Temporary Layoffs After Waksdale: Guidance for Ontario Employers
The landmark decision in Waksdale held that one invalid termination clause in an employment contract can invalidate all of the contract’s termination clauses.[i] But does the same rule extend to layoffs? And how long can an employer “temporarily” lay off an employee before the layoff becomes a termination?
The Ontario Court of Appeal (“ONCA”) recently addressed these questions in Taylor v. Salytics Inc.
Context
Bruce Taylor (“Taylor”) was temporarily laid off by his employer, Salytics Inc. (“Salytics”). Taylor argued that his contract’s termination provisions were unenforceable and that, under Waksdale, this also made its temporary layoff provision unenforceable. Without a valid contractual right to lay him off, Taylor claimed that his “layoff” really amounted to a constructive dismissal.[ii]
Salytics conceded that its termination provisions were unenforceable but maintained that the temporary layoff provision was separate and remained enforceable.[iii] The dispute ultimately ended up being argued before the highest court in Ontario, which is ONCA. ONCA was tasked with deciding whether the invalid termination provisions also invalidated the temporary layoff provision.
The following issues were addressed on appeal:
- Does Waksdale invalidate a temporary layoff clause when another termination clause is invalid?
- Does putting a temporary layoff clause under a “Termination” heading make it a termination clause?
- When does a temporary layoff actually become a termination?
The ONCA ultimately dismissed the appeal and ruled in favour of Salytics.
Key Takeaways for Employers
Temporary Layoff Clauses Remain Distinct from Termination Clauses
The Court confirmed that temporary layoffs and terminations are distinct, as they are treated separately under the Employment Standards Act, 2000 (“ESA”). Under section 56 of the ESA, a layoff does not amount to a termination so long as it falls within the statutory requirements for a “temporary layoff.” This includes layoffs of up to 13 weeks in any period of 20 consecutive weeks where no recall date is specified, although certain layoffs may continue for longer where additional statutory conditions are satisfied. These include, for example, where the employer continues to provide substantial payments or benefits to the employee.[iv]
The Waksdale principle therefore does not extend to an otherwise valid temporary layoff provision because another termination provision in the employment contract is unenforceable.
The Court also clarified that the location of a provision within an employment contract is not determinative: “it is the substance that matters, not the form.”[v] In the present case, Salytics’ temporary layoff provision appeared under the heading “Termination.” However, the provision expressly contemplated only a “temporary lay-off” implemented in accordance with the ESA.[vi]
Employers should therefore ensure that their temporary layoff provisions are clearly drafted and comply with the requirements of the ESA, rather than relying on the provision’s location or label within the employment agreement.
Employers Require Contractual Backing to Temporarily Lay Off Employees
Importantly, the Court held that the ESA does not on its own provide employers the right to temporarily lay off their employees. Rather, it merely establishes the conditions under which an otherwise authorized layoff can remain temporary without becoming a termination. Citing Pham v. Qualified Metal Fabricators Ltd., the ONCA maintained that any unilateral layoff, “temporary” or not, will constitute a constructive dismissal if it is made without an express or implied contractual right.[vii]
Employers who want to preserve the ability to use temporary layoffs should therefore ensure that their employment agreements expressly provide for them.
Tying the Layoff Clause Directly to the ESA Can Protect Its Enforceability
Salytics’ employment agreement provided that any temporary layoff would be implemented “in accordance with the requirements of the ESA.”[viii] The Court placed significant weight on this language. By expressly incorporating the ESA and using the statutory term “temporary layoff,” the provision made clear that the parties intended any layoff to operate within the statutory framework governing temporary layoffs, rather than as a termination.
For employers, Taylor provides greater certainty surrounding the use of temporary layoffs, particularly where an employment agreement expressly provides for them in accordance with the ESA. While Waksdale remains applicable to termination provisions, employers can continue to rely on properly drafted temporary layoff provisions without an unrelated, unenforceable termination provision necessarily undermining their validity.
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[i] Waksdale v. Swegon North America Inc., 2020 ONCA 391 at para 10 [Waksdale].
[ii] Taylor v. Salytics Inc., 2026 ONCA 621 at paras 2-3 [Taylor].
[iii] Ibid at para 5.
[iv] Employment Standards Act, 2000, S.O. 2000, c. 41 at s. 56 [ESA].
[v] Taylor supra note 2 at para 34.
[vi] Ibid at para 27.
[vii] Ibid at para 14.
[viii] Ibid at para 27.