Importance of a Lay-off Clause in an Employment Contract

A temporary layoff allows employers to reduce or stop their staff’s working hours for a fixed period while keeping them in employment. This arrangement is temporary in nature. The employer must eventually recall employees to work.

Though it should be a last resort, there are certain benefits to a temporary layoff when compared to a termination.

It allows for flexibility in operations. Instead of letting go of experienced staff, employers can maintain the employment relationship even when there’s not enough work. Or when they need to temporarily cut back operations due to financial challenges. Employees, too, would prefer a layoff to a termination.

There is a maximum permissible length allowed for temporary layoffs under the law, which varies from province to province. Temporary layoffs that exceed the maximum permissible duration are considered terminations of employment. The employee is then entitled to severance pay.

However, it is not advised that employers temporarily lay off their staff unless it has been agreed to in the employment contract. Employers may temporarily lay off employees only if the contract allows it. Or if there is an established practice in the employer’s industry, or if the employer has the employee’s consent.
Any major change in terms of employment (salary, working hours or location) without any contractual rights or the worker’s consent, can make the employer liable to a constructive dismissal claim.

That is why it is important to include a lay-off clause in your job contracts.

What is a lay-off clause?

A lay-off clause is a section of the employment contract that allows an employer to temporarily lay off an employee when required.

If you don’t have a lay-off clause in your job contract, you need to add one after getting the consent of your employee.

How do temporary layoffs work?

In Alberta, the maximum duration of a temporary layoff at present is 90 days total in a 120-day period. This applies to all layoffs that started on or after June 18, 2020. On the 91st day, the employment is considered to have ended and you must pay termination pay. But a layoff can be extended if a worker consents to receive wages or benefits in lieu of a fixed duration.

If a layoff is due to the pandemic, employers may lay off employees for 180 consecutive days before it becomes a termination.

In British Columbia, the acceptable length of a temporary layoff is 13 weeks in a 20 consecutive week period. Currently, the procedure to extend temporary layoffs is different. Employers and employees can together apply to the Employment Standards Branch for a variance.

Previously under the ESA in Ontario, the maximum duration permitted for a temporary layoff was 13 weeks in a 20 consecutive week period. It could be less than 35 weeks in a 52 consecutive week period if the employer provided some compensation, such as pay or benefits.

However, through Regulation 492/20, Ontario has eliminated temporary layoffs during the COVID-19 period (ends on January 2, 2021). Currently, all non-unionized workers who have had their work hours or wages reduced due to the pandemic are not temporarily laid off. They are considered to be on an Infectious Disease Emergency Leave.

What are some things to keep in mind when including a lay-off clause in an employment contract?

A standard lay-off clause should state the employer’s right to temporarily lay off the employee as needed.

You may also wish to clarify whether the layoff would be without pay or if the employee would continue to receive wages or certain benefits.

Factors that will determine which employees are laid off and recalled first (seniority, performance, etc.) are other details you may consider including.

Do you need advice on how to manage employees during the COVID-19 pandemic?

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