Assumptions can be costly for employers

Exclusive to Canadian HR Reporter from Rudner Law.

We often comment that we are so busy because of the fact that people make assumptions. Some of those assumptions expose employers to unnecessary liability, and others cause individuals to accept things that they do not have to.

Temporary layoffs are a perfect example; many people make the assumption that employers are entitled to temporarily lay off their employees when, for example, there is a downturn in business or things are slow.

The simple reality is that there is no such automatic right, and unless it is explicitly or implicitly agreed to, then putting someone on a temporary layoff constitutes a constructive dismissal, entitling the individual to damages as if they had been dismissed outright.

Constructive dismissal

We have written about constructive dismissal on many occasions, but to explain how a temporary layoff triggers one, consider that:

• constructive dismissal is a unilateral and a substantial change to a fundamental term of the employment relationship
• the fundamental basis of the employment relationship is that the employee will work and that the employer will pay them
• a temporary layoff means that the employee will not work and will not be paid.

That is clearly a substantial change to a fundamental term of the relationship.

Unfortunately, many businesses discovered this recently. As we wrote about extensively in March 2020 and the months thereafter, a vast majority of the temporary layoffs that were imposed due to COVID will likely be found to be constructive dismissals. While those cases are still winding their way through the courts, the decisions that we have so far have agreed that even in the context of a global pandemic, employers do not automatically have the right to temporarily lay employees off.

They only have that right if it is set out in a contract or collective agreement, or if the employee has otherwise explicitly or implicitly agreed to it. And the threshold for finding an implicit agreement is high.

Two recent cases are relevant to the discussion and will help you understand the law as it applies to temporary layoffs. I should note that this discussion relates to the non-unionized context; unionized workplaces are governed by collective agreements which almost inevitably allow for temporary layoffs.

I also note that although employment standards legislation sets out parameters for temporary layoffs and establishes when a temporary layoff will become a dismissal under the legislation, it does not change the common law. There is no common law to impose a temporary layoff unless the employee has agreed.

Consent to a temporary layoff?

Sometimes, the issue is whether the employee has agreed to a temporary layoff or condoned it. A recent decision of the Ontario Court of Appeal is quite helpful in this regard, and makes it clear that such implied agreement will not be found lightly.

In the case of Pham v. Qualified Metal Fabricators Ltd., the employee was  put on a temporary layoff in March of 2020 as a result of the COVID-19 pandemic. Subsequently, the individual brought a claim for constructive dismissal and the employer tried to argue that by signing the layoff letter, the employee had agreed to the layoff.

The court rejected this argument and explicitly stated that “the fact that he claimed constructive dismissal immediately after retaining a lawyer shows that he only became aware of his right to claim constructive dismissal at that time and responded immediately”.

The court also confirmed that employees should be given a reasonable time to assess and understand their legal situation. With respect to what constitutes condonation, the court wrote that:

“Condonation in the face of a layoff is expressed by a positive action. Positive action includes expressed consent to the layoff or expressing a willingness to work before claiming wrongful dismissal such that the employer will reasonably believe that the employee consented to the terms of the employment.”

Laid-off employees must accept recalls

On the other hand, I do have some good news for employers. A recent decision of the Supreme Court of British Columbia confirmed that employees who have been temporarily laid off have a duty to mitigate their damages which includes accepting an offer of reinstatement. Failure to accept such a recall will limit their potential recovery.

In Blomme v. Princeton Standard Pellet Corporation, the plaintiff was a 20-year employee who was put on a temporary layoff on April 4, 2020. She was found to have accepted the layoff at that time, but expressed her displeasure in early July when she learned that a more junior supervisor had been recalled but she had not.

When the plaintiff was told that she would be entitled to continue receiving her benefits until the end of the year and that if she was not recalled by then, she would be given her statutory termination pay, she retained a lawyer and threatened litigation. During subsequent correspondence, the employer offered to reinstate her but she refused.

The court confirmed that a reasonable person will be expected to accept an offer to be recalled to their job in the absence of conditions that would render it unreasonable on an objective basis.

Proactively getting consent to layoffs

When we work with our corporate clients, we implement contracts of employment that explicitly grant the employer the right to impose temporary layoffs. Back in 2020, we also worked with many employers that did not have such contracts.

Rather than simply impose temporary layoffs unilaterally, they obtain the agreement of employees to the temporary layoff and help them to avoid potential liability, unlike many employers that are currently facing wrongful dismissal claims and will likely have to pay out substantial damages due to layoffs which they imposed in order to try to reduce their costs at a time when their revenues had been drastically reduced.

The bottom line is that employers should never assume that they have the right to impose temporary layoffs, or other rights. For example, employers often assume that every employee has a probation period, or that short service employees will only be entitled to minimal notice of dismissal or severance.

Conversely, employees should be careful when they reject offers to be recalled or reinstated to their previous position in the face of a constructive or wrongful dismissal, as they may dramatically reduce their potential recovery.

Stuart Rudner is founder of Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].