An Ontario Superior Court of Justice ruling has determined that temporary layoff provisions in employment contracts are not termination clauses and therefore remain enforceable even when other termination provisions in the same contract violate employment standards legislation.
The case involved B.T., a senior technical consultant who worked for Salytics Inc. for nearly 11 years before being temporarily laid off in March 2024. B.T. argued the layoff constituted constructive dismissal and sought six months’ pay in lieu of notice, claiming the temporary layoff provision was invalid because it appeared alongside other termination clauses that violated the Employment Standards Act.
Financial difficulties prompt layoffs
Salytics experienced significant financial challenges in 2024, with revenue dropping 60% from the previous fiscal year. In February 2024, the company approached B.T. about accepting a temporary 20% reduction in hours and corresponding pay cut. B.T. signed an agreement reducing his work week from 40 to 32 hours and his annual salary from $117,300 to $93,840, effective March 1, 2024.
Just three weeks later, Salytics implemented company-wide mandatory workweek reductions. Of the company’s 19 employees, six were placed on full temporary layoff with zero working hours, while 10 others had their workweeks reduced from five to four days. Only one employee in sales maintained full-time hours.
B.T. was placed on temporary layoff effective April 1, 2024, receiving no income from the company for six months while his benefits continued. He was recalled to full-time work on September 30, 2024, at his original salary.
Contract interpretation at centre of dispute
The employment contract B.T. signed in 2013 contained three clauses under a section labeled “Termination.” The first allowed termination for cause, the second provided for termination without cause with minimum Employment Standards Act notice, and the third 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.”
Both parties agreed the termination for cause provision violated employment standards legislation, which under established case law would normally invalidate all termination provisions in the contract. However, they disagreed on whether the temporary layoff clause qualified as a termination provision subject to this rule.
B.T. argued the layoff provision was a termination clause because it appeared under the “Termination” heading and because layoffs constitute constructive dismissal at common law. He relied on section 56 of the Employment Standards Act, which defines termination to include laying off an employee “for a period longer than the period of a temporary lay-off.”
Court applies substance over form test
The court rejected B.T.’s arguments, applying the principle from Waksdale v. Swegon North America Inc. that courts must examine the substance of contract provisions rather than their placement or headings.
“The placement of the provision is irrelevant, the issue is not where in the employment contract the provision is found, but whether it is, in substance, a termination provision,” the court stated.
The judge distinguished between unauthorized layoffs, which constitute constructive dismissal, and layoffs permitted by contract terms. “A lay-off is a termination when there is no clause in the agreement permitting the employer to lay-off the employee. When there is such a clause, the lay-off is not a constructive dismissal, and therefore not a termination.”
The court also relied on section 56(4) of the Employment Standards Act, which “specifically provides that a temporary lay-off is not a termination.”
Damages calculation considerations
Although the court found no constructive dismissal occurred, it addressed how damages would be calculated if it had ruled differently. B.T. sought compensation based on his original $117,300 salary rather than the reduced $93,840 rate he had accepted weeks before the layoff.
The court agreed B.T. would be entitled to damages based on his full salary, finding it would be “improper for the employer to rely on the reduced salary rate when the only reason Mr. Taylor accepted the reduced rate was to protect his job and the parties agreed that this reduction was meant to be temporary.”
The judge noted that allowing employers to use agreed-upon salary reductions to calculate statutory notice payments “would be inconsistent with the spirit and intent of s. 60(1) of the ESA,” which requires employers to maintain employee salaries during notice periods.
The application was dismissed, with the successful party awarded $15,000 in costs as previously agreed by both parties.
For more information, see Taylor v. Salytics Inc., 2025 ONSC 3461 (CanLII).
