Monday, January 2, 2012

Court of Appeal discusses ESA Layoff Provisions

I recently posted this entry about temporary layoffs and dismissals in a non-union context, noting that they are quite rare and that "in the absence of a contractual basis for layoff, the device of layoff does not exist at common law and any purported layoff will be, in fact, a dismissal".

The Court of Appeal recently heard another case where this was an issue.  A very unusual case, and quite odd in many respects.  Elsegood v. Cambridge Spring Service (2001) Ltd. involved a non-union technician with seven years of service.  There was no written contract.  He was first laid off on April 4, 2009, and then recalled on June 9, 2009.  He was laid off again on July 28, 2009.

The Employment Standards Act has provisions regarding temporary layoffs, essentially imposing limits on them:  Under the ESA, a temporary layoff that exceeds 35 weeks in any 52 week period has the effect of triggering a termination of employment, entitling the employee to applicable statutory notice and/or severance payments.

Mr. Elsegood was not recalled as of January 22, 2010, at which point he had been laid off for 35 weeks in a 52 week period, and he brought a Small Claims Court action seeking pay in lieu of reasonable notice.  He was successful, and was awarded six months pay in lieu of notice.

The employer appealed, however, arguing that the ESA's layoff provisions result only in liabilities for statutory notice and severance, and not common law notice.  It is an interesting position, but rife with problems.

Problem Number One:  Defining the Contractual Terms

The employer's position was premised on an assertion that there was a contractual term entitling it to implement indefinite layoffs.  With no written contract, how does one get there?  The argument is that the employee's acceptance of the first layoff and recall, together with the employee having regarded himself as still being an employee up to the end of the 35 weeks, resulted in the layoff being an implied contractual term.  The Court doesn't decide what precise scope of any such contractual term was, but if it did, I expect that the employer would have had a difficult time convincing a Court to find that it was entitled to implement an indefinite layoff at common law, simply because of the employee's acceptance of a previous layoff of a relatively short term.

Problem Number Two:  Justifying the Contractual Terms

The Court observes that even an express contractual term entitling the employer to layoff for a longer period than 35 weeks out of 52 would be null and void by operation of the ESA:  It would, in effect, be an attempt to contract out of ESA protection.

Well, maybe not quite.  The employer's argument is, in essence, that the longer layoff triggered a specific and defined liability within the ESA, which would have no impact on common law rights and obligations.  However, that's a difficult argument as well, and one which the Court also rejects (see below).  Of course, if there were express contractual terms limiting the employer's liability on a statutory layoff to the statutory minimums, that would of course be permissible...yet without a written contract, there's really no way of getting there.

Problem Number Three:  The Termination of Employment is a Factual Issue, and not a Legal Construct

Here's the crux of the issue, and what makes this case more broadly interesting:  Does termination of employment for the purposes of the Employment Standards Act mean termination of employment for all purposes?  The Court's answer is Yes.

The strict language of the ESA provisions defining termination are 'for the purpose of' the provisions requiring payment of termination pay.  The employer's argument, in essence, is that it is therefore possible to engage the statutory definition of termination without actually terminating the employment relationship at common law.  It is an interesting and nuanced argument, but the Court sees through it:

The employer proposes the scenario where the employee would actually be on a prolonged indefinite layoff, but terminated for the purposes of the statute. I find it telling that the employer offers no date when a prolonged indefinite layoff would become a termination. It is telling because in the employer’s scenario, there is no date when the employer becomes responsible for termination pay in lieu of notice.
The employer's argument actually appears persuasive, at a glance, but there are a couple of reasons why it really had to fail.  Firstly, bifurcating the notion of statutory termination from common law termination would be confusing.  The ESA does not displace the common law, but is instead an overlay.  So we really can't put ourselves in the position of having to distinguish between an employment relationship at common law and an employment relationship under the ESA.  The question "Is Mr. Elsegood an employee of the company?" is a question which should have a yes or no answer.

Secondly, the employer is trying to turn an arguable right to layoff into a right to effectively cease to employ an individual without ever incurring the liabilities associated with common law notice.  Parties *can* contract out of common law notice, and I always recommend that employers should do so, and terminations of employment under such provisions are clear, certain, and final - both parties know that the relationship is at an end, and they know the employee's entitlements.  On the contrary, what the employer in this case is suggesting is that an employer could limit its own liabilities by stringing along the employee, saying "We may recall you at some point in the future", even where the employer knows that this is not going to happen.  This position is bad public policy, bad employment relations, and is anathema to the employer's duty of good faith and fair dealing.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

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