In Taylor v Salytics Inc [Taylor], the Ontario Superior Court of Justice (“ONSC”) confirmed that a clearly drafted layoff provision can shield an employer from a constructive dismissal claim—even when the provision is embedded in an unenforceable termination clause.

The decision reinforces that not all provisions grouped under a termination clause are created equal. Where the substance of a layoff clause complies with the Employment Standards Act, 2000 [ESA], its placement within an invalid termination clause will not render it unenforceable.

This ruling is particularly timely as economic uncertainty continues to lead employers to consider cost-cutting measures, including temporary layoffs.

Background

The employee worked for the employer for approximately 11 years, most recently as a Senior Technical Consultant. In early 2024, amid company-wide financial difficulties, the employee agreed to a temporary 20% reduction in salary and hours. Three weeks later, the employer placed him on a full temporary layoff. During this period, he received no salary but remained on the employer’s benefits plan.

The employee sued for constructive dismissal, seeking damages in lieu of notice based on his pre-reduction salary. The employee relied on Waksdale v Swegon North America Inc [Waksdale], arguing that the termination clause should be read as a whole, and any invalid portion of a termination clause renders the whole termination clause unenforceable. He submitted that because his own “for cause” and “without cause” termination provisions violated the ESA, the whole termination clause is unenforceable, including the layoff provision within the clause.

ONSC Decision

The ONSC dismissed the claim, finding that the layoff provision was enforceable and the employee’s temporary layoff did not constitute constructive dismissal.

While other parts of the termination clause were invalid, this had no bearing on the layoff provision. The ONSC confirmed that a temporary layoff provision, if properly drafted and ESA-compliant, does not amount to a termination provision.

The ONSC relied on Waksdale to reaffirm that the substance of a provision—not its form—determines its enforceability. Just as a termination provision remains so regardless of where it appears in a contract, a layoff provision remains a layoff provision and is not invalid merely because it is housed within an unenforceable termination clause.

The layoff provision in this case was clear and compliant with the ESA. Additionally, the employee’s layoff lasted less than six months and his benefits were continued, in accordance with statute. As such, there was no constructive dismissal.

Although the ONSC found no dismissal occurred, it considered how damages would have been assessed had there been one. The ONSC held that he would have been entitled to damages based on his pre-reduction salary, noting that the temporary reduction was not a permanent change to the employment agreement and was only accepted to help preserve the role.

Key Takeaways for Employers

1. Invalid termination clauses do not automatically invalidate layoff provisions: Courts assess provisions based on their substance. A layoff clause will remain enforceable if it independently complies with the ESA, even if other parts of the termination clause do not.
2. Clearly drafted layoff provisions are crucial: A temporary layoff will constitute constructive dismissal if the employment agreement explicitly permits layoffs in accordance with the ESA. Employers should ensure their employment agreements include clear, legally compliant layoff language.
3. Damages calculated based on pre-reduction salary: Where an employee agrees to a temporary salary reduction to avoid job loss, courts are likely to calculate any constructive dismissal damages based on their original, full salary.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.