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Sham Layoffs | Co-Authors:  Bram Lecker & Kimberley Sebag


Sham Layoffs

Job stability is a concern for all employees. In recent months, we have observed shifting political leadership in Ontario as well as dramatic changes in the relationship with our biggest trading partner, the United States. Can your employer weather the fallout that might ensue in this economic climate? If the business suffers supply chain interruptions or loses a major contract with a client, they will have to take measures to remain profitable. This could mean payroll reduction. Temporary job layoffs, permitted by law, offer employers maneuvering flexibility to take reasonable steps to manage the financial health of their business. In fact, seasonal businesses operate with layoffs on a regular basis.

But how can you tell between legitimate and sham layoffs?  It is very important for all employees to recognize the “red flags” associated with unlawful layoffs to ensure you do not leave money on the table.

Lawful Layoffs

The Employment Standards Act 2000 (ESA) legally governs employment relationships for most Ontario workers. Since 1987, the law gives your employer freedom over the employees they let go or retain during layoffs. They do not have to follow rules of seniority and can manage their human resources as they see fit, provided they apply the criteria in good faith, and the lay off is temporary. 

Your employer can opt for short-term or extended layoffs. Short-term layoffs cannot exceed 13 weeks out of a period of 20 consecutive weeks. Extended layoffs must remain 35 weeks or under within 52 consecutive weeks. For the latter, you remain an employee of the business and your employer must continue your employment benefits, such as medical, dental and life insurance. In addition, they must compensate you substantially for the extended layoff. All other layoffs, no matter how they are labelled, are actually terminations, entitling you to termination pay.

Seasonal Layoffs

Regular layoffs are common in seasonal business, like farming, landscaping or construction. They operate during set months of the year and employees are usually aware when their working season will end. If you do not work in such an industry and find yourself subjected to continuous “layoffs” for no apparent good reason, you may be a victim of sham layoffs. It is a good idea to seek legal advice in these circumstances. You may be entitled to notice and severance pay with valid claims for a wrongful dismissal or constructive dismissal. 

Sometimes, employment agreements may contain provisions for temporary layoffs. If you consented to this, your employer does not need to offer you pay in lieu of notice.

In the most egregious circumstances, some employers break rules, counting on employee ignorance. This is a common cost saving tactic during economic downturns. Such employers declare layoffs that do not meet the conditions outlined above. The worst offenders cycle their employees through random sham layoffs. They make work schedules and income so unpredictable that employees end up quitting in frustration, thereby conveniently relieving the employer of their termination obligations. This is completely against the law.

Sham Layoffs and Common Law

Employers generally assume that it is sufficient to follow the temporary layoff provisions set out in the ESA. Unfortunately, the law expects more from them. Many fail to account for common laws, a standard of judge made laws, designed to clarify and enhance existing statutes.

In 1997, we represented Gladys Martallecci in a lawsuit against her employer, CFC/INX Ltd. She had worked for them as a purchasing agent for 16 years, without incident. In April 1996, CFC gave Ms. Martallecci a notice of temporary layoff for 12 weeks, stating financial hardship and the need to reduce staff.

In June 1996, she discovered that a former assistant was performing her job and initiated a consultation with us. We found tell-tale signs of a sham layoff in her Record Of Employment, which did not indicate a recall date. The layoff had left her completely unprepared financially. She had never signed any agreement that stipulated layoffs as a remote possibility and the company did not have a history of layoffs. They imposed it on her unilaterally and without notice. They did not pay her during the layoff and she received reduced benefits.

Shortly after, her employer extended the layoff by three more months. Aware of our involvement in her case, they reinstated her full benefits to comply with their legislative obligations. When they finally recalled her back to work, it was to a much junior clerical position. We filed a wrongful dismissal lawsuit because we believed they had acted in bad faith, completely contravening common law provisions.

Sham Layoffs and Bad Faith Damages

By all standards, this was a text book example of what sham layoffs look like. While this employer had followed the ESA rules for layoffs, their actions were manipulative and less than forthright. They had not declared a recall date for several months, leaving our client in an untenable situation. And upon her return, they literally demoted her. The judge agreed. He claimed that sticking to ESA standards was not in, and of itself, sufficient or a defence. Consequently, he awarded Ms. Martalecci notice and severance benefits commensurate with her circumstances, along with an extra amount for “bad faith” damages.

Proving Sham Layoffs

As noted above, when faced with financial hardship, employers are generally free to enact layoffs as long as they execute them fairly. When employees feel unfairly treated, they may need to demonstrate how. This is what occurred in the case, Clements v. Bearskin Lake Air Service Ltd. 

Mr. Clements was a pilot for Bearskin, a Canadian airline company. They lost a major contract to provide air services in Northern Ontario and consequently had to cut costs. They decided to reorganize crew assignments and, in the process, laid Mr. Clements off.  After a three-month evaluation of their business, they concluded they were adequately staffed and would not require additional manpower in the foreseeable future. They terminated Mr. Clements and offered notice and severance pay in accordance with his statutory entitlements.

Mr. Clements sued for wrongful dismissal. He presented evidence of three pilot colleagues, junior than he was, who had not been laid off. However, Bearskin refuted this fact by proving that unlike his colleagues, Mr. Clements was only trained to fly one type of aircraft. They did not see value of investing in training for him to fly the other aircrafts in their fleet. The pilots they retained sufficed their purposes and in fact, they had not hired extra pilots with Mr. Clements’ experience during his 3-month layoff. The adjudicator found the employer acted reasonably.

Accordingly, the burden of proof shifted to Mr. Clements to furnish additional evidence of a sham layoff or malicious and covert actions. He could not and subsequently, the case was dismissed.

Getting Legal Advice

Lecker & Associates have practiced employment law for over 35 years.  We exclusively represent employees of Ontario. Sham layoffs can be complicated to decipher. The process requires interpretation of subtle facts against the ESA and Common Law provisions. Employees are generally ill equipped to navigate the situation on their own without experienced legal help.

Contact us if you are unsure whether your layoff is lawful, or a termination dressed up as a sham layoff. Our experienced lawyers are well equipped to advise and guide you to ensure you are not being swindled out of your termination benefits.  We have represented numerous clients in these circumstances and can assist you better than most.


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