employment law, severance pay, layoffs

Layoffs and Severance Pay

Written by: Employment & Labour Group

On June 25, 2020, the BC government decided to further extend the temporary layoffs provision in the Employment Standards Act to a maximum of 24 weeks, expiring on August 30, 2020https://news.gov.bc.ca/releases/2020LBR0018-001174. Extending the temporary layoff provision saved countless businesses from having to pay out severence to their employees who have been temporarily laid off due to COVID-19, and provide them with more time to recall their employees as business is restarting.

However, once the maximum period is reached, many temporary layoffs will become automatic terminations under the Employment Standards Act, triggering the obligation to pay statutory termination pay. In addition, recent case law in 2021 confirmed emlpoyees who were laid off can still start a wrongful dismissal lawsuit at common law against employers claiming constructive dismissal.

If you have employees who have been laid off for 13 weeks or longer, or are considering a layoff, and the layoff is related to COVID-19, this may apply to you. There are many different considerations including: is there a written employment contract, what is the nature of employment, was the contract impossible to perform due to COVID-19, has your business started back up, can you reach an agreement to recall or furlough the employee at reduced hours or pay, do you qualify for CEWS or other government benefits including the recently modified CEBA, can you apply to the Director of Employment Standards for a variance authorizing a longer period under existing provisions of the ESA? These are the questions we cover in this article.

When is a laid-off employee entitled to severance pay? 

This has been one of the top questions both employers and employees are asking. Generally, if an employer lays off non-union employees due to lack of work with a right to do so in the employment contract, then termination pay under the Employments Standards Act (“ESA”) or damages for wrongful dismissal at common law may be owing. However the world has changed in such a fundamental way that we need to talk about pre COVID-19 and post COVID-19. This article will cover common severance pay questions for employers and employees.


Pre COVID-19

Absent seasonal work and the right to lay-off in a written contract, any temporary layoff is generally treated as a constructive dismissal under the common law, triggering the employer’s severance pay obligations either under the employment contract or the common law.

The ESA provided that after 13 weeks in any 20 week period, any temporary layoff would automatically become a termination. However, the Courts have held that this does NOT prevent employees from exercising their common law rights to claim a constructive dismissal if the layoff is less than 13 weeks.

Post COVID-19

After COVID-19 started, there were mass layoffs and many workers were prepared to waive their rights and accept temporary layoffs and rely on government benefits such as the Canada Emergency Response Benefit in order to keep their jobs. Many of these workers are now being recalled back to work but some are not. The ESA was also amended to extend the temporary layoff from 13 weeks to 16 weeks for a limited period of time.

If the temporary layoff was caused by COVID-19, then determining whether an employee is owed termination pay under the ESA or has a claim for severance pay and wrongful dismissal is more complicated. Here are some things to consider:

Was the employment contract impossible to perform?

The important question is whether at the time of the lay-off, the employment contract was impossible to perform due to an unforeseeable event or circumstance outside of the control of the employer and the employee (such as COVID-19)? If the answer is “yes”, then the exception under section 65(1)(d) of the ESA may apply so that no termination pay is owing in this circumstance. A good example of this is if the employer had to completely shut down or significantly reduce its operations such that it simply could not continue to provide work for its employees.

If an employer simply loses business (e.g. loses a big contract) such an exempting principle would not normally apply to relieve an employer of its fundamental obligations to provide working notice of termination or pay in lieu.

The Director of Employment Standards has issued a revised Interpretation Bulletin outlining the circumstances when the exclusion would apply when the layoffs were related to COVID-19.

Has your business started back up since the layoff?

Different considerations might apply depending what point of the layoff you are. So for example if an employer’s business starts up but some employees are not recalled then the layoffs might constitute a wrongful dismissal or otherwise attract severance pay under the ESA after 13 – 16 weeks of lay off.

Have the employees been recalled or an agreement reached?

If an employer can recall or arrive at an agreement with all employees before the 13 week period arrives then it is highly unlikely that any claims by employees will be made.

Can we continue to keep employees on a temporary layoff past 13 weeks if they agree?

At this time, the maximum period for allowed temporary lay-offs due to COVID-19 under the ESA is 13 weeks, if the employee agrees. Since an employer cannot contract out of the ESA if it violates its minimum prosvisions, an employer cannot enforce any agreement that involves a layoff longer than 13 weeks in a 20 week period, even with an employee’s consent. 

As confirmed by the BC Labour Minister in his letter dated June 18, 2020 addressed to the Business Council of British Columbia, “in a specific situation where employers and employees require longer than 16 weeks (at that time, now back to 13) for a temporary layoff caused by COVID-19, an option that would be available to the parties if they agree would be to jointly apply to the Director of Employment Standards for a variance authorizing a longer period under existing provisions of the ESA. The Director may grant the requested variance if a majority of affected employees approve.”

For more information, contact our Employment & Labour Group or visit the Employment Standards Branch website for detailed guidelines on the application of the ESA including recent updates in response to the COVID-19 pandemic.

Is there a written employment contract with a termination clause?

If an employee has to be terminated and paid severance pay, the amount will be limited by the employment contract termination provision (if there is one and it is enforceable).

Do I need to issue an ROE for employees who have been laid off for longer than 13 weeks?

As previously mentioned, under the ESA, a temporary layoff longer than 13 weeks in any 20-week period (or about three months in a five-month period) was considered a permanent layoff or a termination. With a permanent layoff, employers are required to provide employees with written working notice of termination and/or pay severance to qualifying employees, based on their length of service (and issue a Record of Employment at the end of the employment relationship). Now, temporary layoffs relating to the COVID-19 pandemic can be extended through the application for variance process, if the employee agrees.

Although a longer layoff might be considered a termination for the purposes of the ESA, we strongly recommend communicating with your employees and trying to reach an agreement if further time is required due to COVID circumstances. A lot of employees are willing to work together to support their employer and keep their jobs and with the added support of the numerous financial aids from the Federal and Provincial governments (previously including CERB, CEWS, CEBA, Rent Assistance, Work Share, Sub Plan), this could be possible. We recommend reaching agreements where possible before terminating valued employees, and we can help you ensure the agreements are documented accordingly

How much “common law” notice or pay in lieu (severance pay) do people need to get because of the current workforce market?

Since the decision in Bardal v Globe & Mail in 1960, courts have relied on the set of factors laid out when calculating the length of the reasonable notice period to be awarded to a terminated employee that does not have a written or implied term limiting severance pay. These “Bardal factors” include the length of the employee’s service, age, character of the job they have lost, and availability of similar alternative employment. The economic downturn caused by COVID-19 will likely impact how courts calculate reasonable notice. In previous economic downturns, the courts have provided for increased notice periods, however they have explicitly stated that this factor cannot be given undue weight. At present, we do not have any legal precedent for how our courts in BC will treat the pandemic when assessing the notice period.

If you are interested in an opinion regarding the amount of severance pay owing, please contact one of our team members and we would be pleased to assist you.

Note to our Readers: Information regarding COVID-19 is rapidly evolving. We are working to bring you up-to-date articles as the legal issues unfold. This is not legal advice. If you are looking for legal advice or are dealing with an issue in relation to COVID-19, please contact Chris Drinovz (cdd@old.kswlawyers.ca) of our Employment & Labour Group.

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