The Ontario Court of Appeal has provided important guidance regarding an employer’s ability to temporarily lay off an employee without triggering a claim for constructive dismissal.
In Taylor v. Salytics Inc., 2026 ONCA 621, the Court confirmed that a clearly drafted contractual provision permitting temporary layoffs can displace the common-law rule that an employer generally cannot unilaterally lay off an employee. Importantly, the Court held that a temporary layoff provision does not become a termination provision merely because it appears under a “Termination” heading in an employment agreement.
What happened?
The employee, Barry Taylor, had been employed by Salytics Inc. for approximately 11 years. His employment agreement contained termination provisions, as well as a separate provision expressly permitting the employer to temporarily lay him off in accordance with the Employment Standards Act, 2000 (the “ESA”).
Taylor was temporarily laid off and, approximately six months later, recalled to work. During the layoff, the employer continued his benefits in accordance with the ESA. Taylor nevertheless claimed that the layoff amounted to constructive dismissal.
His argument was complicated by the fact that the temporary layoff provision appeared within a section of the employment agreement headed “Termination.” Taylor argued that the provision should therefore be treated as a termination provision. Since another termination provision in the agreement was unenforceable, he argued that the temporary layoff provision was likewise unenforceable.
The Court of Appeal confirmed that the temporary layoff provision was a valid contractual term and that the layoff did not amount to constructive dismissal.
Key Takeaways
- An employment agreement should expressly authorize temporary layoffs.
- A valid layoff clause will not protect an employer that fails to comply with the ESA.
- Temporary layoff clauses are distinct from termination provisions. A temporary layoff clause can remain enforceable even where it appears alongside termination provisions, or under a "Termination" heading.
Conclusion
This decision confirms that a carefully drafted temporary layoff provision can help employers maintain flexibility and avoid constructive dismissal claims when implementing temporary layoffs in accordance with the ESA.
The best time to review your temporary layoff provisions is before you need to rely on them. Review your employment agreements now to ensure your temporary layoff rights are clearly documented, enforceable, and supported by practices that comply with the ESA.
If you have questions about your employment agreements, contact an e2r® Advisor.