Does your employer have the right to lay you off? It depends

By Tony Poland, LegalMatters Staff • A properly drafted and implemented employment contract can help avoid uncertainty but when an employer makes an unexpected change in the working relationship, the average worker may not understand their rights and obligations, says Toronto employment lawyer Jeffrey M. Andrew. 

Andrew, a partner with Cavalluzzo LLP, says the employer’s view of their entitlements in an employment agreement can differ from the worker, which can lead to litigation.

“The law can be confusing and the average worker would not necessarily know if their rights have been violated,” he tells LegalMattersCanada.ca. 

It can make sense to seek legal advice, says Andrew pointing to Pham v. Qualified Metal Fabricators Ltd., a constructive dismissal appeal decision of the Ontario Court of Appeal (ONCA) that dealt with the issue of implied and express rights and condonation.

Court was told Binh Viet Pham was hired as a welder by Qualified Metal Fabricators in 2000. In March 2020, following significant financial losses due to the COVID-19 pandemic, the company laid off 31 of its 140 employees including Pham.

Filed a wrongful dismissal claim

It was the first time he had been laid off and he was told the company hoped to bring him back after 13 weeks. However, the layoff was extended in September and again in December 2020. A short time later, Pham filed a claim for wrongful dismissal.

The company countered by bringing a motion for summary judgment asking that the action be dismissed. They argued that since they had a past practice of laying off employees, they had an implied right to do it again in 2020. They also claimed Pham had condoned the job action since he signed a notification of temporary layoff. 

A motion judge ruled in favour of the employer and dismissed the claim.

However, on appeal, the OCNA ruled that a company’s past layoff practices with other employees are not necessarily enough to establish an implied agreement. 

“Where the employment contract has no express term concerning layoffs, a right that an employer may do so will not be readily implied. The fact that a co-worker had been previously laid off does not create a legal basis for the employer to impose a layoff on the employee,” the judgment states.

Addressing the issue of condonation, the OCNA found that even if Pham signed the layoff letter, there was no evidence that he accepted the terms, only that he acknowledged receipt of the letter. The court also rejected the company’s assertion that since Pham had made no objections to the layoff he condoned it. 

Case was ordered to trial

In the end, the Court of Appeal overturned the motion judge’s decision and ordered the case to trial.

Andrew, who was not involved in the case but comments generally, says unless you work in unionized workplace that has a collective agreement, the terms and conditions of your employment contract may differ from other workers at the company. Some employees may have agreed that the employer is allowed to lay them off, while you may not have done so, he says.

Since there was no layoff provision in Pham’s contract, the company attempted to rely on past practice, Andrew says.

“Had Mr. Pham accepted an earlier layoff there might have been a different outcome in this case,” he says. “But just because somebody else agreed to a layoff does not mean you are required to do the same.”

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Under the Employment Standards Act, 2000 (ESA) an employer can temporarily lay off a worker under certain conditions, Andrew explains. However, if the layoff goes longer then that employee could be considered to be terminated under the statute. However, there are common law legal principles which may also apply.

“It is a well-established common law principle that if you are not unionized, and unless your contract of employment expressly or by implication allows the employer to lay you off without pay, then you can treat it as a constructive dismissal,” he says. “That is despite the fact the ESA has provisions for layoffs.”

Seasonal workers could expect layoffs

Seasonal workers could face what they consider layoffs, Andrew notes, but they are typically signed to fix-term employment contracts that have start and end dates, so constructive dismissal or wrongful termination claims would likely not be applicable unless the employer violates conditions of the agreement.

Depending on the industry, permanent workers could also face temporary layoffs, such as maintenance shutdowns, he says.

“In those cases, an employer could set out in the employment contract that a worker could expect to be laid off at specific times,” says Andrew. “If the employee agrees to it, then the layoff is completely enforceable.”

He says if companies anticipate layoffs at the outset of an employment relationship, they should spell it out in the employment agreement if they expect it to be enforceable. 

“The problem is that potential employees may think twice about working for a company that could potentially lay them off,” says Andrew.

“It is a judgment call,” he adds. “And many employers don’t anticipate laying workers off so they may not address it because they don’t want to scare people off. But if they fail to include it in the employment agreement, they could face constructive dismissal claims and litigation in the event of a layoff.”

Same mistake made when disciplining workers

Companies will also make the same mistake when it comes to disciplining employees, Andrew says.

“Sometimes employers suspend people without pay,” he says. “If they don’t have an express or implied agreement allowing that, then the punishment can be treated as a constructive dismissal.”

As for employees, Andrew says they should think twice before agreeing to a layoff, no matter how brief if they did not agree to this employer right when hired.

“If you accept, effectively what you are doing is agreeing that your employment contract contains a right for the employer to lay you off,” he says. “If the employer lays you off again a year later, you might have a difficult time claiming that you didn’t condone the prior layoff.”

Andrew suggests being proactive to avoid problems in the future.

“Before you agree to the terms of an employment contract, seek legal advice,” he says. “And don’t assume your employer has the right to change your agreement without your consent.”

More from Cavalluzzo LLP:

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