Unfortunately, we are often consulted by employers that entirely misunderstand the nature of the employment relationship and assume that they have the right to do almost anything they want without repercussion. In many cases, they act accordingly, and expose themselves to substantial liability.

While every employer is entitled to run their business, and to make appropriate managerial decisions, myrecent Canadian HR Law blog post warns that it is critical that they remember that the employment relationship is a legal contract, and they cannot always simply do as they want.

In the recession, many companies attempted to reduce labour costs while saving jobs by imposing wage cuts, or reductions in working hours, across entire departments or workforces. While the company may have felt that they were being fair while also trying to stay afloat, many ended up being sued for constructive dismissal by employees who saw their incomes unilaterally and significantly reduced.

In other instances, organizations have imposed “temporary layoffs” upon individuals when business slowed down. While this is common in some industries, such as construction, employers do not automatically have the right to do so. In the absence of such a right, a temporary layoff is, legally, a termination and triggers all of the rights and obligations as if the individual had simply been dismissed.

Sometimes, I have had employers respond to advice along these lines by exclaiming “It’s my business. How can anyone tell me what I can and cannot do?” As above, it may be their business, but they have entered into a legal contract. They would never go to a supplier and explain that while they have been paying two dollars for every widget in the past, they were now only going to pay one dollar.

However, they don’t seem to understand that telling employees that they will only be paid 60 per cent of their salary, or that they will only be provided with 60 per cent of the working hours, is effectively the same thing.

With respect to temporary layoffs, the situation is further confused by the fact that in Ontario, theEmployment Standards Act, 2000, explicitly references temporary layoffs and sets out parameters for when such a layoff will become a permanent dismissal. However, what the act, and the ministry, fail to advise employers is that while this may set out parameters for lawful temporary layoffs, it does not give the employer the right to impose such a layoff. That right must either be explicitly set out in a contract, or implied and well known.

Again, the right to temporarily lay workers off will be recognized and not questioned in industries such as construction. Some companies may have a history of doing so, and it will be hard for an employee to argue that they were not aware of this.

However, a good example of a situation where the right did not exist is the recent Ontario Superior Court of Justice’s decision in Chea v. CIMA Canada Inc. and its companion decision, Michalski v. CIMA Canada Inc. In those cases, the two plaintiffs were employed as draftsmen pursuant to letters of employment. No mention of temporary layoffs was made in that document, and the possibility had never been discussed before January 2013, when both plaintiffs were temporarily laid off. CIMA clearly attempted to comply with the parameters set out in the Employment Standards Act, 2000, and they recalled both individuals to work on June 24, 2013, five months later.

While neither employee objected to the temporary layoff when it was imposed, they both found new employment shortly after the temporary layoff commenced and declined to return to work when recalled. Instead, they filed legal claims alleging constructive dismissal.

The court confirmed that there is no automatic right to temporarily lay off employees or impose temporary suspensions. That would be unfair to employees, who are presumably dependent upon the income that they agreed upon when they accepted employment. That said, where the employer can show either an explicit or implied right, or reasonable expectation that layoffs may occur, the situation will be different.

As a result, both Chea and Michalski were entitled to damages for the termination of their employment.

Similarly, employers do not automatically have the right to suspend employees, either with or without pay. That right often exists in the unionized context, where the collective agreement will provide for suspensions as part of the disciplinary process. However, in the absence of such a collective agreement, or an explicit right provided via contract, suspensions will typically constitute a constructive dismissal. That said, when an incident occurs, or an investigation of allegations of misconduct must take place, it is usually an acceptable practice to impose suspensions with pay where appropriate.

The bottom line is that the employment relationship is governed by a legal contract, whether that contract is written or verbal. Just as employers would not unilaterally change the terms of a contract with their landlord or supplier, they cannot do so with an employee. While it may be legally appropriate to cut wages or impose temporary layoffs, that can expose employers to significant liability.

Article by Stuart Rudner of Rudner MacDonald LLP