Lawyers Warn Companies About Layoff Legal Risks Amid COVID-19

As the COVID-19 pandemic continues to cause businesses in Canada to close their doors and adjust to new business practices, some employers have issued temporary layoff notices to their employees.

However, employment lawyers say that these temporary layoffs may be illegal and it’s putting employers at risk of litigation from workers seeking severance payments.

According to The Globe and Mail, employers cannot issue temporary layoffs without a contractual right or implied right to do so, such as for cyclical or seasonal industries. Contractual rights may be granted through employment contracts or collective agreements, depending on whether the place of work is unionized.

Companies are typically required by law to pay a severance to laid off workers. There is reportedly no justification in the law to lay off workers with no pay on a temporary basis.

COVID-19 and its unprecedented disruption may be considered justification for employers to temporarily lay off their workers even if there is no contractual right to do so, some legal experts say.

Many companies are finding their income suddenly halted as consumers are staying home instead of shopping at retail stores, dining out, visiting movie theaters, or other activities. The lack of income has made it difficult for many employers to continue staffing their companies at the same level. In response, some are deciding that the risk of lawsuits from workers is worth it because most workers just want to return to their jobs.

Reitmans (Canada) Ltd. recently announced it would be laying off 90 percent of its Canadian retail store workers and 30 percent of its Montreal head office employees. The company closed its 587 stores on March 17. Reitmans CEO Stephen Reitman says that, in the company’s more than 90 year history, it has “never had to turn to such drastic measures.”

Reitmans, which also operates Penningtons, Addition Elle, RW&CO. and Thyme Maternity, employs about 7,000 people. Nearly all of its retail store workers are out of work as of Sunday, according to GlobalNews.ca. The company’s e-commerce business and Montreal distribution centre remain in operation.

“I believe it would be a mistake for people to look at this issue through the pre-COVID lens,” Kathleen Chevalier, a partner at Stikeman Elliott LLP, told The Globe and Mail. She says workers who have been laid off can make a claim for constructive dismissal, which may apply when an employment relationship changes to the point that an employee has effectively been fired from the job.

“But the outcome of that claim could look very different than what people are used to seeing pre-pandemic,” Chevalier said. “Employers are making calculated risk assessments constantly.”

However, businesses that have been forced to close due to government orders, may argue that the employment contract has been “frustrated” and is impossible to perform because there is no work to do. In this situation, the employer would reportedly be under no obligation to pay severance.

In this time where our sense of “normal” is rapidly changing, it is important for both employers and workers to understand their rights and obligations.

In some cases, companies that temporarily lay off their workforce may not understand that they are taking a legal risk. Other companies may be making a calculated risk to impose the temporary layoff.

For now, there is little clear guidance about how courts will rule on employment cases related to COVID-19 layoffs.

“If you asked me two weeks ago what the risk would be for a constructive dismissal claim associated with a temporary layoff, I would say high,” Hena Singh, a partner at Singh Lamarche LLP, said. “If someone calls me now and says ‘I want to retain my work force but I can’t pay them right now,’ I would say the risk is low for a constructive dismissal case.”

In a normal job market, Singh says a laid off employee should claim constructive dismissal quickly so that they can attempt to negotiate a severance package. However, given the current level of uncertainty, a worker may find the prospect of having a job in the future more valuable than taking legal action to seek severance payments.

Were you temporarily laid off because your place of work was forced to close during the COVID-19 pandemic? Tell us your story in the comment section below!

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