When Layoff Is A Termination Of Employment

March 9, 2012

By Brad Smith

A December 9, 2011 court decision confirmed and applied two legal principles in employment: continued employment is not sufficient consideration for changes to employment and there is no right of lay off at common law (the right of lay off must be included in the contract of employment). As a result the employer had terminated an employee when the employee was placed on layoff.

When the employee Ms. McLean was hired, the employer The Raywal Limited Partnership had an employee handbook that included provisions for layoff. At the time, Ms. McLean was not advised of this in her written offer of employment nor provided with a copy of the handbook. Nor was Ms. McLean required to confirm in writing that she acknowledged the existence of the handbook or that it was part of her contract of employment. About 10 years later, when Ms. McLean accepted a new position, she was advised that her employment was subject to an employee handbook. The handbook included a right of lay off.

Approximately 2 years later, Ms. McLean was laid off. Ms. McLean eventually sued for wrongful dismissal.

The Ontario Superior Court of Justice in McLean v. The Raywal Limited Partnership allowed the court action and awarded damages for wrongful dismissal.

The Court stated that a right of lay off must be included in the contract of employment. There was no contractual right of lay off when she was hired because the contract did not refer to lay off and there was no evidence the layoff provisions in the employee handbook applied to Ms. McLean. In deciding whether the layoff provisions in the employee handbook when she accepted a new position were enforceable, the Court stated that “continuing employment cannot amount to consideration in exchange for a change in the terms of employment”. That is, continuing employment does not entitle an employer to make a change to employment such as creating a right of lay-off.

Thus, if you are an employer, you should review your contracts of employment and policies and ensure you have contracted for a right to layoff.