Temporary Layoffs and Constructive Dismissal in Ontario
by Ben Markusoff, Lawyer
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The trade war ignited by US President Donald Trump’s tariffs is resulting in significant job losses in Ontario and throughout Canada. Businesses impacted by the tariffs face the difficult prospect of laying off or terminating employees.
Many employers may unlawfully place employees on temporary layoffs that are, in fact, constructive dismissal.
Ontario courts have consistently held that “an employer has no right to unilaterally lay off an employee unless the contract provides otherwise.”[1] Instead, such a unilateral layoff by an employer is a substantial change in the employee’s employment contract which constitutes constructive dismissal.
Employees that are constructively dismissed are entitled to compensation, including termination pay, severance pay, other damages. This entitlement can be significant, with Ontario courts awarding upwards of 2 years compensation for long term employees.
Temporary Layoffs under Ontario’s Employment Standards Act, 2000
Ontario’s Employment Standards Act, 2000 (the “ESA”) permits temporary layoffs, though with certain conditions. An employer is only permitted to place an employee on a temporary layoff if the layoff lasts less than 13 weeks in a 20-week period, or 35 weeks in a 52-week period.
If the lay-off exceeds these time limits, the lay-off becomes a termination and the employee may be entitled to termination pay and severance pay under the ESA. For long term employees at large businesses, these minimum statutory entitlements are up to 34 weeks’ of pay.
Temporary Layoffs at Common Law
In contrast to the ESA, a temporary lay-off can immediately amount to constructive dismissal at common law if the lay-off is not permitted by the terms of the employee’s contract.
Constructive dismissal can be established by either (i) the employer’s breach of an essential term of the employment contract, or (ii) a course of conduct by the employer that establishes that it no longer intends to be bound by the employment contract.[2]
A unilateral layoff is an example of constructive dismissal at common law, even where the layoff is temporary.[3] In these circumstances, the employee has two options:
- Accept the layoff and wait for recall, or
- Claim constructive dismissal and treat the layoff as a termination, thus pursuing severance or wrongful dismissal claims.
If the layoff is viewed as constructive dismissal, the employee has been wrongfully dismissed. A wrongfully dismissed employee is entitled to common law reasonable notice, or pay in lieu thereof, upon termination. This entitlement presumptively includes all compensation the employee would have received over the applicable reasonable notice, for example, base salary, bonus, commissions, pension, and benefits.[4]
If you are placed on a temporary layoff, you may be in a stronger legal position than you first assume. Make sure to seek legal advice before accepting or agreeing to the layoff.
For further information about this topic and the principles involved, please contact Ben Markusoff by phone at 416.306.1721 or by email at bmarkusoff@beardwinter.com.
[1] Webb v. SDT North America, 2023 ONSC 7170 (CanLII).
[2] Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10, [2015] 1 S.C.R. 500, at paras. 37-43.
[3] Stolze v. Addario (1997), 1997 CanLII 764 (ON CA), 36 O.R. (3d) 323, 35 C.C.E.L. (2d) 109 (C.A.).
[4] Matthews v Ocean Nutrition Canada Ltd., 2020 SCC 26.