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An ounce of a solid employment agreement is better than a pound of litigation: Pham v Qualified Metal Fabricators Ltd.

June 22, 2023

Can an employer lay off an employee if there is no layoff provision in their employment agreement? In Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255, the Ontario Court of Appeal suggests that argument will be an uphill battle.

In Pham, a 20-year employee was laid off due to the COVID-19 pandemic in March 2020. The layoff was extended multiple times: in June 2020, September 2020 (under the Infectious Disease Emergency Leave (IDEL)), and again in December 2020. The employee filed a claim for wrongful dismissal. There was no layoff clause in his employment agreement.

So what’s the law? Previous cases state that under the common law, without an express or implied term in the employment agreement permitting layoffs, a layoff is generally considered constructive dismissal. Even if the layoff is temporary, an employee has the right to claim constructive dismissal immediately or wait to see if the employer will recall them. But an employee may not claim constructive dismissal if they “condoned” the layoff.

In Pham, the employer argued that there was an implied term permitting layoffs based on past practice, as the employer had laid off employees in 2009. But the court ruled that previous layoffs did not automatically establish an implied term allowing for future layoffs. The court also noted that the burden of proof lies with the employer to establish that the layoff was permitted.

The employer also argued that the employee had condoned the layoff, because he didn’t object to it. At the time of the layoff, the employee signed a letter presented to him by the employer outlining the details of the layoff. But the court ruled that merely signing a letter acknowledging the layoff does not constitute condoning it. Positive action by the employee to accept the change is required. The court clarified that silence during a layoff does not equate to condonation either, especially since laid-off employees may be unable to express their acceptance of the changes to their employment, because they are not at work. And employees need not ask about being recalled during a layoff – it’s the employer’s responsibility to update them.

What can we learn from Pham? Here are some takeaways:

  • Put it in the employment agreement! Employers should make sure that key provisions are clearly stated in their employment agreements. In particular, employers should ensure their written employment agreements outline the right to lay off employees.
  • Silence doesn’t mean condonation. Make sure to communicate with laid off employees. Do not expect employees to contact you for a recall. Merely signing a layoff letter or failing to object within a reasonable timeframe does not automatically imply condonation. Employees must take active steps to show they’ve accepted the layoff for condonation to be established.
  • Review employment agreements regularly. The law changes. Ambiguous or missing provisions may lead to disputes and potential liability, as in Pham. Make sure to seek legal advice if the employment agreement you are using for potential employees is not up to date.