the employee within the prescribed time limit. If the employee is not recalled, this is considered a constructive dismissal and the terminated employee is entitled to severance pay. The Employment Standards Act outlines the allowable periods of layoffs: 13 or 35-week periods (subject to conditions).