How to Manage a Temporary Business Closure

Articles

For a variety of reasons ranging from inability to get supplies, reduced demand for services or products, or limited access to their operations, a number of businesses are considering or are planning to shut down during the 2010 Winter Games. For employers, the question then arises: how to manage this temporary business closure without inadvertently triggering a termination and resulting severance liability?

Mandatory Vacation

One strategy for managing a temporary closure of a business is to require all employees to take vacation during the period of time the business is to be closed. Employers have the legal right to determine when an employee will take vacation, provided that the vacation is in periods of one or more weeks at a time1. Employees may request vacation in periods of less than one week but it is the responsibility of the employer to show that the shorter time was taken at the employee’s request. If an employer is considering placing all or some of their employees on vacation, it is best to provide as much advance notice as possible to avoid or minimize the chances employees will have already taken their vacation, or have purchased non-refundable travel and/or accommodation for alternate times.

If employees do not have enough accrued, paid vacation to treat the proposed business closure as paid vacation, employers may ‘advance’ their employees paid vacation that they have not yet accrued provided that they comply with Section 59 of the BC Employment Standards Act (the “Act“). That section prohibits an employer from later reducing an employee’s annual paid vacation or vacation pay because paid vacation was advanced, unless the employee requested that he or she be allowed to take vacation in advance. Such requests also have to be in writing. Thus, without written requests by employees, if an employer does provide more paid vacation to cover the business closure than the employee has yet accrued, an employer will not be able to take such extra vacation into account to reduce future vacation obligations to that employee.

Employers should also consider the possibility those employees who requested their employer advance them paid vacation, may resign or be terminated before they work long enough to have earned the paid vacation that the employer advanced. Section 21 (1) of the Act prohibits employers from making deductions from wages, other than statutory deductions, without the employee’s permission. Thus, at the time employers obtain the written requests from employees to advance them paid vacation, the request should also include a written agreement that in the event their employment is terminated before the advanced vacation is earned or accrued, that the employer is entitled to deduct the advanced vacation from final payments of wages.

Temporary Layoffs

Employers may not require their employees to take unpaid time off, or temporarily lay off their employees without the employees’ consent, or unless the employer has an employment agreement or collective agreement that allows them to temporarily lay off employees. Thus any unilateral decisions by an employer to schedule unpaid time off during the Winter Olympics will be considered a constructive dismissal.

Some employers mistakenly believe that the Act authorizes employers to temporarily lay off their employees, because “temporary layoff” is one of the exceptions to Section 63 requirements for notice or pay in lieu of notice of termination. “Temporary layoff” is defined as up to 13 weeks in any period of 20 consecutive weeks. This error was recently the subject of a BC Supreme Court decision, Besse v. Dr. A. S. Matchner Inc. [2009] BCSC 131. In the Besse case the employer erroneously assumed it could temporarily layoff some of its employees and the layoff would not be considered a termination requiring it to give notice or pay in lieu of notice to the employee. When one of the employees laid off sued the employer for wrongful dismissal, the court held that in the absence of a contractual provision permitting temporary layoff, the imposition of a temporary layoff constituted a fundamental breach of the employment contract, which the employee was entitled to treat as a constructive dismissal, making the employer liable for damages for wrongful dismissal.

Thus any decision to place employees on unpaid time off for all or part of any planned business closures must be agreed to by the employee. Because the employer has onus for proving the employee consented to a temporary layoff, employers are advised to get such agreements confirmed in writing.

This article is intended to inform businesses on employer’s rights and legal obligations related to planning a temporary closure of business operations for the Winter Olympics in Vancouver in February 2010. With this information, employers can consider what approach might work for the business and their employees.

  1. Section 57 (3) of the BC Employment Standards Act has been interpreted to prohibit an employer from requiring an employee to take vacation in periods of less than one week.