By Marisa Victor and Sean McGurran
Following a recent decision by Ontario’s highest court, employers across Canada may now be on the hook for more termination pay when nonunion employees are laid off for an extended period.
In the recent decision of Elsegood v. Cambridge Spring Service (2001) Ltd. (Elsegood), the court concluded that when a layoff becomes a termination under an employment standards statute, nonunion employees can sue for wrongful dismissal under the common law. They are not limited to the statutory amount of termination pay.
Elsegood case
Brian Elsegood was a 48-year-old technician. He’d been employed by Cambridge Spring Service for seven years. He was laid off in April 2009, recalled in June, and then laid off again in July. By January 2010, he had been temporarily laid off for 35 weeks in a 52-week period.
Under Ontario’s Employment Standards Act (ESA), that period of layoff meant he was entitled to termination pay in lieu of notice. But, instead of bringing a claim for eight weeks of termination pay under the ESA, he sued in small claims court for wrongful dismissal. The courts generally award higher amounts for wrongful dismissal under the common law than the ESA provides for termination pay.
Cambridge Springs argued that Elsegood’s employment hadn’t been terminated for purposes of the common law but only for purposes of the ESA. His status as an employee continued under the common law. Therefore he was entitled only to the termination pay set out in the ESA.
The trial judge disagreed. Elsegood was awarded $9,900 for wrongful dismissal damages based on a common law notice period of six months. He was also awarded $2,060 in interest and costs.
The employer’s initial appeal was dismissed. A further appeal went to Ontario’s highest court, the Court of Appeal. In a unanimous decision, that court also upheld the trial judge. It ruled that the operation of the ESA could indeed support an employee’s claim for common law damages.
Since the ESA and the common law don’t exist independently of each other, once an employee is terminated under the ESA, employment is also terminated under the common law. The court reasoned that the purpose of this part of the ESA is to prevent an employer from avoiding pay in lieu of notice by indefinitely laying off employees.
As a result of the decision, Elsegood was able to sue in court for wrongful dismissal because his temporary layoff had ended by operation of the ESA.
When a temporary lay-off becomes a termination
The determination of when a temporary layoff becomes a termination varies from province to province. The employment standards law in each province spells it out. For example, in broad terms a temporary layoff in Ontario may become a termination if it continues for 13 weeks in any period of 20 consecutive weeks unless pay or benefits are continued, or if it continues for 35 out of 52 weeks.
By comparison, under the Alberta Employment Standards Code employment is generally deemed terminated after the 60th consecutive day of layoff. And of course there are various exceptions and qualifications.
Employers implementing temporary layoffs must be aware that the rules are complex. They should consult with legal counsel for specific advice.
Statutory notice versus common law notice
Once a layoff is long enough to become a termination under the employment standards statute, the employer must provide pay in lieu of notice. After Elsegood, for nonunion employees the notice period may now include the lengthier common law notice period, not just the shorter statutory period. Statutes typically require amounts of one to eight weeks’ termination pay in lieu of notice. But in the case of a lengthy employment history, common law amounts may be up to 24 months’ pay in lieu of notice.
Employer beware
Employers who wish to temporarily lay off employees must, of course, monitor the length of the layoff to avoid it becoming a termination. Given the Elsegood decision, the cost of exceeding the statutorily permitted period of temporary layoff may now be much higher in the case of nonunion employees. Employers involved in extended layoffs should contact legal counsel to discuss their options in light of this recent decision.