Case In Point
Ontario Court of Appeal Distinguishes Between Temporary Lay-off Clauses and Termination Clauses
Date: October 1, 2026
Taylor v. Salytics Inc., a recent decision of the Ontario Court of Appeal, provides welcome appellate confirmation that where an employment agreement expressly permits a temporary lay-off and the lay-off is implemented within the Employment Standards Act, 2000 (ESA) framework, the lay-off will not trigger a constructive dismissal, and therefore a termination of employment.
The decision also establishes that a properly drafted temporary lay-off clause is not a termination clause and can survive an unenforceable termination clause in the same employment agreement.
This ruling reminds employers that it is important to carefully review the temporary lay-off clause in their employment agreements to ensure it complies with the ESA. If the clause is non-compliant, a lay-off would likely be a constructive dismissal and expose the employer to financial liability for a common law wrongful dismissal award.
Background
When the employer experienced financial difficulties, the employee and employer mutually agreed to a temporary 20% reduction in the employee’s hours and salary. The employer’s financial situation subsequently worsened, and it implemented an ESA-compliant temporary lay-off, continuing to make the employee’s benefit plan payments, but paying him no income. After being recalled to his previous position, the employee claimed the lay-off constituted constructive dismissal and sought damages in lieu of 12 months’ notice. The application judge dismissed the claim, and the employee appealed.
Court of Appeal’s Decision
The Court dismissed the appeal.
ESA-Compliant Temporary Lay-offs Are Distinct From Terminations
The Court recognized that the legislative intent behind the ESA’s temporary lay-off provisions is to distinguish temporary lay-offs under section 56(2) from terminations of employment under section 56(1). Section 56(2) permits an employer to temporarily lay off an employee if certain express conditions are met: a lay-off of not more than 13 weeks in any period of 20 consecutive weeks; or a lay-off of more than 13 weeks in any period of 20 consecutive weeks but less than 35 weeks in any period of 52 consecutive weeks, provided one of the qualifying conditions in section 56(2)(b) is satisfied (such as continuation of the employee’s benefit plan payments). Lay-offs outside section 56(2)’s temporary lay-off framework are terminations for which written notice is required.
Properly Drafted Temporary Lay-Off Clauses Can Survive Unenforceable Termination Clauses
The employer conceded that the employment agreement’s for cause termination clause was unenforceable. However, the Court rejected the employee’s argument that under Waksdale v. Swegon North America Inc. the unenforceable for cause termination clause invalidated the temporary lay-off clause, holding that the lay-off clause was distinct from a termination clause and therefore was not automatically invalidated by the for cause termination clause.
Substance Prevails Over Form
The Court also confirmed that the placement of a temporary lay-off clause within a termination section does not determine its legal character. The analysis turns on the substance of the clause, not the heading it is under or its location within the agreement.
Key Takeaways for Employers
- In responding to downturns and navigating economic uncertainty, employers can rely on a clear, express clause permitting them to impose a temporary lay-off, provided the lay-off is also implemented in accordance with the requirements of the ESA.
- If a temporary lay-off clause is non-compliant with the ESA framework, a lay-off would likely be a termination and expose the employer to financial liability for a common law wrongful dismissal award.
- A properly drafted temporary lay-off clause is not a termination clause and it can survive an unenforceable “for cause” or “without cause” termination clause in the employment agreement.
- Headings in an employment agreement are not determinative because courts look to substance over form, but they should be used carefully to minimize ambiguity.
Please contact your Hicks Morley lawyer if you would like the temporary lay-off clause in your employment agreements to be reviewed to confirm that it is properly drafted and will not trigger a constructive dismissal, and therefore a termination of employment.
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