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Court Rules on Temporary Layoff Clauses
Amid a run of Ontario decisions striking down termination clauses, Taylor v. Salytics Inc. (2025 ONSC 3461) is a welcome win for employers. The Ontario Superior Court of Justice answered a question that matters whenever a business needs to manage costs in a downturn: is a temporary layoff provision in an employment contract a termination clause, subject to the same strict scrutiny that has voided so many termination provisions? The Court's answer was no. A properly drafted temporary layoff clause is not a termination clause, and it can survive even where the contract's termination provisions are unenforceable, shielding the employer from a constructive dismissal claim.
Two practical consequences follow. First, where the contract grants a clear, ESA-compliant right to lay off, placing an employee on a temporary layoff is not a constructive dismissal. Second, courts look at the substance of a clause, not its location, so a layoff provision is not turned into a termination provision merely because it sits under a "Termination" heading. The result is reassuring, but it depends entirely on having a clear, compliant, standalone layoff clause.
Planning temporary layoffs to manage a downturn?
Whether you can lay off without triggering a constructive dismissal claim turns almost entirely on your contract wording. Without a clear, ESA-compliant layoff clause, a layoff is generally a constructive dismissal at common law. Have your layoff language reviewed before you need to use it.
Call: 1-800-771-7882 Review My Layoff ClauseBackground: a layoff during financial difficulty
Mr. Taylor had worked for Salytics Inc. for about 11 years and held the role of Senior Technical Consultant. In early 2024, amid financial difficulties, he and the company agreed to reduce his hours and pay by 20 percent. About three weeks later, he was placed on a temporary layoff for roughly six months without pay, though his benefits continued, and he was recalled to work later in 2024.
Mr. Taylor claimed the layoff was a constructive dismissal. His contract contained a section headed "Termination" with three components: a for-cause provision, a without-cause provision tied to the ESA minimums, and a provision allowing a temporary layoff in accordance with the ESA. Salytics conceded that the for-cause language was unenforceable because it did not limit dismissal to the ESA's wilful misconduct standard. Building on that concession, Mr. Taylor argued, relying on Waksdale, that because part of the termination section was invalid, the entire section, including the layoff provision, should fall, which would make his layoff a constructive dismissal.
What the Court decided
A layoff provision is not a termination provision
The Court held that a valid temporary layoff clause is not a termination clause. A layoff pauses the employment relationship rather than ending it, and the ESA itself treats a temporary layoff that stays within its time limits as distinct from a termination under section 56. The strict scrutiny applied to termination provisions therefore did not apply.
Substance governs, not the heading
The Court rejected the argument that the layoff clause was a termination clause simply because it sat under a "Termination" heading. Form does not override substance; what matters is the actual wording and effect of the provision, not where it appears in the contract.
Waksdale did not reach the layoff clause
Because the layoff provision was not a termination provision, the Waksdale principle that one invalid termination provision voids the whole termination scheme did not apply to it. The conceded defect in the for-cause language voided the termination provisions but left the distinct layoff right intact.
No constructive dismissal
With a valid contractual right to lay off, exercised in accordance with the ESA, Salytics did not unilaterally change the contract, so there was no constructive dismissal. The claim was dismissed. The Court did consider damages in the alternative, but they did not arise because the layoff was valid.
"Temporary layoff provisions must be precise and compliant, but do not assume one invalid clause voids the entire agreement. This decision provides reassurance for employers who take the time to get their contracts right."
Christopher Achkar, employment lawyer and founder of Achkar Law
Key lessons for Ontario employers
Include a clear, ESA-compliant layoff clause
The right to impose a temporary layoff comes from the contract. An express, well-drafted clause that permits layoffs in line with the ESA is what protected Salytics, and it is what stands between an employer and a constructive dismissal claim when a layoff becomes necessary.
Without a layoff clause, a layoff is risky
At common law a unilateral layoff is generally a constructive dismissal. If your contracts do not clearly authorize temporary layoffs, you cannot safely rely on one in a downturn, and you may owe pay in lieu of notice for the layoff period.
Draft the layoff clause as distinct from termination
Taylor shows a layoff provision can survive even when the termination provisions fail, but that worked because the clause was a genuine, freestanding layoff right. Draft it as its own provision with its own ESA-compliant terms rather than folding it into termination boilerplate.
Do not rely on headings to do legal work
Courts look at substance over form. A label will neither save a non-compliant clause nor doom a compliant one, so make sure each provision says clearly and correctly what you intend, regardless of the section it sits under.
Follow the ESA's layoff timelines
A temporary layoff only stays a layoff, rather than becoming a termination, if it remains within the ESA's limits. Track the timelines carefully, because a layoff that runs too long can convert into a termination and trigger the very liability the layoff was meant to avoid.
Review contracts and avoid boilerplate
Generic templates often carry outdated or non-compliant language. Review your employment agreements, especially the termination and layoff sections, with current case law in mind, so you can rely on them when it counts.
Could your business lay off staff without a constructive dismissal claim?
Taylor shows the answer lives in your contract language. A review of your layoff and termination provisions tells you whether you can rely on a temporary layoff, or whether your wording would leave you exposed.
Book a Contract Review Or call us: 1-800-771-7882How Achkar Law helps employers
Achkar Law advises Ontario employers on layoffs, terminations, and the employment agreements behind them. We draft and review ESA-compliant layoff and termination provisions, advise on implementing temporary layoffs, defend constructive and wrongful dismissal claims, and provide training for HR teams and management.
Related resources
For the rule that one invalid part can void an entire termination clause, see our summary of Waksdale v. Swegon North America Inc. (2020 ONCA 391).
For how and why termination clauses fail in Ontario, see When Is a Termination Clause Unenforceable in Ontario?
For support with layoffs, terminations, and the contracts behind them, see our termination and layoff services.
Call us at 1-800-771-7882 for a confidential consultation.
The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Achkar Law Professional Corporation and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Achkar Law Professional Corporation. ©