Employment & Labour Law

Distinguishing Between a Layoff and Termination

April 26, 2023

Airplane representing the difference between a temporary layoff and termination of a pilot

Although the terms are often used interchangeably, there is a critical distinction in employment law between the termination of employment and a “layoff.” Generally, a layoff is temporary, and the employer intends to hire the worker back when circumstances allow for it. Whereas the termination of employment usually signifies a permanent severance of the employee-employer relationship.

In some situations, the parties to an employment relationship may come to different conclusions about whether a halt to the worker’s continued employment constitutes a layoff or a termination of employment. The differences in interpretation can lead to arguments about the worker’s employment rights — for example, to reasonable notice or their duty to mitigate their damages. The Alberta Court of King’s Bench offered commentary on such a situation in a recent case.

Employee Enters into Employment Agreement With Chartered Airline

In Northern Air Charter (PR) Inc v Dunbar, Mr. Dunbar, a qualified pilot, was hired by Northern Air, a chartered airline, on June 16, 2014.

Initially, Mr. Dunbar received an offer of employment setting out the basic terms of his employment. In June 2015, the parties entered into an employment contract which provided for termination by “either party with written notice that complies with Employment Standards for the Province of Alberta.”

Employer Provides Employee with Employee Handbook

Northern Air also had an employee handbook which described various circumstances that could result in a temporary layoff, with the possibility of recall or permanent termination. The handbook was not referenced in the 2015 contract, and it explicitly stated that its provisions were “not an employment contract and should not be treated as such.” Mr. Dunbar acknowledged receipt of the handbook.

The parties entered into a further employment agreement on October 28, 2015. In addition to granting Mr. Dunbar a promotion, the new employment agreement allowed for his employment to be terminated by either party in compliance with the Employment Standards Code for Alberta and “applicable Federal Regulations.” It did not mention the employee handbook.

Unlike the handbook, the possibility of a layoff during the course of employment was not contemplated in the initial employment offer, the June 2015 employment contract, or the October 2015 employment contract.

Employee Laid Off Due to Organizational Restructuring

On June 30, 2016, Mr. Dunbar was laid off by Northern Air. In a phone call, the company told him:

“We are doing some restructuring and some downsizing here and unfortunately we are calling to let you know that we have to lay you off effective today.”

Northern Air requested that Mr. Dunbar return all access cards and keys that same evening. He stated that he was told all future communication would be completed through email and he was locked out of the company website. Northern Air’s other employees were informed by email that Mr. Dunbar was no longer employed with them.

On July 19, 2016, Northern Air issued Mr. Dunbar a record of employment (“ROE”) stating that his layoff was due to a “shortage of work/end of contract or season.” It stated that the date of recall was unknown and did not indicate that he might return to work. Northern Air issued Mr. Dunbar a second ROE on July 28, 2016, listing pay in lieu of notice of $3,333.33, although both parties agreed that he had never received this money.

Employee Believes His Employment Was Terminated

Through his lawyer, Mr. Dunbar informed Northern Air that he believed his employment had been terminated.

Northern Air, on the other hand, alleged that he had not been terminated, but rather, he had been laid off. In response, Mr. Dunbar stated that, if he had not been terminated, Northern Air had repudiated his contract and Mr. Dunbar had accepted the repudiation.

On September 15, 2016, Northern Air sent Mr. Dunbar a recall letter. Mr. Dunbar responded to the letter saying he intended to proceed with an action for constructive dismissal. Northern Air took the position that the letter was either a recall to employment or a job offer. However, Mr. Dunbar disagreed.

Mr. Dunbar filed his claim on September 23, 2016, and found new employment in May 2017.

Trial Judge Finds Employee’s Employment Was Terminated Without Cause

In Alberta Court of Justice, the trial judge held that the employee handbook had no bearing on Mr. Dunbar’s employment, as his employment agreements did not reference it and the handbook explicitly stated that it did not constitute an employment contract.

Turning to the common law pertaining to layoffs, the trial judge affirmed that, absent contractual language to the contrary, a temporary layoff constitutes an immediate termination of employment. Further, the trial judge found that the contractual relationship between the parties did not entitle Northern Air to lay off its employees. Nor did the handbook, even if it was considered to be part of the employment contract.

The trial judge concluded that Northern Air had terminated Mr. Dunbar’s employment without cause, and the employer had not established that they had the right to terminate Mr. Dunbar’s employment without notice.

Did the Employer Have the Right to Lay Off the Employee?

Appealing to the Court of King’s Bench, Northern Air argued that the trial judge had erred in finding that it did not have a contractual right to lay off Mr. Dunbar.

The Court disagreed and concurred with the trial judge. The wording of the employee handbook did not create an implied term in the employment agreements which would allow Northern Air to lay off its employees temporarily. In fact, the employee handbook outright stated that it was not to be viewed as an employment contract.

Court Confirms That Employee Was Terminated

The Court held that the trial judge was correct in deciding that Northern Air had terminated Mr. Dunbar’s employment. Other than the use of the term “lay off” in the phone call informing him of his dismissal, the employer’s actions indicated that Mr. Dunbar’s employment had come to an end.

Did the Employee Fail to Mitigate His Damages?

Another issue on appeal was whether Mr. Dunbar had failed to mitigate his losses in refusing to accept Northern Air’s recall offer of September 16, 2016.

Citing the Supreme Court’s decision in Evans v Teamsters Local Union No 31, the Court acknowledged that an employee’s failure to accept an offer to return to employment, even in uncomfortable or unhappy circumstances, may constitute a failure to mitigate. However, an employee is not obligated to accept an offer regardless of the circumstances.

In the present case, Northern Air had not provided Mr. Dunbar with notice. The Court noted that by the time the recall offer was made, Mr. Dunbar had been out of work for two and a half months, which was half the notice period to which he was entitled. Had Mr. Dunbar accepted the offer, he would have had to choose between abandoning his legal claim for reasonable notice or being engaged in legal action against his employer. The Court concurred with the trial judge that no reasonable person would accept an offer of employment in those circumstances.

Contact DBB Law in Calgary for Trusted Guidance on Temporary Layoffs and Reasonable Notice

Dunphy Best Blocksom LLP is a leading labour and employment law firm in Calgary. Our experienced team of employment lawyers provide clients with comprehensive advice on all aspects of employee-employer relationships. We frequently assist employers and employees with various issues relating to temporary layoffs and reasonable notice period calculation.

DBB Law also provides top-tier legal services in a range of practice areas, including family law, business and commercial law, civil litigation, construction law, real estate and property, and wills, estates, and trusts. To schedule a confidential consultation with one of our employment lawyers, contact us at 403-265-7777 or reach out to us online.

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