Temporary layoffs, and the associated legal rights of employees and employers, have been a topic rife with uncertainty in the era of COVID-19. The Ontario Court of Appeal's recent decision in Pham v Qualified Metal Fabricators Ltd., 2023 ONCA 255 has added an additional hurdle that employers will be required to surmount in resisting a temporarily laid off employee’s claim of constructive dismissal. The new hurdle is that employees who remain silent in response to being placed on a temporary layoff are not “condoning” a fundamental change in their employment contract and can, in appropriate circumstances, succeed in bringing a claim for constructive dismissal.

What is Constructive Dismissal and Condonation?

Constructive dismissal is established when an employee is able to prove that either:

1. the employer made a unilateral change that amounted to a breach of an essential / fundamental term of their employment contract, or
2. the employer’s conduct demonstrates that the employer no longer intends to be bound by the employment contract.

Once proven, an employee that has been constructively dismissed can treat their employment contract as if it has ended and is no longer enforceable. In the absence of an employment contract term to the contrary, temporary layoffs by an employer that exceed permitted time periods in applicable employment standards legislation can constitute a constructive dismissal. When an employee is constructively dismissed, they must decide between the following options:

1. elect to condone the fundamental change to their employment contract unilaterally made by the employer meaning that the employee’s conduct, viewed objectively, would demonstrate to the employer that the employee was consenting freely to the change; or
2. elect to treat the employment contract as if it has ended and bring a lawsuit against their employer on the basis of constructive dismissal.

An employee has a reasonable amount of time to determine which election they wish to make and take legal action if they are treating their employment contract as if it has ended on the basis of constructive dismissal. However, if an employee waits too long to take legal action or engages in positive acts that demonstrate they consented to the fundamental change or employer conduct, the employee will be deemed to have condoned the employer’s actions. What is a reasonable amount of time depends on the unique facts of each case and the specific circumstances of the employer-employee relationship at issue.

Employees who condone an employer’s actions cannot later bring a claim for constructive dismissal. The onus is on the employer to demonstrate that the employee’s actions (or inactions) amount to condonation.

Silence is Not Condonation of a Layoff

In Pham v Qualified Metal Fabricators Ltd., 2023 ONCA 255,  an employee brought a successful claim for constructive dismissal. The employee, Pham, was placed on a temporary layoff on March 23, 2020. After multiple layoff extensions during the pandemic, Pham was told on December 9, 2020 that he would remain laid off until September 4, 2021. In response, Pham claimed the layoff was a constructive dismissal. The issue before the Court was whether Pham’s nine (9) months of silence while laid off constituted condonation of the employer’s conduct.

After reviewing applicable case law, the Court of Appeal held that Pham’s silence did not constitute condonation for the following reasons:

• there was no evidence the employee and employer ever agreed to a layoff;
• there was no evidence that the employee understood or had knowledge of the ramifications of the layoff;
• employees are permitted a reasonable time to assess unilateral changes to their employment contract by an employer before they must take a final and irreversible legal position;
• condonation with regard to a layoff must be expressed by an employee through positive action, which includes but is not limited to freely consenting to a layoff or expressing a willingness to work before claiming constructive dismissal, such that the employer could reasonably believe that the employee had given consent to changes to the terms of their employment contract;
• it is more difficult for a court to conclude that condonation has been established by an employer where the employee is unable to work because of the same employer conduct that establishes the constructive dismissal (e.g., a constructive dismissal where an employer lays off the employee in excess of the permissible time periods for layoffs in applicable employment standards legislation);
• the employee was within their rights to wait and see if they would be recalled to work following the multiple layoff extensions and invocation of Infectious Disease Emergency Leave; and
• there is no requirement for an employee to ask when they might be called back to work before commencing an action for constructive dismissal.

Takeaways for Employers

1. Employers should review their employment contracts and ensure they have an enforceable provision that provides the right to place employees on temporary layoff, to mitigate potential liability for constructive dismissal claims.
2. Lengthy periods (e.g., nine months or possibly longer in certain circumstances) can be a “reasonable time” for employees to assess a unilateral change in an employment contract by an employer before taking legal action.
3. Employee silence or failure to take action are not sufficient to establish employee condonation and protect an employer against constructive dismissal claims with regard to layoffs. To prove condonation, an employer must demonstrate that an employee engaged in positive acts such that the employer could have reasonably believed the employee condoned the layoff.

The foregoing is for informational purposes only, and should in no way be relied upon as legal advice. For legal advice tailored to your circumstances and business, please contact any of SOM LLP’s lawyer’s by email or telephone.