We previously blogged about the Ontario Superior Court of Justice’s (“ONSC”) decision in Taylor v Salytics Inc. [Taylor], which held that an unenforceable termination clause does not invalidate an otherwise properly drafted temporary layoff provision. The employee appealed and the Ontario Court of Appeal (“ONCA”) confirmed that a temporary layoff clause (that complies with the Employment Standards Act, 2000 [“ESA”]) is not invalidated simply because the agreement also contains an unenforceable termination provision, even where both provisions appear under the same heading in the employment agreement.

For employers, Taylor demonstrates how a well-drafted temporary layoff clause can withstand judicial scrutiny and preserve flexibility during periods of financial difficulty.

Background

The employee agreed to a temporary reduction in hours and pay amid the employer’s financial difficulties. As the employer’s financial situation worsened, it placed the employee on a temporary layoff, in compliance with the employment agreement and the ESA. The employee returned to work six months later.

The employee claimed that the layoff constituted a constructive dismissal and that he was entitled to termination-related damages. The employee relied on a principle from Waksdale v Swegon North America Inc and argued that the invalid termination clause also rendered the temporary layoff provision unenforceable.

The ONSC rejected that argument and dismissed the employee’s claim.

ONCA Decision

The ONCA dismissed the employee’s appeal and upheld the ONSC’s decision that the temporary layoff provision remained enforceable despite the invalid termination clause.

According to the ONCA, treating the layoff provision as a termination clause would conflict with the text and purpose of the ESA. The ONCA explained that the two provisions are separate, as the ESA expressly distinguishes between a termination of employment and a temporary layoff. A temporary layoff will not constitute a termination of employment if the employer complies with certain legislative requirements.

The ONCA also rejected the employee’s argument that the layoff provision should be treated as a termination clause because it appeared under the agreement’s “Termination” heading. The ONCA emphasized that employment agreements must be interpreted as a whole and that the substance of a provision, rather than its heading, determines its character. The temporary layoff provision did not become a termination provision merely because of its placement within the agreement. Accordingly, the layoff clause remained enforceable and the employee was not constructively dismissed.

Key Takeaways for Employers

• Contract for the right to temporarily lay off employees: While the ESA permits temporary layoffs, employers must use agreements with clear, legally compliant layoff language to exercise that right. Without such a clause, a unilateral layoff may amount to constructive dismissal.
• Review employment agreements regularly: Employers should review their agreements to ensure layoff language does not purport to provide less than the minimum standards under the ESA.
• Substance matters more than headings: A temporary layoff provision will not be treated as a termination clause merely because they appear near one another or under the same heading.

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

This information is not intended as legal advice.