Under the Ontario Employment Standards Act (ESA), a temporary layoff can legally last up to 13 weeks in a 20-week period. However, unless your employment contract explicitly grants the right to lay off workers temporarily, doing so usually constitutes constructive dismissal.
Economic downturns, supply chain disruptions, or seasonal lulls can force Ontario businesses to make difficult payroll decisions. Implementing a temporary layoff might seem like a straightforward solution to save costs while keeping your workforce officially attached to the company. Whether you manage a logistics hub in Mississauga, a retail chain in Toronto, or a manufacturing facility in Windsor, understanding the strict rules surrounding layoffs is critical to avoiding massive legal liabilities.
Many employers mistakenly believe they have an automatic right to temporarily lay off their staff whenever business is slow. In reality, Ontario employment law draws a sharp line between statutory compliance and common law rights. If you send an employee home without pay, and your employment contract does not specifically allow for it, the employee can treat the layoff as a termination. This scenario, known as constructive dismissal, allows the worker to sue your business in the Superior Court of Justice for full wrongful dismissal damages.
Step-by-Step Process for Implementing a Temporary Layoff in Ontario
To safely navigate a temporary layoff across the province, employers must adhere to a strict procedural timeline. Generally, the process involves the following vital steps.
Step 1: Review the Employment Contract
Before taking any action, review the employee’s written contract. You must check if there is an explicit clause permitting temporary layoffs. In industries like construction or seasonal landscaping, such clauses are standard. If there is no contractual right to lay off the employee, you must seek their written consent to the temporary layoff. If they refuse and you proceed anyway, you risk an immediate constructive dismissal lawsuit. Consulting an Ontario employment lawyer at this stage is highly recommended.
Step 2: Determine the Layoff Timeline
The Employment Standards Act (ESA) imposes strict time limits on what qualifies as “temporary.” First, a standard temporary layoff cannot exceed 13 weeks within any 20-consecutive-week period. Second, the layoff can be extended to less than 35 weeks within a 52-week period if you meet specific conditions, such as continuing to pay the employee’s health and dental benefits. Third, under amendments introduced by Bill 30 (the Working for Workers Seven Act, 2025), non-unionized employers can extend a temporary layoff to less than 52 weeks in a 78-week period. This maximum extension requires the employee’s mutual written consent containing a firm recall date and an acknowledgement that the agreement cannot be withdrawn, formal approval from the Director of Employment Standards, and retention of all records for three years.
Step 3: Issue Written Notice of Layoff
While the ESA does not strictly mandate advance notice for a temporary layoff, providing clear, written communication is essential. The layoff notice should specify the effective date, the anticipated duration, and the terms of any ongoing benefits. Clear communication helps maintain a positive relationship with the employee and clarifies that the cessation of work is strictly temporary, not a permanent termination.
Step 4: Issue the Record of Employment (ROE)
Whenever there is an interruption of earnings lasting seven consecutive days, Service Canada requires you to issue a Record of Employment (ROE). If submitting a rare paper ROE, you must issue it within five calendar days of the interruption. However, for the standard and widely used electronic filing through ROE Web, the deadline is within five calendar days after the end of the pay period in which the interruption occurred. On the ROE, you will typically use Code A for “Shortage of Work.” This document is essential for the laid-off employee to apply for Employment Insurance (EI) benefits while they await recall.
Step 5: Recall the Employee Before the Deadline
You must recall the employee to work before the statutory clock expires (either the 13-week, 35-week, or 52-week mark depending on the type of layoff). The recall notice should be in writing, specifying the exact date they are expected to return to their regular duties and compensation. If you fail to recall them before the ESA limit expires, the layoff is legally deemed a termination retroactive to the very first day of the layoff, triggering mandatory severance pay obligations.
How Much Does a Temporary Layoff Cost?
While the goal of a layoff is to save on payroll, there are still financial considerations and severe risks if the process is mishandled.
- Continued Benefits: If you utilize the 35-week extended layoff period, you must continue paying the employer portion of the employee’s health, dental, and pension benefits.
- Legal Consultation: Retaining a local law firm to draft layoff agreements or review contracts generally costs between $350 and $750 CAD.
- Constructive Dismissal Liability: If the layoff is deemed a termination at common law, you could owe the employee up to 24 months of pay in lieu of notice, depending on their age, tenure, and position.
How Long Can the Layoff Last?
| Layoff Type | Maximum Duration | Key Requirement |
|---|---|---|
| Standard Layoff | Up to 13 weeks in a 20-week period | No special requirements, employee simply stops working. |
| Extended Layoff | Up to 35 weeks in a 52-week period | Must continue group benefits or pension contributions. |
| Extended Layoff (Bill 30) | Less than 52 weeks in a 78-week period | Non-union only; written employee consent, Director of Employment Standards approval, and 3-year record retention. |
| Deemed Termination | Exceeding ESA limits | Triggers immediate termination and severance pay. |
Frequently Asked Questions (FAQ)
What happens if the 13-week limit expires and I don’t recall them?
Under the ESA, if the temporary layoff exceeds the permitted timeline, it automatically becomes a “deemed termination.” The termination date is considered the very first day the layoff began, and you are immediately liable for statutory termination pay and potentially common law severance.
Can an employee claim constructive dismissal immediately?
Yes. If your employment contract does not expressly allow for temporary layoffs, an employee can refuse the layoff, resign, and claim constructive dismissal on day one, suing your business for full wrongful dismissal damages.
Do I have to pay out vacation pay during a temporary layoff?
Generally, no. Since the employment relationship has not been severed, accrued vacation pay remains in their account. However, if the layoff turns into a termination, all accrued vacation pay must be paid out.
Can the employee work somewhere else during the layoff?
Yes. Employees are free to seek alternative income while laid off. In fact, if they later sue for constructive dismissal, they have a legal duty to mitigate their damages by searching for new employment.
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