The Ontario Court of Appeal has released an important decision addressing temporary layoffs, constructive dismissal and the interpretation of employment agreements.
In Taylor v. Salytics Inc., 2026 ONCA 621, the Court confirmed that a properly drafted temporary layoff provision can remain enforceable even where other termination provisions in the same employment agreement are unenforceable.
The decision provides useful guidance for employees who are temporarily laid off and for employers seeking flexibility during periods of restructuring or reduced business activity.
What Happened in Taylor v. Salytics Inc.?
Barry Taylor had worked for Salytics Inc. for approximately 11 years.
His employment agreement contained language permitting Salytics to implement a temporary layoff in accordance with Ontario’s Employment Standards Act, 2000 (“ESA”).
In 2024, the company experienced financial difficulties. Mr. Taylor initially agreed to a temporary reduction in his hours and compensation. When the company’s financial circumstances worsened, he was subsequently placed on temporary layoff.
His benefits continued during the layoff.
Mr. Taylor commenced a legal proceeding alleging that the layoff amounted to a constructive dismissal and seeking damages in lieu of notice. He was later recalled to his full-time position.
The central issue was whether the temporary layoff provision in his employment agreement was enforceable.
What Did the Employment Agreement Say?
The wording of the employment agreement was central to the case.
At paragraph 27 of the decision, the Court reproduced the relevant section of the agreement:
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, 2000 and 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 wording is significant because the agreement dealt with three distinct concepts within the same section: termination for cause, termination without cause, and temporary layoff.
The parties accepted that the termination provisions were unenforceable. The dispute was whether that meant the temporary layoff provision was also unenforceable.
The Contract Contained Unenforceable Termination Language
Mr. Taylor argued that the temporary layoff provision should fall with the unenforceable termination language.
His position relied in part on the Ontario Court of Appeal’s earlier decision in Waksdale v. Swegon North America Inc., 2020 ONCA 391, which established that an unlawful termination provision can affect the enforceability of other termination provisions within the same employment agreement.
Mr. Taylor argued that the layoff clause formed part of the agreement’s termination provisions, particularly because all of the language appeared under the heading “Termination.”
The Court of Appeal rejected that argument.
The decision follows a series of appellate cases examining how Ontario courts should interpret employment agreements and termination provisions. We recently discussed another significant development in our review of the Court of Appeal’s ruling on “at any time” termination clauses.
Why the Temporary Layoff Clause Survived
The Court focused on what the temporary layoff clause actually did.
The temporary layoff clause specifically stated:
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.
Unlike the preceding language, this provision did not purport to limit an employee’s entitlements upon termination. Instead, it gave the employer a contractual right to temporarily lay off the employee, provided the layoff was implemented in accordance with the ESA. That distinction was critical.
The Court emphasized that the ESA itself distinguishes between a temporary layoff and a termination of employment. A layoff may eventually become a termination if it exceeds the statutory limits, but a temporary layoff that remains within those limits does not necessarily terminate the employment relationship.
As a result, the Court held that the temporary layoff provision was not transformed into a termination provision simply because it appeared under the heading “Termination.”
The unenforceability of the separate termination language therefore did not automatically invalidate the temporary layoff clause.
The Location of a Clause Is Not Determinative
The employee’s argument also relied on the fact that the temporary layoff language appeared within a section labelled “Termination.” The Court rejected an interpretation based simply on a heading or the physical location of a clause.
Employment agreements are interpreted as a whole. Courts will generally consider the substance and objective meaning of the contractual language rather than treating a heading as determinative.
This is an important drafting point for employers and an important interpretive point for employees.
For employers, it reinforces the value of carefully drafted employment contracts and workplace policies. For employees, it is another reason why the enforceability of an employment agreement cannot usually be determined by reading one sentence or heading in isolation. Employees considering a new agreement or reviewing an existing one can learn more about employment contract reviews.
Can an Employer Temporarily Lay Off an Employee in Ontario?
Not automatically.
This remains one of the most important points arising from the decision.
The ESA recognizes temporary layoffs and establishes circumstances in which a layoff does not immediately become a statutory termination. However, that does not necessarily give every employer a contractual right to temporarily lay off an employee.
At common law, a substantial unilateral change to an employee’s terms of employment can amount to constructive dismissal. As a result, an employee may be entitled to reasonable notice of dismissal, in accordance with their total remuneration. For an assessment of those entitlements, we have prepared a helpful and complimentary severance calculator, located here.
A temporary layoff imposed without contractual authority may therefore potentially amount to constructive dismissal even if the proposed layoff falls within the time limits contemplated by the ESA.
The significance of Taylor is that Salytics had expressly included a contractual right to temporarily lay off the employee.
Employers seeking to preserve that flexibility should ensure their employment agreements contain appropriately drafted language.
Employees who have been laid off should review the wording of their employment agreement before assuming either that the layoff is valid or that they have automatically been terminated.
What Does Taylor Mean for Employees?
For employees, Taylor highlights the importance of reviewing the specific language of the employment agreement after receiving notice of a temporary layoff. Employees should consider questions such as:
- Does the employment agreement expressly permit temporary layoffs?
- Is the temporary layoff language itself enforceable?
- Has the employer complied with the ESA?
- How long is the layoff expected to continue?
- Are benefits or other payments continuing where required?
- Has the employer also reduced compensation, hours, responsibilities or other important terms of employment?
- Has the layoff exceeded the period permitted by the ESA?
Where the employer did not have the contractual right to impose the layoff, an employee may potentially have a constructive dismissal claim. Employees should be cautious before resigning in response to a layoff. Constructive dismissal cases can be highly fact-specific, and an employee’s response to the employer’s conduct can affect the remedies that may be available.
For a broader explanation of the distinction, see our article Wrongful vs. Constructive Dismissal: What’s the Difference?.
What Does Taylor Mean for Employers?
For employers, the decision demonstrates the practical value of carefully drafted employment agreements.
A valid temporary layoff provision may provide important flexibility during periods of financial difficulty, restructuring or temporary reductions in business activity. The wording in Taylor is also instructive because the employer expressly tied its layoff right to compliance with the ESA.
However, employers should not simply copy the language from another agreement without considering the entire contract. Employment agreements should be drafted and reviewed as a whole, particularly given the continuing development of Ontario law concerning termination clauses.
Employers considering a temporary layoff should review:
- whether the employment contract authorizes temporary layoffs;
- whether the wording complies with employment standards legislation;
- whether the proposed layoff will remain within the applicable statutory limits;
- whether benefits must continue;
- whether other changes to the employment relationship create separate constructive dismissal risks; and
- whether the remainder of the agreement contains provisions that may affect enforceability.
Our employment contracts and policies practice assists employers with drafting and reviewing employment agreements, while our terminations and severance practice advises employers on restructuring, layoffs and dismissals.
We have also discussed the importance of written contracts in our guide, Do You Need Written Employment Contracts? A Guide for Employers.
Temporary Layoff vs. Termination: Why the Difference Matters
The distinction between a temporary layoff and a termination can have significant financial consequences.
A termination may trigger statutory notice or termination pay, statutory severance pay where applicable, and potentially common law reasonable notice.
A genuine temporary layoff, where contractually authorized and properly implemented, generally preserves the employment relationship rather than immediately ending it. However, if the layoff exceeds the ESA limits, or if the employer did not have the contractual authority to impose it in the first place, the employee may have additional rights.
Our article on termination pay, severance pay and reasonable notice in Ontario explains these different entitlements in greater detail.
Another Important Development in Ontario Employment Contract Law
Taylor is part of a broader series of recent Ontario Court of Appeal decisions dealing with employment contracts and termination rights.
For example, in Wigdor v. Facebook Canada Ltd., the Court recently addressed the enforceability of contractual provisions affecting restricted stock units following termination. We reviewed that decision in Wigdor v. Facebook: Ontario Court of Appeal Rules on RSUs and Termination Clauses.
Together, these decisions demonstrate that the precise wording of an employment agreement can have substantial consequences years after the agreement is signed.
Key Takeaway
The Ontario Court of Appeal decision in Taylor, provides useful clarification regarding the relationship between temporary layoffs and termination provisions in Ontario employment agreements.
The contract in Taylor contained unenforceable termination language, but it separately stated that a temporary layoff could be implemented in accordance with the ESA.
For employees, the decision reinforces the importance of reviewing the employment agreement and the circumstances of the layoff before deciding how to respond.
For employers, it reinforces the value of clear, current and carefully drafted employment contracts, particularly where the employer wishes to retain the ability to use temporary layoffs.
Pelsmakher Law advises employees and employers on temporary layoffs, constructive dismissal, employment agreements, severance and termination rights. Contact Pelsmakher Law to discuss your circumstances.
