Layoffs and Constructive Dismissal

Navigating the intricate landscape of employment law can be a daunting task, especially when it comes to layoffs and the delicate issue of constructive dismissal. In Ontario, where workers’ rights are protected by a robust legal framework, the intersection of these factors can lead to complex situations for both employers and employees alike.

In light of a recent Ontario Court of Appeal decision, this blog is intended to delve into the intricacies of layoffs and shed light on the concept of constructive dismissal within Ontario. By examining relevant legislation, recent legal precedents, and practical implications, we aim to provide a comprehensive understanding of these intertwined aspects and empower both employers and employees to make informed decisions when faced with challenging employment scenarios.

WHAT IS A LAYOFF?

A layoff is a temporary reduction or cessation of an employee’s work by an employer, with the intention of eventually reinstating them. The employee is usually not entitled to pay during this time.

CAN YOU BE LAID OFF?

The Ontario Employment Standards Act, 2000, SO 2000, c 41(“ESA”) governs an employer’s ability to layoff. Under the ESA:

• There is no statutory requirement for notice in relation to layoffs,
• In a layoff an employer can recall the employee at any time within the layoff period,
• If the employer extends the layoff for more than 13 weeks in any consecutive 20-week period, the employer must continue to make:
  • • • substantial payments;
      • continue benefit payments; or
      • supplementary unemployment benefits.

Otherwise, the layoff will be treated as a termination. If the employee is not recalled within 35 weeks in any consecutive 52- week period, it is deemed termination.

However, the ESA does not displace rights found under contract or common-law. For example, notice of a layoff may be contemplated under an employment agreement.

LAYOFFS AND CONSTRUCTIVE DISMISSAL

Unless there is an explicit or implicit agreement, laying off an employee will be considered a termination without a specific reason. Meaning that the employee can treat the layoff as a constructive dismissal.

Constructive dismissal can be established by either:

1. the employer’s breach of an essential term of the employment contract; or
2. a course of conduct by the employer that establishes that it no longer intends to be bound by the employment contract.

When considering constructive dismissal due to layoffs, a court will look to see if the layoff was expressly permitted in the employment contract or if the employment contract had an implied term permitting the employer to lay the employee off.

Is the Layoff an Implied Term?

The question of whether a layoff can be considered an implied term in an employment agreement carries significant implications. Without the presence of an express or implied term, any unilateral layoff by an employer, even if it is temporary, constitutes a substantial alteration to the employee’s contract and can be regarded as constructive dismissal. As a result, the employee may be granted two immediate options:

• to wait and see if they will be recalled by the employer; or
• to pursue a claim for constructive dismissal.

The employer bears the onus of demonstrating that the employment contract included an implied provision allowing for layoffs and that the specific layoff was justified. This is a high burden for an employer to show, as the implied term must be notorious, even obvious, from the facts of a particular situation.

Recent Case Law

A recent Ontario Court of Appeal case, Pham v. Qualified Metal Fabricators Ltd 2023 ONCA 255, discusses the nuances of layoffs and provides some insight and consideration for both employers and employees.

The court examined the concept of constructive dismissal and the presence of an implied layoff term in the case at hand. The employer, facing financial strain caused by the pandemic, implemented a layoff. However, the court determined that the employer failed to demonstrate the existence of an implied term, resulting in the layoff being deemed as constructive dismissal. This case presents several significant insights to consider:

 1. Implied Terms and Past Practices

When arguing that a layoff was valid due to an implied layoff term, employers regularly rely on a variety of factors to prove the implied term such as;

• the nature of the industry,
• trade practices or customs,
• the size of the company, and
• the layoff practices for other employees.

In Pham the court rejected the employer’s use of past layoff practices, stating that the past practice does not, on its own, inherently establish an implied agreement. It serves as a reminder that the analysis of a constructive dismissal is primarily a question of fact and requires a case-by-case analysis of the specific circumstances involved.

2.  Condonation Defense

One of the defenses to a constructive dismissal claim, which the employer used in Pham, is condonation. To use this defense an employer must demonstrate that, objectively speaking, they had a reasonable belief that the employee willingly and freely consented to the change in their terms and conditions of employment.

In Pham the court found that the employee’s silence and delay in bringing a constructive dismissal claim for the related layoff was not strong enough for the employer to reasonably believe that the employee consented to the change in the terms of employment, even though the employee had signed a Layoff Letter and waited over a year to bring a constructive dismissal claim.

Key Case Takeaways:

• The letter was deemed nothing more than “an acknowledgment of receipt of the terms set by the respondent for the layoff.”
• The court reiterated that an employee could take a reasonable time to assess their situation before advancing a constructive dismissal claim and didn’t accept the employee’s silence in the face of the layoff as condonation.
• Finally, the court confirmed that relying on condonation requires there to be positive action expressed by the employee. Such as expressing consent to the layoff or expressing a willingness to work before claiming wrongful dismissal.

Employer Considerations:

• Include layoff clauses within employment contracts.
• By having a well drafted layoff clause in your employment contract, you will reduce the risk of a claim for constructive dismissal.
• Any amendments made with existing employees will be considered enforceable only if the employer offers new “consideration” to the employee, such as a signing bonus or an additional pay increase.

Employee Considerations:

• Should you find yourself in the position of a layoff, seek legal advice as you may have a claim for constructive dismissal.

Whether you are an employee or employer, our team of employment lawyers at Sultan Lawyers, are here to provide guidance on your rights and entitlements throughout a layoff or termination of employment. Our dedicated team of lawyers will represent your best interests when circumstances necessitate time away from work. Reach out to us via call us at 416-214-5111 or here. for a complimentary callback or a flat-rate consultation.