September 22, 2003

Can employers temporarily lay off workers?

Alberta judge’s new interpretation extends employer temporary layoff rights

A recent Alberta court decision is complicating the traditional common law position towards layoffs.

The decision of the Alberta Court of Queen’s Bench in Vrana v. Procor appears to create unique rights for Alberta employers, allowing them to temporarily lay off employees while maintaining the employer-employee relationship with no recourse for the employee until the “temporary period” of 60 days has concluded.

Traditionally under the Canadian common law, an employer does not have the right to lay off employees unless it is an express or implied element of their employment contract. With the exception of certain industries, where there is an accepted industry practice of layoffs (usually found in construction or seasonal industries) or where there is a contractual agreement of layoff, the common law states that an employer cannot lay off an employee. Therefore, Canadian courts from every province have held that a layoff constitutes a dismissal, and an employee who has been laid off can seek a wrongful dismissal claim against the employer in court.

The Vrana decision recognized important new layoff rights for Alberta employers. George Vrana was employed with Procor for 16 years. In March, 2000, Procor told Vrana he would be laid off due to lack of work. Within 60 days, Vrana asserted a wrongful dismissal claim against Procor. The judge relied upon sections 62 and 63 of the Alberta Employment Standards Code in holding that an employer in Alberta has the right to temporarily lay off an employee for not more than 60 days without actually terminating the employment relationship. The judge held that before this provision was put in place in 1996, the traditional common law position would have governed, and Vrana would have been entitled to assert a wrongful dismissal claim.

Additionally, because the employment relationship was ongoing, Vrana’s action in bringing the wrongful dismissal claim served to repudiate his employment contract, as it was inconsistent with maintaining the employment relationship.

The Vrana decision presents a debatable legal analysis. The reliance on section 62 of the Alberta Employment Standards Code seems to neglect the fact that similar provisions exist in employment standards statutes in other provinces. When faced with similar situations, courts in other provinces have not created new rights for employers to temporarily lay off employees.

There are strong policy reasons to disallow the employer to temporarily lay off an employee. As the judge in the Vrana decision discussed, an employer could almost perpetually place an employee on layoff and then recall him before the 60-day period ended just for the purposes of maintaining the “employment relationship” and avoiding liability for wrongful dismissal. During the course of his decision in Vrana, the judge recognized this possibility for abuse, but nonetheless felt compelled to extend this new right to employers because of the statutory language in the Alberta code.

The reason employers in other provinces should take note of the Vrana case is that many employment standards statutes across the country include similar provisions to those relied on by the Court in Vrana.

In British Columbia, the case of Collins v. Pattison Industries looked at layoffs and common law. After canvassing the case law in other jurisdictions, the judge found that an employer does not have the right at common law to lay off an employee. In fact, in that particular case, the judge held the temporary layoff provisions in the B.C. Act were only meant to qualify employment arrangements in which the right to layoff already exists — in other words, where the employment contract either explicitly or impliedly includes a provision to lay off the employee.

More compelling examples are found in Ontario as the temporary layoff provisions of the Alberta Employment Standards Code that were relied upon in Vrana are virtually indistinguishable from sections 56(2) and 56(4) of the Ontario Employment Standards Act, (2000). In the Ontario case of Stolze v. Ontario, a 32-year employee initiated a wrongful dismissal claim after receiving a letter indicating the plant would be temporarily laying him off because of insufficient work. The letter provided no possible return date. The Ontario Court of Appeal held that the employer did not have the right to lay off an employee unless it was included in the employment contract, following the traditional common law rule. The Stolze case provides an important comparison to the Vrana decision because it shows that courts in two different jurisdictions, when working from similar facts and substantially similar statutory regimes, are coming to irreconcilable conclusions.

As the Vrana decision seems somewhat disconnected from other employment law jurisprudence in Canada, one questions how influential this decision will be in the future. Vrana is proceeding with an appeal.

The challenge for lawyers and HR professionals is to reconcile the Vrana decision with the other decisions in Canadian employment law, which clearly state that most employers are not entitled at common law to lay off staff. Nevertheless, it is a new precedent — one that could be relied upon by other courts across Canada.

Protecting your firm

A few small steps can avoid the legal confusion surrounding temporary layoffs.

  • Employers should ensure employment agreements clearly state an employee may be subject to temporary layoff periods. Therefore, if an employee ever tries to claim that he has been constructively dismissed due to a temporary layoff, the employer has objective evidence that the two parties explicitly included a provision for layoffs in the employment contract.
  • To ensure that the layoff is a temporary layoff, the layoff notice must specify the employee’s recall date. The recall date must not exceed the time period that applies under the operative employment standards statute.
  • Where a long-serving employee pursues an employment standards claim following a layoff, a company may consider recalling the employee before the end of the “temporary layoff” period. If the employee does not return to work, then the employer may avoid liability under the statutory scheme.

What the courts are saying…

The Manitoba case of Chartrand v. Pine Creek First Nation, released after the Vrana decision, shows that the common law position towards layoffs is still in effect in many provinces. Chartrand was employed as an education director for the Pine Creek First Nation, and was issued a layoff notice on Jan. 8, 2001. Pine Creek First Nation argued that the layoff was temporary, and that in the alternative, it was a proper notice period due to the emergency circumstances of funding being cut by the federal government.

The judge found for Chartrand, holding that there was a legally binding contract of employment between the two parties, and that there was no evidence a layoff provision was either explicitly or impliedly incorporated into the contract. In addition, there was no evidence that the layoff was intended to be temporary, nor could Pine Creek claim that its financial situation could be classified as an “emergency” for the purposes of the notice provisions in the employment contract.

Since there was no layoff provision in the contract, Chartrand was entitled to treat the layoff notice as a repudiation of the contract. Chartrand received $40,000 in damages for wrongful dismissal and expenses during the notice period. The court in Chartrand did not consider the Vrana decision.

Case citations

  • Chartrand v. Pine Creek First Nation, [2003] M.J. No. 168.
  • Vrana v. Procor, [2003] A.J. No. 131.
  • Collins v. Pattison Industries, (1995) 11 C.C.E.L. (2d) 74.
  • Stolze v. Ontario, (1997) 35 C.C.E.L. (2d) 109.

Peter Israel and Chris Foulon are partners in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. They can be reached at 416-640-1550 or pi@israelfoulon.com. or cf@israelfoulon.com. The authors would like to thank Alex Van Kralingen for his assistance with this article. A version of this article originally appeared in the Carswell publication, Canadian HR Reporter.

LEGAL DISCLAIMER: This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation.
Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.

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