A recent decision of the Ontario Court of Appeal reminds employers that unless an employment contract has an express term allowing temporary layoffs, there may be no implied right to put an employee on a temporary layoff.

What Happened?

The employer in Pham v. Qualified Metal Fabricators Ltd.,1("Pham") suffered significant financial losses as a result of the Covid-19 pandemic. In March 2020, the employer laid off 31 of its employees.

The plaintiff in Pham (the "employee") was one of the employees who had been laid off. The employer's plant manager met with the employee on March 23, 2020, and provided him with a layoff letter advising that he would be placed on temporary layoff during which time his benefits would continue. It was the first time he had ever been laid off by the employer.

The employer subsequently extended the employee's layoff on June 2, 2020, and again on September 23, 2020, and again on December 9, 2020, until September 4, 2021.

In December 2020, the employee consulted a lawyer and wrote to the employer to advise that he was bringing a claim for wrongful dismissal.

On February 9, 2021, the employer sent the employee a recall letter. The employee did not respond to the recall letter. By that time, the employee's Statement of Claim had already been issued and the employee had recently secured alternate employment.

The Employer's Motion for Summary Judgment

The employer brought a motion for summary judgment to dismiss the claim on the basis that the employee had agreed to or condoned the layoff.2 The employee opposed proceeding by way of summary judgment motion.

The motion judge granted the employer's motion for summary judgment and dismissed the claim for wrongful dismissal, finding that the employee condoned the layoff (and therefore, the employee was not constructively dismissed).

The employee appealed.

The Appeal

The Ontario Court of Appeal allowed the appeal on the basis that the claim should not have been summarily dismissed over the employee's objection to proceeding by way of summary judgment. The motion judge operated on the mistaken understanding that both parties agreed to proceed by way of summary judgment. As a result, the Ontario Court of Appeal remitted the action for wrongful dismissal back to the Superior Court for a trial.

In its decision, the Ontario Court of Appeal also found that the motion judge's decision was based on an incorrect view of the applicable law concerning temporary layoffs and condonation of fundamental changes to terms and conditions of employment.

Implied Terms Permitting Layoffs

Absent an express or implied term in an employment agreement to the contrary, a unilateral layoff by an employer is a substantial change that may constitute constructive dismissal. In Pham, the employee's employment contract did not contain an express term allowing the employer to impose lay offs. The Court of Appeal found that the motion judge erred in failing to consider whether such a term was implied.

The employer argued that it had an implied right to lay off the employee due to its past practice of laying off employees. However, the Ontario Court of Appeal rejected the employer's argument that this created a legal basis for it to place the employee on layoff.

Condonation of Layoffs and other Fundamental Changes

In addition, the Court of Appeal held that the employee's condonation of the layoff was not established on the record before the motion judge. Although the employee signed a layoff notice provided to him by the employer, the Court of Appeal found that there was no evidence that the employee's signature reflected anything more than an acknowledgement of his receipt of the layoff letter.

The Court of Appeal also rejected the employer's argument that the employee's silence in the face of the layoff, which was extended several times, provided sufficient evidence of condonation.

Bottom Line for Employers

Pham reminds employers that the right to impose a layoff will rarely be implied, and shows the difficulty of proving condonation as an after-the-fact defence to constructive dismissal claims, particularly where layoffs are concerned.

Employers contemplating or using layoffs in their workforce should consider the following key points from Pham:

  • an implied contractual term permitting layoffs might only be implied in exceptional circumstances, where the existence of the term is notorious, or even obvious, from the facts of the situation;
  • the fact that a layoff complies with the Employment Standards Act, 2000, may not be sufficient to prevent the layoff from amounting to constructive dismissal;
  • condonation in the face of a layoff is generally expressed by positive action by the employee, such as express consent to the layoff, rather than mere silence; and
  • an employee is permitted reasonable time to assess unilateral contractual changes before claiming constructive dismissal. Thus, an employee's failure to immediately protest a layoff notice or extensions thereof will not necessarily defeat a constructive dismissal claim.

As a result, employers wishing to reserve the right to lay off employees, without incurring severance obligations, are strongly advised to review their employment agreements and ensure that they include an express contractual term permitting layoffs.

Footnotes

1. Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255 (CanLII), https://canlii.ca/t/jwn0b

2. The employer did not rely on Regulation 228/20 under the Employment Standards Act, 2000, to justify the employee's layoff. As such, the effect of Regulation 228/20, which deemed certain layoffs for reasons related to the Covid-19 pandemic to be infectious disease emergency leave, was not considered by the Court in Pham.

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