Temporary Layoffs In Canada. The Hidden Constructive Dismissal Risk
Many employers assume they have an automatic right to temporarily lay off employees when business slows down in times such as during a downturn, a seasonal lull, or a loss of work.
In Canada, that assumption is frequently wrong, and acting on it can convert a cost saving measure into an expensive termination.
Unless the right to lay off is written into the employment contract or clearly established by a consistent past practice the employee has accepted, imposing a temporary layoff can be treated as a fundamental change to the employment relationship, which is constructive dismissal, entitling the employee to full notice or pay in lieu.
The Core Problem. Permission Is Not The Same As A Right
This is the distinction that trips up almost every employer.
Provincial and territorial employment standards legislation permits temporary layoffs and sets rules on how long they can last. Many employers read that as confirmation that they are entitled to impose a layoff. It is not.
Employment standards permitting a layoff simply means the layoff, if validly imposed, will not automatically be treated as a termination under the statute up to a certain point. It does not, by itself, give the employer the contractual right to impose the layoff in the first place.
Under the common law, unilaterally laying off an employee – removing their work and their pay, without a contractual right to do so is a fundamental change to the employment relationship. The employee can treat that change as a termination, decline to accept the layoff, and claim reasonable notice.
This is the trap: The employer follows the employment standards rules on duration and still ends up facing a constructive dismissal claim, because the problem was never the duration – it was the absence of a right to impose the layoff at all.
Provincial Time Limits Where A Layoff Is Valid
Where a temporary layoff is validly imposed, each province or territory limits how long it can continue before it is deemed to be a termination, triggering the associated notice and severance obligations. The specific clocks differ from province to province, and several provinces allow a longer layoff period where the employer continues benefits or meets other conditions.
Because the rules and time limits vary by jurisdiction, the applicable province always has to be checked before a layoff is imposed or extended. The one constant is that exceeding the limit converts the layoff into a termination, with full entitlements owing from that point – so the clock has to be tracked carefully.
How To Impose A Temporary Layoff Correctly
- Include a layoff clause in the employment contract. A clear, agreed contractual right to impose a temporary layoff is the strongest protection against a constructive dismissal claim. Without it, you are relying on the employee’s acceptance.
- Obtain agreement where no clause exists. If there is no contractual right, securing the employee’s informed agreement to the layoff removes the constructive dismissal risk.
- Track the provincial clock. Know the applicable time limit and monitor it. Exceeding it converts the layoff into a termination.
- Continue benefits where that preserves layoff status. Some provinces reward benefit continuation to keep a layoff “temporary.”
- Communicate clearly and in writing. Document the layoff, the expected duration, the intention to recall, and the continuation of any benefits.
Common Mistakes Employers Make With Layoffs
- Assuming a right to lay off exists. Without a contract clause or accepted past practice, it usually doesn’t.
- Confusing statutory permission with contractual right. The statute time limits does not grant the right to impose the layoff.
- Letting the clock run out. Exceeding the provincial limit triggers a deemed termination.
- Failing to continue benefits where required. This can cost the layoff its “temporary” status.
- Imposing the layoff verbally or ambiguously. Poor documentation makes the situation worse if it is challenged.
Frequently Asked Questions
Can I temporarily lay off an employee in Canada?
Only if you have a contractual right to do so, or the employee agrees. Employment standards permitting layoffs does not, by itself, give you the right to impose one – doing so without a right can be constructive dismissal.
How long can a temporary layoff last?
Each province and territory sets its own limit, often extendable where benefits continue. Exceeding the limit converts the layoff into a termination. The applicable province must be checked.
What is the risk if I get it wrong?
The employee can treat the layoff as a termination and claim full notice or pay in lieu, the same exposure as a wrongful or constructive dismissal.
How do I lay off safely?
The safest route is a clear layoff clause in the employment contract, or the employee’s agreement, combined with careful tracking of the provincial time limit.
How We Help
We draft employment contracts that include appropriate, clearly worded layoff provisions, advise you on whether a layoff can be imposed and for how long in the relevant province or territory, and manage the process so it does not become a constructive dismissal claim.
For complex situations, we can connect you with our network of Canadian employment lawyers.
Considering A Temporary Layoff?
Book a call first.
We’ll make sure it doesn’t become a costly termination claim.