There has been some confusion in regards to temporary layoffs, notice requirements and risks, especially in light of COVID-19 substantial impacts on businesses. If you are considering providing a temporary layoff here is some information to help make an informed decision. This is not meant to overwhelm or overcomplicate the decision, intent is information for informed decisions. What I am seeing and hearing is most employees and employers are being very reasonable with each other as we work through this challenging and unprecedented time. As always any specific questions you have or resources you need (letters, etc.) contact us. As with any type of termination there are two factors when looking at notice - employment standards and common law.
1. Know the Requirements under Alberta Employment Standards:
Must be in writing (specific requirements are on the employment standards site, if you need support drafting contact us)
Notice: Alberta Employment Standards states 1 to 2 weeks notice for temporary layoffs is required depending on years of service. A couple notes on this: For temporary layoffs AB Employment Standards states it is required however it is not enforced through them, it is enforced through common law with risk of constructive dismissal(more on that below). Also it does state that notice is not required for unforeseen circumstances, which AB government added in their site recently, that this includes COVID-19 (see link below).
In Alberta, the maximum duration of a temporary layoff is 60 total days within a 120-day period. On the 61st day of a temporary layoff, the employee’s employment is considered to be ended, and the employer must pay termination pay.
The period of temporary layoff can be extended beyond 60 days if the employer makes regular payment to or on behalf of the employee, such as continuing to pay wages, employee pensions or benefits and the employee agrees to these payments in lieu of a firm limit of the length of the layoff. Termination pay is payable when payments in lieu cease.
2. Know the Risks (Common Law)
The risk of temporary layoff is Constructive Dismissal and if determined it was the damages based on that (potentially wage for the temporary layoff period). What exactly is constructive dismissal? Constructive dismissal is the employer has significantly changed the terms of employment without consent from the employee. It is determined through common law, and here are factors used by the courts in assessing
Constructive Dismissal Two Part Test:
a) First part has two parts:
Was the change (or changes) permitted by the contract or did the employee agree to the change? For written contracts there is sometimes a clause in there referencing temporary layoff, but this is not typical especially with small employers. This may be implied for some industries where these are used often such as construction.
Was there a substantial change to the contract (change in pay, change in benefits, etc.). This could be one major change, or multiple smaller changes. Rule of thumb, which is never perfect, measures at about 10% for compensation changes, anything above typically would be considered substantial.
b) Second part looks at whether or not the change was beyonds the employer's and employee's control (was there a frustration in contract). The most common example I hear explaining this term is a renter going into a lease agreement, before they move into the building, it burns down. This makes the contract void as there is not building to rent anymore and it occurred outside of both of the parties control.
In the case of temporary dismissal for the first part really comes down to the contract or agreement piece as there is a substantial change (typically 100% reduction in pay). Providing notice, benefits, etc. support the reduction of the impact (i.e. substantial change).
The second part is interesting in light of COVID-19 as many businesses are being told by the government they need to close down. Common law is based on the courts using previous cases and is not black and white, and there is lots of debate about this right now in regards to if there is frustration of contract with the impacts of COVID-19. It would be an argument for an employer and would come down to the specific facts of the case.
3. Make an Informed Decision
So with this in mind, how do you make a decision regarding temporary layoff is right for your organization. It really comes down to your risk tolerance and the current situation. What I am seeing is most are proceeding with temporary layoffs, many without notice due to the unforeseen circumstances (if challenged would fall under the frustration of contract argument).
Some are more risk adverse and offering temporary layoffs. So what this means is essentially they are mitigating the risk through part one of the constructive dismissal factor (did the employee agree). How it works is the company offers temporary layoff, if the employee accepts it, it is processes as per the terms offered. If it is declined, the typical response is to process permanent termination (with the notice required by employment standards and in some cases where termination notices is not covered by employment contract to mitigate common-law risk of wrongful dismissal additional severance and release). This strategy works if you are worried about the risk of constructive dismissal and are willing to move towards permanent termination and potentially put in risk management strategies there.
Before implementing layoffs, make sure they are the best solution both short and long term. There are many different supports offered right now, including work sharing and wage subsidies that can support an employer keeping their employees employed. If that is not an option and temporary layoff or terminations are the only approach, then make an informed decision. If you need support working through this decision or that actual documentation you require, contact us.
References:
Constructive Dismissal "Test": https://ravenlaw.com/blog/supreme-court-clarifies-test-for-constructive-dismissal-in-potter/)
Alberta Employment Standards Temporary Layoff https://www.alberta.ca/temporary-layoffs.aspx