Northern Exposure

Does Temporary Layoff Result in Right to Severance Pay?

By Derek Knoechel

In early 2008, the owner of a dental practice, having recently purchased the business, faced some difficult choices. Given what appeared to be a temporary downturn in revenues, the owners decided on a temporary layoff.

While permitted by employment standards laws, the employer in the recent case of Besse v. Dr. A.S. Machner Inc. found out that the courts considered the layoff to amount to a termination of employment. The employment standards law didn’t provide a right to impose a temporary layoff – at least not without triggering all the severance rights the courts normally accord terminated employees.

What happened
The dental practice had lost some momentum with the change in ownership. Monthly billings had yet to return to normal levels. But the monthly expenses remained fixed.

The practice employed two receptionists, one of whom had been off on a medical leave but was seeking an early return to work. The owner approached both receptionists about a temporary reduction in hours. While one agreed to the reduction, the returning receptionist didn’t. So the owner temporarily laid off the returning receptionist for a period just short of 13 weeks.

The employer’s actions appeared consistent with British Columbia’s Employment Standards Act. Similar to other employment standards laws in many Canadian jurisdictions, it says that a temporary layoff up to 13 weeks in a period of 20 consecutive weeks is not a termination under that Act.

The court’s ruling
The British Columbia Supreme Court ruled that, despite the language of the Act and the employer’s good faith attempts to reach an acceptable compromise, it had unwittingly terminated the receptionist’s employment. That’s because the employment standards law doesn’t give employers a general right to temporarily lay off employees. Rather, said the court, it places limits on the right to temporarily lay off employees where such a right already exists. The court relied on its 1995 decision in Collins v. Jim Pattison Industries Ltd.

The court reasoned that the employer’s right to impose a temporary layoff depends on the particular employment relationship. You need to look at factors like the language of the employment contract, the practice of the industry, and so on. An employer must be able to point to an express or implied term of the contract of employment that allows temporary layoffs. In the absence of such a term, a layoff constitutes a fundamental breach of the employment contract. That results in its termination.

Since the receptionist was 51 years old with 28 years of service, she had a significant claim for pay in lieu of notice of termination.

Fortunately for the employer in this case, it acted quickly to remedy the situation. After getting a demand letter from the receptionist’s lawyer, the employer offered to bring her back to work and to compensate her for the time she had been laid off. The receptionist refused the offer. The court said she shouldn’t have. While this didn’t legally “undo” the termination, the receptionist’s unreasonable refusal eliminated all of her claims except those arising from the short period before the offer.

While the employer was partially vindicated, one has to wonder whether this interpretation of the employment standards law is consistent with the intention of the lawmakers.

Many employers would view the Act’s language regarding temporary layoff as providing a degree of flexibility when their businesses are facing tough economic challenges. The plain language suggests that a struggling employer could engage in a temporary layoff of some employees without immediately terminating the employment relationship.

One would think this applies for purposes of both statutory and common law (or court-imposed) notice and severance obligations. Laid-off employees would also receive some benefit from this approach in that they might be entitled to claim employment insurance benefits during the layoff yet still retain a connection to their employer for the purposes of recall.

Such an approach would probably be a welcome option for many in light of the current, struggling economy. Unfortunately, given this interpretation of the Act by the courts, at least in British Columbia and perhaps other provinces, this strategy will often be unavailable. It may only be available to employers that have express or implied terms in their employment agreements permitting temporary layoffs or those who obtain the written consent of the employees.

Contact the author, Derek Knoechel

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