Condonation of an Unpaid Temporary Layoff Requires Positive Action

In Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255, the Court of Appeal for Ontario recently issued an important ruling regarding the law of unpaid temporary layoffs.

Unpaid temporary layoffs are not ordinarily permitted in Ontario, despite being incorporated into the Employment Standards Act, 2000. To successfully institute an unpaid temporary layoff, employers must be able to demonstrate: 1) either an explicit or implied contractual layoff right; or 2) that the affected employee either voluntarily agreed to the layoff or condoned its implementation.

The COVID-19 pandemic brought the issue of unpaid temporary layoffs to the fore. In response to economic challenges (and government shutdowns) a great many workers were left without work for an unknown period. The Pham decision is a case which deals with that exact scenario.

Pham was a welder and worked for his employer for almost 20 years. His employer, Qualified Metal, did not have an express term in its employment contract permitting unpaid temporary layoffs. Nonetheless, its revenues were deeply impacted by the pandemic and Qualified Metal elected in March 2020 to layoff over 20% of its staff, including Pham.

Qualified Metal informed Pham of his unpaid temporary layoff by way of a letter (which he allegedly signed). After then waiting for months to see if he would be recalled to work, Pham eventually retained a lawyer and asserted constructive dismissal in December 2020. Pham argued that Qualified Metal had no legal right to place him on an unpaid temporary layoff, and that he rejected this unilateral change to the terms of his employment.

The Law of Condonation

In the first round of their legal fight, Qualified Metal emerged victorious: the Ontario Superior Court of Justice concluded that Pham had condoned his unpaid temporary layoff and the case was dismissed.

Pham appealed this decision and argued that the Superior Court had made a series of legal errors. Most notably, Pham challenged the idea that he had condoned his layoff by either signing Qualified Metal’s notification letter and/or waiting nearly 9 months before taking legal action.

In reviewing the case, the Court of Appeal first described how the law of condonation operates:

An employer’s conduct that would otherwise support a finding of constructive dismissal may however be condoned by the employee, such that the employee cannot claim to have been constructively dismissed. Condonation requires a determination that, viewed objectively, the employer would believe at the time that the employee “consented freely to the change”… [emphasis added]

The Court then went on to scrutinize whether there was evidence to demonstrate Pham had, in fact, condoned his unpaid temporary layoff.

Starting with the notification letter, the Court concluded that even if Pham had signed the document (which was disputed), its legal significance was no more than an acknowledgment of receipt. There was no evidence that Pham’s signature amounted to an acceptance of the layoff.

As to Pham waiting months before voicing his objection to being laid-off, the Court of Appeal ruled that it is an error to equate silence (or inactivity) with condonation. Instead, the Court clarified that:

…condonation in the face of a layoff is expressed by positive action. Positive action includes expressed consent to the layoff or expressing a willingness to work before claiming wrongful dismissal such that the employer would reasonably believe that the employee consented to the change in the terms of employment…There is no such evidence here. [emphasis added]

Pham’s appeal was therefore allowed, and his case was remitted to the Superior Court for trial.

Takeaway

Both employers and employees should take heed of the Pham decision and its implications for unpaid temporary layoffs. For employers, consider including temporary layoff provisions in your written contracts. Such clauses are the single best way to avoid future fights with staff when layoffs are necessary. Alternatively, employers should seek explicit written consent of workers prior to placing them on layoff.

For employees facing an unpaid temporary layoff, consider seeking legal advice before simply accepting this change to your employment status as a fait accompli. Many employers lack a legal right to institute unpaid temporary layoffs. As the Pham demonstrates, you could have the option to claim constructive dismissal rather than hoping for a future recall to work.

Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in Ottawa and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca.