While a layoff and permanent dismissal may seem like similar concepts, the two terms refer to starkly different processes and consequences. A permanent dismissal, or termination, refers to the end of employment. In contrast, layoffs are generally intended as temporary measures in which the employer intends to recall the employee back to work once the layoff period is over. While an employee may be laid off for many reasons, it is not uncommon, particularly in the last few years, for layoffs to be caused by an employer’s economic challenges.
A layoff occurs when an employer seeks to temporarily end an employee’s employment for a specified reason and duration of time, after which point the employer will call the employee back to work. In Ontario, the Employment Standards Act states that an employer may layoff an employee for a total of 13 weeks within a 20-week period or for a total of 35 weeks within a 52-week period, as long as the employer maintains the employee’s benefits.
If the employer fails to recall the employee to work within the specified periods, the employee can presume their employment has been terminated. Further, while an employer’s decision to layoff an employee may be permitted under the applicable legislation, it may violate a common law principle. Therefore, to mitigate potential claims by an employee, employers need to ensure that the employment contract includes the right to layoff an employee.
In the recent Ontario Court of Appeal decision in Pham v. Qualified Metal Fabricators Ltd., the appellant employee began working with the respondent employer on October 16, 2000. He was subsequently laid off by the employer on March 23, 2020, at the age of 51. The employer, Qualified Metal Fabricators, manufactured metal structures, earning a significant portion of its sales from the aerospace and food service industries.
As a result of the global pandemic, the employer suffered substantial financial losses. Consequently, the employer laid off 31 of its 140 employees, including the appellant. The employee had not previously been laid off by the employer and was told by the plant manager that he would be called back to work by June 19, 2020.
During the layoff meeting, the employee was provided with a “Layoff Letter,” which stated that his benefits would continue during the layoff. The Layoff Letter also stated that the layoff was conducted in accordance with the employer’s work agreement. Despite there being a signature beside the employee’s name, the employee claimed that he did not sign the Layoff Letter.
The employer extended the layoff for a period of “up to 35 weeks” on June 2, 2020. The employer subsequently extended the layoff from September 23, 2020, to December 9, 2020, through September 4, 2021.
The employer provided the employee with a letter indicating that the layoff was conducted in accordance with the Employment Standards Act, and more specifically, Ontario Regulation 228/20, which provides that an employee who had an elimination of, or a temporary reduction in, work hours due to COVID-19 was deemed to be on Infectious Disease Emergency Leave instead of being terminated.
The employee claimed that he did not provide his employer with consent to the layoff, nor did they request it. On December 22, 2020, counsel for the employee advised the employer that he would be commencing a claim for wrongful dismissal. The employer replied two days later, stating that the employee signed a document agreeing to the layoff, and the employer hoped he would be recalled shortly.
The employee filed a Statement of Claim in January 2021, after which the employer brought a motion for summary judgment to dismiss the employee’s claim because he had “agreed to or condoned the layoffs or alternatively, failed to mitigate his damages by not seeking new employment.”
The motion judge dismissed the employee’s wrongful dismissal claim and granted the employer’s motion for summary judgment. The employee appealed this finding to the Court of Appeal for Ontario.
Court of Appeal: Laid-Off Employees Entitled to “Wait and See” Before Electing to Sever Employment Relationship
The employee raised three grounds of appeal, claiming that the motion judge erred in the following:
- Proceeding on the mistaken understanding that both the employer and employee sought summary judgment;
- Finding an implied agreement to the layoff because he was aware that the employer had laid off several of his co-employees in previous years; and
- Deciding that he had condoned the layoffs and was therefore not wrongfully dismissed by signing the letter, seeking legal advice, and/or not objecting to the layoff.
In its analysis, the Court noted that constructive dismissal may be established by either:
- The employer’s breach of an essential term of the employment contract; or
- A course of conduct by the employer that establishes that it no longer intends to be bound by the employment contract.
Further, without a contrary express or implied term in the employment agreement, a unilateral layoff by an employer constitutes a substantial change to an employee’s employment contract, which can be deemed a constructive dismissal, even when the layoff is temporary. In situations where the employment agreement does not contain a term regarding layoffs, such as in this case, it will not be readily implied that the employer has the right to do so. The Court found that the fact that the employee was aware of his co-employees’ previous layoffs was irrelevant and did not create a legal basis for the employer to layoff the employee.
The Court highlighted the fact that section 56(1)(c) and 56(c) of the Employment Standards Act provides a laid-off employee with 35 weeks to “wait and see” if they are called back to work before they may elect to terminate and/or sever the employment relationship through a claim for constructive dismissal.
No Requirement for Employee to Ask Employer for Recall Information Before Bringing Wrongful Dismissal Claim
In its review of the evidence, the Court found that the motion judge failed to consider that the employee is permitted to take “reasonable time to assess contractual changes before they are forced to take an irrevocable legal position.”
Secondly, the Court found no evidence that the employee expressed a positive action constituting condonation of the layoff.
Thirdly, the Court found that a previous decision that the motion judge distinguished was actually similar to the employee’s position, as the employee was unable to condone changes to his employment agreement because he was not actively working during this time.
Finally, the Court highlighted that there is no requirement for an employee to request additional information from their employer concerning their recall date before pursuing a claim for constructive dismissal.
The Court of Appeal for Ontario ultimately held that an employer cannot infer an employee’s consent to a layoff from mere silence alone. The Court held that there was no evidence to support the motion judge’s finding that the employee’s wrongful dismissal claim should be dismissed, as there was a live issue regarding whether or not the employee condoned the layoff.
This case is an important decision for employers to ensure that any written employment contract contains the right to layoff an employee. Further, this decision shows that while a layoff may be conducted in a manner permitted under the Employment Standards Act, this fact alone is irrelevant to the issue of whether the layoff may be constituted as a constructive dismissal.
Contact the Employment Lawyers at Willis Business Law in Windsor for Advice on Layoffs and Terminations
The trusted employment law team at Willis Business Law, led by J.P. Karam, works closely with employers to understand their needs and proactively mitigate potential employment law disputes. When an employer must defend a claim brought by an employee, we ensure that our clients have a comprehensive understanding of the law that applies to their situation and have sufficient information to make informed decisions as we work to resolve the matter.
Willis Business Law is based in Windsor’s downtown financial district and serves clients in Windsor-Essex and surrounding areas. To schedule a confidential consultation regarding employment contracts or wrongful dismissal claims, contact us online or by phone at 519-945-5470.