COVID-19 and Temporary Lay-off

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  • April 24, 2020

COVID-19 and Temporary Lay-off

Updated April 24, 2020

 Many businesses in British Columbia have seen slowdowns in business that have impacted their staffing needs. In some cases, the impact has put the viability of their business at risk. Many employers have, or are considering temporarily laying-off employees as a response to the slowdown in business. It is important that prior to considering whether to lay-off employees, employers are aware of the potential risks in doing so.

The Employment Standards Act

The Employment Standards Act (the “ESA”) requires employers to provide employees whose employment is terminated with a minimum amount of “notice” of termination or be provided with “termination pay” in lieu of notice. The amount of notice or termination pay that the employer must provide increases significantly if 50 or more employees are dismissed within a two month period from the same location.  If fewer than 50 employees are dismissed, each employee would be owed individual notice or pay equal to one week (if employed for more than three months), two weeks (if employed for a year), and three weeks to a maximum of eight weeks (if employed for three years or more).

Unless employers have included an express provision in an employee’s employment contract contemplating temporary lay-offs or an employee agrees to a lay-off, even a temporary lay-off is deemed by the Employment Standards Branch to be a termination triggering the employer’s obligation to provide notice or severance. However, the ESA also contains a provision relieving employers of their statutory notice or pay in lieu of notice obligations if an employee is employed under an employment contract that is impossible to perform due to an unforeseeable event or circumstance.

The Employment Standards Branch has recently stated in its published interpretation guidelines with respect to the “unforeseen circumstances” exception that it may apply if a business closure or staffing reduction is directly related to COVID-19 and there is no way for employees to perform work in a different manner (for example, working from home).  However, the Employment Standards Branch also cautioned that this exception is not automatic in all situations during the pandemic, and decisions on whether the exception applies will be made on a case-by-case basis.[1]

If the exemption from notice due to unforeseen circumstances applies to employers, it effectively relieves employers from having to provide statutory notice or pay in lieu of notice to employees dismissed as a result of a closure or significant downturn in business related to COVID.

Constructive Dismissal

In addition to the requirements under the ESA, employers who temporarily lay-off employees may be at risk of a claim of constructive dismissal under the common law.  A court may conclude that a constructive dismissal has occurred when an employer unilaterally changes a fundamental term of an employment contract. A fundamental term of most employment contracts is that an employee is employed on a continuous basis. A lay-off, even if temporary in nature, may breach this fundamental term and constitute a constructive dismissal.

Given the unprecedented economic situation caused by COVID-19, courts may determine that a temporary layoff does not constitute a constructive dismissal and/or that the contract of employment has been frustrated.  For example, if the lay-off is short or a company takes advantage of government programs to maximize its’ employees’ hours of work or to top-up employees’ income from Employment Insurance, these could be factors that would mitigate against a finding of a constructive dismissal. Alternatively, the failure of employers to take advantage of such government subsidies or other programs may be a factor that supports finding of constructive dismissal if an employer proceeds with a temporary lay-off.

Even where a claim in constructive dismissal is asserted by employees, the employees are required to mitigate their losses by making their best effort to find alternate comparable work. If employees are recalled to work after a short time, they will only be able to assert a potential claim for the wages that they would have earned during the period of lay-off. Employees who elect not to return to work after being recalled would likely be found not to have mitigated their losses.

Conclusion

Employers face significant potential liabilities from laying-off employees, even on a temporary basis. The economic impact of COVID-19 may influence the interpretation of both the ESA and the common law obligations by the courts and the Employment Standards Branch and may relieve employers of the usual financial risks of temporary lay-offs.  However, legal advice should be sought about the particular circumstances arising in each workplace.

[1] https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standards/forms-resources/igm/esa-part-8-section-65