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Ontario, Canada Court Confirms a Clearly Drafted Temporary Layoff Clause Can Protect Employers From Constructive Dismissal Claims
In Taylor v. Salytics Inc., 2025 ONSC 3461, the Ontario Superior Court of Justice considered whether a temporary layoff provision in an employment contract constituted a termination provision, and was therefore subject to the applicable principles established by earlier Ontario decisions related to the interpretation of termination language in employment agreements. The Court ruled that a valid temporary layoff provision is not a termination provision. This decision indicates that a contractual temporary layoff provision, when properly constructed, will not be invalidated simply on account of unenforceable termination language.
Background
The applicant was employed by the respondent employer for approximately 11 years, first joining as a Lead Developer and later moving to the position of Senior Technical Consultant in 2018. Due to the respondent’s financial difficulties, the applicant agreed to a temporary 20% reduction in hours and pay. Three weeks later, he was placed on a temporary layoff for six months during which he received no income, though his benefits continued. The applicant argued this temporary layoff amounted to a constructive dismissal. The respondent disagreed, taking the position that it was entitled to temporarily lay off the applicant pursuant to the terms of his employment contract. The contract contained a section labelled “Termination,” which stated as follows:
Termination
Salytics may terminate your employment at any time for cause.
Salytics may terminate your employment without cause at any time by providing you with the minimum notice, or pay in lieu of such notice, and any severance pay required by the Employment Standards Act, 2000and no more except in the event a lay-off is required within the first six (6) months of your employment without cause, you will be entitled to continue receiving salary up to the end of this six month period.
In the event a temporary lay-off is ever required, it may be implemented in accordance with the requirements of the Employment Standards Act, 2000.
The Applicant’s Argument
The respondent had conceded that the “for cause” termination language in the applicant’s employment contract was invalid, as it failed to recognize that an employee terminated for cause at common law may still have entitlements to termination pay, severance pay and benefit continuation where that termination does not meet the “willful misconduct” standard set out in the Ontario Employment Standards Act, 2000(ESA). The Ontario Court of Appeal has held that if part of a termination provision in an employment contract violates the ESA, then all the termination provisions in the contract are void.
The applicant argued that, as the layoff clause was also a termination provision, it too was invalid and unenforceable. This opened the door to his claim that the temporary layoff was a constructive dismissal and he was entitled to damages.
The applicant advanced several arguments as to why the temporary layoff provision was a termination provision, namely:
- It was included in the “Termination” section of his employment contract, suggesting the respondent categorized it as such.
- A unilateral layoff by the employer is generally considered a constructive dismissal at common law.
- Section 56(1)(c) of the ESA provides that a layoff amounts to termination unless it is temporary as outlined in section 56(2).
Decision
The Court dismissed the applicant’s claim and held the temporary layoff provision was not a termination provision. The Court emphasized that the placement of the layoff provision under the “Termination” heading was not determinative of its legal character. The Court reiterated that the focus must be on the substance of the provision, not its form or where it appears in the contract. The Court clarified that while a unilateral layoff by an employer constitutes constructive dismissal at common law, this applies only when there is no contractual clause permitting the employer to lay off the employee. When such a clause exists, and the layoff is implemented in accordance with its terms, it does not amount to constructive dismissal. The Court also found itself bound by ESA section 56(4), which explicitly states that a temporary layoff is not a termination.
Bottom Line for Employers
This case offers several important insights for employers:
- An enforceable temporary layoff provision will not be automatically invalidated by an unenforceable termination provision.
- The substance of a contractual clause is more important than its mere placement or heading.
- Employers should ensure any layoff provisions are clearly drafted and adhere strictly to the definitions and conditions for temporary layoffs as outlined in the ESA.
As always, employers are encouraged to have experienced employment counsel review their employment contracts regularly to ensure that they will afford them the (often significant) financial advantage that results from having clear and enforceable layoff and termination provisions.
*Anthony Fusco is a Summer Associate in Littler’s Toronto office.
