The “L” Word: Layoffs and Restructuring in Response to New Funding Realities and Pressure for “Efficiencies”

The Broader Public Sector is in a time of transition. From the regionalization of services (see the new Ontario Health Teams) to changes in the way services are funded (see the switch to direct funding in the Ontario Autism Program) government funded agencies have a mandate for change. Whether its restructuring existing programs, amalgamating or sharing services with sister agencies, or moving to fee-for-service based contracting arrangements, staffing levels are frequently affected by these changes. Sometimes this means new opportunities, but frequently these changes result in the dreaded L-word…layoffs. Employers in the broader public sector have difficult decisions to make and it’s important to understand layoff related obligations and implications for your agency.

What is a Layoff?

A layoff is generally understood to mean an unpaid suspension of work or permanent termination of employment of an employee or, more commonly, a group of employees, for business reasons, such as restructuring or downsizing.  A layoff can be for a predetermined period, for an indefinite period or permanent. tje

How do I know what my obligations are as an employer?

An employer’s obligations related to a layoff will depend on a number of factors, including:

    • whether the layoff is permanent or temporary;
    • whether the group of employees subject to layoff is represented by a union and if so, what the collective agreement says about layoffs;
    • for non-union employers, whether there is an agreement, policy or practice of instituting temporary layoffs;
    • whether rights on permanent layoff are prescribed in an agreement with an employee or his/her union representative.

Each of these factors will dictate how an employer must approach layoffs.

Minimum Entitlements on Layoff – the Employment Standards Act (ESA)

Under the ESA, an employer has the right to layoff an employee permanently or temporarily. However, the right to layoff may be restricted and an employer’s obligations on layoff made more onerous by a collective agreement, by an employment contract or by the “common law” depending on the worker(s) affected by the layoff.

The minimum entitlements described by the ESA are just that, minimums.  An employer is not allowed to enter into a contract, have a policy or otherwise provide an employee with entitlements on layoff that are less beneficial than those prescribed by the ESA.

  1. ESA Temporary Layoffs:

The ESA states that an employee may be laid off temporarily (i.e. with no work and no pay) for a period of up to 13 weeks in a 20-week period.  However, that period of temporary layoff may be extended for a period if:

    • the employer continues to pay certain prescribed forms of compensation to the employee for the layoff period (such as benefits payments or supplementary unemployment benefits);
    • the employee’s contract provides for a recall period that is less than 35 weeks in any 52-week period and the employee is recalled during that time; or
    • the employee is subject to a collective agreement establishing a longer layoff period and the employee elects to remain on the recall list (and retain the possibility of continuing employment) rather than receiving ESA termination entitlements (and forfeiting the right to continuing employment).

Temporary layoffs are frequently used by employers in industries where work and related staffing needs are seasonal or cyclical in nature, and where production is dependent on variable demand.  More infrequently, temporary layoffs may be used as a cost saving measure during periods of funding cuts or uncertainty.

It’s important to be aware, however, that just because the ESA allows for temporary layoffs, that doesn’t mean an employer will have a right to conduct temporary layoffs. As discussed further below, whether temporary layoffs are permissible for a specific employer depends on the wording of applicable contracts, practices and/or policies of the employer.

2. ESA Permanent Layoffs

Under the ESA, a permanent layoff is any layoff that exceeds the maximum temporary layoff periods described above. A permanent layoff essentially triggers a termination of employment, with retroactive effective to the first day of the layoff (i.e. the date that the employee ceased work due to the layoff). The minimum rights an employee has on termination of employment under the ESA include the following:

    • Advance Notice of Termination (or Termination Pay in lieu of notice) – This ranges between one week and eight weeks depending on an employee’s length of service. This can be provided as advance working notice (where employees continue to work until a specified layoff/termination date) or payment in lieu of notice (known as Termination Pay) or a combination of the two.
    • Severance Pay – For employers with a total payroll in excess of $2.5 million per year, employees with five or more years’ service at the time of termination will be entitled to one (1) week’s severance pay for each year of service up to a maximum of 26 weeks. Severance pay is calculated by multiplying the employee’s regular weekly wages by the sum of the number of completed years of employment, and the number of months of employment left over divided by 12. For example, if an employee earned $700 per week and had 4 years and 5 months of employment, their severance entitlement would be $700 x (4 + 5/12).
    • Group Notice – Where 50 or more employees are terminated by layoff in the same four-week period, the employer may be required to post certain information and provide a lengthier period of “group notice” (ranging from an additional 4 to 16 weeks) if certain conditions are present.
    • Benefit Continuance – During the ESA notice period (whether individual or group notice) employees are entitled to have their benefits continued. This applies even where termination pay in lieu of notice is provided.  Benefits for the purposes of the ESA include any health and medical plan contribution, insurance contributions, pension plan contributions, group RRSP contributions, etc. that would have been paid had the employee continued to be actively employed during the statutory notice period.

There are other relevant provisions in the ESA that determine how the above rules will be applied, including exemptions.  For example, under the ESA an employee who refuses reasonable alternative employment, alternative employment made available through a seniority system (such as through bumping or recall (discussed further below) may forgo any claim to notice or severance entitlements.   Understanding the intricacies of the ESA and its regulations are important steps in assessing whether, how and when to implement a layoff.

Layoffs for Unionized Workers

Employers in a unionized setting will often have special obligations under their collective agreement in the event of layoffs. While each collective agreement is unique and will require its own analysis, we flag a few of the common topics that arise in the unionized environment.

    1. Are temporary layoffs permissible? A collective agreement may limit the employer’s right to impose a temporary layoff for all employees, or particular classifications of workers.
    2. Is the change in staffing or schedules a “layoff”? Employers need to consider the language of various aspects of each collective agreement prior to implementing a change to ensure they understand the layoff related implications.
    3. Must the employer “meet and discuss”, “notify” or otherwise engage with the union prior to implementing a layoff? Collective agreements frequently include terms requiring an employer to meet with a union to discuss how the parties may “avoid” or “reduce the impact” of a layoff on the bargaining unit or affected employees. Failing to meaningfully “consult” with a union in advance of implementing a layoff when required by a collective agreement can have costly consequences for an employer.
    4. Do bumping rights apply? Many collective agreements give effect to seniority by granting displacement rights in the event of layoffs. This provides more senior employees with increased job security by allowing them to “bump” a more junior employee in their own classification or sometimes in any equal or lower ranked classification in the bargaining unit as a whole. The specific impact of these rights in circumstances where they exist will be heavily dependent on the language of the collective agreement, with the arbitral jurisprudence filling in where the matter is not dealt with clearly.
    5. How many “bumps” will be triggered by a layoff? In some cases, “chain bumping” will be permissible. This allows employees to “bump” themselves down the line of seniority until the most junior employees are laid off.
    6. Do recall right apply? Most collective agreements will provide that an employee who is subject to layoff will have an entitlement to be recalled to employment in the event that any new positions in the employee’s classification or an equivalent or lower rated classification become available within a certain period (known as the recall period) following their layoff.  Recall related obligations for employers and employees alike are usually described in detail in a collective agreement and an employer is well advised to follow the agreed process to avoid the risk of costly grievances.
    7. Are there special payments, notice entitlements, retraining or other collective agreement specific obligations on layoff? In some circumstances, a collective agreement will require an employer to provide enhanced benefits for employees subject to layoff, such as extended notice periods, severance payments, career counselling payments, and opportunities to retrain within the organization. Employers need to factor in these benefit costs when considering layoffs.

It is important to carefully review each section of your collective agreement, including letters of understanding and past practice, so as to reduce the risk of grievances and unexpected financial costs associated with a layoff.

Layoffs of Non-Union Workers

Layoff rights and obligations for non-union employees are typically a function of agreed terms in individual employment contracts and the application of the ESA (see above).  While the ESA generally applies, there are a few nuances to be aware of when considering layoffs for non-union staff:

    1. Temporary Layoff or Constructive Dismissal? Even though the ESA allows for temporary layoffs, the common law has evolved such that temporarily layoff of a non-union worker will typically be considered a “constructive dismissal” unless the potential for temporary layoffs have been agreed to as between the employer and employee.
    2. Common Law Notice. Although the ESA allows an employer to permanently layoff a worker by providing the prescribed minimum notice, absent an agreement (i.e. contract) providing otherwise, a non-union worker will be entitled to significantly greater “notice” entitlements at “common law”. In the case of an older employee with a long service record, the common law could require 24 months of notice or pay in lieu. Even younger employees with shorter service records could be entitled to months’ worth of notice or compensation. As such, employers often want to contract to limit an employee’s entitlements to the ESA statutory minimums. Courts strictly scrutinize such agreements, so employers should always have such agreements reviewed by a lawyer.
    3. Avoiding Discriminatory Layoffs. While non-unionized employers are generally free to choose who will be subject to a layoff, there are risks associated with discriminatory conduct. Employers should be careful to ensure that protected characteristics are not factors in the choice of who will be laid off (such as gender, family status, age, disability etc.).

Layoffs are a distressing reality for many in the Broader Public Sector.  Managing layoffs through thoughtful planning, careful consideration of legal obligations, and clear but compassionate communications with affected employees (and their union representatives where applicable) are critical to charting a path forward in these times of transition.

If you have any questions about your obligations in the case of a layoff, contact Cheryl Wiles Pooran at cwpooran@pooranlaw.ca or any other member of our labour team at PooranLaw.