When a Temporary Layoff Becomes a Termination: What You Need To Know

employees temporary layoff becomes a terminationCOVID-19  forced numerous Ontario businesses to close their doors. While a fair number of employers initially laid off their employees, now many temporary layoffs are becoming permanent terminations. What should you do if you are in this situation?

The quick answer is that you should seek legal advice before signing off on any severance package offered by your employer. If your employer expressly terminates you during the layoff period, that will constitute termination without cause and you would be entitled to severance pay. If the layoff extends beyond 13 weeks, and the employer is not paying you benefits, or beyond 35 weeks and the employer is paying your benefits, then you could qualify for constructive dismissal and be entitled to severance pay. To learn more about temporary layoffs and COVID-19, read our post on Temporary Layoffs in Ontario Due to COVID-19 and Employee Rights.

In the case of Fogelman v IFG 2021 ONSC 4042, Fogelman was laid off. IFG did not have a contractual right to layoff Mr. Fogelman. Vella J decided that Fogelman was constructively dismissed. Although O.Reg 228/20 is still in effect, the ESA does not supercede civil remedies available at common law.

An opposite decision was reached in Taylor v Hanley Hospitality 2021 ONSC 3135 regarding constructive dismissal. However, employees may be entitled to entitlements for constructive dismissal if they were laid off during COVID.

Note: If an employee quits before a layoff is over they are not owed severance pay.

Severance pay is generally referred to as payment upon termination of employment. However, if you want to learn about the technical differences between severance pay, termination pay and common law pay, read more on our post on What Is Severance Pay. In this post, we will refer to severance pay in its broad non-technical meaning.

The following will discuss entitlements upon permanent termination.

Temporary Layoff Turns Into Termination Without Cause

If you a terminated without just cause, your employer is required to provide you severance pay. The majority of employers offer the minimum notice determined by the Employment Standards Act (ESA), meaning up to 2 weeks per year of service or a variation on this theme. Generally, these severance packages are less than what an employee is owed under the law.

Temporary Layoff Turns Into Constructive Dismissal

If the layoff exceeds the time period mentioned above, 13 weeks when benefits are not paid by the employer, and 35 weeks when benefits are paid by the employer, then the layoff could create a constructive dismissal and the employee could be entitled to severance pay.

Severance Pay and Common Law Notice

Generally, employment agreements contain termination clauses that attempt to define the employee’s entitlements upon termination. Often, the contracts attempt to limit severance pay to statutory minimums. The contractual limitations may be void and unenforceable and, in those circumstances, employees would be owed reasonable common law notice. Common law notice is severance pay assessed by Courts on the basis of previous court decisions. Common law notice can vary depending on a variety of factors, such as length of service, position, age, availability of similar employment along with the employee’s experience, training and qualifications.

Below is a chart showing the average common law notice individuals would be provided based on their years of service. The minimum notice as set out in the ESA is one (1) week per year of service to a maximum of eight (8) weeks, this is called technically called termination pay. Larger companies with over $2.5 million in payroll may be required to pay an additional week per year of service, to a maximum of 26 weeks. Employees that are eligible must have a minimum of 5 years of service, this is technically called severance pay under the ESA.

Average Common Law Notice Based on Years of Service

Years of Service Service Average Months Per Year of Service Notice Common Law Average
.6 to 2.5 years 1.5 2.6 3.94 months
2.6 to 5 4 1.4 5.43 months
6 to 10 8 1.1 8.56 months
11 to 15 13 .9 11.82 months
16 to 20 18 .8 14.48 months
21 and 25 23 .7 15.52 months
26 and 30 28 .6 16.72 months

Based on the above information, if an employee was earning a salary of $50,000.00 per year in remuneration he/she would be entitled to a period as outlined below: 

Reasonable Notice:

  • 3 Years of Service –  4.2 months (3 x 1.4 months per year of service) or $17,500.00
  • 10 Years of Service – 11 months (10 x 1.1 months per year of service) or $45,833.33

Takeaways for Employees:

  • The maximum time period a temporary layoff can last under the Employment Standards Act (ESA) is 13 weeks if the employer does not pay for benefits and 35 weeks if the employer continues to pay for benefits;
  • Terminated employees may be entitled to common law notice which is higher than the minimum statutory termination entitlements;
  • If your employer terminates you without cause during the layoff period, you are entitled to severance pay which may amount to reasonable common law notice; and
  • If your employer does not recall you after the layoff period, you have been constructively dismissed and you are entitled to severance pay which may amount to reasonable common law notice.

This article was written by Alia Besharat and Alexandra Monkhouse, Employment Lawyers at Monkhouse Law. Monkhouse Law specializes in employment law, wrongful dismissal and human rights. We can review your severance package before you sign off on it, and help you get your entitlements following a layoff. Contact Monkhouse Law today for a free 30-minute phone consultation.

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