Court's Obiter Takes New Twist on Temporary Layoffs

Ontario's Superior Court of Justice released a new decision, Trites v. Renin Corp., addressing the question of whether or not a temporary layoff, without an express or implied agreement contemplating temporary layoffs, constitutes a constructive dismissal.

Most employment lawyers would tell you that the answer is yes, and that this is well-established law.  I've made multiple entries to that effect before, in December 2011 and January 2012.  But don't take my word for it:  See these other articles by Professor David Doorey, Canadian Law Magazine (quoting employment lawyer Doug MacLeod), Siskinds' labour and employment law blog...the list goes on.

It's a bit of a confusing framework, because the Employment Standards Act, 2000, creates an infrastructure for temporary layoffs, saying that a 'termination' of employment occurs when a temporary layoff exceeds a certain length of time.  Many human resources professionals and non-employment lawyers have looked at these provisions and concluded that they are entitled to implement temporary layoffs as a cost-saving measure.

And the established wisdom is that they're wrong.

But Trites cuts the other way, with Justice Moore concluding that "there is no room remaining at law for a common law finding of constructive dismissal in circumstances where a temporary layoff has been rolled out in accordance with the terms of the ESA."

The Court notes the Court of Appeal's decision in Elsegood (see my January 2012 post linked above) as standing for the proposition that the common law is displaced by statute.  Therefore, because the legislature has created a framework for temporary layoffs, it doesn't make sense to suggest that employers are unable to do so.

Still, employers shouldn't celebrate just yet.  There are problems with the decision, which leads me to expect that the proposition will not be widely followed, or upheld by the Court of Appeal if it goes there.

Why Won't Trites Be Followed?

Firstly, the finding that an employer is entitled to lay off without an express or implied agreement is strictly obiter.  The Court went on to find that the layoff, in the circumstances, did not comply with the Employment Standards Act requirements (an interesting finding in and of itself), and accordingly the plaintiff was awarded damages in lieu of reasonable notice.

Secondly, there are some fairly clear misapprehensions of the state of the law.  It's acknowledged that, at common law, a temporary layoff without a contractual basis is a constructive dismissal.  Elsegood is relied upon as saying that the common law is displaced by the ESA, but that's a drastic oversimplification of the case, which cites the Supreme Court of Canada as noting that the notice provisions of the ESA do not displace the common law pertaining to reasonable notice, and do not affect the civil remedies an employee may have against the employer.

Thirdly, the opening line of the case is nothing less than alarming:  "This case involves circumstances that give rise to the novel and perplexing legal issue of whether a financially struggling employer can unilaterally and arbitrarily impose a temporary layoff upon an employee absent an express or implied term in the contract of employment to support the employer's action."  [Emphasis added.]

There is nothing novel about this question.  I can point to quite a few cases, over the last 17 years, addressing the question directly.  Some refer to the ESA provisions in question specifically, and some don't, but the layoff provisions in the ESA are nothing new.

Style v. Carlingview Airport Inn is a 1996 case decided by the Divisional Court concluding that the employer was not entitled to temporarily lay off an employee pursuant to the ESA.  The employer in that case relied on an earlier decision, Stolze, where an employee had unsuccessfully made an ESA claim following a temporary layoff, but the Divisional Court distinguished it, noted that the scheme of statutory entitlements under the ESA does not abrogate any entitlement arising outside the statute, and concluded that the temporary layoff constituted a constructive dismissal.

Martacelli v. CFC/INX Ltd. is a 1997 case from the Ontario Court of Justice.  The employer again tried to argue Stolze, that compliance with the ESA layoff provisions prevented the employee from seeking further recourse, but the Court again rejected the argument:  Whether or not the layoff fell within the ESA definition of a layoff was immaterial; the employee's common law rights and remedies were not displaced by the ESA.

In November 1997, the Court of Appeal heard the appeal of a judicial review application in Stolze, and found that the adjudicator had failed to properly consider whether or not the temporary layoff constituted constructive dismissal under the Act.  Since then, the question has pretty much been settled in Ontario.

Chen v. Sigpro Wireless Inc. is an Ontario Superior Court decision from 2004, reaching the same conclusion, that notwithstanding that the temporary layoff may be in the form contemplated by the ESA, it is nonetheless a constructive dismissal if there isn't an express or implied term in the employment contract authorizing it.  This decision was upheld by the Ontario Court of Appeal in 2005.

In all three of the above cases, the issue for the Court to decide was identical to that in Trites. And there are a number of other cases decided relatively recently (from 2003 to 2011, at least), without always considering the effect of the ESA directly, but concluding that a temporary layoff was a constructive dismissal, in contexts where the ESA in essentially its current form would clearly apply.

So for the Court to suggest that the question is "novel" is frankly bizarre.  The Court even refers to the Martacelli decision as being relied upon by the plaintiff, which case contains a full answer to the employer's submissions, but the Court here does not address the principles raised in that case.  Justice Moore appears not to have appreciated that the employer's position was directly opposite a long history of jurisprudence.

So Why Don't the ESA Layoff Provisions Work Like That?

There are a few key provisions in the Employment Standards Act which affect its interpretation.  s.5(1) of the ESA prevents the parties from contracting out of the terms of the ESA, but that's qualified by s.5(2), that where the provisions "in an employment contract or another Act that directly relate to the same subject matter as an employment standard provide a greater benefit to an employee than an employment standard, the provision or provisions in the contract or Act apply and the employment standard does not apply."

Also, s.8 of the ESA provides that, with certain exceptions, civil remedies of employees aren't affected by the Act.

These provisions inform the interpretation of the ESA greatly, making it - in almost every respect - a one-sided piece of legislation that benefits employees but not employers.  So the minimum notice under the ESA is just a minimum, providing a protection to employees.  You can't contract out of the minimum pursuant to s.5(1), but contracting for a greater amount is okay because of s.5(2).  And that's one of the key points for sustaining the entitlement to pay in lieu of reasonable notice at common law:  It is based on an implied contractual term at common law.  The implied contractual term still exists and is not displaced by the ESA, and because it invariably yields a greater benefit than the ESA, it is permissible under s.5(2).

The other key point, for pay in lieu of notice, is that the ESA uses "at least" language when setting out the minimum standards, which seems to reinforce the point in s.5(2).

So let's back away from the exceptionally well-established 'reasonable notice' issue, and ask why temporary layoff language has a similar effect.  What does the temporary layoff language actually do?

Here's the framework:  The ESA says that, when a person's employment is terminated or severed, they are owed termination and/or severance pay.  Then it proceeds to define termination and severance, to clearly establish what events trigger those obligations.

In the case of termination pay, a termination occurs if:

• the employer dismisses the employee or otherwise refuses or is unable to continue employing him or her;
• the employer constructively dismisses the employee and the employee resigns from his or her employment in response to that within a reasonable period; or
• the employer lays the employee off for a period longer than the period of a temporary lay-off.

The framework for the temporary layoff is then laid out in some detail.  The severance provisions are similar, except that there are a couple of additional circumstances to trigger severance obligations.

So the bottom line is this:  An employee's employment is terminated when any one of those three criteria are met - dismissed, constructively dismissed, or laid off beyond the applicable time period.

See the point?  The law of constructive dismissal, albeit a common law construction, is left intact and is in fact integrated into the ESA framework.  When there's a temporary layoff without a contractual basis, that is a constructive dismissal, which amounts to a termination under the ESA, without needing to inquire further into whether or not there has been a layoff for a period longer than that of a temporary layoff.

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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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Editor's Note, January 14, 2014:  The linked article from Siskinds has been amended since I first posted this entry.  When I first made this post, the Siskinds link summarized the old status quo, but in July 2013 Siskinds amended it to discuss Trites specifically.  They appear to agree with my conclusion that it is a legal anomaly and that employers should not place too much reliance upon it.  Professor Doorey also tweeted a link to this post, shortly after I made it, with a favourable assessment of its content - "I don't have time this week to blog why Trites decision is wrong.  Thankfully @lawyerbuchanan has done it for me."

It's not a consensus, however.  There are also a number of commentators, such as Rubin Thomlinson, who consider it possible that the Trites case signals the beginning of a shift in the law, saying that "employers undertaking temporary layoffs may now be inclined to breathe a little easier", or Stuart Rudner, who recognized the old status quo ("For years, employment lawyers have been warning their employer clients not to assume that they have the right to lay employees off temporarily..."), but referenced Trites as possibly establishing a "new reality".

Which is possible.  The law does shift, at times, and sometimes significantly.  There's no doubt that any number of 'temporary layoff' cases, which would have been settled easily in the past, will instead have to go to trials and appeals until this question is once again answered with certainty, and it's possible that appellate courts will come down on the side of employers.  Possible.  I just don't think it's likely.  Trites will not be a binding precedent - it's obiter from a trial level court - and its analysis is probably not persuasive, either, requiring a significant change in how we interpret the provisions of the Employment Standards Act.

Independent Contractor Could Be Fired Without Notice

Here's a new and interesting one from the Ontario Superior Court of Justice:  McCready v. De Dwa Dehs Nyes.

The question, summed up by the judge at the very outset of the decision is this:  "What rights does a non-exclusive consultant retained on a six-month contract have, if he is terminated after the first week of work?"

The answer, according to Justice Morgan, is this:  He's only entitled to be paid for the work he did.

The Facts

McCready is a professional social worker, and a community advisor and research consultant.  He was hired on by the defendant for a six month consulting contract.  Or was going to be hired on.  As is notorious in employment law, they brought him in on the understanding that a contract would be signed.  The Court concluded that the defendant, through its executive director Chester Langille, had made a firm offer on the telephone with all the important terms agreed on, involving him working on a six month project with a budget of $55,000.

By the time McCready started, however, Langille was on sick leave, and some of the matters they had discussed didn't get passed along to the acting executive director, Dennis Compton.  For example, there were a number of periods of planned travel that McCready had told Langille about, including one week to work on another contract and a five-week period to teach in Africa.

McCready attended a six day training session with the defendant, and at the end they met with him to express concerns about his commitment.  Bottom line:  They told him at that point that he needed to work for them full time, every day through the 6 months, or not at all.  He insisted that he had a verbal agreement with Langille, and his other commitments could not be backed out of.  Shortly thereafter, they fired him.

The circumstances of the meetings were also less-than-ideal.  They called him into the ultimatum meeting fifteen minutes before he was to start a conference call for other clients, which had been pre-arranged to take place in a conference room of the defendant.  He was ten minutes late getting into the conference call, and then they interrupted the conference call to bring him in for the termination meeting.  I've dealt with enough terminations to know that you're hit and miss on the simplest of tasks immediately after a termination, but having to return partway through a professional conference call after being fired?  You'll be about as useful in the conversation as a babbling infant.  While he was finishing the conference call, the defendant cleared the premises early to prevent him from talking to anyone on his way out.

The way they treated McCready led to a claim for aggravated damages, though no evidence of injury was led, and punitive damages.

Decision

The Court's conclusion is full of surprises.

Firstly, the Court concluded that he was entitled to be paid for the time he had put in.  This isn't surprising.  But what is very surprising to me is that this was the entire award of compensatory damages.

In a consulting contract, there is no implied term of reasonable notice.  The presumption, in the absence of a term to the contrary, is that either party can terminate the arrangement at will.  The Court referred to a case where a 'termination at will' clause was spelled out in the contract, and where the Court of Appeal considered it to be a fair arrangement:  The contractor was able to pursue other work so long as it didn't put him into a conflict, could work at his own pace and hours, and could sever the contract at any time.  The Court concluded that the logic applied similarly here, that the terms, including an at-will provision, were fair to McCready.

My concern with the decision is that it doesn't appear to directly address the terms of this contract.  Indeed, the facts appear fairly straightforward, that it was an engagement for a fixed term, for a particular project, for particular compensation.  This differs from most consulting contracts, which consist of ongoing work on an 'as-needed' basis.

The difference is similar to that between indefinite term employment contracts and fixed-term employment contracts.  The fact of a fixed term is a rebuttal to the presumption that the contract can be terminated on reasonable notice.  Similarly, and perhaps more strongly, it would seem that a fixed term consulting agreement implicitly rebuts the implied 'at will' term.

If I offer to pay you x to perform task y over time period z, and you agree, and then I come back and repudiate the contract, then presumptively you are entitled to the money you would have made had the contract been completed.  It doesn't matter (except perhaps to mitigation) whether the contract is for exclusive services, for non-exclusive services, for provision of material goods, or anything else.  This is literally Contract Law 101.  To read into such a contract an implied term that I can terminate the contract at any time, even though task y isn't complete and time period z hasn't expired, is to ignore the intentions and reasonable expectations of the parties.

I would not be surprised, therefore, to see an appeal of that finding.

The other surprise is that the Court awarded punitive damages, surprising in part because it relies on decisions from employment contexts, and there are precious few successful claims for punitive damages in employment contexts.  The bar is set very high, but increasingly that seems to be changing.  Because of the very modest compensatory award ($5040), the punitive damages were limited to $15,000.  And then legal costs were awarded of $40,000.

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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.