Recent court rulings explain how and when employers can lay-off their employees

In a matter of just three weeks, a couple of major decisions on the use of lay-offs were released. Lay-offs are a live issue in front of courts because the COVID-19 lay-off cases are finally appearing in front of judges. This blog will look at a recent decision regarding a federally regulated workplace lay-off and a recent decision regarding a provincially regulated workplace lay-off.

Federally regulated employers need to have a contractual provision to lay-off their employees

Northern Air Charter (PR) Inc v Dunbar (2023 ABKB 171), was an appeal of a trial judge’s decision that Michael Dunbar had been wrongfully dismissed by Northern Air Charter (PR) Inc. (Northern Air)

In this case, Dunbar worked as a pilot for Northern Air since 2014. During his time working for Northern Air, Dunbar signed a few employment contracts, none of which had a lay-off provision. Northern Air did have an “Employee Handbook,” which was not referenced in Dunbar’s employment contract. The employee handbook explicitly stated that it “does not represent a contractual agreement.” On June 30, 2016, Dunbar was called and told that, due to downsizing, Northern Air had to lay him off. Dunbar had to give all company material back to Northern Air, he lost access to the website, and his colleagues were told that he was no longer employed with Northern Air. When Dunbar’s lawyer took the position that he had been terminated, Northern Air responded that he had been laid off. After starting action against Northern Air, Dunbar rejected their “recall of employment” which was sent around three months after his “lay-off.”

The Court of King’s Bench of Alberta dismissed Northern Air’s appeal of the trial judge’s decision that Dunbar had been wrongfully dismissed. The court ruled that the Canada Labour Code (CLC) does not prevent an employee from seeking a remedy under common law. The CLC creates an alternative to common law. Therefore, if Dunbar had sought a remedy under the CLC, Northern Air could have used its lay-off defence. The court also held that since there was no explicit clause in Dunbar’s contract regarding lay-offs, they could not lay-off Dunbar. The court also noted that the way Northern Air ended the employment relationship, showed more of an intention to terminate Dunbar. The court also found that Dunbar did not fail to mitigate damages by declining Northern Air’s recall. The court found that a reasonable person would have accepted such an offer after making a claim against their employer.

Provincially regulated employers need a contract provision to lay-off their employees

Pham v. Qualified Metal Fabricators Ltd. (2023 ONCA 255) was an appeal of a trial judge’s decision to dismiss, by summary judgment, Binh Viet Pham’s claim of being wrongfully dismissed by Qualified Metal Fabricators Ltd. (the employer).

In this case, Pham worked as a welder for the employer for almost 20 years. Due to the COVID-19 pandemic, on March 23, 2020, Pham and other welders were laid off. Although the temporary lay-off was only supposed to last until June 19, 2020, the end date was constantly getting extended. Pham never consented to these extensions. On December 22, 2020, Pham’s legal team informed the employer that they were bringing a claim for wrongful dismissal, which the employer replied to by stating that they plan to recall Pham soon. Pham received a new job by the time the employer sent a recall letter.

The Ontario Court of Appeal granted Pham’s appeal of the trial judge’s decision to grant summary judgment and dismiss Pham’s claim for wrongful dismissal. In the decision, the judge discussed constructive dismissal claims tied to layoffs. The judge noted that absent of an employment contract provision to the contrary, a unilateral layoff by the employer is a substantial change to the contract by the employer that can constitute a constructive dismissal. An employer cannot imply a right to lay-off their employees, even if they have done so before, without an express term stating so in the employment contract. The judge also noted that an employee silently going into the lay-off does not mean that they consent to the changed terms of their contract. Finding that were issues requiring a trial, the Court of Appeal sent the action for wrongful dismissal back to the Superior Court.

Takeaways from these recent court decisions

Both decisions show that if an employer lays off an employee, without an expressed term in the employment contract allowing them to do so, they could face a constructive dismissal claim. A contractual lay-off provision needs to be compliant with the legislated maximum lay-off length. Though many employees never plan to lay-off their employees, the COVID-19 pandemic showed that the unexpected can happen.

Though these cases seem conclusive on lay-offs, they do leave the door open for future cases on the matter. The Northern Air decision leaves lay-offs as a defence if a federally regulated worker is seeking a Canada Labour Code remedy, like reinstatement with back pay. The Pham decision did not address whether the COVID-19 regulations, that extended lay-offs, have a role to play in a constructive dismissal decision.

How Suzanne Desrosiers Professional Corporation can help

Since these decisions are clear that you need a lay-off provision to be able to lay-off employees, we can help employers by drafting new contracts that have a lay-off provision. Our team of employment lawyers can also help employers navigate their ability to lay-off one or more of their employees. To contact one of our employment lawyers please call us at 705-268-6492 or email us at info@sdlawtimmins.com.