The recent decision of Pham v Qualified Metal Fabricators Ltd. [Pham] by the Ontario Court of Appeal (“ONCA”) serves as a reminder that in the absence of an explicit provision in an employment contract permitting temporary layoffs, there might not be an implied right to place an employee on a temporary layoff.
The plaintiff employee was one of 31 employees laid off by the defendant employer in March 2020 as a result of financial losses caused by the COVID-19 pandemic. The employee was provided with a letter advising that he would be laid off for 13 weeks, and the employee apparently signed the letter. The employee’s layoff was then extended on three separate occasions until September 4, 2021. Importantly, the employment agreement did not include a provision permitting the employer to impose a layoff.
In December 2020, the employee consulted a lawyer, who advised the employer that the employee was bringing a claim for constructive dismissal. The employee then issued a Statement of Claim and, shortly thereafter, secured alternative employment. On February 9, 2021, the employer sent a recall letter to the employee, who did not respond.
In response to the wrongful dismissal claim, the employer brought a motion for summary judgment, seeking dismissal of the action on the basis of the employee’s alleged condonation of the layoff or, alternatively, failure to mitigate damages by not seeking new employment. The motion judge granted the employer’s motion for summary judgment and dismissed the employee’s claim for wrongful dismissal. The employee then appealed this decision to the ONCA.
The Court of Appeal Decision
The ONCA allowed the appeal on the basis that the claim should not have been summarily dismissed, as the employee’s objection to proceeding by way of summary judgment was not adequately addressed, and it was not established that there was no genuine issue requiring a trial. The ONCA also found that the motion judge’s decision was based on an incorrect view of the applicable law. Specifically, the ONCA held as follows:
- Absent an express or implied term in an employment contract to the contrary, a unilateral layoff by an employer is a substantial change to the contract that constitutes constructive dismissal.
- The motion judge failed to consider whether there was an implied term in the employment contract allowing the employee to be placed on a temporary layoff. The mere fact that the employer had laid off other employees did not establish an implied term permitting the layoff of the plaintiff employee.
- The presence of the employee’s signature on the layoff letter did not establish condonation of the layoff. The ONCA concluded that the signature merely acknowledged receipt of the letter without implying consent to the layoff.
- The employee retained a lawyer in December 2020, long after the layoff began, and just before the employee asserted a claim for constructive dismissal. This timing does not indicate the employee’s understanding of the implications of the layoff or consent to it.
- The motion judge failed to consider that employees are entitled to a reasonable period to assess contractual changes before they must take a legal position. Specifically, the motion judge erred in treating the employee’s silence during the layoff as equivalent to condoning the changes in his employment.
- Condonation in the face of a layoff is expressed by positive action. This can be shown through express consent to the layoff or expressing a willingness to continue working before asserting a claim for wrongful dismissal, such that the employer would reasonably believe that the employee consented to the change. However, in the present case, no such evidence exists to support a finding of condonation.
In contrast to Pham, in the recent decision of Kosteckyj v Paramount Resources Ltd. [Kosteckyj], the Alberta Court of Appeal held that a period of ten business days was reasonable for an employee to assess a proposed reduction in their base pay. Although the pay reduction could potentially be considered a substantial change in the terms of employment, which could lead to constructive dismissal in the absence of express consent, the employee’s continued work for the employer was viewed as condoning the changes. Similarly to Pham, the employment agreement in Kosteckyj did not include a specific term permitting the employer to alter the conditions of employment. However, a crucial distinction between these cases lies in the fact that the employee in Pham was not actively working (due to his layoff), and was therefore unable to demonstrate condonation. Given that Kosteckyj was decided in Alberta, it remains to be seen whether and how the decision will be applied in Ontario.
Takeaways for Employers
Pham highlights the importance of including a specific term allowing for temporary layoffs in an employee’s employment agreement. This will ensure employers have greater flexibility in managing their workforce, without facing the challenge of demonstrating an implied right to implement a layoff.
Furthermore, it is important for employers to understand that condonation of a layoff requires positive action from the employee. Simply signing a letter outlining the terms of the layoff does not constitute condonation, nor does the employee’s failure to raise objections within a reasonable period of time.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.