Northern Exposure

Lessons from the U.S. government shutdown

By Julia Kennedy

It should be a relief to many employers (and employees) that their company has just one board of directors, with no second house to blockade budgets, freeze operating funds, or send large portions of the workforce home. Since an estimated 800,000 U.S. government employees were “furloughed” or required to work without pay earlier this month (approximately one-third of the U.S. government’s civilian workforce), employers in Canada may want to take a moment to remind themselves of the constraints they may face when initiating their own temporary layoffs.

  1. The ability to lay off employees is based in statute. As such, an employer’s ability to put employees on temporary layoff differs depending on the province in which those employees work. In Ontario, for example, employers can lay off employees on a temporary basis for up to 13 weeks (or longer in some cases). In Nova Scotia, however, a temporary layoff can last no more than six days.
  2. Layoffs may turn into terminations. Employers with unionized employees often have a negotiated right to lay off employees for greater periods of time than would otherwise be allowed under the applicable legislation. Without such extended rights, employers run the risk that their laid-off employees will be deemed terminated. Employment standards legislation may grant a grace period to an employer, during which a layoff won’t be considered a termination of employment. Once that clock runs out, however, employers are likely to find that they have incurred obligations to laid-off employees for terminating them.
  3. Temporary layoffs could end up costing more than they save. If a layoff turns out not to be temporary – either in fact, by operation of statute, or through an employee claiming constructive dismissal – employers will incur the normal notice, termination, and severance payment obligations under the relevant statute or at common law. If the layoff wasn’t genuinely intended to be temporary, employers risk claims for “bad faith” termination and further damages. Outside of sectors where layoffs are part of the expected business cycle, employers also should consider the reputational and morale costs of using temporary layoffs to address a downturn in business.
  4. Employers can’t expect employees to continue to work without pay. Unlike the situation in the United States where some government workers continued to report to work without pay but with the political promise to be paid for their work eventually, private-sector employers in Canada shouldn’t expect employees to continue to show up without pay. Provincial legislation grants employees a right to their pay at regular intervals and guarantees minimum wages for all work performed. Moreover, failure to pay employees would be a breach of the essence of every employment contract: labor in return for wages. In addition to potential fines under applicable statutes, an employer would risk rupturing its employee relationships and becoming liable for damages for constructive dismissal.

Employers in Canada should consider all their options and use caution when resorting to layoffs during slow periods. As tempting as the savings may be, there are limits to the ability of many employers to temporarily lay off employees. Careful consideration of the statutory, contractual, and practical limits of this solution is necessary.