Can a Temporary Layoff Clause Avoid Constructive Dismissal in Ontario?

Can Your Employer Legally Lay You Off Temporarily in Ontario?

Yes — but only if your employment contract contains a clear clause that expressly permits it and your employer follows the rules set out in the Employment Standards Act, 2000 (ESA). Without that contractual permission, a unilateral layoff is generally treated as constructive dismissal at common law, entitling the employee to damages in lieu of notice.

The Court of Appeal for Ontario recently addressed this issue in Taylor v. Salytics Inc., 2026 ONCA 621 (CanLII), confirming that a properly drafted temporary layoff clause can lawfully displace the common law default — even when that clause appears under a “Termination” heading in the agreement.

What Is Constructive Dismissal and Why Does a Layoff Trigger It?

Constructive dismissal occurs when an employer makes a significant unilateral change to the fundamental terms of employment, effectively forcing the employee out without calling it a firing. A temporary layoff is one of the clearest examples: since most employment contracts do not include the right to lay off, an employer who sends an employee home without pay is, at common law, treating the employment relationship as ended.

Ontario courts have consistently held — in cases such as Pham v. Qualified Metal Fabricators Ltd. and Elsegood v. Cambridge Spring Service (2001) Ltd. — that the right to lay off is not something courts will readily imply into a contract. It must be expressly agreed to.

What Did the Court of Appeal Decide in This Case?

The Court of Appeal dismissed the employee’s appeal and upheld the lower court’s ruling that the temporary layoff clause in the employment agreement was valid and did not amount to a termination clause. The employer had continued benefits during the layoff period, satisfying the ESA’s requirements.

The employee argued that because the layoff clause appeared under the contract’s “Termination” heading, it should be read as a termination clause — which would have triggered different ESA obligations and potentially invalidated the layoff. The court rejected this argument, applying the principle from Waksdale v. Swegon North America Inc. that contracts must be interpreted as a whole, with substance taking priority over form. A heading does not determine the legal character of a clause.

Does the ESA Treat Temporary Layoffs Differently from Terminations?

Yes — and this distinction was central to the court’s reasoning. The ESA draws a clear line between terminations under section 56(1) and temporary layoffs under section 56(2). Importantly, section 56(4) of the ESA explicitly states that a temporary layoff is not a termination. These are separate legal concepts with different rules and consequences.

A layoff clause that incorporates the ESA’s temporary layoff requirements operates in this distinct statutory space. The court confirmed that such a clause does not become a termination clause simply because it is grouped with termination provisions in the contract document.

Does the Location of a Clause in a Contract Change Its Legal Meaning?

No — at least not on its own. The court reaffirmed that employment contracts must be read as a whole, and that headings are not determinative of a clause’s legal effect. This is consistent with the approach the Court of Appeal took in Waksdale, where it held that an illegal termination clause could taint other parts of a termination provision even if they were drafted separately.

Here, the reverse argument was made: the employee claimed that a valid layoff clause became a termination clause because of its heading. The court declined to apply that logic. What matters is what the clause actually does, not where it sits on the page.

What Conditions Must an Employer Meet for a Temporary Layoff to Be Lawful?

For a temporary layoff to avoid triggering constructive dismissal, the employer generally must satisfy two requirements. First, the employment agreement must contain an express clause permitting temporary layoffs in accordance with the ESA. Second, the employer must actually comply with the ESA’s conditions — which include rules about the duration of the layoff and, in many cases, the continuation of benefits.

In this case, benefits were continued throughout the layoff period, which was a key fact supporting the court’s conclusion. Employers who skip either step — the contractual authority or the ESA compliance — remain exposed to constructive dismissal claims. Our Ontario employment lawyers regularly advise both employees and employers on whether a layoff has been carried out lawfully.

What Should Employees Do If They Have Been Laid Off?

Whether a layoff is lawful depends heavily on the specific wording of your employment contract and the steps your employer took. Not every contract contains a valid layoff clause, and not every employer follows the ESA’s requirements even when a clause exists. Employees who have been placed on a temporary layoff should review their contract carefully — ideally with legal help — before deciding how to respond.

If you are in the Hamilton, Burlington, or Oakville area and have questions about a layoff, our team handles wrongful dismissal matters and can help you understand your options. An employment contract review before a dispute arises is also worth considering if you want to understand what your agreement actually permits.

Questions and Records to Discuss with a Lawyer

• Does your employment contract contain an express clause permitting temporary layoffs, and does it reference the ESA?
• Did your employer continue your benefits during the layoff, and for how long?
• How long has the layoff lasted, and has your employer communicated a return-to-work date?
• Were you given any written notice or documentation at the time of the layoff?
• Have you received any changes to your pay, role, or responsibilities alongside the layoff?

If you have been laid off and are unsure whether your rights have been respected, the team at UL Lawyers is available to discuss your circumstances — reach out through /connect.

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This article is automated commentary on a public court decision and is for general information only — not legal advice. Decisions rely on facts unique to each case. If you are affected by a similar issue, contact a lawyer for advice specific to your situation.