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  • Writer's pictureJeff Tudhope

Laying Employees Off? Better Check Your Employment Contracts

Updated: May 8, 2020

This post will be a bit deeper and more technical than what I’ve posted in the last couple of weeks – not to diminish the importance of job descriptions and org charts, of course.

Today, I am writing about employment contracts, which form the legal basis for the agreement between you and your employees.

This topic could directly relate to something you’re dealing with during the COVID-19 crisis – layoffs.

First things first - if you do not have written employment contracts in place with your employees, you should. Get in touch and we’ll take care of it.

There’s been a lot in the media about layoffs, and as we know, our federal government is taking unprecedented steps to help laid off employees and struggling businesses. However, there may be issues you may not know about within your existing employment contracts, and how adjudicators will respond to potential complaints in light of this crisis and some recent-ish caselaw is yet to be determined. This could be problematic – keep reading and you’ll see why.

I have come across several contracts over the past year or so which are missing important language that could protect employers from liability. In many cases, employers develop a contracts once and use it for every employee they hire, only amending information related to pay, job titles, vacation time, etc to suit the details of each employee’s agreement. When was the last time you read through everyone’s contract to make sure it was up to date with current jurisprudence? Ever? Without someone keeping an eye the employment law landscape, its easy to allow your old contracts to become outdated and problematic, or to even enter into new contracts which include unenforceable language.

So I’m writing about layoffs because it’s the one topic that likely pertains most specifically to current labour market conditions and is one area of employment that has seen a lot of “action” in the courts in the last few years.

Anyone reading this could google “Layoffs in (insert Province)” and would likely find basic, straightforward information about the entitlements and responsibilities of employers and employees in the event of layoffs. I’ve noticed it’s a pretty common assumption among businesses and workers alike that the employment laws which apply to your business in your jurisdiction will take care of the more technical legal aspects of the employment relationship, so the contract need only outline the basics like the start date, salary, job title, etc. This is not the case.

In Michalski v CIMA Canada, an employee who was temporarily laid off in accordance with the Employment Standards Act claimed he was constructively dismissed. He argued this on the basis that his contract did not include express terms (specific language agreed to in writing) allowing his employer to lay him off. The employer argued the contract included implied terms due to the nature of the industry and the fact that the contract was subject to the Employment Standards Act, which allows for temporary layoffs. The judge agreed with Mr. Michalski and he was awarded $33,000 in damages, which was reduced from over $60,000 because Mr. Michalski found other employment in the meantime.

The same decision resulted in Bevilacqua v Gracious Living Corporation. In this case, the employer acted appropriately during the layoff period, treating the employee as if he was laid off and offering him to return to work a few months later. During the layoff, Gracious Living appropriately continued to make the employee’s benefit payments. Despite this, the absence of express contract language permitting a layoff led to the judge’s decision to award Mr. Bevilacqua full pay for the period in which he was laid off, as the layoff was deemed to be a termination.

So that takeaway here is that your employment contract must include express language which 1 – allows you to layoff employees temporarily in accordance with the applicable employment law, and 2 – states that you will continue to make employee benefit payments during a layoff that lasts longer than 13 weeks (though some employers choose to continue employee benefits during layoffs up to 13 weeks as well).

Hundreds of thousands of Canadians are laid off or receiving reduced hours/reduced pay. Do you think every one of them is working under a contract that allows their employers to take the steps they’ve taken? Not likely. These are unprecedented times and actions have been taken in many cases to protect businesses so that workers will have jobs to return to. I am curious, as I am sure many others are as well, to see how complaints of potential violations are addressed over the coming months and potentially years.

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