No right to lay off employees without compensation, court affirms

Employers and employees were given important guidance by the Ontario Court of Appeal on when an employer can “lay off” an employee without compensation. The decision of  Pham v. Qualified Metal Fabricators Ltd. is a welcome addition to the law of wrongful dismissal, particularly after the Ontario Court of Appeal refused to provide guidance in a previous similar case (Taylor v. Hanley Hospital Inc.) counsel had been following with care hoping for guidance

The facts of the case

Binh Viet Pham worked as a welder for almost 20 years at Qualified Metal Fabricators Ltd. In March 2020, he was told he was being temporarily laid off, with the firm saying it hoped to recall him in June 2020. This was the beginning of the COVID-19 pandemic, when many employers were laying off employees and employees were fighting back, alleging that their employment had been terminated and that compensation was owed.

Pham’s lay-off was extended multiple times and, in December 2020, the employer retroactively deemed the lay-off to be a statutory “Infectious Disease Emergency Leave,” all without compensation. Pham then filed a wrongful dismissal claim.

The Superior Court of Justice dismissed the claim. On appeal, it was argued the motion judge incorrectly found that there was an implied agreement that Pham could be laid off – despite the fact his contract did not contain a layoff clause – because other employees had been similarly laid off in the past. Pham’s lawyer also argued it was wrong for the motion judge to construe that the appellant condoned the layoff since he did not dispute it when it happened.

No implied right to lay off employees

In addressing the issue of an implied right to lay people off, the judgment notes that “absent an express or implied term in an employment agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment contract that constitutes constructive dismissal … this is so, even where the layoff is temporary.”

According to the judgment, the employer had argued it had an implied right to lay off Pham and others when business was slow because it had done so before, in 2009, before recalling Pham and others. That should have made Pham “undoubtedly aware” that he would soon be recalled, it was argued.

• No clear answers as to when longer notice periods are required
• The challenges and complexity of constructive dismissal law
• Potential chance to clarify compensation rule is lost

The appeal court did not agree, finding “the fact that other employees were laid off does not constitute an implied term of the appellant’s contract of employment permitting his layoff”. The judgment adds, “the employer has the onus to demonstrate that layoffs were permitted: otherwise, “at common law, an employer has no right to lay off an employee.”

This part of the Court’s decision was absolutely correct and orthodox, but welcome nonetheless in this case given the evidence of some prior layoffs.

Legal principles regarding condonation

The court also explored the legal principles surrounding condonation. That is: could an employee, by waiting around for a while, be treated as condoning the employer’s actions and, thus, not be permitted to sue? The Court set the test for condonation narrowly: “Condonation requires a determination that, viewed objectively, the employer would believe at the time that the employee ‘consented freely to the change.’”

Most importantly for the development of wrongful dismissal law, the appeal court rejected any suggestion that Pham condoned the layoff, ruling that even though Pham signed the letter notifying him of layoff, that did not make it evidence of acceptance of the legality of the layoff but merely acknowledgement of receipt of the letter.

The judgment also stated that condonation in the face of a layoff is expressed by positive action, which would include “expressed consent to the layoff or … expressing a willingness to work before claiming wrongful dismissal such that the employer would reasonably believe that the employee consented to the change in the terms of employment”. Indeed, the court added that “there is no requirement for an employee to ask when they might be called back to work before commencing an action”.

This case sets a high standard for employers to meet when it comes to condonation in the face of a layoff.

More from Cavalluzzo LLP:

Failing to review employment contracts can be costly