To condone or not to condone? – that is the question

In a recent Ontario Court of Appeal decision, it was held that an employer cannot infer condonation or consent to a layoff from an employee’s mere silence during a nine-month period of inactive employment. Photo credit: Pexels/Andrea Piacquadio

 

If an employee does not immediately object to being laid off, does that mean that the employee has agreed to or “condoned” the lay? This query falls under the legal principle of “condonation” and has been in the minds of employers and their counsels since the pandemic and its IDEL (infectious disease emergency leave) layoffs. 

Condonation is a defence argument and one that employers are attempting to apply in response to the constructive dismissal claims that they have received arising from pandemic related unpaid layoffs. 

Prior to the pandemic, the “condonation” defence was leveraged by employees (and their unions) in relation to whether or not employers have acted within a reasonable amount of time on their misconduct. If they haven’t then, this “unreasonable” delay in acting to discipline them for their misdeeds leads to the employee’s reasonable conclusion, and reasonable reliance on that conclusion, that the employer did not have a serious issue or concern with the misconduct (i.e., it gives them a pass on discipline being applied to their misdeed). In such circumstances the employer is said to have condoned the employee’s misconduct and cannot apply “untimely” discipline on the same.

In a recent Ontario Court of Appeal decision, it was held that an employer cannot infer condonation or consent to a layoff from an employee’s mere silence during a nine-month period of inactive employment. The case is Pham v. Qualified Metal Fabricators Ltd., 2023 ONCA 255 and arose out of an employee appeal of the lower court’s granting of a summary judgment and sending the case to trial.

Background facts: 

At the time of layoff due to a shortage of work, Mr. Pham was 51 years of age with nearly 20 years of service. The layoff on March 23, 2020 arose out of the pandemic and the significant financial losses suffered by his employer, given that half of its revenue is derived from the aerospace and food services industries. Mr. Pham was one of the 11 out of 18 welders temporarily laid off with benefits. The employer hoped recall would occur by June 19, 2020. It did not and the layoff was repeatedly extended, as then permissible under the ESA’s IDEL provisions until September 4, 2021. It is Mr. Pham’s claim that his employer neither sought nor received his consent to the layoffs. 

On December 22, 2020, Mr. Pham’s counsel wrote to the employer advising that he was bringing a claim for wrongful dismissal (i.e., a delay of nine months). The Statement of Claim was issued on January 25, 2021. In response the employer brought a motion for summary judgment to dismiss the claim on the basis that Mr. Pham had agreed to or condoned the layoffs or alternatively, failed to mitigate his damages by not seeking new employment. The Superior Court of Justice granted the employer’s motion and dismissed Mr. Pham’s claim. 

OCA decision:

The OCA allowed Mr. Pham’s appeal and set aside the order dismissing his claim finding that there is a triable issue. In doing so the OCA upheld the following longstanding legal principles: 

• At common law, an employer has no right to lay off an employee.  
• Absent an express or implied term in an employment agreement to the contrary, a unilateral layoff by an employer is a substantial change in the employee’s employment contract that constitutes constructive dismissal. This is so, even where the layoff is temporary under the ESA.  
• The right to impose a layoff as an implied term must be notorious, even obvious, from the facts of a particular situation.
• The fact that a co-worker had been previously laid off does not create a legal basis for the employer to impose a layoff on another employee. The lay off of other employees and/or the employer’s past lay off practices is not determinative of an implied right or agreement.
• The ESA gives a laid off employee 35 weeks to “wait and see” if they will be recalled before electing termination and/or severing the employment relationship by pursuing a claim for constructive dismissal. A layoff exceeding 35 weeks is a deemed termination of employment. The statutory 35-week temporary layoff period is a “minimum standard”.
• The ESA does not displace greater contractual or common law rights and protections. 
• The fact that a layoff was conducted in accordance with the ESA is irrelevant to the question of whether it is a constructive dismissal.
• There is no requirement for an employee to ask when they might be called back to work before commencing an action for constructive dismissal. 

In relation to “condonation”, unsurprisingly the OCA held that:

– when an employer without prior agreement lays off an employee, it is in essence reasonable for an employee elect to take a wait and see approach to returning to their previous job or to treat the lay-off as a wrongful dismissal.

– while there are circumstances where an employee may engage in condonation, this is a fact-specific determination that includes consideration of whether the employee is permitted reasonable time to assess contractual changes before they are forced to take an irrevocable legal position.  

Unprecedentedly, the OCA further held, contrary to the very foundation of “what” is condonation that:

– Silence is not condonation, particularly during an IDEL or other reasonable period where the employee is not working. 

– Condonation during a layoff requires express positive action such as actual consent to the layoff or a willingness to work before claiming wrongful dismissal.  

In coming to these conclusions, the OCA declined to consider the effect of Regulation 228/20, the Covid IDEL Regulation, or to comment on or address the tension between IDEL layoffs and common law rights.  

As such, the OCA has continued the lack of direction for employers and employees on this long outstanding but significant issue and set a very high bar for employers to meet with a defence of condonation.    

Notwithstanding the high bar, there is some guidance in this case for employers on how to establish condonation and what arguments they can reasonably make when faced with such constructive dismissal claims.  

This case also reinforces the importance of written employment contracts and the need to incorporate “a right to lay employees off without it constituting a constructive dismissal” clause to avoid a constructive dismissal claim.