In Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255, the Ontario Court of Appeal (OCA) found that unless an employee’s employment contract provides otherwise via an express or implied term, an employer’s unilateral lay off of an employee will constitute constructive dismissal, even when the layoff is temporary.  As it will be difficult for an employer to prove the existence of such an implied term, which must be “notorious, even obvious, from the facts of a particular situation,” the OCA has sent a strong message to employers that if they want to be in a position to unilaterally lay off their employees without being found financially liable for constructive dismissal, their employment agreements should contain an express term permitting such layoffs. 

Background

A welder (employee) began his employment with a metal structure manufacturer (employer) in October 2000. In March 2020, the employee was one of 31 employees laid off by the employer due to the COVID-19 pandemic. This was the first time the employee had been laid off by the employer. 

The employee was given a “Notification of Temporary Layoff” (Layoff Letter), which stated that due to budgetary considerations and a recent slowdown, he would be placed on temporary layoff with continued benefits for 13 weeks “in accordance with [the employee’s] work agreement.” The employer extended the layoff three times; the final extension was until September 4, 2021.

The employee claimed that he was not told layoffs were terms of his employment; the signature on the Layoff Letter was not his; and, in any event, the Layoff Letter did not constitute consent to the layoffs. 

The employee issued a Statement of Claim for wrongful dismissal on January 25, 2021.  He secured alternative employment on February 3, 2021, and on February 9, 2021, he received a recall letter from the employer to which he did not respond.

The employer brought a motion for summary judgment seeking dismissal of the action on the basis that the employee condoned his layoff or, alternatively, failed to mitigate his damages by not seeking new employment. The employee brought a cross-motion for summary judgment claiming wrongful dismissal effective March 20, 2020; however, in his factum on the summary judgment motion, the employee’s counsel argued that the employee would no longer consent to proceed by summary judgment.

Decision of Motion Judge

The motion judge granted the employer’s motion for summary judgment and dismissed the employee’s claim for wrongful dismissal and his cross-motion for summary judgment.  The employee appealed the decision to the OCA.

Decision of OCA

Among other determinations, the OCA held that the motion judge’s decision was based on an incorrect view of the applicable legal framework for constructive dismissal (including the presence of an implied term permitting layoffs and the issue of condonation of the layoff).  

Implied terms permitting layoffs

The court reviewed the general legal principles for constructive dismissal, which provide that in the absence of 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, even when the layoff is temporary; in such cases, an employee has an immediate right to pursue a claim for constructive dismissal. 

The OCA found that the employee’s terms of employment did not expressly permit the employer to lay him off; it held that it was a reversible error of law warranting appellate intervention that the motion judge did not consider whether there was an implied term allowing the employee to be placed on a temporary layoff; and that the fact that the employer laid off other employees did not constitute an implied term of the employee’s employment agreement permitting his layoff.  The court noted that an implied term that the employer has a right to lay off an employee “must be notorious, even obvious, from the facts of a particular situation.” 

Condonation of layoffs

The court found that assuming the signature in the Layoff Letter was the employee’s, the letter did not constitute condonation of the layoff because there was no evidence that it was anything more than the employee’s acknowledgment that he received the employer’s layoff terms. 

The OCA held further that the employee’s silence in respect of the layoff (i.e., his failure to object to it) did not constitute condonation; not only may an employee take reasonable time to assess the new terms of their contract before advancing a constructive dismissal claim, but condonation in respect of a layoff is expressed by positive action, e.g., by expressing consent to the layoff.  

For the reasons set out above, the OCA concluded that there was a genuine issue requiring a trial.  Accordingly, it allowed the appeal, set aside the order for summary judgment dismissing the claim for wrongful dismissal, and remitted the action for wrongful dismissal back to the Superior Court for trial.

Bottom Line for Employers

Qualified Metal puts employers on notice that unless an employee’s employment contract says otherwise via an express or implied term, an employer’s unilateral layoff of an employee will be considered a substantial change in the employee’s employment contract that constitutes constructive dismissal, even when the layoff is temporary.

Employers that would like to have the option of unilaterally laying off their employees without being found financially liable for their constructive dismissal are encouraged to ensure that there is an agreement with employees containing an express term permitting such layoffs.